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The Great American Exodus: U.S. Industry Gives Up On Federal R&D Enterprise
By Richard McCormack
editor@manufacturingnews.com
When it comes to science and technology, American industry has turned its back on the federal government.
Or maybe vice versa.
The "National Science and Technology Summit" was held in Oak Ridge, Tenn., on Aug. 18 - 19. The intention was to "examine the health and direction of the United States' science, technology, engineering and mathematics enterprises." The event was sponsored by the White House Office of Science and Technology Policy (OSTP), and was mandated by an act of Congress.
The vast majority of the 250 attendees at the "summit" were from federal agencies, national laboratories that rely on the federal government for funding, and universities and non-profit research groups that also depend on federal funding.
U.S. industry did not attend.
The summit's full title was, "Science, Technology and American Competitiveness: Progress and Direction Forward." If top U.S. government officials wanted to gauge the direction of the U.S. R&D enterprise, they need to look offshore, because that is where U.S. industry has gone.
Only 23 of the 250 conference attendees were classified as being from "industry," and six of those individuals were speakers at the event. Excluding them, the people from their companies who they brought with them, and attendees who work for foreign companies (Siemens and Michelin), the only leading American-owned corporations voluntarily sending attendees to the federal government's R&D "summit" were Cray Inc., United Technologies, Whirlpool and Burns and Roe.
That was it.
But two of the four "industry" representatives in attendance -- Cray Inc., and Burns and Roe -- do a majority of their business as federal government contractors.
So of the 250 attendees at the federal government's science and tech "summit" only two -- 0.8 percent -- were from large industrial companies in the private sector. There was no one from General Motors, Ford, Intel, Motorola, General Electric, Northrop Grumman, Cisco Systems, Google, Microsoft, Alcoa, Boeing, Kodak, Goodyear or any other American industrial or technological giant.
In going through the attendance list, about 100 of the 250 attendees worked for the federal government. At least 60 represented universities. There were more people attending the conference from the embassies of Japan (three) and China (three) than there were from any non-invited major American corporation. The French, Korean and British governments all sent representatives.
Two of the industry speakers said that the federal government's R&D enterprise has gone amiss -- that it was fine for the last century, but it no longer works in an era of globalization. Like the American workforce, the federal government is stuck in the United States, but industry is not.
The federal government can fund all the R&D it wants, but if the United States innovation system discourages an invention from being produced into a commercial product, then American industry will not generate the taxes "that fund the federal investment in research," said Susan Butts, senior director of external science and technology programs at Dow Chemical Co.
There is a big difference between research and development and innovation, said Butts in a paper accompanying her presentation. The federal government is focused almost entirely on basic research that advances knowledge. But research is neither invention nor is it innovation. "Innovation is, quite simply, an invention that gets out into the world," Butts told the federal officials.
This distinction has been lost on U.S. policymakers and government program managers. A noisome and tedious ideological debate about the proper role of federal investment in R&D that avoids the creation of economic wealth has made the federal research enterprise irrelevant. As a result, the private sector, which funds 70 percent of the nation's R&D, is moving quickly to places that have no such reservations about supporting and rewarding invention and innovation.
For the last half of the 20th century, the United States had all the ingredients needed for success: the world's leading scientists and engineers; cutting-edge research; state-of-the-art research equipment; protection of intellectual property; public-private partnerships to turn research into invention; favorable tax, trade, employment and environmental policies; and access to savvy customers that demanded new products with innovative features, said Butts.
But while other countries emulated these practices, the United States innovation enterprise did not innovate. A cavalier U.S. Congress has not extended the R&D tax credit, which expired at the end of 2007. Does it matter? It does to industry, which can easily leave the United States to conduct research where there are tax benefits.
"As we look ahead to the 21st century, the United States will face growing challenges to retain its industrial base due to the rapid growth of foreign markets and the increasingly favorable business and innovation climate developing in other parts of the world," said Butts. In choosing the location of a new research facility, the two most important considerations are its proximity to highly qualified R&D personnel and to a growing market of demanding customers. Both conditions exist in China and India.
