Erich Bloch
Distinguished Fellow
Council on Competitiveness

RESEARCH AS A VITAL FOUNDATION FOR SOCIETY

1. Introduction

I can contribute a perspective on the U.S. Research and Development (R&D) enterprise as a whole, not just academia and the government or industry part. I have a good vantage point for doing that because the Council on Competitiveness has focused, over the last 18 months, on the problems of R&D and the future of R&D in the United States. We had participants from industry, academia, government agencies and labor, and we are publishing our findings in a report entitled, Endless Frontier, Limited Resources. I chaired the project and the two co-chairs were Frank Rhodes (at the time, chairman of the NSB) and Gary Tooker, the Chief Executive Officer of Motorola.

My discussion today is in four parts: the political and policy environment in the U.S.; the changes in the R&D enterprise and the R&D system; some issues and scenarios; and something about NSF's role in this endeavor.

2. Policy and Political Environment

I want to talk first about the U.S. political and policy environment and to treat these two topics separately. I want to look at the political environment first and remind you that over the last forty years R&D was perceived as a solution to many of the mainstream problems of the U.S. But that is not necessarily the case today.

Health and defense were the mainstream problems of the past which required as a pre-requisite science and technology. We were building an R&D system almost from scratch. We were in a constantly expanding mode. Obviously there were differences of views of how to build it. There was no clear policy, but there was great optimism about the future and an inherent belief in the benefits of research, science, and technology. There was much support for R&D and there was also some benign neglect. By the way, one should not frown on benign neglect. It can be of great help. The system was expanding and maybe things did not happen right away, but eventually they did happen. It no longer works this way today, yet we still behave as if it did. Today the R&D system, science and technology, are being scrutinized and challenged. The views are polarized and often confused. They change from day to day, creating an unstable environment.

Rather than generalize, let me cite some examples and some data. First Paul Krugman made a telling point in the New York Times Magazine a few weeks ago. He strongly believes that competition does not exist among nations, only among companies. He has been hammering that point home. The point he made was that massive changes in technology which occurred over the last decade have not contributed to economic growth the way they did in the Ď50s and Ď60s. He supports this point of view by the fact that we are hovering around two percent GDP growth today, whereas in the past, it was more like a five-percent growth rate. He concludes that the information revolution is less effective economically than the technological developments which addressed material resources such as electronics and materials technology. I, and many others, share the opposite view: that the information revolution has a greater effect than many of the technologies of the past. We do not fully realize what the consequences of this technology will be, and some of the productivity improvements this technology provides are not as easily measurable, because they deal with ideas and intellectual items, rather than physical ones. They apply equally to the service industry where changes in productivity are more difficult to perceive.

A second item: This, and the last, Administration have been, and are, proud of the United Statesí ability to create jobs. Not all quarters of the general public share this pride. There is great uncertainty about the quality and permanence of these jobs. That applies to both professional and blue collar jobs. What looks positive is interpreted and experienced negatively by some. A famous kind of a saying is, "Yes, we have work, but we have no jobs." A related item is the divergence in pay between management and the work force. The current public culprits, if you open the magazines, are the Bob Allens and Lou Gerstners of the world. We also need to consider the economic differentiation between the technologically elite and those left behind.

Another example of this trend is downsizing. We hear a lot about it. It actually should be, and often is, a salutary kind of act which assures the future of institutions and companies, but has negative implications for employees because of the high number of layoffs. Many people attribute the cause of the layoffs to increasing productivity, which many attribute to new technology. Therefore technological improvement is a negative force in some people's minds. Also, the layoffs affect the professional category, the white collar workers and middle management very heavily. The American Management Association maintains that while these employees represent only about five to eight percent of the work force, the job losses in these categories are more like 15 to 20 percent.

In addition, the Federal balanced budget policy has put all discretionary spending under pressure. Many affected groups have mounted an attack against the cuts. Right or wrong, the perception in Congress is that there is no coherent voice for R&D. In fact, the point has been made that there is a "thunderous silence." The discretionary spending for federal R&D will decline in a projection by the American Association for the Advancement of Science (AAAS) based on Congressional budget resolutions (Figure 1). The AAAS predicts that over the next seven years, between 1995 and 2002, civilian R&D, in constant dollars, will decline by 33 percent (Figure 2). Is this going to happen? I do not know. But I think we have to assume that it will happen. By the way, the 1996 R&D budget is better than we had any right to expect. But that does not mean that it will be so in the future.

