IP: Exploring Alternative Models of Federal Support for

[Dave Farber <farber () central cis upenn edu>]

TRENDS IN INDUSTRIAL R&D


After World War II, as the Federal Government's role in research funding
expanded, so did industrial involvement in R&D. Until 1980, the Government
supported a larger share of the total national R&D endeavor than industry;
it was not until 1982 that the business community first funded over 50
percent of the total. Various industries, particularly defense and
space-related companies became dependent on Federal funding.  Between 1955
and 1965, the Government funded an average 55 percent of the research and
development performed in industry. The following ten years found a
decreasing amount of the total R&D undertaken by industry to be supported by
Federal funds, an average of 46 percent. This trend continued between 1975
and 1985 with the Government financing an average of 33 percent of the R&D
work performed in the business sector.


The source of research and development funding is important because it
provides insight into the type of innovation that might be anticipated in
the long term. The Federal Government generally funds R&D to meet the
mission responsibilities of the Federal departments and agencies. It also
supports work in areas where the Government is the primarily user of the
results or where there is an identified national need for R&D not being
performed in the private sector. On the other hand, industry makes the new
products sold in the


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marketplace which generate profits or develops the new processes which can
be applied to make manufacturing more productive. Increases in R&D spending
on behalf of industry tend to be directed toward the development of
commercial goods and services to meet or create market demand.


There have been commercial successes resulting from Government- financed
research and development. However, studies show that innova- tions are most
successful when the R&D processes are tied to market demand,(9) and it is
industrial activities which would be expected to be ori- ented toward the
marketplace . rrhus, the extensive involvement of the Federal Government in
the funding of the national R&D endeavor created an environment in which
Government priorities have
influenced industrial development. Certain industries, in part, create ca-
pabilities and pursue avenues of research to reflect Government needs for
the provision of goods and services. Federal support for mission-related
research and development can have a significant impact on the scope and
direction of industrial activities in a manner different from that of
Federal support for general industrial competitiveness.


Much Federal support, prior to the mid 1980s, was for basic research with
the exception of funding for development in the areas of defense and space.
Various legislative initiatives have promoted this through tax credits for
increases in industrial research and for research in universities, changes
to the
antitrust laws designed to facilitate cooperative research, increased
Government funding for research, and policies to encourage cooperative R&D
between Federal laboratories and the private sector. rrhese activities have
been based upon the "linear" model of innovation which viewed technological
advancement as a series of sequential steps starting with idea origination
and moving through
basic research, applied research, development, engineering,
commercialization, and diffusion into the economy. Increases in Federal
funds at the basic research






**************************************************************** 9
Fernelius, W. Conrad and W. H. Waldo. Innovations Debt to Basic Research.
In: Chemtech, v. 13, Mar. 1983. p. 150.
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stage were expected to result in proportional increases in new products and
processes.


However, this linear concept as a basis for governmental initiatives is no
longer considered the most effective way of stimulating technological advance.
Technological progress is a dynamic process which is not necessarily linear.
An innovation may emerge without developing through these steps. Innovations
often occur that do not require basic or applied research or development; in
fact,
as stated above, most innovations are incremental improvements to existing
products or processes. In certain areas, such as biotechnology, the
distinctions between basic research and commercialization are small and
shrinking. In others, the differentiation between basic and applied research
is artificial. The
critical factor is the commercialization of the technology.


Reflecting the concentration on research promoted by Government policies and
programs, at least through the 1980s, American industry tended to pursue
science which is often aimed at the large breakthroughs in technology that
could create a new industry or revolutionize an existing one. However,
Robert Reich pointed out that "...such breakthroughs generally mean less to
a nation's economic or military might than the speed and success with which
they are absorbed, improved upon, and incorporated into new products and
processes"(10) Focusing on breakthroughs or large scale technologies also
ignored the fact that,
while research has shown that innovations resulting from R&D are the more
important ones, most innovations are actually incremental changes to
existing products and processes. It is the incremental improvements that can
make one company's product or service better than that of another firm. It
is what can increase the quality of a good or result in more efficient means
of production.
This is so critical that Ralph Gomory, then Senior Vice President for
Science and Technology at IBM, argued in 1987, ". . . in the areas where the
U.S. has not been competitive, it has lost, insofar as technical factors are
concerned, usually not to radical new technology, but to better refinements,
better manufacturing technology, better quality in an existing product."(1l)
Yet, at that
time, three-quarters of U.S. industrial R&D investment was directed at the
generation of products. In contrast, Japanese companies spent 75 percent of
their funds on process technologies.l2




