Under Secretary for Technology, United States Department of Commerce


Under Secretary for Technology, United States Department of Commerce

I want to make a few general remarks before talking about the Advanced Technology Program specifically.

The Clinton Administration believes that the nation's science and technology initiatives are critical both as an investment in the future and as the key to our continued economic security. As Paul has pointed out, that also means they are a partial key to our national security.

If you look at U.S. history in the last century, I think it is really rather easy to make this case in a straightforward way. I would like to say a few words about some of the government-sponsored programs in the past which have made major contributions to economic growth. Bo pointed out just a few, but I would like to target at least three which I think are so very important.

First of all, if you look at defense and space missions that we have had over the last 50 years, out of those have emerged the aircraft and aerospace technologies, electronics, computers, satellite communications, and advanced materials. All of these helped create our world-class computer, telecommunications, and aerospace industries.

If you look in the public health research arena, we have seen a flow of miracle drugs and miracle medical therapies that really are the heart of what is known as our pharmaceutical industry and the biotechnology industry in the United States. That science base is the backbone of the biotechnology industry that we have today.

The fundamental science support for our universities has delivered two things, and I think we want to be sure that we keep both of those in mind. It has delivered the best qualified scientists and engineers in the world, as well as the science base for the technological developments that we want to talk about.

Now, moving to the innovation system, our country's system of innovation remains among the best in the world, and most of us believe in some ways it is still the best. We still lead all other countries, if we just look at the total dollars that are spent on our research and development budget. However, you need to scratch the surface a bit and try to understand what is really going on in the U. S. research enterprise today, and what has been changing over the last 10 years. When you look at that, what has really been going on is change in a very fundamental way.

In the U.S. industry, the mix of research and development activities has shifted from the large semi-autonomous central laboratories and long-term exploratory research toward business units and business goals. We find that our industries today are devoting anywhere from 80 to 90 percent of their research and development resources to shorter-term product development and process improvement.

This shift to the near-term is being driven by the competitive pressures to downsize and streamline, move research and development closer to the customer, reduce costs, and improve quality. Moreover, limited availability of capital causes companies to focus on maximizing returns on existing investment and projects that achieve quick pay-backs.

The nature of the technology itself is also driving investment away from mid- and long-term research and development. Product life-cycles are getting shorter. For example, in the electronics industry, the lifetime of a new model of personal computer today is less than two years. A competitive player in commercial high technology may have to fund and manage three generations of technology simultaneously, one in full-scale production, one in pilot production, and one in manufacturing process design and development.

The second issue is that cost and complexity of technology development are increasing. It can take $350 million to find a new drug and bring it to market today. It is also true that the cost of establishing manufacturing facilities is rising, particularly in the electronics industry. For example, the pricetag on a semiconductor fab today can exceed $1 billion, and the next generation may run as much as two or three times that. Moreover, many technologies are increasingly multidisciplinary in nature. In short, cost and complexity may exceed the technical capabilities and financial resources that any individual firm can muster.

Third, today's enabling technologies have multiple uses. The potential applications can exceed the product portfolios of most firms, and an individual firm may not be able to justify the costly investment in research and development based on its segment of the technology's potential market.

This shift in research and development funding toward the near-term represents a rational response to today's competitive pressures and the nature of technology development. I think it is necessary that we understand it is a rational response to that. Each company must make resource allocation decisions based on its particular circumstances. Such decisions are not an area for government's attention; that is something we want to keep in mind. We are not talking about industrial policy in the usual sense, because the industrial sector is responsible for the production of competitive products and processes. The government cannot fulfill those obligations and must let the market drive where the private sector's technology resources are applied.

However, that shift in focus is cause for concern, because we are beginning to see a gap in the innovation system in funding for mid- and long-term research and development which threatens to dry up the wells of new technology from which all of our companies will have to draw in the future to remain competitive.

Today we must rethink how the system works and what is required to optimize it for maximum production of high-quality jobs and wealth creation in the United States. We believe that we have no choice but to engage industry in partnerships to address the research gaps that we see emerging. If our public research and development investments are to continue to pay the kinds of economic dividends that we have enjoyed in the past, the government must find new ways to manage its own technology-related assets.

However, we must take a systemic approach, and I appreciated Bow's comments with respect to the system issue. We have to embrace a portfolio of initiatives that address the innovation system as a whole. Such an approach should provide the connections between the federally funded research and development base and infrastructure in government--peer reviewed research, mission-related technology development, and a whole range of policies with the major investment made in technology by our industrial sector.

The linkages that we are talking about can really be of two kinds. The first is where the government really plays a catalytic role in encouraging cooperation within industry and in establishing a range of policies that promote U.S. innovation and competitiveness.

The second is where the government can be a partner with industry in planning public research and development investments, in joint research and development ventures, and in technology deployment. The viewgraph that I have put up points out the government programs that we view today as partnership activities. They are in a sense the bridge between the basic, fundamental research and the mission-related research that we do in the government, and the commercially-competitive research and development which is done in the industry.

I am not going to speak to all of those programs. We would take the rest of the day to do that. The total cost in the 1995 budget of those bridges, if you will, including the Advanced Technology Program (ATP) and the TRP program, which are the two we are focusing on today the whole cost of that package is about five percent of the government's R&D budget. It seems to us that this kind of modest expenditure to more rapidly move those technologies into the commercial market is a bargain.

Let me talk specifically about the ATP program, which is the one that I want to spend a bit of time on.

The ATP is an industry-driven, cost-shared vehicle which is aimed at doing what most single companies would not do, and that is invest in long-term, high-risk technology development before it is clear what the final product and size of the market may be. It is not product development, and it is not commercialization, but it is that gap between the science ideas and the ability to look at what the actual output technology might be that will become commercial products.