Also of importance is the debate over open or closed foreign markets. This issue spills over to the immigration of foreign professionals and the education of foreign students if foreign countries take undue advantage of U.S. taxpayer supported R&D. Restricting access to our intellectual properties, including university research, is a topic that is frequently raised, and my question is: Are we in danger of intellectual isolationism? Let us look at the other side of the coin. Are we giving our intellectual property away? Let me mention some facts: The U.S. is about the only country that has a positive technology trade balance. All the other countries have a negative trade balance. Japan certainly has, and many of the European countries. Ours is a three billion dollar per year surplus.

Is that good or bad? There are many people who think this is a bad situation, because we are giving things away that we should exploit ourselves, and, as a consequence, we are losing markets and product domination. There are other examples in that category. The issue of software and chip piracy falls into the same area. Are we lax in protecting our intellectual property rights? I think we probably are.

Other very important subjects of debate today are the interactions among various sectors of society such as among industry and companies, between industry and government, and within academia and industry. This question gets to the roles of the various sectors of our society in R&D. I would suggest the need for increased cooperation between sectors in society, not stratification or separation, will be the answer to both technological and economical problems. We have treated that issue in the Councilís report (Figure 3).

Figure 3
R&D Responsibilities

Type of Research

Primary Performer

Secondary Performer

Short-term

Industry

Government
(own use)

Medium-term

Industry
Government

University

Long-term

University

Government

In the policy environment, the end of the Cold War has brought into the foreground many issues that were either not present, not important, or were essentially covered up by other issues. Out of this historical change emerges the commercial sector as a key driver of leading edge technology, as opposed to the defense sector which has been the driver in the past. I think this is something which requires adjustments not only within the Federal government, including many of the government laboratories, but also within the private sector.

Lastly, I want to point out the general impasse between Congress and the Executive on the issue of the proper role of government in R&D. Ideologues want to draw a sharp line between basic research and applied, between support for science and support of technology, between the role of government and support to industry, even when industrial support is clearly in the interest of the nation. We either have to reassert the established relationship that existed over the years or define a new one. Often science and technology and the R&D enterprise are the victims of this unsettled environment.

3. Changes in R&D

Let me get to my second point, namely the changes in the R&D system. We have all seen them: the accelerating rate of technology development; the increasing product competition which condenses the time cycle of product development, as well as reducing product life; the refocusing of industrial R&D; the decline of the central laboratories; the decline of basic research in industry; and the new sources of R&D performance. To illustrate the full impact of R&D spending in the U.S. (Figure 4), let me mention a few data points:

R&D funding by the U.S. in current and constant dollars has been flattening, in both the Federal and private sectors. The year-to-year change is much more important than the absolute dollars (Figure 5). In the 1980s, we have seen constant dollar increases from year to year. This has turned negative a long time ago in constant dollars. We will probably endure this trend for the foreseeable future. Why is this happening?

First, R&D as a percentage of sales (Figure 6) has increased very sharply, except in the last couple of years. However, there is more R&D being performed as a percentage of sales than in the past.

A second factor, which is probably more important, is the decrease of research and development as a percentage of profits (Figure 7). You see the same phenomenon happening here also. This is the result of increasing competition, which puts profits under pressure. What is clear is that industry will have to contend with these constraining influences.

By the way, the fall-off of government R&D is universal (Figure 8). It is true in the United States, Japan and Germany as a percentage of the total R&D spending. This, however, does not inhibit Japan from projecting increasing government R&D budgets while ours decreases (Figure 9).

Where do we find ourselves today? The conclusion of these findings can be essentially one of four scenarios (Figure 10). For a long time we were in a position where we were the big spender and our international competitorsí spending was low. We were the acknowledged leader. That will not continue to be the case. That both our and our competitionís R&D spending remain low is an equally unlikely scenario. We also could be in the position where we are the low R&D spender and the rest of the world spends at a high level. I would suggest that we would be at a competitive disadvantage and in a losing position. Perhaps we could also be in a position where both we and our competitors spend at a high level, and it will give us at least a limited kind of leadership. I hope that will be the case. It is the best scenario for which we can hope.


4. R&D Paradigm Shift

If one steps back and considers essentially where we have been and where are going, one comes to the conclusion that R&D is undergoing a major paradigm shift (Figure 11).

Figure 11
R&D Paradigm Shift





AreaPast (1950)Future (1996)
Technology Driverdefense, healthcivilian technology, health
Competitiveness Basematerial resources, geographyknowledge, communication
Public Views:
S&T (in generalhighcritical, questioning
Government Roleacceptablemixed
S&E Education:
K-12high qualitylow standard
Undergraduaterelevant, affordablereform needed, expensive

The technology driver in the past was defense and health. Today it is civilian technology and health. The competitiveness base was material resources and a close geographic netting. In the future, it is knowledge. Knowledge is really the new base for competitiveness, hand in hand with its access to global and rapid communication. This makes it less important to be in the same geographic area. In fact, many companies and universities are seeing that development coming and are acting accordingly. The public view of science and technology in the past was highly favorable; today, it is critical and questioning. The government role in the past in R&D funding was natural and accepted; today there is a mixed kind of view.