Wayne Johnson, director of worldwide strategic university customer relations at Hewlett-Packard, told the summit that the situation might be even worse than they realize. Research being sponsored by the United States government is now benefiting foreign corporations. "Global competitors benefit immensely from R&D performed in the U.S. as well as related business and design models developed within the United States," he wrote in a paper that accompanied his presentation. "This is further complicated by the fact that we in the U.S. find ourselves in competition not only with individuals, companies and private institutions, but also with governments and mixed government-private collaborations."
The United States faces challenges in every facet of its R&D and innovation system, said Butts. "The impending workforce gap in the U.S. is a disincentive to new R&D investment here," she noted. The federal government needs to increase funding for doctoral students in the physical sciences and engineering by increasing federal funding for research in these fields. It should change immigration laws to enable qualified U.S.-educated foreign scientists to remain in the U.S.
Companies don't want to fund research at American universities because universities "assert ownership and strong control" over inventions that result from the work, said Butts. Foreign universities "readily assign ownership and/or control of inventions to the corporate sponsors. The less favorable access to inventions is a disincentive to engage in research partnerships with U.S. universities and encourages research investment in countries with more industry-friendly policies and practices for sponsored research."
The federal government has changed its policies with regard to companies having access to state-of-the-art research equipment such as the Department of Energy's synchrotron light sources. Those changes "could diminish" the benefit of public funding of this equipment, said Butts.
Public-private research partnerships that involve high-risk, high-reward technology are on the wane in the United States. There are numerous areas of technology development that a single company cannot pursue on its own. "Many governments in developed economies provide direct research and development funding to companies or consortia awarded on a competitive basis," said Butts. But the United States has effectively killed its only modest program in government aimed at improving the competitiveness of U.S. industry, the Advanced Technology Program. It has done this just as Europe is ramping up its $50-billion Seventh Framework initiative.
The tax and business climate in the United States is no longer conducive to doing research. "The U.S. is one of the few nations concerned with R&D that does not have a permanent and significant R&D tax credit," Butts noted. "The uncertainty of the current tax credit, which has been allowed to expire nine times since first enacted by Congress in 1981 negates the incentive value of the credit. An uncertain benefit will not foster future investment." The U.S. R&D tax credit, which expired nine months ago, is also not very effective, providing a small benefit compared to what other countries offer. It is based not on total R&D expenditures but on an increase over the previous year's investment.
"Companies will take all of the factors in the innovation climate into account in deciding where to conduct R&D," Butts told the government attendees at the summit. "The balance used to favor research investments in the U.S. However, innovation barriers that have developed in the U.S. and advances in other parts of the world are tipping the balance toward investment offshore."
Johnson of Hewlett Packard used the event as yet another opportunity to implore the federal government to start going to bat for U.S. industry. Foreign companies are being provided assistance to gain competitive advantage over U.S. industry. They are adopting technical standards that lock out U.S. firms "and thwart market entry by non-national interests," Johnson said. "Many other non-trade barriers exist which stifle competition. Many times, private U.S.-based interests find themselves in direct competition with foreign governments themselves and they have little recourse when aggrieved. U.S. policy makers need to better understand the consequences of these activities and the ways such barriers stifle global innovation while at the same time eroding U.S. competitiveness."
Editor's note: The lack of participation of industry in the White House summit is a clear indication that the private sector has given up on trying to get the federal government to act. Industry organizations have issued countless major reports over the past five years describing the problems at hand along with recommendations on how to avoid an economic meltdown. The Defense Science Board, the Council on Competitiveness, the Alliance for Science and Technology Research in America, the United States Business and Industry Council, dozens of industry trade groups such as the American Electronics Association, and even President Bush's own Council of Advisors on Science and Technology have issued stern and alarming reports on the deteriorating competitiveness of U.S. industry and its economic implications. The National Academies issued its study "Rising Above The Gathering Storm" in 2005. Literally nothing has been done. The federal R&D enterprise is sitting alone in its own sandbox with its expensive toys, and the "gathering storm" arrived.
The federal government's August 2008 R&D "Summit" should serve as an embarrassing wake-up call. Two people showed up from industry. Why pursue R&D if American companies are no longer there to take advantage of it or, worse, if the R&D is benefiting foreign competitors whose governments are then helping those companies undermine U.S. industry?
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