ATP devotes the bulk of its funds to strategic technology development programs which have aggressive, well-defined technology and business goals, and they involve interlocking research and development projects that complement and reinforce each other.

What I want to do is look at a couple of examples. This chart tells you what the budget for the ATP has been. It started in 1990 with a small $10 million budget which was used as a single pilot for what we call an open competition where you can submit any of your good ideas for long-term generic technology development. In 1991 the budget went to about $36 million; in 1992 it went to $47 million. It became apparent that we really needed to have some mechanism for better focusing this program, because we ended up with many more proposals than we had any chance of funding. The issue is how to best utilize the funds that we have.

We have chosen the focus programs which are on the next chart. These were designed by inviting industry to spend a lot of its own time and effort developing road maps and identifying technology gaps for industries as a whole. The choice here was generated out of better than 600 white papers that came in from the industry alone. This program has brought more industry people in to talk to each other than any program I think we have ever devised. It has provided a forum for big businesses talking to small businesses and small firms talking to other folks about the ideas that they have.

The first focus program was done in 1994. Let me speak to one of these so that you have an idea of why these are good choices. We always get asked, "How did you make this decision?"

First of all, the decision was really based on this absolutely, wonderful, bottom-up contribution from the industry itself. Let us look, for example, at DNA diagnostics. We know, for example, that the biotechnology industry has been a very research-intensive industry in the past. Commercialization has been relatively difficult in many cases. At the same time, the Human Genome Project in the basic science portfolio has had a lot of expenditure, and today has great potential to fuel new product development and commercialization. The problem is that the methods, instruments, and data-handling protocols were not part of the basic science effort, and therefore that needs to be done.

For example, DNA analyses and sequence interpretation will have to speed up by a factor of 10, and the cost will have to fall to 1/10th to 1/100th of the present price tag, if it ever has a chance of being a commercially viable product.

The goal of the ATP-focused program in DNA diagnostics is to develop cost-effective methods for sequencing, interpreting, and storing DNA sequences for diagnostic applications. When you look at that and understand what has to occur, development of the diagnostic tools requires a multidisciplinary team technical resources that many companies by themselves cannot muster. Individual companies are really hesitant to invest in the development of these tools, because a number of technical paths must be explored, any one of which could turn out to be the most suitable. So betting on any one of those technologies is all that most companies could hope to do, and even that would be a gamble. ATP reduces and dilutes that risk without distorting either the market or the pricing mechanisms, because it is clearly ahead of the market.

If you look at the second group of focus programs, let me pick again just one and this one I admit I picked because it is the one I know the most about.

This one involves the core technologies in chemical processing, represented by catalysis and biocatalysis. If you look at the chemical processing industry today, it is the only industry, other than aerospace, which has had a continuous high balance of trade for the last 30 years. The industry's success depends on catalytic processes and whether or not it will be able to involve its processes in the biocatalysis in the years to come.

Breakthroughs in this industry could lower operating costs associated with energy, raw materials, and environmental improvement; decrease capital costs for investment in new processing technologies; and speed discovery of superior processes and particularly utilization of new chemistries that would advance technology competitiveness.

The issue in this particular technology is that if you look at what the industry is doing today, we have technologies in the science base that have major applications which are in no way being utilized. For example, we have all of this science in molecular design. Yet, when I go to the industry I still find that 90 to 95 percent of the investment in catalysis-related research and development is still engineering-driven and targeted to near-term improvement.

There is less than two or three percent that is presently being devoted to the atomic and molecular design of new catalysts which have higher specificity and would actually impact this process. The focus here is for companies which would be willing to invest in that kind of a program for catalysis or biocatalysis, and it is the first time that this industry has ever really participated as an industry in government programs of this type.

Many of these technology initiatives are young. They have long-term goals, but they are beginning to bear some fruit. For example, early results in a couple of studies that we have actually been able to do indicate that the ATP program is improving the nation's technological capabilities.

ATP has expanded the research and development activity in many of the companies that participate, particularly in high-risk long-term research where we have the potential of high payoff. We have cost and time savings by having people work together. Many of the proposals that have come into the ATP are in a consortium form. We have a few companies that have improved their competitive standing. They have put together really valuable strategic business alliances, and the acceleration of technology development is unique in many of these projects that are now underway.

Let me just say a few words about the design of these technology initiatives, because they are really designed to make a difference in the long run.

They are designed to create a federal technology enterprise that is more responsive to the economic needs of the nation. We would like to deliver in these partnership arrangements more bang for our public and our private research dollars. We would like to speed up technology development and deployment to keep pace with today's short product life cycles. I think Paul is absolutely correct. From hereon, who wins tje race will not be necessarily who has the best technology, but who uses it in the most effective way in the fastest way. It really is going to come down to a matter of speed and utility, and not so much just the total technology pool.

We also would like to build stronger, broad-based technology capabilities in the industry, and establish a modern manufacturing infrastructure.

In closing, let me just say that during this century the United States has built up the strongest base of scientific, technical, and business assets that the world has ever seen. These assets have served as a guarantor for our national security.

The Administration has taken important steps toward the future by setting forth a policy which recognizes that technology is the engine of economic growth, that the private sector is the agent through which we will achieve that growth, and that government can enable the private sector to effectively fulfill that role, rather than being an adversary. Thank you very much.

Craig Fields
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Forum - Session Four

Under Secretary for Technology, United States Department of Commerce

Seventh Panel Discussion Questions and Answers

Deputy Assistant to the President for Economic Policy

Vice Chairman, Alliance Gaming

Under Secretary for Acquisition and Technology, U.S. DOD

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