Chapter 4:

U.S. and International Research and Development: Funds and Alliances

Inter-Sector and Intra-Sector Partnerships and Alliances

Collaboration Among Firms and Across Sectors top

Cooperative R&D is now an important tool in the development and leveraging of S&T resources. For at least a decade, a combination of several factors has greatly changed the research environment, prompting the creation of inter- and intra-sector—and international—partnerships and other collaborative alliances and enabling them to flourish. Economic, legal, and cultural reasons are responsible for the growth in cooperative R&D:

Although data on financial resources invested in multi-firm and multi-sector collaborative R&D activities are sparse, evidence reveals a major upswing in the number of S&T partnerships since the early 1980s.[25]  (See "State R&D Issues: High Geographic Concentration and New Data on State Government R&D Support.") Several indicators of cooperative R&D activity are discussed in this section, which covers only domestic alliances. See "International Strategic Technology Alliances," later in this chapter, for information on international collaborative R&D activities. [Skip Text Box]

State R&D Issues: High Geographic Concentration and New Data on State Government R&D Support top

R&D is substantially concentrated in a small number of states, a solidly entrenched configuration created by past public and private sector choices influenced by multiple economic and scientific considerations.

One-half of the $177 billion spent on R&D in the United States in 1995 was expended in six states—California, Michigan, New York, Massachusetts, New Jersey, and Texas. Add five more states—Illinois, Pennsylvania, Maryland, Ohio, and Washington-and the proportion jumps to two-thirds of the national total. (These figures do not include $6 billion of the national R&D total that could not be allocated to individual states.) One-fifth of all U.S. R&D funds, or $36 billion, was spent in California alone. In each of the next 11 leading states, R&D spending exceeded $5 billion. (See appendix table 4-55.) In contrast, the smallest 20 states together accounted for about $8 billion, or less than 5 percent of the R&D conducted nationwide in 1995.

Not coincidentally, states that are national leaders in total R&D performance also usually rank among the leading sites in industrial and academic R&D performance. (See appendix table 4-55.) Of the 11 states that lead in total R&D:

  • All but Maryland ranked among the top 11 in industrial R&D performance; Florida (12th for total R&D) held the 10th slot.

  • All but New Jersey and Washington ranked among the top 11 in academic R&D performance; North Carolina and Georgia (16th and 23rd for total R&D, respectively) made the short list instead.

There is somewhat more variation in the distribution of federal R&D performance. Although California ranks third, the top spots were held by Maryland and the District of Columbia, followed by Virginia. These positions reflect the concentration of federal research facilities, such as NIH, in the Washington, D.C., metropolitan area.

State governments have played an increasingly important role in fostering research collaborations and in helping leverage R&D funds of in-state universities and industry. They also spend an estimated $2.5 billion on R&D activities themselves (Battelle forthcoming). According to preliminary data on state government R&D spending in 199batelle5, California, Florida, and Pennsylvania accounted for the largest funding totals. These were the only three states to individually spend more than $200 million on R&D; combined, the three spent almost $700 million. (See appendix table 4-54.) Most of these monies went to support research undertaken on our nation's campuses. Nationwide, about $400 million was spent in state government agency laboratories. As a percentage of total state funding for all services, however, states overall spent a somewhat meager 0.35 percent on R&D. In only three states—Nebraska, Kansas, and Georgia—did the R&D share exceed 1 percent of state government spending totals, according to available preliminary data.

Industrial R&D Consortia top

In the early 1980s, increasing international competition and the resulting erosion in U.S. technological leadership led legislators and policymakers to conclude that existing U.S. antitrust laws and penalties were too restrictive and could be impeding the ability of U.S. companies to compete in the global marketplace. U.S. companies were at a disadvantage compared to their foreign counterparts, because of an outdated antitrust environment—designed to preserve domestic competition—that prohibited them from collaborating on most activities, including R&D.

