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Evolution of U.S. Innovation Policy
Gregory Tassey Economic Analysis Office
National Institute of Standards and Technology
tassey@nist.gov
October 2011
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Characteristics of U.S. Innovation Policy Largely focused on public missions: defense, energy, health, security Mission-oriented R&D accounts for ~90 percent of federal R&D budget
80 percent of federal R&D budget is defense and health
U.S. economic growth philosophy is based on “black-box” model
Government funds science and industry develops the technology (black-boxes)
Does not provide decision criteria for different policy instruments (e.g. tax incentives vs. direct funding)
Overall, role of technology in economic growth is poorly understood and thus undervalued
The Innovation Policy Challenge
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Characteristics of U.S. Innovation Policy The positive is that “innovation policy” is finally beginning to evolve into
a broader Science, Technology, Innovation, and Diffusion (STID) policy The “D” in STID includes important mid and late technology life cycle
strategies, such as scale-up and market penetration In fact, the U.S. has been underinvesting in R&D and related economic
assets for decades
This underinvestment is now being manifested in a range of negative economic growth indicators
The Innovation Policy Challenge
GDPLong-Term Growth (smoothed pattern)
Time
Business Cycle (actual growth pattern)
Long-Term vs. Short-Term Growth Trends
Source: Gregory Tassey, “Beyond the Business Cycle: The Need for a Technology-Based Growth Strategy,” forthcoming. 4
Importance of the Policy Problem
0
20
40
60
80
100
120
140
0 5 10 15 20 25
Rate of Innovation vs. R&D Intensity: Percent of Companies in an Industry Reporting Product and/or Process Innovations, 2003-2007
Index
R&D Intensity
Source: Gregory Tassey, “Beyond the Business Cycle: The Need for a Technology-Based Growth Strategy,” forthcoming. Index = sum of percent of companies in an industry reporting product innovations and percent reporting process innovations. R&D intensity data from Science and Engineering Indicators 2010 , Appendix Table 4-14 (industry and other non-federal funds for R&D); innovation data from Mark Boroush, “NSF Releases New Statistics on Business Innovation,” NSF InfoBrief, October 2010
Minimum R&D Intensity
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Importance of the Policy Problem
Relationship Between R&D Intensity and Real Output Growth
Industry (NAICS Code)Average R&D Intensity,
1999-2007Percent Change in Real Output,
2000-2007
R&D Intensive:
Pharmaceuticals (3254) 10.5 19.1
Semiconductors (3344) 10.1 15.4
Medical Equipment (3391) 7.5 28.4
Computers (3341) 6.1 106.2
Communications Equip (3342) 13.0 -42.3
Group Ave: 9.5 Group Ave: 25.4
Non-R&D Intensive:
Basic Chemicals (3215) 2.2 25.5
Machinery (333) 3.8 2.4
Electrical Equipment (335) 2.5 -13.6
Plastics & Rubber (326) 2.3 -4.5
Fabricated Metals (332) 1.4 4.9
Group Ave: 2.5 Group Ave: 2.9Sources: NSF for R&D intensity and BLS for real output. 6
Importance of the Policy Problem – Manufacturing
108.8%
84.9%
107.8%
167.7%
14.6%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
1960-70 1970-80 1980-90 1990-00 2000-10
Fixed Private Investment (hardware & software) (growth by decade in 2005 dollars)
Source: Gregory Tassey, “Beyond the Business Cycle: The Need for a Technology-Based Growth Strategy,” forthcoming. Data from Bureau of Economic Analysis, NIPA Table 5.3.5 (includes both equipment and software) and Table 5.3.4 (price indexes for fixed private investment) 7
Underinvestment – Aggregate
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
U.S. R&D Intensity: Funding as a Share of GDP, 1953-2008
Total R&D/GDP
Federal R&D/GDP
Industry R&D/GDP
Gregory Tassey, “Rationales and Mechanisms for Revitalizing U.S. Manufacturing R&D Strategies,” Journal of Technology Transfer 35 (2010): 283-333. Data from the National Science Foundation. 8
Underinvestment – Amount of R&D
4.86
3.75 3.73
3.42 3.37
3.012.77 2.77 2.68 2.68 2.65 2.53
2.33
2.021.84 1.81 1.77
1.54
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Source: OECD, Main Science and Technology Indicators, 2010.
National R&D Intensities, 2008 Gross R&D Expenditures as a Percentage of GDP
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Underinvestment – Amount of R&D
170.2%
135.1%
65.0%61.0%
42.2%
26.2%20.5%
10.4%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
China Singapore Finland Taiwan South Korea Japan Germany United States
Source: Gregory Tassey, “Beyond the Business Cycle: The Need for a Technology-Based Growth Strategy,” forthcoming. Data from OECD, Main Science and Technology Indicators, 2010/1.