***************************************************************** 10 Reich,
Robert B. The Rise of Techno-Nationalism. The Atlantic Monthly, May 1987. p.
68. See also: Executive Office of the President. Of~lce of Science and
Technology Policy.1995 National Critical Technologies Report. Washington,
March 1995. p. viii.


11 Gomory, Ralph E. Dominant Science Does Not Mean Dominant Product.
Research and Development, Nov. 1987. p. 73.


12 McCormack, Richard. Industrial R&D Forecast: "Disturbing." New Technology
Week, Dec. 32, 1991. p. 4. See Also: National Academy of Engineering.
Mastering a New Role, Shaping Technology Policy for National Economic
Performance. National Academy Press, Washington, 1993. p. 76.
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However, some things began to change toward the close of the 1980s. As new
technologies were developed and the effects of technology expanded, it
became increasingly expensive to perform R&D. The expanding costs of R&D
were juxtaposed with shareholder demands for short-term profits. Outside
sources began to be looked to as a way to obtain the results of research,
particularly basic research, as well as to reduce costs. This has been
accompanied by the growth in Government-industry, industry-industry,
industry-university, and Government-industry-university partnerships,
oftentimes promoted by congressional legislation. The Bayh-Dole Act of 1980,
the National Cooperative Research Act of 1984, the National Cooperative
Manufacturing Act of 1993, the Stevenson-Wydler Technology Innovation Act of
1980, the Federal Technology Transfer Act of 1986 (as amended), the Economic
Recovery Tax Act of 1981 (as amended), the Omnibus Trade and Competitiveness
Act of 1988, the Small Business Innovation Research Act of 1982 (as
amended), and others have facilitated these cooperative activities.


Some of the figures reflect these changes. Industry has funded an increasing
percentage of the total amount of R&D performed at universities since the
early 1960s. Throughout most of the later 1960s and 1970s, the business
community was the source of 3 percent of total R&D performed at academic
institutions. By the mid 1980s, this had risen to 6 percent and in the 1990s
to 7 percent.


In 1982, industry for the first time funded over 50 percent of the total
national R&D effort; since 1992, industry has funded 59 percent of the
country's R&D, while the Government has funded 36 percent. In addition, the
industrial community has displayed a decreasing dependence on Federal
funding for internal research and development. Between 1985 and 1990, the
Government financed an average 31 percent of the work performed by industry;
between 1990 and 1994, the Government financed only 22 percent. In 1994,
Federal dollars are only 19 percent of the funding used in industrial R&o
and was primarily concentrated in aerospace and communications
equipment.(l3) This is in contrast to figures discussed above for earlier years.


While the private sector is funding a greater portion of the country's total
R&D endeavor, in recent years there has been a decline in the rate of growth.
The average annual increase in industrial spending on R&D (in constant
dollars) was 3 percent from 1985 through 1994. In both 1993 and 1994, there
was a decrease in actual (constant dollars) industrial funding for R&D.
[However, it should be noted that annual growth rates vary widely across
industries: chemicals, drugs, and medicines have had largest growth since
mid 1980s.(l4) This contrasts with an average annual growth rate of 7
percent between 1375


************************************************************** 13 U.S.
National Science Foundation. National Patterns of R&D Resources: 1994.
Washington, 1995. p. 20.


14 Ibid, p. 89-90.






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and 1985. The rates of increase between 1965 and 1975 were an average 3
percent per year and 8 percent between 1955 and 1965.


