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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