Therefore, in 1984, restrictions on multi-firm cooperative research relationships were lifted with the passage of the National Cooperative Research Act (NCRA). (See text table 4-8.) The law was enacted to encourage U.S. firms to collaborate on generic, precompetitive research. To gain protection from antitrust litigation, NCRA requires firms engaging in research joint ventures to register them with the U.S. Department of Justice.[26]  In 1993, Congress again relaxed restrictions—this time on cooperative production activities—by passing the National Cooperative Research and Production Act, which enables participants to work together to apply technologies developed by their RJVs.

NCRA seems to be accomplishing its objectives. By the end of 1996, more than 665 RJVs had been registered; organizations such as Sematech have helped U.S. industries regain leadership in global markets for high-tech products like semiconductors. Although the annual number of RJV filings has increased in most years since the passage of NCRA, the largest increases were in the two most recent years, including an unprecedented 115 in 1995 and an additional 97 in 1996. (See figure 4-15.) This recent increase may reflect activity from ATP participation. (See "Advanced Technology Program.") Although data are not available on the level of resources invested in these projects, results of two investigations (Link 1996b and Vonortas 1997) revealed the following:

Federal Programs top

Much has been written about the Federal Government's changing role in the development and deployment of new technologies. The postwar "spinoff" model, in which certain industries (e.g., aerospace, computer, and biotechnology) built much of their competitive strength off the government's investment in R&D, has given way to a new model—one in which evidence is pointing to greater government benefits derived from the commercial sector's work in technology development than the other way around. For example, technologies in the software, computer, semiconductor, telecommunication, advanced materials, and manufacturing areas that are pushing the state of the art in U.S. military hardware and equipment were mostly developed in the private sector.

The public sector's evolving role in S&T—and the upsurge in international competition faced by U.S. firms—has led to another change in which the government is taking on the role of "partner" rather than merely customer in federally supported S&T programs. Since 1980, several new programs have come into being, all with the major goal of having the government partner with the private sector to strengthen the U.S. position in international markets for high-tech goods and services. This new approach to technology development and deployment includes the following guideposts:

It should be noted that although these new public-private partnerships account for only a small portion of total federal R&D investment in technology, they seem to have broad, widespread support within the private sector.[28] 

Technology Transfer Activities top

Technology transfer activities became an important mission component of federal laboratories in the late 1980s. Of course, some agencies, including USDA's agricultural research experiment stations and NASA's civilian aeronautics programs, have always shared their research with the private sector.[29]  But after Congress passed several laws, including the Stevenson-Wydler Technology Innovation Act (1980), the Federal Technology Transfer Act (1986), and the National Competitiveness Technology Transfer Act (1989), other agencies were given the go-ahead to open their laboratory doors. (See text table 4-8.) In addition, because of budget cutbacks and a decline in defense-related work, federal laboratories have an even greater incentive to stretch their resources through partnering with industry, academia, and state organizations to work on commercially inspired initiatives.[30] 

Growing Public-Private Cooperation top

Evidence of growing cooperation between federal laboratories and private sector entities can be seen in the number of cooperative research and development agreements (CRADAs) executed in the past few years.[31]  These formal agreements were created by Congress under "the belief that federal laboratories hold valuable technological assets and that those assets should be used not only for pursuing an agency's mission but also to improve the competitive position of U.S. firms" (U.S. DOC/OTP 1996). Thus, the purpose of CRADAs is to facilitate and expedite the transfer of technology from federal laboratories to the private sector by enabling private sector researchers to gain access to and take advantage of government R&D expertise and resources.

Between 1992 and 1995 (the most recent year for which data are available), 3,512 CRADAs were executed. The annual number of new CRADAs more than doubled between 1992 and 1994, going from just over 500 to more than 1,100. However, the annual number of new agreements fell the next year to just over 1,000. (See text table 4-9.)

During the 1992-95 period, DOE executed the largest number of new CRADAs (1,553), followed by DOD (1,001), DOC (412), and USDA (270). Interestingly, every agency except DOD reported a lower number of new CRADAs executed in 1995 than in the previous year. (See text table 4-9.) Government agencies seem to be backing away from these agreements, in contrast to the early 1990s when there was a strong push for them (Larson 1997). DOE had the largest absolute reduction in new CRADAs, as recent budget cutbacks left decreased support for new agreements and prompted termination and scaling back of existing ones, especially at DOE weapons laboratories (Technical Insights 1996).