Despite the decrease in the portion of Federal funding American industry
utilizes for R&D, the fig- ures still are high- er than those found in
Germany and Japan. Since 1990, while an average of 78 per- cent of the work
undertaken by the business communi- ty was financed by industry in the
United States, international com- parisons show that,   in Germany, the
private sector financed an average 89 percent of the R&D performed within
companies, and, in Japan, the figure is an average 99 percent.(15)


COMPOSITION OF INDUSTRIAL R&D


Industrial support for R&D is important, in part, because research and
development contribute to economic growth by their impact upon productivity.
Over the years, various experts have studied the effects of R&D spending on
the productivity increases of firms or industries. As summarized by Edwin
Mansfield, the results indicate that ". . . R&D had a significant effect on
the rate
of productivity increase in the industries and over the time periods that
have been studied.nl6 Recent work supported by the Department of Commerce
has also shown that advanced technologies are associated with higher
manufacturing


**************************************************************** l5
Organisation for Economic Co-operation and Development. Directorate for
Science, Technology and Industry. Main Science and Technology Indicators.
Paris, 1995. p. 30.


16 Mansfield, Edwin. Economic Growth or Stagnation: The Role of Technology.
National Planning Association Newsletter, Looking Ahead and Project
Highlights. Sprin~ 1980. p. 3.








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productivity, which is in turn related to employment growth.(l7) In
addition, productivity growth in an industry or in a fir~ is directly and
significantly related to the amount spent previously on R&D in that industry
or company.(18)


Another factor which apparently plays a role in eco- nomic growth is the
composition of
the research which is performed in industry. Basic research, that re- search
undertaken
to gain knowledge and understanding of the fundamental aspects of the uni-
verse, is the foun- dation of many important new innovations. How- ever, the
payoff for basic research is generally long in coming, the results sometimes
not marketable, and the rewards often diffused among many users.
Yet, while basic research is usually performed with little certainty that it
will produce results in the future, it appears that there is a significant
relationship between the amount of basic research a firm conducts as part of
total R&D spending and increases in firm productivity.
(19) Consequently, investments in long-term research can contribute to the
growth of the firm and industry in general.


Changes in National Science Foundstion accounting procedures between 1985
and 1986, as they pertain to the breakdown of industrial spending between
basic research, applied research, and development, make comparisons with
previous years difficult and inaccurate. Looking only at recent figures, the


************************************************************* 17 U.s. Dept.
of Commerce. Economics and Statistics Admin. Technology, Economic Growth and
Employment: New Research from the Department of Commerce. Washington, Dec.
1994. p. 10-11.


18 Mansfield, Edwin. How Economists See R&D. Harvard Business Review,
Nov.-Dec. 1981. p. 98.


19 Mansfield, Edwin. New Findings in Technology Transfer, Productivity and
Economic Policy. Research Management, Mar.-Apr. 1983. p. 16. See also:
Mansfield, Edwin. Academic Research and Industrial Innovation. Research
Policy, v. 20, 1991.




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average annual growth rate in industry funding for basic research between
1986 and 1994 was approximately 7 percent. This however, includes a
53-percent rise between 1990 and 1991; if this large increase is deleted
from the calculations, there is no growth during that time period. In 5 of
the 8 years, there was either
no growth in funding or a decrease in support, including a 2-percent
decrease in both 1993 and 1994.


For every dollar industry spent on R&D in the 1990s, an average 8 percent
went to basic research. This is in contrast to an average 23 percent for
applied research, and 69 percent for development activities. The average
annual growth rate of industry funding from applied research between 1986
and 1994 was 2 percent. In 4 of the 8 years, there was either no growth or a
decline in support.
During this time, industrial spending on development averaged an annual
growth rate of 3 percent. As with funding for applied work, there has been
no discernable increase in support between 1992 and 1994.




