But BrightSource Energy, a major player in the market for concentrating solar power, or CSP, recently announced the installation of new thermal energy storage technology at three of its planned power plants in California. This thermal energy storage technology will go a long way toward solving the intermittency problem for concentrating solar power. BrightSource’s announcement demonstrates that we can in fact get reliable baseload power from the sun.

The thermal energy storage system, built using SolarPLUS technology, works by using hundreds of flat glass mirrors–called heliostats– to concentrate the rays of the sun, heating molten salts to several hundred degrees above the boiling point of water. The superheated salt is then stored in a giant insulated container. When the power plant needs to add additional output, it can use the heat stored in the molten salt to boil water to create steam to drive its turbines.

The added storage capacity will allow BrightSource’s new concentrating solar thermal power plants to continue producing electricity up to two hours after the sun stops shining. It will also enable the power plants to produce electricity at a steady and predictable rate throughout the day and will smooth out fluctuations that make managing solar power tricky for grid operators. Even better, the new thermal storage systems will allow the CSP plants to produce twice the electricity on the same amount of land as could be produced by traditional photovoltaic panels. This advance is yet another step toward the near future when solar energy can replace rather than simply supplement energy produced by fossil fuel power plants.

Adding this storage capacity to three existing plants will increase production by 4 million megawatt-hours, according to BrightSource. The company had originally planned to build seven plants at its location in California, but by applying storage technology, it discovered it could decrease the number of plants while producing more energy. The new plants are slated for completion over the next five years.

The deal is awaiting approval from the California Public Utilities Commission, or CPUC, which tentatively gave the green light to Pacific Gas and Electric to make a power purchase agreement with the Mojave Solar Project amid objections that the agreement would be too costly. But the CPUC has little to worry about with BrightSource and Southern California Edison. The technology BrightSource employs, which consists of mirrors and a water boiler, is cheaper and more cost-efficient than the older CSP technology that the Mojave Solar Project utilizes, and since the plants are air-cooled, they consume low amounts of precious desert water resources. By increasing storage capacity, BrightSource estimates it will actually lower costs for customers.

Additionally, the CPUC should approve the contracts because the deal is a natural consequence of a 2010 California bill, AB 2514, imploring the CPUC to determine good commercial targets for improved energy storage. The bill would hold the commission responsible for identifying cost-effective storage targets for power producers and then creating the appropriate regulations and incentives for storage deployment. BrightSource’s announcement of thermal storage technology shows the company is remaining a step ahead of the game.

Some environmentalist opponents object to the impact that the solar plants will have on Mojave ecosystems. But the storage technology will allow BrightSource to produce as much power with six plants as it otherwise would have with seven. The decision to scrap the seventh plant will translate to even more price cuts for consumers, as well as 1,280 acres of desert spared from development.

In what looks like a win-win for BrightSource, Southern California Edison, the environment, and consumers, solar storage is evolving from a distant dream to the reality of the present. Altogether the Ivanpah project will lead to 1,400 union construction jobs at peak construction, $650 million in worker wages over the life of the project, and avoid 13.5 million tons of carbon dioxide emissions. Said BrightSource Chief Executive John Woolard, “We came out very strongly with what I believe is the largest solar storage deal in the world.” If the CPUC approves the landmark contracts, the rest of the nation could also come out very strongly, as the region and the nation reaps the economic and environmental benefits of this new and dynamic industry.

Lauren Simenauer is a former intern with Science Progress, and Sean Pool is Assistant Editor of Science Progress.

President Obama’s State of the Union address last night demonstrated the importance of U.S. science and economic competitiveness to a prosperous and growing middle class. His focus on “keeping the American Dream alive,” invoking core American values of “fair play,” and “shared responsibility,” were inexorably linked to his administration’s past innovation policy actions and proposals for 2012.

This reflects the Obama administration’s clear understanding that innovation is an intrinsic aspect of the American identity, and an indispensable tool to ensuring the future success of our economy and middle class. Indeed, as the president said last night, “innovation is what America has always been about.”

Certainly, technology can be a double-edged sword. It creates, as the president said, “new American jobs, and new American industries,” but “technology… also [makes] some jobs obsolete.” The only way to compete for the new jobs, new businesses, and new industries that technology brings is to keep our economy on the cutting edge by investing in the building blocks of innovation—the assets our businesses, workers, and industries need to stay best in class. The blueprint the president unveiled last night outlined a robust vision to invest in those building blocks, which include:

• Innovative manufacturing
• A work force with technical skills
• Thriving small and startup businesses
• Modern infrastructure
• Access to international markets
• Robust public research and development

These innovation building blocks mirror closely the broad policy areas we identified and developed in our recent package of five policy reports on U.S. science, innovation and economic competitiveness.

The president in his speech gave key examples of these innovation factors now at work in our economy. First, he alluded to the importance of innovation in manufacturing when he touted his policies that helped Detroit retool and restructure to adapt to changing market conditions. Proposing that high-tech manufacturers who innovate here at home rather than outsourcing their facilities get a tax deduction, Obama suggested “what’s happening in Detroit can happen in other industries. It can happen in Cleveland and Pittsburgh and Raleigh.” Our work on innovation clusters has long argued the same thing, and a forthcoming paper on manufacturing innovation looks into this in more detail.

The next part of the president’s blueprint for an innovative economy is technical skills for the workforce. “Higher education,” said the president, “is an economic imperative,” and outlined the problems our innovation-intensive industries face today:

“I hear from many business leaders who want to hire in the United States but can’t find workers with the right skills. Growing industries in science and technology have twice as many openings as we have workers who can do the job. Think about that: openings at a time when millions of Americans are looking for work. It’s inexcusable. And we know how to fix it.”

To address the problem, the president invoked the story of Jackie Bray, who benefited from a regional partnership between a Siemens gas turbine factory and a local community college that helped her get the skills she needed to help fill one of these technology job shortages.

In order to better equip our students with the skills they need to stay competitive in the 21st century global innovation economy, he outlined proposals to expand access to higher education, transform community colleges into community career centers, and streamline access to scattered federal workforce training assistance programs through a single program. Our papers “Building a Technically Skilled Workforce” and “Rewiring the Federal Government for Competitiveness” contain detailed versions of these proposals.

The president also noted that another piece of the puzzle to building the workforce we need is to “stop expelling responsible young people who want to staff our labs or start new businesses.” Our paper “Immigration for Innovation” addresses this need to reform our high-skill immigration system to ensure the United States remains the land of opportunity for all.

The president also spoke forcefully about the importance of inventive entrepreneurs to our economy and of the returns on public investment in research and innovation. Noting “most new jobs are created in startups and small businesses,” President Obama called for policies to help them succeed.

“Thousands of Americans have jobs,” he said, thanks to our public investments in clean technology innovation. He also pointed out that “the payoffs on these public investments don’t always come right away. Some technologies don’t pan out; some companies fail.” The fourth paper in our series on science and competitiveness, “Universities In Innovation Networks” contains five broad pieces of policy that would help accelerate the motion of basic research to market through the commercialization of university research.

President Obama also reiterated his proposal to consolidate trade and commerce agencies to make the federal government work better in ensuring businesses large and small have access to international markets for their products and technologies. Our paper “Rewiring the Federal Government for Competitiveness,” takes this proposal and goes into deeper detail about how consolidation of federal trade, technology, workforce training, and economic development programs and agencies can help promote more strategic coordination of these activities and promote innovation and competitiveness of U.S. businesses and regional economies.