About 75 percent—or 749—of the 1,003 1995 CRADAs were executed by individual industrial firms; consortia and nongovernment organizations were responsible for 87; universities, 86; and state and local governments, 10.

The total number of private sector partners in the 1995 agreements was 688; 124 organizations executed two or more CRADAs during 1995.

The U.S. Council on Automotive Research, which represents industry's role in the Clean Car Agreement between the Clinton Administration and the "big three" auto makers (and is responsible for R&D associated with the Partnership for a New Generation of Vehicles),[32]  executed 32 new CRADAs in 1995, far more than any other private sector partner. (See figure 4-16.) General Motors was a distant second with 15, followed by Dupont with 8, and the University of Maryland with 6. Four companies—AT&T, Chevron, Martin Marietta (now Lockheed Martin), and SI Diamond Technologies—each executed five agreements; and seven organizations executed four.

Federal Partnerships With Industry top

Two federal technology partnership programs were started in the 1990s: DOC's Advanced Technology Program and DOD's Technology Reinvestment Project (TRP). The purpose behind both programs was to spur the development and deployment of high-risk enabling technologies through an industry-driven, cost-sharing process, whereby industry proposed the research and supplied at least half the funding. Of the two programs, only ATP survives, and its budget was sharply reduced in 1996.

Advanced Technology Program. ATP was designed "to act as a catalyst for the development of high-risk technologies that have broad applications and the potential for large economic impact" (U.S. DOC/OTP 1996), but few federal R&D programs have sparked as much controversy as this one. Neither criticism nor praise for ATP are in short supply. Although the program came into being (as part of the Omnibus Trade and Competitiveness Act of 1988) with substantial bipartisan support, it has come under attack in recent budget debates. The Republican-led Congress has been eager to zero-out a program that provides federal research assistance to corporations.[33]  ATP's survival is largely attributable to strong backing from the Clinton Administration and support from the high-tech business community. Although congressional efforts to eliminate the program have yet to succeed, ATP's budget was cut by a third in 1996. Funding remained level in FY 1997 at $218 million, almost 40 percent of NIST's $581 million in appropriated funding.[34] 

Between 1990 and 1996, more than $2 billion in public and private funds were invested in a total of 288 ATP projects—184 awards to single applicants and 104 to joint ventures. (See appendix table 4-36 and figure 4-17.) Only about 10 percent of ATP proposals receive funding.

The government's share of ATP is closing in on $1 billion, while private support is slightly above the billion-dollar mark. The 184 single-applicant projects have a total funding level of $600 million, with ATP funds making up slightly more than half that amount and companies providing the remaining portion. The average award size across single applicants and joint ventures is $3.4 million.[35]  The 104 joint ventures have a total funding level of $1.4 billion—with just over half of those monies provided by private sector participants.

ATP runs two kinds of competitions—general and focused. Companies or consortia can submit proposals for support in any technology area(s) in the general competitions, while the focused competitions are for specific technologies. The funding split between the two types of competitions is about 40/60 (through 1996). Proposals are selected through a peer review process and are judged on both their technical merit and their potential for commercial success.[36] 

ATP has undergone extensive evaluation. NIST-funded case studies and surveys conducted a few years after the program's inception revealed ATP's success in fostering high-risk research that would not have been attempted otherwise. Other benefits were reduced time-to-market, accelerated R&D time tables, job creation, and the formation of strategic R&D alliances. The full economic impact of the program will be examined in future studies, as more projects complete the R&D phase and reach commercial development (U.S. DOC 1995).

A 1995 GAO study of ATP gave the program a mixed review.[37]  While it found the program to be meeting some of its goals—including fostering the formation of joint ventures and facilitating the funding of risky, precompetitive research—the findings also suggested that ATP is funding "research projects that would have been funded by the private sector as well as those that would not" (U.S. GAO 1996b). Not surprisingly, this conclusion provided ammunition for both opponents and proponents of the program (Long 1996).