Science and engineering education, at the Kindergarten through 12th grade levels, was of high quality. Today in the U.S. it has a relatively low standing. Undergraduate education was relevant. It was affordable. Today it is in need of reform, and it is expensive.

Letís also look at the R&D model. The preferred thinking was that of a linear process that went from research to development to design to manufacturing. Today, these processes are going on concurrently and in parallel. That is, by the way, the reason for the demise of the big research centers. Because they essentially reflect the linear process, they are not very adaptable to the concurrent and parallel processes which people are forced to pursue today. The funding from government was on the increase; it is on the decrease today. Funding from industries is, at best, flat; it was increasing in the past. People were creating new institutions. Building of institutions was the order of the day. Today all these institutions, in both the private and public sectors, are leveling off in their growth and reaching a steady state or maybe even decline. Academia was expanding. It was an optimistic environment. Today, we see much pessimism. Companies were self-sufficient in their R&D. Today, more often than not, the goal is partnerships and the search for partners.

Figure 12
R&D Paradigm Shift (continued)



AreaPast (1950)Future (1996)
R&D:
Modellinear processconcurrent, parallel process
Funding (government)increasingdecreasing
Funding (industry)increasingflat
Institutionsbuildingsteady state
Academiaexpanding, optimisticpessimistic
Industryself-sufficientpartnerships / search
Leadershipnational policyinstitutional survival
Economy and Society:
Marketnational and leadingglobal and competitive
Societyunified, common goalsdivided

Leadership in R&D was focused on national policy. Today it is focused on institutional survival. This is one of the things about which the National Science Board needs to concern itself. If you look at the economy and society, the market was national, and we were leading in that market. Today it is global and increasingly competitive. Society was unified, with common goals. Today society is much divided, not just on these issues, but many others. I think you will agree that this is a different environment which we live in, and we have to have a different strategy, a different point of view and different action plans.

5. The New Role of the National Science Board

The National Science Board must change along with the rest of the R&D enterprise. The Board cannot concern itself only with NSF and its programs. It must fulfill a broader obligation.

The National Science Foundation Act of l 950 text states that the boardís obligations are, "...establish the policies of the Foundation." The Board has done that very well over many years. It is also NSBís responsibility to "...recommend and encourage the pursuit of national policies for promotion of research and education in science and engineering." I would say the Board has not done its fair share in that area. The Board also needs to "...render to the President, for submission to the Congress reports on specific, individual policy matters related to science and engineering and education in science and engineering, as the Board, the President, or the

Congress determines the need for such reports." In the past the Board has deliberately shirked this responsibility.

Considering these demands on the Board, I would suggest that there are at least five issues that this Board needs to address .


Figure 13
NSB AGENDA

    Problem
Action
  • R&D leadership
Multi-sectional Coalitions
  • R&D prioritizing
National R&D Strategy
  • Education
K-Ph.D. (career orientation)
  • Interdependence of R&D participants
Partnerships
  • Public Perception of S&T
Spokesman for S&T

The first problem is the lack of R&D leadership. The Board cannot discharge this obligation by itself. It needs to participate in and create multi-sectional coalitions, together with other parts of the government, the private sector, and other parts of society. This is a very important issue, maybe the most important. The lack of this leadership, I think, is what is being felt in Congress, academia and elsewhere.

The second problem the Board needs to address is R&D prioritization. I think we are in need of a national strategy and the Board needs to play its part in developing it. Such a strategy must comprise the whole of the U.S. R&D enterprise, not only NSF.

The third problem area is education, from Kindergarten through the doctorate. We have major problems in all areas. There has to be much more of an acknowledgment that the environment has changed, and, therefore, educational processes and the curricula need to change with it.

The forth problem the Board needs to address is recognizing and legitimizing the interdependence of R&D. Partnerships are more important than ever. Last, but not least, the Board needs to address the public perception of R&D. I think we are in a time where the public perception of R&D is not the best. The Board needs to be a constant public spokesman for science, technology and R&D. It must educate and influence the public at large.

6. Conclusion

I did not come here to tell you that the sky is falling, because I do not think it is. Many things in the R&D enterprise are right. Many activities and institutions work well, and they prosper. On the other hand, the system needs urgent change and fixing. While the NSB does not have the total responsibility for that, it has a prime responsibility. I would suggest now is not the time for writing another report or for putting out a public announcement. The time for action is now. The NSB in particular has an obligation to play its part--and certainly its mandated role.