The president’s State of the Union address demonstrates the importance that science and innovation policy play in his larger efforts to rebuild our middle class and return to our core American values. Innovation policy is a key piece of the toolset the Obama administration will use to develop an economy build to last and keep alive the American dream for the middle class.

Ed Paisley and Sean Pool are the coordinating editors of the series on U.S. science and economic competitiveness by the Center for American Progress. Ed Paisley is Vice President for Editorial at the Center. Sean Pool is assistant editor in charge of the Center’s Science Progress project.

One fact and one imperative appear to be on a collision course. Federal spending will decrease in the coming years, yet the  importance of boosting our nation’s science and economic competitiveness cannot be overstated. How do we reconcile the  two?

The traditional language used in such circumstances is to seek more bang for the buck. But even that’s not good enough  anymore. The federal budget has to deliver the “best” for the buck, meshing the most efficient use of taxpayer resources with the most effective structure. That is particularly true where the federal government works with businesses, workers,  communities, universities, and state and local governments to grow our economy. The historical evolution of federal functions and the jurisdictional scope of congressional committees no longer justify the current grab-bag organization of trade,  technology, economic growth, and workforce functions in our federal government.

Today, there are more than 3,000 federal assistance programs that provide grants, loans, credit enhancements, and financing and technical assistance to firms, educational institutions, nonprofits, and local governments to pursue job-creating activities related to science and economic competitiveness. These programs are currently administered separately by the Economic Development Administration, Employment and Training Administration, Small Business Administration, Department of Housing and Urban Development, Department of Agriculture, and a swath of other federal agencies. Beyond assistance programs, other federal efforts that affect competitiveness—such as industry contracts, regulatory frameworks, and existing management structures—are equally fragmented.

That is why we propose reorganizing the functions of the Department of Commerce, moving significant portions of the current agency to other parts of the executive branch, and bringing in competitiveness-relevant functions from agencies outside the Department of Commerce. The purpose: to create a new, focused Department of Competitiveness that integrates federal policy around four interconnected areas of competitiveness:

• Trade
• Technology
• Economic growth
• Workforce development

Where federal efforts are focused on general-purpose outcomes, such as export promotion and infrastructure technologies, we suggest that they be placed within the new department to boost their effectiveness. Where federal efforts are specialized and mission-specific but share overlapping constituencies with the new department’s work, we propose the creation of a new “Common Application”—a single point of access to related federal programs—to ensure that programs also work smoothly across governmental agencies in a manner that is most convenient for their users, such as small businesses and universities.

It is a testament to American ingenuity and our talented people, within and outside government, that we get the outcomes that we do from the many disjointed existing efforts. Our science successes range from the sequencing of the human genome to social networking technologies, and our economic successes range from our nation’s leading edge biosciences industries to the job-creating power of new industries proliferating across the Internet. Yet the press of global competition requires that we do better—much better.

To its credit, the Obama administration, recognizing the disjointedness of these many different programs, has launched a series of initiatives to harness the best of these efforts into a new national innovation and competitiveness strategy for the 21st century. President Obama has also issued a presidential memorandum instructing agencies to assess possibilities for government reform for competiveness. And already likeminded federal agencies with missions and money that clearly overlap are teaming up to offer competitive grants to develop cutting-edge technologies and the workforce needed to commercialize them in energy efficiency, advanced nuclear technology, and solar-made fuels, just to name a few. These efforts have another common purpose—to tap the comparative advantages of key regional economies and scientific centers of learning so that federal efforts align with the unique competitive strengths of our nation—our bottom-up scientific development and economic engine.

These competitive-grant programs offer policymakers some clear lessons on how our federal government can play to the strengths of our scientists, our engineers, our entrepreneurs, our financiers, our experienced workforce, and our eager students at universities, community colleges, and high schools across the country.What’s missing is a federal government structure that also plays to these strengths, is institutionalized effectively, and delivers efficient and competitive federal funding to fuel the bottom-up economic capabilities of our economy.

Simply put, government structures from the 19th and 20th centuries no longer conform to the demands of the 21st. Budget exigencies and economic-growth objectives require that the economic-growth efforts of the federal government be reconstituted so that our nation:

• Makes the most efficient use of federal resources
• Aligns most effectively with the businesses that create business plans and the state and local governments that implement regional growth strategies
• Encourages bottom-up growth strategies attuned to the unique needs of the United States’ many regional economies

There has never been a U.S. cabinet-level agency like the one we propose. And there has never been a time when it is needed more than it is today. This new department would retain many of the existing functions of the Department of Commerce centered on economic growth and business formation, but would add to their critical mass while reducing redundancies across the federal government. Bringing together key competitiveness functions around trade, technology, training, and economic growth under one umbrella will elevate the effectiveness and the status of the newly created department within the government, and increase the influence of its secretary in the cabinet.

Today, national macroeconomic policies are managed by the White House, the Department of the Treasury, and the independent Federal Reserve Board. Mission-specific economic policies find their home in agencies that include the Departments of Education, Energy, Housing, Labor, and Defense, and the National Institutes of Health. But economic growth is not simply a matter of macroeconomic policy plus the sum total of mission-specific policies. The creation of businesses, the hiring and training of workers, and the growth of communities stem as well from opportunities fostered by governments seeking to boost economic growth in all sectors of the economy in all the different parts of our nation.

Crafting a new Department of Competitiveness would align federal programs more effectively and efficiently with the realities of our uniquely American competitive strengths. That process can start right now, before legislation is passed, with an executive order that, as explained below, improves the efficiency of current microeconomic policies. And that same goal would be the charge of the new Department of Competitiveness.

Any plan to revamp the Department of Commerce must ultimately find a home for the National Oceanic and Atmospheric Administration, or NOAA. A recommendation about the most appropriate location for NOAA is beyond the scope of this report. But regardless of its ultimate home within the bureaucratic landscape, NOAA must maintain its structural integrity and fiercely protect the preeminent role of science in management of our nation’s oceanic and atmospheric resources. Further, NOAA must ensure that its regulatory decisions remain free of undue pressure from external sources. As the conversation about government reorganization continues to evolve, the Center for American Progress’s environment and ocean policy teams will be developing specific recommendations about an appropriate structure for this agency.

Similarly, in addressing the issue of what to do with the federal government’s various economic statistics functions, we quickly found that the scope of the question outgrew the space in this paper. One approach, as CAP suggested in its “Focus on Competitiveness” paper, would be to bring the Census Bureau and the Bureau of Economic Analysis together as part of a consolidated economic statistics agency. We asked George Washington University research professor Andrew Reamer to write a separate paper for this series titled “Economic Intelligence.” He makes a number of practical, achievable recommendations to upgrade our national statistics efforts for the 21st century.

Uniting these four focus areas—trade, general-purpose technology, place-based economic growth, and workforce training—under one department would increase efficiency and enable the government to more effectively create and implement a truly comprehensive strategy to foster American innovation and economic competitiveness. The result would be more and better job creation and sustained economic growth.

We do not assert that the recommendations are unquestionably correct. In particular, we understand that questions of coordination can arise even if functions are managed within the same department; there is no single, perfect solution. But we hope that this paper begins a real dialogue about what it would take to design and implement a coherent national competitiveness strategy insulated from the quadrennial shifting of political fortunes.