In response to the congressional criticism, the Secretary of Commerce ordered a report on ATP in March 1997 (U.S. DOC 1997). The following recommendations from this evaluation are being implemented:

Defense-Related Programs. Defense policy has undergone major changes during the 1990s. Not only has the cessation of Cold War hostilities had a major impact on the size and allocation of the defense budget, but economic considerations and technological advancements are also affecting the U.S. approach to national security. While base closings grab front-page coverage, the less sensational aspects of defense downsizing—namely the paring and reshaping of programs that support scientific research and new technology development—also are being addressed.

During the 1990s, DOD has been pursuing a "dual-use" strategy; i.e., it has been providing financial support to the private sector to develop and deploy technologies likely to have both commercial and military applications. For example, semiflat-panel displays, semiconductors, and smart-weapons technology all have applications in both the commercial and military sectors. The benefits to the government from this approach are assumed to be reduced procurement costs and faster weapons development and improvement cycles.

However, the dual-use approach has attracted a considerable amount of controversy. Opponents contend that it represents an attempt at industrial policy inappropriate for the government in a free-market system. Lack of congressional support led to the demise in 1995 of TRP—the centerpiece of dual-use efforts earlier in the decade.[38] 

TRP's successor is called the Dual-Use Applications Program (DUAP). The mission of DUAP is to develop prototypes for and demonstrate new approaches to incorporating commercial research, technology, products, and processes into military systems. The main difference between this and previous dual-use efforts is that the armed services will play a major role by selecting the technology areas they wish to emphasize and support. The FY 1997 DOD appropriation was $135 million to begin funding two DUAP initiatives:

  1. The Science and Technology Initiative, with an FY 1997 budget of $85 million. The money will be used to fund projects to develop militarily useful, commercially viable technology. One-quarter of the funding for each project will come from the S&T program, one of the three service branches will supply another quarter, and the remaining half will come from the company performing the work.

  2. The Commercial Operations Support Savings Initiative (COSSI), with an FY 1997 budget of $50 million. The money will be used to develop prototypes that leverage commercial R&D to improve the performance of military systems and to decrease operations and support costs. Thirty projects (10 Army, 14 Navy, and 6 Air Force) out of 81 proposals were selected for funding in the 1997 competition.[39] 

There is also 1997 funding for a third dual-use program. The Commercial Technology Insertion Program will provide approximately $7.5 million in FY 1997 to adapt a commercial signal processing technology to the APG-63 Radar and to qualify microelectromechanical sensors for use in military systems.

Other Federal Cooperative Technology Programs. Other examples of government-industry-academic collaborations include those made under the NSF-funded Science and Technology Centers and Supercomputer Centers and the Grant Opportunities for Academic Liaison with Industry Program. These programs stimulate interactions among industry, academia, and government, mostly through personnel exchanges—wwhich are often identified as the most effective way of transferring knowledge across sectors.

Cross-cutting Administration initiatives have also promoted inter-sectoral collaboration. For example, since 1991, the federal High Performance Computing and Communications (HPCC) Program has been responsible for long-term R&D in advanced computing, communications, and information technologies. The Next Generation Internet, which is part of the HPCC initiative, is bringing together users, network providers, and researchers from all sectors to develop new networks and advanced applications technologies, including new multimedia services for homes, schools, and businesses. (See chapter 8.)

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[25] For example, the Industrial Research Institute's annual survey of its membership shows more than one-third of the respondents (over half in 1996) anticipating an increase in alliances and joint ventures between 1993 and 1998 (IRI 1997).

[26] According to NCRA, an RJV is "any group of activities, including attempting to make, making, or performing a contract, by two or more persons for the purpose of (a) theoretical analysis, experimentation, or systematic study of phenomena or observable facts, (b) the development or testing of basic engineering techniques, (c) the extension of investigative findings or theory of a scientific or technical nature into practical application for experimental and demonstration purposes... (d) the collection, exchange, and analysis of research information, or (e) any combination of the [above]." RJV members can be from different sectors as well as from different countries.

[27] Environmental research is probably the best example of an area in which market failure results in underinvestment in research. And, because entire industries are affected and can benefit from collaboration, it is a highly appropriate area for joint research. For example, several U.S. companies and national laboratories are involved in a collaborative effort to discover environmental processing techniques for aerospace materials. Although environmental and safety regulations raise the cost of R&D for many companies-especially those in the chemicals, petroleum, and transportation equipment industries-they also promote research that provides numerous societal benefits (Council on Competitiveness 1996).

