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TRANSCRIPT
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The Technology Imperative andThe Future of R&D Policy
Gregory Tassey
Senior Economist National Institute of Standards and Technology
September 2008
http://www.nist.gov/director/planning/strategicplanning.htm
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The Technology Imperative
Conventional wisdom: “The world is flat”
Global diffusion of competitive assets
Technology has become a major competitive asset
Increasing role of technology enables nations to “tip the flat world” in their favor
Requires a new growth paradigm based on
Evolutionary shift in corporate strategy
National Multinational Global
Result is reduced stake in the “home” economy
Emergence of governments as competitors
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3
The Problem:
The United States is no longer “the high-tech economy”
Resistance to adaptation in the face of the emergence of the global technology-based economy is pervasive
Installed-base effect (sunk costs: investments in intellectual, physical, organizational and marketing assets)
Installed-wisdom effect (the current approach is the best one)
“The long run is not a problem until you get there, then it’s a crisis”
The Technology Imperative
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New growth paradigm requires revisions to long-standing economic concepts
Revision to static version of the “law of comparative advantage”
Imperative: Switch to a dynamic version of this law
Modification of Schumpeter’s “one-sector” creative destruction model
Imperative: Modify to a two-sector, full life-cycle model
The Technology Imperative
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Response: Improved R&D Policy Analysis
(1) Demonstrate importance of technology for economic growth
(2) Identify indicators of underperformance at the macroeconomic level Productivity growth Trade balances Corporate profits Employment and earnings
(3) Estimate magnitude and composition of underinvestment Specific R&D investment trends Investment by phase of the R&D cycle Technology diffusion rates
(4) Identify causes of underinvestment Excessive technical and market risk Appropriability problems Inadequate innovation infrastructures
(5) Develop policy responses and management mechanisms Policy instruments matched with underinvestment phenomena Economic impact assessments
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Importance of the Technology-Based Economy
1) Technology accounts for one-half of output (GDP) growth
2) High-tech portion of industrialized nations’ manufacturing output has increased by a factor of between 2 and 3 over past 25 years
3) High-tech portion of global trade in goods has tripled in the past 25 years
4) Median wages in all 29 BLS “high-tech” industries exceed median for all industries; 26 of these industries exceed national median by >50%
5) Technologically stagnant sectors show slow productivity growthresulting above-average price increases
6) Acceleration of U.S. productivity growth in 1990s is entirely due to technology investments
7) Productivity advantage of the U.S. economy over other OECD countries accounts for 3/4 of the per capita income gap
8) Rate of return from R&D is four times that from physical capital
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7
-2%
0%
2%
4%
6%
8%
10%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Non-Farm Private Sector Employment Growth in Post World War II Business Recoveries: Percent Change from Recession Trough
Sources: G. Tassey, The Technology Imperative; BLS for employment data; NBER for recession trough dates
Months
Average of Seven Prior Post-War Recoveries
1990-91 Recovery
2001 Recovery
Underperformance
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8
0%
2%
4%
6%
8%
10%
12%
14%
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002
Ratio of Domestic Corporate Profits Before Taxes to GDP, 1948-2007
Source: Bureau of Economic Analysis, NIPA Table 1.14 for corporate profits before taxes (Gross Value Added). Domestic profits exclude receipts by all U.S. corporations and persons of dividends from foreign corporations, U.S. corporations’ share of reinvested earnings of their incorporated foreign affiliates, and earnings of unincorporated foreign affiliates net of corresponding payments.