In the main pages of this report, we detail our vision for this new Competitiveness Department, including an overview of its new functions and an explanation of which existing agencies, programs, offices, bureaus, and programs might be incorporated and why. We then examine how to better network and integrate other mission- specific innovation programs in the departments of Defense and Energy, and the National Institutes of Health, with the new work of the rewired Department of Competitiveness. First, though, here is our proposal in a nutshell.

Jonathan Sallet is a partner in the Washington D.C. office of O’Melveny & Myers LLP. Sean Pool is the assistant editor of Science Progress, the Center for American Progress’s online science and technology policy journal.

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New federally funded research could lead to more cost-effective materials for using waste heat for electricity and cooling – opening up innovation in a new class of waste heat conversion technologies. The research was conducted with funding from the Department of Energy’s Energy Frontier Research Centers program, an innovative approach to developing early-stage breakthroughs on the cutting edge of energy technology, and used resources from at Brookhaven National Lab.

High-efficiency thermoelectric materials – technologies that convert heat to electricity, and electricity into refrigeration – have been improved by researchers in New York, who say they have developed a process to increase conversion efficiencies and reduce material costs.

When connected to a circuit and insulated properly, these technologies can contribute significantly to energy efficiency. For example, thermoelectrics are used today in portable, lightweight refrigerators and coolers, as well as in automotive exhausts, where excess heat converted by thermoelectric converters has been found to increase fuel economy by three percent.

Materials scientists and engineers at Rensselaer Polytechnic Institute have developed new processes that allow manufacturers to break down and microwave bismuth telluride, a popular thermoelectric material, into “hexagonal nanoplates”—tiny thermoelectric particles that, when pressed together, form extra-efficient heat (and energy)  transferring materials.

Past advances in the field have been stymied by the lack of ability to produce both electron (“n-type”), and proton-heavy (“p-type”), nanoparticles, both necessary for electricity conversion, and a problem that RPI researchers have overcome:

The technique, presented in a Nature Materials paper posted online last week, makes p-type materials that are as efficient as the best ones on the market, while the n-type materials are at least 25 percent more efficient. One of the biggest commercial thermoelectric device manufacturers is now interested in adopting the new materials and process.

The key breakthrough of the RPI work, according to Badding, is that the researchers are building the nanostructured materials from the bottom up using chemistry. This means they can fine-tune the properties of the building blocks and their assembly to improve the material’s properties. “The way they’re making the material is a big deal,” he says. “The hope is that in the future, this type of approach could lead to better [efficiency].”

The Institute’s advancements in production and process are already being picked up by thermoelectric device manufacturers in the market. These new materials could be used to help cool electronics, large buildings and power vehicles. Not only is this an encouraging story for energy efficiency technologies, but also a textbook example of how our federal innovation system can help not just advance basic understanding of science but also lead to useful new products that solve real problems. This research was funded by two different federal agencies, and the experiments could not have been done without the federal government’s investment in advanced physics equipment at Brookhaven National Lab.

Zachary Rybarczyk is an intern with American Progress’s Energy Department, and a senior at Ohio State University.

• Rewiring the Federal Government for Competitiveness by Jonathan Sallet and Sean Pool
• Universities in Innovation Networks by Krisztina “Z” Holly
• Building a Technically Skilled Workforce by Louis Soares and Stephen Steigleder
• Economic Intelligence by Andrew Reamer
• Immigration for Innovation by Marshall Fitz.

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Innovation is and always has been the engine that drives economic growth in the United States. Economists believe that innovation—new technologies, products, processes, and the industries they create—is responsible for between half and 80 percent of all economic growth.

Indeed, U.S. companies and industries, with the help of federally funded research, have invented many things that the world wants to buy—think light bulbs, assembly line automobile production, computers, Internet applications, handheld wireless devices, photovoltaic solar cells, Global Positioning System satellites, and the list goes on. This innovative spirit of the American people, protected by the rule of law, keeps us in the world’s top position in innovation, and subsequently ensures we are home to the world’s best-paying jobs and highest standards of living.

But in the 21st century our lead is beginning to erode. It’s not that we’ve started doing anything wrong—we are still home to the world’s most productive workers and innovative companies. Rather, it is because others have followed in our footsteps, and in some cases gone even further to invest specifically in the interrelated building blocks of a high-performance innovation engine. Across a spectrum of metrics—from education and workforce readiness, to research and development, to manufacturing, to infrastructure—our nation’s competitive position is slipping relative to other countries that are investing more in the driver of economic growth and prosperity. This slippage costs us jobs, investment, and wage growth.

In response to these emerging challenges, Congress reauthorized the America COMPETES Act in January 2010. The law is a crucial piece of legislation that ensures investments in the building blocks of innovation and competitiveness: research, education, infrastructure, manufacturing, and innovation networks.

But realizing that the COMPETES Act is only a stopgap measure, Congress also asked the secretary of commerce to complete two important studies of our national innovation capacity and economic competitiveness. The first, released earlier this month by Commerce Secretary John Bryson at an event at the Center for American Progress, was a comprehensive analysis of the competitive position of the U.S. innovation system. The second, due in January of 2012, will outline a 10-year strategic plan to give our national innovation engine a major tuneup.

The Center for American Progress applauds this action by the federal government. But we as a nation need to move faster. That’s why two CAP teams, one from Science Progress and the other from the Doing What Works project, convened a taskforce in early 2011 comprised of innovation policy experts to assess these same issues in tandem. This taskforce identified six key areas where policy barriers inhibit innovation and hold back national competitiveness:

• The structure of federal programs itself is out of date and thus unable to respond strategically to the innovation challenges of the increasingly competitive 21st century global economy.
• Federal data and statistical systems are not optimized to gather key 21st century innovation metrics. What isn’t measured, isn’t managed.
• The U.S. workforce development system does not adequately connect students and working learners to the needs of innovation-intensive industries on the cutting edge of the global economy.
• Federal research and development efforts are not optimized to make the most of basic and applied research occurring in universities in communities across the country.
• The U.S. immigration system needs to reform to ensure that talented foreign-born workers with bright ideas can start business and help contribute to innovation and job creation.
• Better policies are needed to strengthen the vital link between U.S. manufacturing and technical innovation capacity.

These six areas form the basis for the Center’s Series on U.S. Science, Innovation, and Economic Competitiveness. Each report in the series focuses on a different building block of our national competitiveness.

In “Rewiring the Federal Government for Competitiveness,” Science Progress advisor and former Commerce Department official Jonathan Sallet and Science Progress Managing Editor Sean Pool identify areas where existing federal programs and services could be coordinated more strategically to promote innovation and competitiveness. Specifically, the paper identifies four key competitiveness areas where the splintered nature of existing programs and policymaking inhibits national competitiveness priorities:

• Trade
• Technology
• Workforce training
• Economic development

The paper proposed that the Department of Commerce become a more robust “Department of Competitiveness,” absorbing several other government agencies and programs to ensure the federal government supports innovation and economic growth more effectively and efficiently across these four competitive arenas. Importantly, the paper presents a “common application” program that would allow for more strategic coordination between the federal government, state and local governments, businesses, universities, and regional economic development players.

The second report, “Economic Intelligence,” by Professor Andrew Reamer, addresses the federal data system that is so important to policymaking. Any national competitiveness strategy must be guided by good data and metrics. Reamer’s paper finds that the current public statistics system leaves both the government and the private sector in the dark about key drivers of innovation and competitiveness, inhibiting our ability to manage and maximize these important economic forces. He proposes four pragmatic and targeted reforms that would:

• Improve competitive analysis in U.S. traded industries—the ones on the front lines of global competition
• Better measure intermediate outcomes of innovation, such as rates of entrepreneurship, invention, and network formation
• Conduct factor analysis structural building blocks of innovation—workforce capacity, R&D, financial capital, physical infrastructure, and clusters
• Directly evaluate the impact of public-sector innovation programs

These reforms are designed to empower not only the government but also technology companies, manufacturers, exporters, entrepreneurs, students, research institutions, and workforce training organizations to make smarter decisions and stay on the cutting edge of innovation.