FEDERAL R&D--CURRENT STATUS


Today, a Federal role in funding R&D is firmly accepted as an important
national policy. Most policymakers agree that the Federal Government has had
the dominant responsibility for funding basic research. The current set of
appropriation bills emerging from Congress for FY1996 reflect this view,
given that basic research may receive a slight increase overall from FY1995,
although the amounts are generally somewhat less than were requested. In
many cases, however, applied research appropriations are considerably lower
than FY1995, and are well below those requested by the Administration. This
divergence reflects the long-standing R&D policy debate about where Federal
support of R&D should end. Whereas the Administration is continuing to
pursue a policy of increasing Federal support for applied research which
potentially is of direct
interest to the private sect~r, the Republican majority in Congress believes
that
this policy is an unwarranted interference in the marketplace.


There are aspects of this issue, however, which make the characterization of
the current debate over Federal R&D policy less clear than it appears.
First, there are notable exceptions in congressional actions reducing
funding for applied research. Current appropriations bills for defense and
applied health R&D are above last year's amounts. The space station, which
is an applied research project, is also enjoying substantial congressional
support. A second aspect is the definition of basic research. Within the
basic research accounts supported by the Congress, the scope of research
ranges from projects which search for the most fundamental secrets of nature
to those attempting to solve scientific problems essential for progress on
development or improvement of technologies and processes. In many instances,
there is no clear line marking the end of basic research and the start of
applied research, and a significant portion of the basic research funded by
Congress could indeed be classified as applied research. A third point
concerns funding of major Federal research facilities. The broad consensus
for Federal support of basic research does not appear to hold for these
facilities, particularly the Federal laboratory structure,
 
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even though a considerable amount of basic research is carried out at many
of these laboratories. There is currently substantial disagreement among
policy makers about how much of this laboratory structure should be maintained.




OUTLOOK


While total Federal R&D funding growth has been approximately steady since
the end of World War II, there have been notable shifts in emphasis within
the R&D portfolio. These shifts have been the result of major additions to
that portfolio and changes in the proportion of funds going to defense and
civilian R&D. In addition to the growth in total funding, there has been
growth in the number of Federal agencies funding R&D. Currently, 33 Federal
agencies support R&D at some level compared to about 17 in 1952. Funding
growth, however, appears to have stopped and is likely to decline for at
least several years. Pressures to reduce the Federal budget deficit are and
will continue to take a toll on Federal R&D funding which is a significant
fraction of the discretionary portion of the budget. While there is little
disagreement that R&D support is critical to the Nation's long-term future,
there is also an agreement among most policymakers that a closer look at
what we are funding is required.
The budget projections of both the Administration and Congress call for
reductions in several areas of R&D over the next five to seven years,
although there are substantial differences in what areas should be cut.


In addition to the budget pressures, the debate over what is appropriate R&D
for the Federal Government to support will also affect Federal funding
patterns. Besides halting the growth of Federal R&D funding, the new
majority in Congress has proposed to eliminate or reduce a variety of
collaborative R&D initiatives between the Federal Government and industry on
the grounds that the Government cannot pick technological "winners and
losers." These proposals, if approved, would halt a number of Administration
and congressional R&D initiatives and make other changes including


* The Administration's goal of 3 percent of GDP for total R&D national
investment (public and private). Total Federal investment will fall below 1
percent of GDP for the first since 1958 (It reached 2.2 in 1964, and has
hovered around i.2 percent since 1975);


* The Administration goal of shrinking the defense portion of Federal R&D
below 50 percent by 1998;


* Elimination of the Advanced Technology Program and reductions in the
Manufacturin~ Extension pro~rams at NIST;


* Termination of the Technology Reinvestment Project at ARPA, and
instructing ARPA to focus primarily on defense-related technologies;


* Reduction or elimination of a variety of collaborative Government and
industry manufacturing R&D initiatives; 
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* Elimination or reduction of funding for certain technology transfer
activities in Federal laboratories;


* Elimination or reduction of new programs to improve productivity in energy
use in industry, transportation and buildings, including renewable energy
programs within DOE;and


* Cessation of efforts to increase NSF's budget, with much of the increase
to go to "strategic research" in such areas as manufacturing, biotechnology,
materials science, computing, and communications.