Underperformance
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9-1,000
-800
-600
-400
-200
0
200
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
All GoodsAdvanced Technology
Products
$ Billions
Source: Census Bureau, Foreign Trade Division
U.S. Trade Balances for High-Tech vs. All Goods, 1988-2007
Underperformance
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10
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
R&D Intensity: Funding as a Share of GDP, 1953-2006
Source: National Science Foundation
Total R&D/GDP
Federal R&D/GDP
Industry R&D/GDP
Indicators of Underinvestment – Amount
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4.49
3.89
3.483.33
2.98 2.902.78
2.622.48 2.46
2.252.13
1.98
1.74
1.33
Source: OECD, Main Science and Technology Indicators, May 2007
National R&D Intensities, 2005 Gross R&D Expenditures as a Percentage of GDP
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Indicators of Underinvestment – Amount
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• High-Tech Sector:
Electronics
Pharmaceuticals
Communication Services
Software and Computer-Related Services
• Accounts for 7 – 10 percent of GDP
• Bottom Line: The other 90+ percent of the economy is susceptible to market share erosion and decline
Indicators of Underinvestment – Amount
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Trends in Value Added
Industry (NAICS Code)% Change in Value Added1985–2000 2000–2006
R&DIntensity
GDP 132.6 34.4 2.6
Manufacturing (31–33) 92.7 8.7 3.6
Motor vehicles and parts (3361‐63) 84.0 ‐18.0 2.5
Textiles, apparel and leather (313‐16) 8.2 ‐34.7 1.6
Computer & Electronic Products (334) 144.5 ‐24.7 9.0
Publishing, Including Software (511) 225.1 28.8 17.1
Information & Data Processing (518) 305.4 81.7 8.7
Professional, Scientific & Technical (54) 249.6 37.1 10.0
Health Care (621‐23) 194.6 50.4 3.9
Indicators of Underinvestment – Amount
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Geographic Concentration: • Six states account for almost one-half of all R&D
• Ten states account for 60 percent of all R&D
• Bottom Line: The remaining 40 states are not a high-tech
economy
Indicators of Underinvestment – Amount
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Geographic Distribution of U.S. R&D: Top Ten States by Share of R&D Performance, 2006
State % of Population % of National R&DCalifornia 12.0 19.8% Michigan 3.3 5.7% New York 6.3 5.5% Texas 7.8 4.4% Massachusetts 2.1 4.9% Pennsylvania 4.1 4.6% New Jersey 2.8 4.4% Illinois 4.2 3.9% Washington 2.1 3.7% Maryland 1.8 3.7% Total 46.5 60.5%
Source: National Science Foundation
Indicators of Underinvestment – Amount
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0
20
40
60
80
100
120
140
160
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Industry Funds for R&D by Major Phase, 1991-2006 (in constant 2000 dollars)
Source: National Science Foundation
Development: up 94.3%
Applied Research: up 45.7%
Basic Research: up 7.4%
$ Billions
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Indicators of Underinvestment – Composition
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Major Innovations (14% of Launches)
Incremental Innovations
(86% of Launches)
62% of Revenue 38% of Revenue
61% of Profits
39% of Profits
Profit Differentials for Major and Minor Innovations
Source: W. Chan Kim and Renee Mauborgne, “Value Innovation: The Strategic Logic of High Growth”, Harvard Business Review, 1997
Indicators of Underinvestment – Composition
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“Black Box” Model of a Technology-Based Industry
Proprietary Technology
EntrepreneurialActivity
Market Development
Value Added
Value Added
Strategic Planning Commercialization
Science Base
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Causes of Underinvestment — Composition
G. Tassey, The Technology Imperative, Edward Elgar, 2007
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StrategicPlanningStrategicPlanning ProductionProduction
MarketDevelopment
MarketDevelopment
ValueAddedValueAdded
EntrepreneurialActivity
RiskReduction
RiskReduction
ProprietaryTechnologiesProprietary
Technologies
GenericTechnologies
GenericTechnologies
Science Base
Economic Model of a Technology-Based IndustryValueAdded
Gregory Tassey, The Economics of R&D Policy, 1997 19
Causes of Underinvestment — Composition
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Causes of Underinvestment — Composition
Application of the Technology-Element Model: Biopharmaceuticals
Science Base
Infratechnologies
Generic Technologies Product Process
Commercial
Products genomics immunology microbiology/
virology molecular and cellular