In “Building a Technically Skilled Workforce,” American Progress workforce experts Louis Soares and Stephen Steigleder address the shortage in our pipeline of middle-skill workers—such as welders, technicians, and nursing assistants—needed to meet the emerging demands of innovation-intensive industries including biotechnology, nanotechnology, clean energy, and advanced manufacturing. The authors find that the projected shortage of 5 million middle-skill technicians by 2018 will hamper the ability of our companies to get the human capital they need to stay on the cutting edge of innovation. To address this problem, they propose converting an existing federal grant program into a competitive Community College and Industry Partnership Grant designed to catalyze the development of new and better workforce training systems.

In “Universities and Innovation Networks,” Krisztina “Z” Holly brings her experience as University of Southern California Vice Provost for Innovation to bear looking at how federal policies affect the commercialization of university research. Universities are at the heart of our national innovation engine, and Holly identifies five areas for improvement of federal R&D policy to help get the most out of them:

• Increase investment in high-risk, large-scale, potentially transformative early stage research projects
• Help bridge the innovation gap between lab and marketplace with policies that promote small business spinouts and collaboration with cutting edge industries
• Refocus federal economic development funding on capacity building for place-based innovation ecosystems where spinout companies can thrive
• Develop a better infrastructure for measuring the impact of federally funded university research on human capital, jobs, and markets
• Address shifts in the increasingly competitive and hyper-collaborative global innovation landscape and reward “flows,” rather than “stocks” of information

These reforms would help tap the potential of universities to act as engines of innovation and job creation.

Marshall Fitz, in “Immigration for Innovation,” assesses the impact of high-skill immigration on our nation’s economic competitiveness and finds that high-skilled immigrants who have started their own high-tech companies have created hundreds of thousands of new jobs and hundreds of billions of dollars of economic activity. But our current immigration system stops many of the world’s best and brightest from starting companies and creating jobs in the United States, and inadequately safeguards against abuses that harm American-born workers. To stimulate innovation and enhance competitiveness, Fitz outlines reforms to target “job shops” that abuse the system, enhance worker mobility, and strengthen recruiting requirements, while establishing a market-based mechanism to set high-skill immigration rates to the economically optimal level.

Forthcoming in our series are several reports on the importance of manufacturing, particularly advanced manufacturing, to our nation’s continued global competitiveness. Each of these areas—federal program structure, metrics gathering, technical workforce development, university technology transfer, high-skill immigration, and manufacturing—represent key components of the innovation engine that drives long-term economic growth. Giving that engine a tuneup by implementing the policies in these papers is the first step to ensuring a prosperous and broadly shared economic future for all Americans.

Today we call upon the Obama administration and Congress to create a bipartisan commission to consider and then implement these kinds of reforms to our federal science and economic competitiveness programs. The new commission, modeled after the so-called Defense Base Closure and Realignment Commission that enabled the Department of Defense to restructure our military bases so effectively, would be able to overcome congressional and executive branch inertia to retool our innovation engine for competitiveness in the 21st century.

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Investment in research and development is a significant driver of technological progress and economic growth, particularly in high-wage developed countries. The United States spends more than any other nation in the world on research and development, or R&D, but its relative position (measured by the share of such investment in national income) has been falling even as other countries increase their investments in research. In the United States, as in most other countries, business finances and carries out the majority of R&D activities.

Economic theory provides a strong justification for government support for R&D, including subsidies and incentives for business research. Without such support, companies are likely to underinvest in research (from the standpoint of the economy as a whole) because the results of R&D cannot be fully appropriated by the investing firm. Business accounts for a large and growing share of U.S. R&D spending, financing about two-thirds of the total in 2008, but business R&D as a share of U.S. gross domestic product has fallen behind the share in several other countries, including Japan and South Korea.

The U.S. government supports business R&D both through direct R&D funding, mostly dedicated to national-priority areas such as defense and health, and through tax incentives such as the research tax credit—the subject of this report. The United States was one of the first nations to provide tax incentives for business R&D, but many other countries have now introduced similar incentives, and many of their incentives are more generous. Tax incentives for business R&D have become an important tool used by countries to build their innovation capabilities and bolster their growth.

At the same time, business R&D investment is becoming more globalized. The large multinational companies headquartered in the United States, Europe, and Japan that account for more than 90 percent of business R&D worldwide are locating more of their R&D outside their home countries. Their location decisions are driven by many factors, including the growth of foreign markets, lower costs, the availability of foreign talent, and the tax and other incentives offered by foreign governments. Foreign investments in R&D by U.S. and other multinational companies are facilitating the development of R&D capabilities and the growth of high-technology industries in many emerging-market economies, particularly China.

Competition among nations to attract business R&D and to develop technology-intensive industries is growing. This challenges U.S. policymakers to strengthen policies that make the United States an attractive location for these activities. The most important of these tax incentives is the corporate research tax credit, formally known as the Research and Experimentation Tax Credit and also referred to by the U.S. Internal Revenue Service as the Credit for Increasing Research Activities. The goal of this corporate R&D tax credit is to encourage R&D investment by domestic and foreign firms alike by rewarding incremental, qualified research in the United States.

Broad federal corporate tax reform is now under discussion in Washington, including the appropriate role of tax expenditures—special features of the tax code to encourage specific activities with incentives such as the corporate R&D tax credit. This tax credit in particular is ripe for examination because it is one of the largest corporate tax expenditures in the federal budget, amounting to between $5 billion and $10 billion every year. The credit has, in fact, lapsed as of January 1, 2012, but Congress can reinstate it retroactively as it has done nine times previously.

There have been many careful empirical studies of the efficacy of the corporate R&D tax credit. Most studies find that the credit is effective in the sense that each dollar of foregone tax revenue causes businesses to invest at least an additional dollar in R&D. In other words, the credit stimulates at least as much R&D activity as a direct subsidy. And unlike a subsidy, which is usually linked to a particular kind of R&D related to a specific national goal, the credit allows businesses to select projects on the basis of the anticipated returns from incremental research dollars.

In this report, we examine the role of the credit in federal government support for R&D, evaluate the credit’s performance in realizing its objectives, and make recommendations to simplify, modify, and strengthen its effectiveness. Our recommendations fall into two broad categories:

• Measures to simplify the corporate R&D tax credit
  • Evaluate the revenue and incentive effects of replacing this credit, which isdesigned to apply only to incremental R&D spending by a company, with a similar credit that applies to the company’s full level of R&D spending.
  • Evaluate the revenue and incentive effects of replacing this credit with a “superdeduction” for R&D expenses or with an R&D jobs credit for the wages paid to R&D employees.
  • Replace the complex definition of qualified-research expenses eligible for this credit with the simpler definition of research expenses eligible for the research expense deduction.
  • If this credit is continued in its current form, then change the base period to a period in the more recent past, such as the most recent five years.
• Measures to strengthen the corporate R&D tax credit
  • Extend a simplified version of the tax credit for a period of 5 years to 10 years, during which the effectiveness of its new design can be assessed.
  • After this period, make the simplified tax credit permanent in order to increase its effectiveness.
  • Increase the tax credit by about 20 percent to keep it competitive with the tax incentives offered by other nations.
  • Provide small firms a larger and, in some cases, refundable version of the tax credit.
  • Drop the tax credit from the list of credits that are disallowed under the Alternative Minimum Tax.
  • Coordinate data gathering and assessments of the tax credit across agencies, making as much detail as possible available to independent researchers.