Given these proposed congressional actions, it appears that basic research
will become a greater fraction of total civilian R&D funding as actions are
taken
to reduce civilian applied research and development funding. Among the
various functions, health research is likely to continue to take a larger
share of the Federal R&D dollar, while the energy and space research
share--outside of the space station--will probably decline. Further, with an
increasingly constrained budget outlook and strong policy disagreements,
there likely will be closer scrutiny of the actual research being funded and
its relationship to the missions
of the agencies doing the funding.




ALTERNATIVE MODELS OF FEDERAL SUPPORT FOR R&D


The previously discussed Federal R&D policy changes, if implemented, will
likely force a resurgence in the role of the States and foundations and may
call into question the traditional modes of Federal support of R&D. While
Congress has not reached a consensus on the appropriate Federal role in
supporting R&D, the following models are offered for discussion as 4
alternatives, among many, that may be put forward for the Federal
Government. The models are not intended to be exhaustive, but are offered as
an illustrative vehicle for exploration and discussion. Our primary
objective is to have the workshop participants begin their discussions from
a common reference point, and to come to the workshop prepared to offer
their critiques and alternative models. Again, it is important to note that
CRS takes no position, for or against, any of the models that will be
discussed at the workshop.


I. Federal Support for Research and Development Would Be Aimed at Meeting
National Security Needs


This model presents a narrow view of national security, in which the Federal
Government would support R&D for defense purposes only, which would include
the Department of Energy's weapons programs. This model would involve
support for basic and applied research aimed at meeting national security
needs only. An intramural R&D capability would have to be maintained to
ensure that DOD has a cadre of scientific and technical (S&T) expertise
capable of identifying and evaluating new weapon systems that the government
purchases from defense contractors.
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Over the next five to seven years, all other Federal R&D activities would be
eliminated. Existing Federal R&D infrastructure would be sold, leased, or
shut down. Responsibility for funding R&D in such areas as health, space,
the environment, and energy would rest with private industry, the States,
universities, foundations, and non-profits. State prominence in research
funding has begun to reemerge as States take on more responsibility for
developing tax, land, and subsidy policies to enhance the direct and
indirect contributions of R&D to local and regional economies by fostering
collaborative research relationships between universities and industry, 20
and promoting the development of R&D "parks" or "corridors." As specific
examples: recently the Legislature of Connecticut voted to award $1 billion
to upgrade the University of Connecticut, including major funding to upgrade
scientific facilities.2l In 1983, Richard Thornburgh, then Governor of
Pennsylvania, helped to establish the Ben Franklin Partnership, a system of
universities and industries sharing know-how and facilities, and
collaborating in efforts to form new businesses and create jobs. Governor
Thornburgh has recommended that the Federal Government shift ownership or
administration of some NASA, DOD or DOE laboratories to State agencies. "The
Energy Department already contracts with the University of California, a
state institution, to run a few off its laboratories,"
he said.


The responsibility of educating future scientists and engineers would fall
primarily to the States, industry, universities, and foundations. Federal
support
for such activities would be tied to meeting the Government's national
security responsibilities. Between 1985 and 1994, industry support to
universities jumped 95 percent, and is slated to grow more in the future.
Universities' own institutional funds provide the largest nonFederal source,
and are 70-percent higher in real terms, accounting for 18 percent ($3.7
billion) of their separately
budgeted 1994 R&D expenditures. Real R&D funds from State and local
governments increased by 65 percent over this 9-year period and constitute 8
percent ($1.7 billion) of universities' 1994 total R&D.


The primary role of the Federal Government would be to create an environment
that would encourage the private sector and non-profits to invest in
research and development. This could include, but would not be limited to
the following Federal initiatives:


1. Make permanent and expand the Federal R&E tax credit;


2. Enforce favorable trade policies that enhance and strengthen high-
technology industries, ensuring that American firms have access to foreign
markets;
****************************************************************


      20 Mowery, p- 140-


21 What's New. By Robert L. Park, July 7, 1995. (The American Physical
       Society.)
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3. Improve the Nation's financial environment, including a balanced budget
within the next seven years;


4. Reduce regulatory impediments to minimize costs and encourage investments
in R&D; and


5. Improve the overall economic environment to encourage increases in the
availability of capital, and lower interest rates, which should increase
long term investments.