biology nanoscience neuroscience pharmacology physiology proteomics
bioinformatics biospectroscopy combinatorial chemistry DNA sequencing and
profiling electrophoresis fluorescence gene expression analysis magnetic resonance
spectrometry mass spectrometry data 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
G. Tassey, The Technology Imperative, Edward Elgar, 2007
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R&D Cycle
Commercial Products
Overcoming the Innovation Risk Spike (Valley of Death)
Risk
Basic Research
Generic Technology Research
Applied Research and Development
6 years10 years Commercialization
R0Science Base
Source: G. Tassey, “Underinvestment in Public Good Technologies”, Journal of Technology Transfer 30: 1/2 (January, 2005)
Measurement & Standards Infrastructure
“Valley of Death”
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Causes of Underinvestment — Composition
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New Global Life Cycles
Old Domestic Life Cycles
Potential or ActualPerformance/Price
TimeA C B
Compression of Technology Life Cycles
22G. Tassey, The Technology Imperative, Edward Elgar, 2007
Causes of Underinvestment — Composition
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•
•
A
BCurrent Technology
New Technology
Potential or Actual Performance/Price Ratio
Time
Transition Between Two Technology Life Cycles
Source: Gregory Tassey, The Economics of R&D Policy, 1997
Causes of Underinvestment — Composition
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Time
Potential or Actual Performance-Price Ratio
Life-Cycle Market Failure: Generic Technology
B
C′•
•
Current Technology
New Technology
A
•• •
D
C
Policy Response
G. Tassey, The Technology Imperative, Edward Elgar, 2007
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•A
B
New Technology
Potential or Actual Performance/Price
Time
••
Life Cycle Evolution: Infratechnology
Current Technology
CC′
Source: Gregory Tassey, The Technology Imperative, Edward Elgar, 2007
•C′′
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Policy Response
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StrategicPlanning Production
MarketDevelopment
ValueAdded
EntrepreneurialActivity
RiskReduction
ProprietaryTechnologies
GenericTechnologies
Science Base
Joint Industry-Government Planning
Market Planning Assistance
Acceptance Test Standards; National Test Facilities
Interface Standards
Measurement Standards
National Labs (NIST)
Intellectual Property Rights
National Labs
Direct Funding of Firms, Universities,
Consortia
Technology Transfer (Universities, MEP)
Tax Incentives
Universities
ValueAdded
Targets for Science, Technology, Innovation and Diffusion (STID) Policy
Policy Response
G. Tassey, The Technology Imperative, Edward Elgar, 2007
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Tax Incentives: R&E Tax Credit
Still temporary after 27 years (renewed 13 times)
No consensus on what market failure is being targeted
Limited analysis of the credit’s impacts
No analysis of alternative forms of tax incentives
Government Funding of R&D
Okay to fund breakthrough technology research and even applied R&D to support social objectives (defense, health care)
Not okay to fund any technology research to support economic growth (ATP TIP)
No explicit agreement on underinvestment (market failure)
Response: Improved R&D Policy Analysis
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1) The high-income economy must be the high-tech economy – higher R&D intensity
2) Technology life cycle must drive policy – R&D and diffusion policy efficiency over entire cycle
3) Technology-based competition is a public-private problem – public-private asset (multi-element) growth model
4) Policy emphasis must be on relatively immobile assets– skilled labor and innovation infrastructure
5) U.S. technology-based growth policy process must be improved – more resources and better scope and integration
Policy Principles
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R&D Policy Imperatives
1) R&D intensity should be doubled to ~ 5 percent
2) R&E Tax Credit must be restructured and enlarged to a 10 percent flat credit
3) Federal R&D must be better balanced across IT, nanotechnologies, biotechnology, etc.
4) Government R&D funding must be element baseda) scienceb) generic technology (proofs of concept)c) infratechnologies
5) R&D efficiency must increaseda) more technology clusters b) better timing of policies over technology life cycle
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“Sooner or later, we sit down toa banquet of consequences”
– Robert Louis Stevenson
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