The report ends with a brief discussion of the implications of comprehensive corporate tax reform for the corporate R&D tax credit. Given the spillover benefits of R&D investment and the demonstrated effectiveness of the credit, we believe it should be preserved and strengthened as part of corporate tax reform. Otherwise, innovation and growth will languish in the United States as both U.S. and foreign companies locate more of their increasingly mobile R&D to countries offering more generous tax incentives.

Laura Tyson is the SK and Angela Chan Professor of Global Management at the Haas School of Business at the University of California, Berkeley. Greg Linden is a research associate at the Institute for Business Innovation, a research unit at U.C. Berkeley’s Haas School of Business.

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Universities are not only on the front lines of scientific and technological discovery but also at times hotbeds of entrepreneurship. In 2010 alone 651 new startup companies formed around the commercialization of university-licensed technology, and more than 3,600 such small businesses founded in previous years continue to operate.

But many promising patents remain stuck in university labs, inaccessible to the market. The result: Despite the roughly $50 billion of federal dollars spent annually on university research, too few new technologies make it through the pipeline from paper, to patent, to product.

There are many structural and cultural reasons why many universities do not maximize the potential of their small-business technology spinoffs. A key one is that the federal funding on which much university research depends does not encourage universities to prioritize the commercialization of the resulting technology. As a result, universities and the researchers they employ too often do not have strong incentives to take time away from research—and applying to basic research grants—to acquire and maintain the physical, human, and financial capital required to develop technological discoveries into new and useful products.

To be sure, programs such as federal Small Business Investment Research and Small Business Technology Research grants, which we discussed last month in this series, do exist to help small businesses conduct advanced technology research and development. But these programs are geared toward entrepreneurs who already have a business plan. They do little for the thousands of potentially useful patents, those with the potential to spawn new businesses and jobs quickly, that sit idle in university labs or technology transfer offices.

The solution: Help universities develop robust innovation programs where small technology spinoff companies can flourish

The government should ensure that federal research money also supports university-led initiatives to develop innovation and entrepreneurship ecosystems that nurture tech spinoff companies. In a forthcoming paper from the Center for American Progress’s “Doing What Works” and Science Progress projects, Krisztina “Z” Holly, vice provost for innovation at the University of California, outlines a multipoint policy package to achieve this goal. Here we focus on a few of the most important components as they relate to small business success.

Next steps: Authorize changes to existing research funding

In the forthcoming paper, “Universities and Innovation Networks,” Holly proposes changing all federal research grants to ensure they cover the costs of patenting and licensing of the most promising technologies. Today many federal research grants don’t actually cover the diverse costs of extracting the economic value of funded research through commercialization.

In 2010 universities spent $323 million on legal fees associated with technology licensing alone. Certainly not all research leads to a patentable product, nor should it. But setting aside even 1 or 2 percent of existing research funding to cover not just research, but also the first steps toward commercialization, where appropriate, would make a big impact.

Next, the government should create an automatic glide path for technologies from paper, to patent, to product. Bringing university research and small-business grant makers together under a federal common application assistance program, like the one we suggested earlier in this series, would allow application procedures to be coordinated to help university researchers connect with the business expertise needed to develop patents into marketable products.

Finally, we should set aside some federal funding to incentivize universities to acquire and maintain the human, physical, and financial capital needed to support a culture of entrepreneurship. As we alluded to in a previous article in this series, setting aside even a few million dollars for technology commercialization proof-of-concept centers could go a long way. These funds would not be used to invest in specific research projects themselves, but rather to encourage universities to invest in the infrastructure of technology commercialization, such as technology transfer offices, entrepreneur-in-residence programs, and business incubators.

Evidence shows that supporting technology spinoff companies yields a great return on investment. As Holly pointed out in a 2010 Science Progress paper, a $10 million grant spread between the University of San Diego and the Massachusetts Institute of Technology for proof-of-concept centers leveraged $160 million in outside investments. At the University of Southern California a $22 million gift from a private donor for similar activities has leveraged $148 million in private capital and supports 500 jobs.

And it’s not just big name academic institutions or top-50 schools located in populous states that are creating good business opportunities with their technology. The University of Utah in the past six years has spun out 125 companies, an average of one new small business for every $12 million in federal research funding, compared to the national average of one company per $100 million. All in all, small business spawned from research at the University of Utah accounts for more than 15,000 jobs, $755 million in annual personal income, and $76 million in annual tax revenue.

Smart federal investments can help many other research universities identify and capitalize on their competitive strengths. That also helps the small businesses these campuses spin out, as well as the surrounding communities that benefit from new job creation and economic activity.

Ed Paisley is Vice President for Editorial at the Center for American Progress. Sean Pool is Assistant Editor in charge of the Center’s Science Progress online magazine. Paisley and Pool are the project coordinators and lead editors for the forthcoming series of papers on U.S. science and economic competitiveness.

The FCC’s new net-neutrality rules outline three basic points of compliance for Internet Service Providers, or ISPs:

1. “Transparency. Fixed and mobile broadband providers must disclose the network management practices, performance characteristics, and terms and conditions of their broadband services.”
2. “No blocking. Fixed broadband providers may not block lawful content, applications, services, or non-harmful devices; mobile broadband providers may not block lawful websites, or block applications that compete with their voice or video telephony services.”
3. “No unreasonable discrimination. Fixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic.”

If on the surface these rules seem rather benign, it’s because they are: Net-neutrality proponents were dismayed upon their initial announcement due to their leniency. The rules cover only the bare minimum of net neutrality and provide leeway for disclosed network-management practices, in addition to allowing mobile broadband exemptions in many cases. These exemptions led to at least one public-interest lawsuit complaining the rules are “too weak” on mobile broadband protections, showing clearly the rules are not an unrepentant love letter to net-neutrality activists.

And yet the rules have been blasted by the telecom industry since they were announced a year ago, with Verizon filing a suit claiming the FCC has no authority to implement the rules. The FCC’s opponents take a hyperbolic cue from Glenn Beck—who is on the record proclaiming net neutrality will “destroy the free market that created the Internet”—arguing net neutrality stifles the incentive to innovate by limiting the avenues for possible profits. This argument extends to suggest ISPs are entitled to profit from tiered access and content discrimination to offset the costs of creating and maintaining network infrastructure.

Unfortunately for opponents, their argument stands on a shaky foundation. The Internet did not spring from the free market, nor has private industry solely shouldered the financial obligations of creating and maintaining network infrastructure: The Internet we know today emerged from the ARPANET project, funded by the Department of Defense, and the federal government has heavily invested in broadband infrastructure through programs such as the Broadband Initiatives Program. This is not to say ISPs should have no right to maintain their networks and ensure they are working to the benefit of themselves and their consumers—indeed, this is very argument for the flexibility regarding network management practices clearly outlined in the regulations. But by citing innovation as the reason they should maintain de facto control of the Internet, opponents of net neutrality have unsheathed a double-edged sword.