II. Federal Support for Research and Development Would Be Aimed at Meetin~
Broad National Security Needs


This model presents a broad view of national security, in which the Federal
Government would not only support R&D for defense purposes, but would
support R&D in the areas of environmental clean-up, space, and public health.
Defense oriented research would account for 70-80 percent of Federal funds,
while non-defense would receive the remainder. This model would include
support for basic and applied research aimed at meeting both national
security needs as well as those in the areas of public health, space, and
environmental clean-up.


Federal R&D in the area of environmental clean-up would focus on those areas
where the Federal Government is clearly responsible for the creation of the
pollution. In such a situation, it is very unlikely that the private sector
would support the type of R&D that may be necessary to restore these facilities.
Funding for environmental research would be phased out, once the Government
had completed clean-up of these sites.


Federal support for public health research would focus on the newly emerging
threats in the area of infectious diseases. Examples of unanticipated
disease outbreaks include AIDS, Lyme disease, toxic shock syndrome,
legionnaires' disease, hantavirus pulmonary syndrome, and food-borne illnesses.
The emergence of these diseases and the reemergence of tuberculosis, which
was once thought to be under control, raise great public concerns. While
these diseases could pose a great threat to our security, it is unclear if
the private sector will make sufficient R&D investment to respond to this
threat.


Federal space R&D funding would focus primarily on those activities
surrounding the completion of the space station. NASA would also support a
modest basic and applied research program aimed at meeting the challenges of
building and operating the space station.


Over the next five to seven years, all other Federal R&D activities would be
eliminated. The existing Federal R&D infrastructure would be sold, leased,
or shut down. To help reduce the cost of maintaining excess infrastructure
capacity, about half of DOD's and DOE's laboratories and NASA's centers
would also be sold. Ieased. or closed. ResPonsibilitv for fundin~ R&D in
other areas of
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health, space, the environment, energy, and general sciences would rest with
private industry, the States, universities, foundations, and non-profits.


The education of future scientists and engineers would fall primarily to the
States, industry, universities and foundations. Federal support for
educating future scientists and engineers (S&E) would be tied to meeting the
Government's national security responsibilities, as well as those related to
public
health and environmental clean up.


As with the previous model, the primary role of the Federal Government would
be to create an environment that would encourage private sector and non-
profits to invest in research and development. As indicated earlier, the new
Republican controlled Congress seeks to create national economic conditions
to reduce Federal deficits and give industry more resources ar)d capital for
R&D investment. Murray Weidenbaum's views illustrate the current thinking of
the Republican majority:


To start with, government should reduce the numerous government- erected
obstacles that discourage private firms from investin~ in risky long-term
ventures. As is well known, a basic way of redu~ing the cost of long-term
investments is to lower the cost of capital (which over the years has been
higher in the United States than i~ J~apan). The most direct way. . .to do
that is to reduce the extent to which the Treasury competes for the limited
supply of private saving via deficit financing.
. . . Bringing down the deficit by curtailing the government's
consumption-oriented outlays . . . would be a real plus.(22)


m. Reduce Support for Federal R&D by Thirty to Fifty Percent


This model would maintain many of the R&D activities of the Federal
Government, but at funding levels that are up to fifty percent below current
efforts. This model treats the private sector and universities as equal
partners in the Nation's R&D enterprise. Federal funding for R&D would be
evenly split between defense and nondefense activities. A significant
portion of this reduction would be achieved through the downsizing (over the
next 5-7 years) of the existing Federal R&D infrastructure. At least half of
the over-700 Federal
laboratories and testing centers would be closed or sold to the private sector.
Much of the remaining infrastructure would be consolidated and/or leased to
universities or private entities.


A number of Federal R&D activities that are aimed at the development of
civilian technology would be canceled or transferred to the private sector.
This might include such actions such as: eliminating NASA's aeronautical
research and development program; commercialization of the space shuttle;
reducing funding of applied research at NIH by ten to twenty percent;
terminating




***************************************************************** 22
Weidenbaum, Murray. Sponsoring Research and Development. Society, v.
29, July/Aug. 1992. p. 44.