Changes in National R&D Intensity, 1995-2008
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Underinvestment – Amount of R&D
0
10
20
30
40
50
60
70
80
90
100
Australia Canada United Kingdom United States Japan Korea Germany
Low R&D (< 1%) Medium-Low R&D (1-3%) Medium-High R&D (3-5%) High R&D (> 5%)
Shares of Manufacturing Value Added by R&D Intensity
Stephen Ezell and Robert Atkinson (2011), International Benchmarking of Countries' Policies and Programs Supporting SME Manufacturers. Washington: DC: Information Technology and Innovation Foundation, September. Data from OECD, “Industry and Services STAN Database: “Value-added shares relative to manufacturing,” http://stats.oecd.org/index.aspx?r=228903
Percent
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Underinvestment – Amount of R&D
Applied R&D
Basic Research
12 Gregory Tassey, The Technology Imperative, 2007; and, “The Disaggregated Technology Production Function: A New Model of Corporate and University Research”, Research Policy, 2005.
Identifying Underinvestment – Technology-Element Growth Model
g Production MarketDevelopment
EntrepreneurialActivity
ProprietaryTechnologiesProprietary
Technologies
GenericTechnologies
Science Base
Economic Model of a Technology-Based Industry
ValueAdded
Gregory Tassey, The Technology Imperative, 2007; and, “The Disaggregated Technology Production Function: A New Model of Corporate and University Research”, Research Policy, 2005.
StrategicPlanning
Risk Reduction
System Integration
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Identifying Underinvestment – Technology-Element Growth Model
Application of the Technology-Element Model: Biotechnology
Science Base
Infratechnologies
Generic Technologies Product Process
Commercial Products
genomics immunology microbiology/
virology molecular and
cellular biology nanoscience neuroscience pharmacology physiology proteomics
bioinformatics bioimaging biomarkers combinatorial
chemistry DNA sequencing and
profiling electrophoresis fluorescence gene expression
analysis magnetic resonance
spectrometry mass spectrometry nucleic acid
diagnostics protein structure
modeling & analysis techniques
antiangiogenesis antisense apoptosis bioelectronics biomaterials biosensors functional genomics gene delivery
systems gene testing gene therapy gene expression
systems monoclonal
antibodies pharmacogenomics stem-cell tissue engineering
cell encapsulation cell culture microarrays fermentation gene transfer immunoassays implantable delivery
systems nucleic acid
amplification recombinant
DNA/genetic engineering
separation technologies
transgenic animals
coagulation
inhibitors DNA probes inflammation
inhibitors hormone
restorations nanodevices neuroactive
steroids neuro-transmitter
inhibitors protease inhibitors vaccines
Public Technology Goods
Mixed Technology Goods
Private Technology Goods
14 Gregory Tassey, The Technology Imperative, Edward Elgar, 2007
Identifying Underinvestment – Technology-Element Growth Model
Production
Gregory Tassey, “Rationales and Mechanisms for Revitalizing U.S. Manufacturing R&D Strategies,” Journal of Technology Transfer 35 (2010): 283-333.
StrategicPlanning
MarketDevelopment
EntrepreneurialActivity
RiskReduction
ProprietaryTechnologies
GenericTechnologies
Science Base
Joint Industry-Government Planning
Market Targeting Assistance and Procurement Incentives
Acceptance Test Standards and National Test Facilities (NIST)
Interface Standards (consortia, standards groups)
Technology Transfer/Diffusion (MEP)
National Labs (NIST), Consortia
Intellectual Property Rights (DoC)
National LabsDirect Funding of Firms & Universities (DARPA, ARPA-E, NRI, AMTech)
Tax Incentives
Incubators (states)
Managing the Entire Technology Life Cycle: Science, Technology, Innovation, Diffusion (STID) Policy Roles
ValueAdded
Scale-Up Incentives
System Integration
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Policy Response
Emerging Targets of R&D Policy:
Amount of R&D Create financial incentives for private companies to increase investments in R&D and
increase the R&D intensity of the manufacturing sector Increase Federal investment in research aimed at objectives relevant to private-
sector R&D targets in addition to those related to agency missions
Composition of R&D Create incentives for private-sector investment in early phases of R&D cycle Create public-private partnerships to meet industry’s long-term research needs
through support for innovation clusters Fund research aimed at manufacturability to overcome scaling issues and target the
“other” 90% of manufacturing value added (outside of NAICS 3345 and 3364) Eliminate barriers to investment in new and innovative technology-based firms (high
technical risk, appropriability, and process-capability barriers)
Efficiency of R&D Improve R&D timing and content through road mapping and portfolio management
techniques Increase rates of return and shorten the R&D cycle through technology clusters and
other forms of collaboration Build in technology transfer through cluster design and IP management 16
Policy Response