Many net-neutrality proponents argue that an open Internet actually allows for the ultimate free market, spurring innovation across the economy, and not just for a few large companies. Allowing ISPs to control consumer access would fundamentally undermine the ability of consumers and content providers to compete in the information economy. Nicholas Economides, professor of economics at NYU Stern School of Business and executive director of the NET Institute, explains:

The Internet’s design allows businesses and consumers connecting to it (“at the edge” of the network) to innovate without obtaining approval from network operators. As a result, all innovation that is expected to yield benefits greater than its costs can occur; this is different than in a centrally controlled network where innovation at the edge would be restricted by the network operator based solely on whether the innovation brought profits to the network operator rather than whether the benefits of the innovation to the whole society exceeded its costs. This unleashes a huge potential for innovation.

This huge potential for innovation is available because of the unique openness enabled by net neutrality. An open Internet allows innovative entrepreneurs to be able to reach a vast audience of potential customers at minimal cost and compete in established niches. Driven purely by consumer interest and demand, small startups like eBay, Amazon, and Google were able to flourish based on the quality of their products. If ISPs are permitted to charge web-content providers for different tiers of service, small businesses, independent artists, and those who can’t afford preferential treatment will all be left behind—and with cable companies and telecommunications providers already teetering dangerously close to the edge of forming Internet access cartels, this is not a mere threat, but a very real possibility in the upcoming decades. The economic argument for net neutrality is simple: It is the level playing field the next Skype or Facebook needs in order to compete.

When Sen. Maria Cantwell (D-WA) ended her remarks in support of the FCC rules in the Senate in November, she called on her colleagues to “make sure that it stands until we can even get stronger Internet freedom protection.” Perhaps that is where we should be: with the FCC’s moderate net-neutrality rules as a compromise while our society continues the dialogue. Net neutrality is both a technically and ideologically complex issue where both sides have clear agendas—although the contributions of telecom industries to members of Congress’ campaign coffers would seem to suggest their agenda is better funded.

Telecom industries are not inherently evil for working to maximize profits for their shareholders, nor are net-neutrality advocates Marxists for fighting to maintain a status quo that allows for consistent content access across providers—to define either side in such black and white terms does a disservice to both—but at the end of the day, modest net-neutrality rules provide protection for consumer choice and preserve the Internet as a space for economic growth through innovation.

 Andrea Peterson is an Assistant Editor at American Progress, Lauren Simenauer was an intern with Science Progress.

The problem: Federal government assistance for innovative startup companies too often misses the mark

High-growth startup companies are one of the most important drivers of job creation in the economy today. They are also vital to tackling some of our most pressing long-term societal challenges such as improving our health care, education, and energy systems. It’s clearly in our national and economic interest to help entrepreneurs and innovators succeed.

Unfortunately, many existing small-business loan and assistance programs are not optimized to help the innovative startup firms reach their job-creation potential. The reason: Fledgling startup companies—those with great a idea but without a clear path from proof-of-concept to commercialization—face unique financing challenges that the federal government’s small-business policies are not tailored to solve.

Fully unlocking the power of America’s innovators to create jobs will require Congress to act to support high-potential startup companies at their earliest stages of growth.

The solution: Revamp small-business financing programs to get companies with high growth potential through the crucial proof-of-concept phase

Here’s a solution: Revamp small-business financial assistance programs to better serve the needs of innovative, high-growth potential startup firms.

The Obama administration has already taken some encouraging steps toward this end. In October 2011, the president issued a presidential memorandum asking agency heads and federal lab directors to review current technology transfer priorities and develop plans for improvement. And the just last week the administration announced the creation of a $1 billion Early Stage Innovation Fund. This fund will provide matching capital to private loans already made through the existing Small Business Investment Company program. To help with this, the Startup America Partnership, a public-private partnership between the White House and more than 50 corporate partners, pledged an additional $1 billion in donated services geared toward helping 100,000 entrepreneurs and innovators get businesses off the ground over the next three years.

The 50 companies involved will provide free software, consulting, and legal services to the innovative startups with the most job-creating potential. And not a dime of this $1 billion commitment comes from taxpayers.

But the federal government can do more to help bridge the gap between early-stage research and the marketplace. It needs policies and programs that:

• Increase mutually beneficial flows of knowledge and intellectual property between academia and industry
• Support university technology-based spinoff companies
• Encourage public-private partnerships that support translational research and proof-of-concept projects that demonstrate to private investors the viability of new ideas in the marketplace

Here are the avenues to achieve these ends: The Small Business Innovation Research, or SBIR, and Small Business Technology Transfer, or STTR, programs administered by the U.S. Small Business Administration allocate 2.5 percent of federal agency grants for small businesses. That’s a key resource for some small companies seeking to bring early-stage innovations to market. Yet many university innovations are created too early to spin out into a company, so this program does not fully address the need for earlier-stage proof-of-concept funding.

Although some universities have managed to secure donor and private-sector funding to cover some of the costs of proof-of-concept programs, even the most successful programs struggle to become sustainable on these sources alone. That’s why the federal government should encourage other funding sources such as industry and donor support to extend the impact of the federal funding. Given the importance of transitioning between early-stage research and spinout startup companies, funding proof-of-concept projects is an appropriate role for the federal government to play.

Next steps: Reauthorize SBIR and STTR programs and set aside money to fund proof-of-concept centers

The chairs of the Republican-controlled House Small Business Committee and House Science, Space, and Technology Committee announced on Monday they had reached a deal with congressional democrats to reauthorize the SBIR and STTR programs through 2017. While the deal contains progress on many important fronts—including increasing program funding levels and maximum award amounts, increasing eligibility for companies with more diverse investment profiles, and setting new standards and oversight—it could go further to support the journey of innovative technologies from lab bench to assembly line.

One important way to do this would be to enhance the program by setting aside a portion of funding for proof-of-concept centers. Krisztina “Z” Holly, the vice provost for innovation at the University of Southern California and executive director for the USC Stevens Institute for Innovation, first proposed this idea in a 2009 policy paper called “Innovation Model Program for Accelerating the Commercialization of Technology.”

In a forthcoming paper by Holly from the Center’s Doing What Works project and online magazine Science Progress, she elaborates on this idea, noting that “the need is now acute. If past experience can be a guide, even a modest investment of $80 million could potentially stimulate $1 billion in private-sector investment in ideas that would otherwise be too early and risky for investors to currently bet on.”

That’s an effective, efficient way to bring federal money to bear in helping the private sector create more innovative small businesses that contribute so much to job creation in our country.

Ed Paisley is Vice President for Editorial at the Center for American Progress. Sean Pool is Assistant Editor in charge of the Center’s Science Progress online magazine. Paisley and Pool are the project coordinators and lead editors for the forthcoming series of papers on U.S. science and economic competitiveness.

Issue 3: “Infrastructure Build out vs. Market Penetration”

Consumer choice: or “why am I not charging my electric car right now?”

There are a host of reasons for the rate of EVs flowing into the market, but here we will look at two: cost and convenience.

What goes into the cost of EVs? First, battery prices play the biggest role in the overall cost of electric vehicles, and those are dictated partly by the markets for rare earth and necessary technology. While the technology keeps getting better and cheaper, most of the rare earth metals that goes into making them is imported. This means that (barring a significant market disruption) this portion of battery prices are likely to stay relatively constant.

Second, subsidies have classically played a huge part in the price of EVs, making prices dependent on the policy signals that industry and consumers get from Washington in the near term. Third, gas prices influence the competitiveness and desirability of EVs as compared to other vehicles.