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funding for energy supply R&D, as well as support for manufacturing
extension programs; focusing DOD's science and technology activities on
defense related needs; and eliminating all R&D activities at EPA except for
those aimed at solving problems related to environmental clean-up at Federal
facilities.


The Government would continue to support basic research across a variety of
disciplines. However, over the next seven years funding for basic research
would decline ten percent, in real terms. According to House Science
Committee Chairman Robert Walker, such research would be "long-term and non-
commercial, pursuing revolutionary ideas that make possible the impossible,
avoiding funding research that is, or could be, conducted by the private
sector."


Under this model, Congress might choose to create a Department of Science
and Technology to help eliminate duplication and waste, permit the
formulation of long-range strategies, and facilitate interdiscip!inary
approaches to solving problems involving the application of science and
technology. However, unlike past proposals to create such a Department, this
proposal might include all Federal agencies that conduct R&D, including DOD
and NIH.


This decline in funding for research would force many universities to stop
research in some fields of science and education. This model would limit the
number of universities that would be able to perform research in specific
fields of science. Donald Kennedy, President emeritus of Stanford
University, stated that, "Financial pressures will force the research
universities . . . to choose, in
a much more disciplined way than ever before, not just among attractive new
possibilities or program alternatives, but among traditional,
well-established fields and disciplines, with ultimately difficult choices,
but sharp differentiation
among institutions." (23)


The private sector, universities, non-profits, and foundations would be
expected to fill the void left by the decline in Federal R&D. The private
sector,
some universities, and non-profits would be expected invest in R&D
activities aimed at the development and commercialization of new
technologies. Federal support for applied research and development would be
tied to the mission of the agency financing such research. Before 1940,
private philanthropic foundations provided large sums of money for research.
But they "have withdrawn . . . because they could not match government
levels of funding," and newer ones generally never began funding scientific
research. Today, less than six percent of foundation funding is directed to
scientific research.


Foundation support has been strongest in the biomedical sciences and several
foundations and philanthropies have made sizable financial contributions to
academic research and personnel training in specific areas. Some funding has
been on the same order of magnitude or larger than Federal support. The
Huntsman family's donation of $100 million to the University of Utah for




*************************************************************** 23 Donald
Kennedy Making Choices in the Research University. Daedalus, v. 122, Fall
1993. p. 153.
 
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cancer research, which generated an additional $51 million from other
sources, ". . . is a windfall for cancer research," according to the New
York Times. "It surpasses the amount spent each year by the American Cancer
Society. The National Cancer Institute, which finances most basic cancer
research, spreads $130 million a year for basic support among 55 cancer
centers. With recent cutbacks in Federal funds for science, the gift
positions Utah as a major player in cancer research for the next decade."(24)


Federal support for the education of futu. e scientists and engineers would
be primarily limited to meeting the needs of the Federal Government and the
support of basic research. With universities funding fewer Ph.D programs,
output of Ph.Ds would be closely tied to private sector demand, and the
existin~ teaching and research needs of the Nation's universities. Education
of Ph.Ds would not be used as a primary justification for increasing Federal
support for university based research.


IV. Federal Support for R&D Would Focus on Broad Based Support for Basic
Research


This model places emphasis on the Federal Government as the dominant
supporter of basic research. Applied research and development would shrink
by up to 30 percent over the next five to seven years, while concomitantly,
basic research would increase at an annual rate of 2 percent above inflation.
Nondefense R&D would account for 70 to 80 percent of Federal funding, with
the remainder focusin~ on national security needs.


Funding for defense related R&D (including DOE's weapons programs) would
decline by 50 percent. Most of these reductions would be achieved through
the closure and consolidation of at least half of DOD's and DOE's
laboratories and testing facilities, including significant reductions in
laboratory
personnel. Further, Federal support for defense applied research and
development would be limited to those R&D areas (i.e., stealth technology,
nuclear weapons, submarines, tanks, etc.) in which the private sector would
not make investments.


