IP: Why leadership by the U.S. government is vital to increased investment in the technologies of tomorrow (3/07/1999)

[Dave Farber <farber@cis.upenn.edu>]

>
>Published Sunday, March 7, 1999, in the San Jose Mercury News
>
>Why leadership by the U.S. government is vital to increased investment in
>the technologies of tomorrow
>
>BY JOHN DOERR, ART LEVINSON
>AND JIM BARKSDALE
>
>A funny thing happened on the way to the new millennium: The American
>economy hit its best stride in 20 years. Unemployment is at low levels not
>seen since the 1960s. Inflation is nearly non-existent. The stock market is
>booming. The federal government is actually running a surplus. Just five
>years ago, predictions of such a rosy scenario would have been dismissed as
>the fantasy of a pie-eyed optimist, or perhaps a venture capitalist. But in
>the age of the new economy, an age defined by extraordinary advances in
>technology, the impossible has become reality.
>
>Today, new-economy businesses, including the microchip, personal computer,
>Internet and biotechnology industries, are responsible for more than 40
>percent of U.S. GDP growth. More than 8 million Americans are employed in
>high tech, with salaries averaging nearly 70 percent above the national
>average. With stock options and purchase plans distributed generously to
>most employees, these leading-edge companies have achieved significant
>levels of employee stock ownership while delivering outstanding returns to
>investors. Advances in technology have significantly improved our quality
>of life, with life-saving drugs, innovative medical devices, superior
>surgical techniques and literally a communications revolution.
>
>At the Technology Network (TechNet), a network of the new economy's leading
>companies, we know firsthand that it was the research and development of
>yesterday that made possible the economic successes of today. By providing
>the initial critical spark for innovation, federal investment in basic
>research has ignited whole new industries. Basic research is designed to
>answer fundamental questions in science, engineering and medicine, without
>specific applications in mind.
>
>Thirty years ago, federally supported research into the nature of genetic
>material conducted at Stanford University and UC-San Francisco led to the
>discovery of recombinant DNA technology -- the foundation of genetic
>engineering and of today's biotechnology industry. It was federal
>investment in research at the Defense Advanced Research Projects Agency
>(DARPA) in the 1960s that provided a technological launch pad for the
>Internet. And in the 1980s, scientists at the National Science Foundation's
>supercomputer center at the University of Illinois perfected the graphical
>Web browser, transforming the Internet from a research tool into a mass
>medium and creating hundreds of billions of dollars in new wealth.
>
>The end of the Cold War removed much of the urgency that once drove federal
>investment in research. Between 1987 and 1995, federal funding for research
>decreased an average constant dollar rate of 2.6 percent per year,
>according to the Council on Competitiveness. Today, the governments of
>Japan and Germany invest twice as much (as a percentage of GDP) on research
>as the American government.
>
>To keep the new economy growing into the next century, our industry and the
>nation must reverse this trend. TechNet members -- more than 100 of the new
>economy's leaders -- have unanimously called for a joint commitment by
>government and industry to: (1) double federal funding for basic science,
>engineering and technology research over the next decade; and (2) enact a
>permanent research and development tax credit to spur increased corporate
>investment in long-term research and development.
>
>We believe the federal government should commit to consistent increases in
>funding for pre-competitive research across a range of disciplines and
>federal agencies. As the just-released report of the President's
>Information Technology Advisory Committee
>(<http://www.ccic.gov/ac/report>www.ccic.gov/ac/report) points out, the
>federal role is irreplaceable in ensuring sufficient investment in
>critical, long-term research for which no market advantages are
>foreseeable. Top priorities for funding increases should include DARPA and
>the National Science Foundation, which provides 25 percent of all federal
>support for basic research at academic institutions through grants for
>pre-competitive basic research.
>
>A strengthened federal commitment to basic research is among the most
>effective ways to invest in the American education system, by providing
>hands-on scientific training to students in colleges and graduate schools
>and developing new generations of technology industry leaders. TechNet is
>calling for a doubling of the number of technically trained undergraduate
>and graduate students in America's universities.
>
>Renewed investment by the government must be matched by a renewed
>commitment to R&D by corporate America. For almost 20 years the R&D Tax
>Credit has provided a powerful incentive for increasing research by
>American industry. A 1998 study by Coopers & Lybrand indicated that the
>Credit provides a 31 percent return on investment -- more than twice the
>rate of typical incentives.
>
>However, the credit's history of on-again, off-again limited extensions has
>prevented it from achieving its full effect. Uncertainty over whether the
>credit will be extended every year makes it more difficult for firms to
>invest in longer-term research. This is particularly true in the biotech
>and medical technology industries, where R&D is a lengthy and expensive
>process typically spanning five to twelve years from initial testing to
>market. In fact, the lapse in the R&D Tax Credit between July 1995 and June
>1996 forced biotechnology companies to defer clinical trials that otherwise
>would have been performed.
>
>Coopers & Lybrand estimated that a permanent R&D Credit would result in an
>additional $41 billion in R&D investment between 1998 and 2010.
>
>The long-term research of the past was essential to the creation of the new
>economy: It was the golden goose that spurred the American economic
>miracle. The high-tech industry and the federal government must make a
>joint commitment today to a strengthened national R&D policy to ensure that
>the golden goose stays healthy into the next century.
>
>
>John Doerr is co-chair of TechNet and partner of Kleiner Perkins Caufield &
>Byers. Art Levinson is CEO of Genentech. Jim Barksdale is co-chair of
>TechNet and CEO of Netscape Communications Corp.
>
>
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