Convenience is another huge barrier. The consumer wants to know they can readily and easily use the product. If the hassle is too great (i.e. the charging infrastructure is not in place) they won’t bother. In fact, there are plenty of people who will pay more for a product to avoid any extra work.

The question of infrastructure vs. markets will be gauged by the cost and convenience to consumers. A lower total cost of the car combined with incentives and rising gas prices will encourage sales. Likewise, if consumers can just plug the car in at home or pull into the charging station on the way to work they may be willing to pay more.

So what’s the problem?

One side argues that it would be irresponsible to pour significant investment in infrastructure for a product that may not gain market velocity. On the other hand, some have pointed to the lack of infrastructure preventing EVs to penetrate the marketplace. Of course, it’s both. These forces need to work in tandem.

However, the scale does tip to the infrastructure issue when we consider that even in a very low market penetration scenario, our grid system may not be able to handle a massive increase in load.

Currently, the reliability of our grid is dictated by the tension between generation capacity, storage, and demand. Energy demand functions in peaks and troughs, with the peaks during midday and the troughs (generally) in the evening. EV charging, if done during peak hours, would add strain onto an already overloaded system and decrease reliability.

For example, if you pull into your garage after work and start charging your EV, this would correspond to neighborhood load peaks (as everyone arrives home and turns on the lights etc.) which would wear our transformer systems and pass along increased cost through the rate base to the community. Since reducing peak demand through demand response is already an issue, it may serve utilities well to update existing infrastructure in a way which can accommodate and encourage increased EV use.

Wait, if EVs are an additional burden, why encourage them?

The exciting part of EVs is the potential for bidirectional flow on the grid. Simply, the ability for EVs to act as storage units for offloading excess energy from the grid and sell their unused energy back onto the grid at needed times. Rather than being part of the problem, EV could be a revolutionary part of the solution. The trick is a combination of competitive rate structures, real time pricing, and enabling technology.

Competitive rate structures would function as a demand response mechanism by incentivizing use at off-peak hours and, by providing better rates at times when the grid is under less duress, utilities could encourage consumers to charge at different times. Also rate structures could provide consumers with good reason to sell energy back at peak hours and take some weight off generators. Real time pricing would enforce rate structures with pay-as-you-play energy purchases; tracking when you use and sell energy, and giving you the corresponding rate.

Enabling technology to do vehicle to grid operations needs to become commonplace and changes to batteries and transmission would have to be made. Additionally, mechanisms would need to be in place to ensure that when you agree to have your car float some energy back to the grid, utilities can access your EV. This requires automation across the system, which will be required of the Smart Grid moving forward with or without EV.

The endgame

While studies vary as to the potential for EVs in the market, infrastructure changes must go full steam ahead. Hopefully, EVs will empower consumers and increase their energy independence. But in the medium-term it is much more likely — as a report published by MIT’s Energy Initiative concludes — that their impact will be highly localized and community specific. Because utilities, too, are community specific, there are likely to be some that need to take certain parts (rate structure, technology) more seriously. Other components like real time pricing are important not just for EVs, but also for efficiency and renewables — so this is a piece that could form the fastest.

Adam James a special assistant for energy policy at the Center for American Progress, in a Climate Progress cross-post.

See also:

Part 1: Data Access Versus Security

Part 2: Interoperability Standards “Doing it Fast” Versus “Doing it Right”

Issue 2: The Fast standards vs. The Right standards

What are ‘interoperability standards’ and why do they matter?

In the last issue we discussed how the “smart” in Smart Grid are the revolutionary communications technologies that allow different parts of the grid to communicate with each other. Interoperability standards are the rules of the road that make this communication possible, and ensure that the technologies are able to work in synchronization.

As a consumer, you want the product you purchase to fit into the overall package of energy efficiency for your home. For example, if you purchase a smart thermometer, you would expect it to be able to signal temperature changes to your AC/heating system. You would also expect those changes to be reflected in your energy use as tracked by the meter. Unless the companies who make all those technologies conform to a standard, nothing can function effectively. Interoperability is like the universal remote for operating all these technologies.

Getting the technical details right, particularly for issues like Phasor Measurement Systems for time synchronized energy prices, are going to be essential in moving forward in every aspect of the grid. Without corresponding technologies, new pricing structures can’t take root. And while regulatory bodies are doing their best to establish a framework for demand response compensation (the mechanisms which help curtail consumer demand at peak hours), there have to be fundamental changes in our system to make the right things happen.

How does the standardization process work?

The National Institute for Standards and Technology, or NIST, was mandated under the Energy Independence and Security Act of 2007 to set the national standards for interoperability. There are two primary bodies within NIST designated with tackling this task: the Smart Grid Advisory Committee (composed of 15 voices from industry) and the Smart Grid Interoperability Panel (public forum composed of all stakeholders). There is a collaborative wiki page on each standard to engage the community on concerns and paths forward, and the participatory process isolates a consensus on standards (via working groups) before bringing them to FERC for approval.

So what’s the problem?

The democratic nature of the standardization process, engaging a wide variety of stakeholders to make sure interests are all represented, is certainly the only way to ensure that all the bases are covered and no one feels left behind. However, that process is (by virtue of how many parties are involved) very slow and cumbersome.

Countries like China, however, do not have the same problem with engaging stakeholders because of their governance structure. What does that have to do with us? If China (or any other country) moves ahead on syncing their domestic technology with their grid build out, American companies may lose out on the ability to set standards and IP rights for budding technologies – instead having to settle for “innovating in a box,” and penetrating the market at a disadvantage. In this way, the dominant standard becomes the de facto standard because it is driving the market.

So domestically, Smart Grid proponents are grappling with a dilemma of “doing it fast” and rolling out standards that can guide developing technologies and enable us to compete, and “doing it right” by making standards which reflect industry needs and provide flexibility for new innovations while protecting stakeholder interests. This tension is not easily resolved, but some have proposed changes to the existing system. This includes adopting families of standards as opposed to individual standards, or gauging the necessity of standards in various parts of the grid and then adopting them at a more “macro level combined with policies to encourage people to meet them.

Whatever the solution may be, the standard setting process will need to be streamlined considerably to keep pace with our competitors. Failing to rise to this challenge means our producers might miss out on a chance to compete in the global marketplace, and our consumers will have to rely heavily on foreign products.

Adam James, special assistant for energy policy at American Progress in a Climate Progress cross-post.

Previous Post: Hottest Issues in Smart Grid, Part 1: Data Access Versus Security

Next up: “Electric Vehicles: Market Penetration Versus Infrastructure Build out”

So how is the country doing in biotech investment? A fascinating and richly detailed new industry report from Jones Lang Lasalle allows us to reach two salient conclusions: first, the United States is holding its own as the global leader; and second, since the 2007 downturn, industry clusters in China, India, and Singapore have displaced traditional powers Ireland, Italy, Germany, and Spain in direct pharmaceutical investment.

This result confirms the narrative we hear in so many fields these days about the turn toward Asia, and well justifies the Obama administration’s reassertion of American interests as a Pacific power.

Digging deeper into the U.S. data, what is striking is the opportunities for development in so much of the country, which is currently dominated by a few regions at the top. According to the report’s ranking system, the top three regional biotech “clusters” are Boston, New York/New Jersey, and the Bay Area. But while it’s pretty clear that clusters in the Northeast and California dominate the biotech industry today, at the same time emerging clusters across the South and Midwest–Atlanta to Denver to Indianapolis to Houston–could have tremendous potential with the right policies and investments. As the report notes:

Some clusters, like Chicago and Houston, have very strong intellectual capacities and research institutions, but struggle to translate innovation from bench to marketplace due to lacking fiscal support or programming. While others, like Florida, Minneapolis and Indianapolis, have strong industry representation but remain challenged by fragmented framework, most notably lackluster funding from NIH and VC sources.