[28] Support for these programs has been documented by the National Association of Manufacturers, Industrial Research Institute, and Semiconductor Equipment and Materials International (Council on Competitiveness 1996). In addition, a GAO study of manufacturing extension programs found high levels of private sector satisfaction with these programs (U.S. GAO 1995). Another survey revealed a high level of satisfaction among industry officials who had used federal laboratories: e.g., 89 percent of respondents considered their interactions to be a good use of their companies' resources. Even in cases where the costs exceeded the benefits, many industry officials still expressed high levels of satisfaction (Bozeman, Papadakis, and Coker 1995).

[29] For example, NASA has played a lead role in the development of new technologies in propulsion and aerodynamics that have made crucial contributions to the success of the commercial aircraft industry.

[30] According to one survey, companies' major incentives for working with federal laboratories are leveraging R&D, gaining access to federal expertise and facilities, and developing business opportunities-in that order. Respondents also noted that informal types of interaction were the most frequent and effective. "There is a danger that too much emphasis will be placed on evidence of tangible economic payoffs (CRADAs [cooperative research and development agreements], licenses) as measures of success, with insufficient recognition of the value to companies of access to state-or-the-art knowledge and equipment" (U.S. DOC/OTP 1996). As an example of the growing interaction between federal laboratories and industry, member companies have hosted senior scientists and engineers from Los Alamos, under a special Industrial Research Institute program (Larson 1997a). On the other hand, pharmaceutical and biotechnology companies have historically been reluctant to work directly with government (NIH) laboratories because of intellectual property and pricing issues (the government reserves the right to control the price of products exclusively licensed by pharmaceutical companies), despite passage of the Technology Transfer Act of 1986, which authorized federal intramural laboratories-including NIH- to offer CRADA partners preference in licensing any intellectual property developed under the CRADA.

[31] Most of the information in this section was obtained from Technology Publishing Group (1997).

[32] The Partnership's purpose is to create a zero-pollution, 80-mile-per-gallon automobile marketable early in the next century.

[33] Because ATP is a source of federal funding for technology development that benefits the private sector-and the grants do not have to be repaid or the research results shared-many consider ATP to be a form of "corporate welfare." In the opposite camp are those who believe government has an important role to play in fostering industrial competitiveness by funding research that would not happen without public support. According to one advocate, "ATP plugs a gap that used to make U.S. research vulnerable to foreign competition." The industry official was referring to the perspective that the Federal Government's traditional method of funding research by providing support to academic institutions enables foreign companies to take advantage of the research results at little cost to them (MSNBC 1997).

[34] A $7 million rescission from the $225 million appropriated for ATP made the actual FY 1997 funding level $218 million.

[35] The largest award made was $31.5 million, to a joint venture. Single applications are limited to $2 million (MSNBC 1997).

[36] About 45 ATP projects are classified as "completed," which means the ATP-funded R&D has been done. Several have produced finished products already in the marketplace (MSNBC 1997).

[37] GAO surveyed all winning and "near-winning" applicants during ATP's first four years; the response rate was 100 percent.

[38] TRP competitions were held in 1993, 1994, and 1995. The purpose of the program was to fund public-private partnerships to develop technologies for new products and processes meeting both military and commercial needs. It was managed by the Defense Advanced Research Projects Agency, with participation by several other federal agencies. All federal funding, however, was provided by DOD, with industry providing an equal or higher share of financial support for each project. The most recent data show DOD spending to be approximately $700 million on a total of 131 projects awarded TRP support. Focus areas for the 1995 winners were affordable advanced controls technologies, biological sensors and multi-organ diagnostic screening, digital wireless communications and networking systems, microelectromechanical systems applications, operations other than war/law enforcement, and small precision optics manufacturing technology. (See "Independent Research and Development Provides Additional Defense Funding.")

[39] COSSI agreements will also allow prime contractors to apply their independent R&D funds as a cost-sharing mechanism. See "Independent Research and Development Provides Additional Defense Funding."

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