The Federal Government would support a broad array of basic research
activities aimed at advancing fundamental knowledge across all scientific
disciplines. Collaborative efforts among universities, Government, and
industry, would be encouraged. However, efforts to transfer knowledge
derived from these initiatives to the private sector would continue,
primarily through a laissez-faire
approach. In some selected areas, the Government, working with universities
and industries, would take a direct role in funding both basic research and
research aimed at broadenin~ the Nation's technology base. Further, the results




************************************************************** 24 Blakeslee,
Sandra. With Huge Gift, Utah Researchers To Study Cancers' Earliest Stages.
New York Times, October 17, 1995, p. C3. See also: Mercer, Joye. Assault on
Cancer. Chronicle of Higher Education, Oct. 15, 1995. p. A35- A36.


 CRS-22




of that research would be available to anyone. In other words, cooperative
ventures subsidized by the Federal Government would be conducted on a non-
proprietary basis.(25)


The guidelines for Federal reimbursement of indirect costs associated with
university based research would be altered. Essentially, university overhead
charges would be frozen and would decline over a period of from 3-5 years
and capped at 20 percent. The reimbursement for purchasing expensive
research equipment would be negotiable, with the Government paying up to 50
percent of the costs. Universities and other private entities, that would
purchase time to use the equipment, would be responsible for paying the
remaining balance.


There have been several proposals to modify grant mechanism procedures as a
way of reducing costs associated with university-based research. They
include such suggestions as providing more long-term awards for federally
funded R&D to reduce review and paperwork burdens; leveraging Federal
support and engaging users by requiring more cost-sharing and matching
requirements; grant-in-aid funding, as opposed to an "all-or-nothing"
funding; using a sliding scale of aid, that could assure wider diversity and
interim funding to carry researchers through one year when their funding is
not renewed; and using a 'just-in-time' system for grant applications . . .
[when] investigators would be asked to submit such cumbersome materials as
budget breakdowns only after their proposal had been given an initial review
and deemed a likely candidate for funding.


In addition, proposals have been made to extend within Federal civilian
agencies the "strong manager system" used by the Advanced Research Projects
Agency (ARPA) and some other agencies. Using a variant of this system, the
NSF sets-aside a portion of its grants funding to be allocated by program
managers at their discretion (without peer review or competition with other
proposals) for funds to be awarded to high-risk, novel creative research
proposals. A related proposal calls for funding a "star" system of
scientists under
which financial support would be proportional to a scientists' past
productivity.
"Grants would not be awarded to individuals but to a group usually of the
size of a department or an interdisciplinary laboratory." Recipients would
have the discretion to allocate funds to group members.(26)


Like the previous model, Federal support for the education of future
scientists and engineers would be primarily limited to meeting the
scientific needs of the Federal Government and the support of basic
research. Since this model emphasizes a government/private sector
partnership, the private sector would be responsible for paying the costs of
meeting their Ph.D requirements.


************************************************************ 25 See Cohen,
Linda R. and Roger G. Noll. Privatizing Public Research.
Scientific American. Sept. 1994. p. 72-77.


26 Rustum Roy. Alternatives to Review by Peers: A Contribution to the TheorY
of Scientific Choice. Minerva, Autumn-Winter 1984. p. 321-326.
 CRS-23




Federal support for Ph.D candidates would be closely tied to existing
teaching and research needs of the Nation's universities. Education of Ph.Ds
would not be used as a primary justification for increasing Federal support
for university based research.


Finally, support for nondefense applied research and development would be
reduced by up to thirty percent, excluding health related research. Federal
support for applied research and development would primarily be aimed at
meeting Federal needs. However, in some instances, limited Federal support
would be available, on a cost-shared basis and for a specified time period,
to targeted industries, such as in robotics, that lack sufficient size or
coordination
to carry out R&D on an effective scale. Further, as with the previous model,
Congress might establish a Department of Science and Technology which would
be resPonsible for setting Priorities for all of Federal R&D.