So policy frameworks do make a difference in regional success or failure. The online science policy journal I edit for the Center for American Progress, Science Progress, has long advocated for the value of investing in regional economic clusters as way to accelerate innovation and create jobs. Political candidates should take note that emerging clusters abroad are taking advantage of government policies that make them more competitive in high technology, especially India, China, Singapore, and Brazil. So while the last few years have shown U.S. resilience, there’s no time for complacency. In my new book, The Body Politic: The Battle Over Science in America, I argue that biotechnology needs to become part of the American narrative of progress and innovation. Creating incentives and programs to help level the playing field for nascent innovation clusters across the country would make America more competitive in the face of the emerging clusters abroad.

And a candidate who addresses those regional potentials might just strike a responsive chord that translates into votes.

Science Progress Editor-In-Chief, Jonathan Moreno, in a Huffington Post cross-post.

While President Obama’s Grid 21 and Better Buildings Initiative prove this issue is being taken seriously, the wildfire spread of the discussion has outpaced a general understanding of what the Smart Grid is and what some of the key debates are. This series will highlight some of the big sticking points and the arguments that underlie them.

A Quick Definition of the Smart Grid

The phrase “Smart Grid’” can be misleading, since that implies we are working to a particular endpoint. What is actually happening is that we are progressively developing a smarter and smarter grid as new technology development and policy mechanisms spark changes within the system. For example, widespread smart meter roll out has been happening nationwide for some time. Incorporating renewable energy into the existing electricity generation structure has been steadily gaining momentum. The development of newer and better batteries has revolutionized storage capacity. That’s not all; the proliferation of Energy Star rated appliances shows efficiency is becoming a higher and higher priority among consumers.

Tying all those elements together in a coordinated way is what makes the Smart Grid truly “smart.”

Issue 1: Secure vs. Accessible Data

The “smart” component to the grid is the communication between its various parts. These communications will yield vast amounts of data about electricity users. Where utilities used to collect 1 data point about each consumer per year, they will soon be collecting over 6,500 per consumer, per year. All this information, paired with unclear ownership rules, creates a quandary for those in the Smart Grid field.

On one hand, this data can be mined to create inferences about your preferences, behaviors, and desires, which many Americans are uncomfortable having shipped out to the highest bidder. What appliances you use and when, what you watch on TV and search for on the Internet, when you are home and how often; all of these variables can be extracted from careful examination of electronic signatures.

On the other hand, this data unlocks massive potential for consumer empowerment. Real time information about energy use will make each user the master of their domain. Adjustable settings for your home can ensure that the AC and heating doesn’t run when you aren’t home, that your refrigerator gets power 24/7 but your TV does only when you use it, that you will allow your thermostat to ‘float’ an extra degree or two, for which you will receive monetary compensation for alleviating peak demand.

The tension begins with ownership. The meter which measures energy usage is technically the property of the utility, but the information that they are tracking is about you and your habits. Does the utility own the data because they own the meter? If so, can they sell it to third parties? Will they disclose it to consumers free of charge? If the individual owns it, is the utility permitted to look through it? How does the individual get the data off the meter?

There is a reasonable minimum threshold on the ownership question, determined since the utility needs a certain amount of information to do their job effectively. The whole purpose of metering is to track energy use to determine demand and rates. While strides in communications and technology will increasingly automate this system; that data still is central to the utility business model. So the ownership spectrum will run from “shared between individuals and utilities” to “solely utility owned,” since “solely individually” owned isn’t a credible option.

There is a common opinion that the closer you move to shared (but mostly individual) owned data, the harder it is to incentivize innovation based on creative uses of data (such as smart thermostats and water heaters). This is not entirely true. Perhaps if the data were public record, there would be a feeding frenzy of innovative start-ups that would rush to mine that information. But the popular backlash for exposing private information in that manner would also be severe. Similarly, only opening up the data to the highest bidder would restrict solutions and innovation to a select few companies.

A Possible Compromise?

There is a middle ground that would preserve consumer protection while enabling utilities to do their jobs effectively and ensure that the innovation that makes America great can take root. Data could belong to the consumer, but be viewed by the utility “blind” and in aggregate. This would make the specific energy usage of each home (the inferences you can make from the energy ‘signature’) the property of the homeowner, but the data over the scope of a utilities territory readable. This way, third parties could work with utilities for access to aggregate data to improve their top-level technologies, and with individuals to craft the specific functions of their technologies.

It is important to remember that this is not a new challenge; in fact, it is the same hurdle that was faced by users of Facebook and online banking. The reality has been that by using the service, you waive a degree of privacy, but you have an expectation that different kinds of information still have various levels of security. While your name, address, and favorite band might be up for grabs, your bank account routing number is not. It seems reasonable that this same sliding scale could apply to data: you understand that by having electricity running through your home that you waive a degree of privacy about your macro-level consumption trends. However, your specific habits should be at your discretion to divulge.

In order for a legal framework for data ownership to be successful, it must reflect the needs of stakeholders in the Smart Grid space. If a policy is too harmful to utility rate structures and business models, it will hamstring the rollout of better technologies. If it plays fast and loose with individual privacy rights, distrust towards the new and emerging systems will evolve. If it is too inhibitive towards third party innovators, America risks being left behind in the global marketplace. Striking the right balance requires recognizing the needs and rights of each of these entities, which the “blind aggregation model” successfully incorporates.

Next, in this series: “Standards and Interoperability: Doing it fast v. Doing it right”

Adam James is a special assistant for energy policy at the Center for American Progress. This cross-post comes from our partners at Climate Progress.

In 2009, America earned a D- in drinking water, according to the ASCE Infrastructure Report Card. Why? Every day leaking pipes lose an estimated seven billion gallons of clean drinking water (over 11,000 swimming pools). That, combined with the $11 billion annual shortfall to replace aging water facilities, makes the U.S. a very water-inefficient country.

By 2020, California estimates it will incur “water shortages equal to the needs of 4-12 million families of four.” Sadly, with a growing population, increased migration to urban areas, and global warming, these shortages promise to become far more common. A study released by the NRDC found that more than 1,100 U.S. counties face water shortages as a result of climate change. Of those, 400 are in the “extreme risk” category, representing a 14x increase over previous estimates.  The agricultural value of the crops in those 400 counties represents over $105 billion in GDP.

Compounding the problem is that the emissions from the 7,000,000,000 gallons for water lost from leakage are estimated to contribute 13.5 million kg of CO2e to the atmosphere daily — accelerating climate change and further exacerbating the vicious cycle.

The UpStart Solution:

This is a major problem for municipalities around the country. But it’s also a major opportunity for companies that can mop up all that waste.

One company, Echologics Engineering, specializes in the deployment of acoustic-based leak detection equipment, including correlators and listening devices, which locate leaks without breaking ground. Over a ten year period, Echologics says it can reduce the carbon footprint of water leakage worldwide by as much as 2.04 megatons CO2eq (assuming certain flow rates and number of leaks).

The company has recently completed projects in multiple municipalities in North America, Europe, South Africa, Singapore, and Australia. It just deployed its technology in New Orleans, where the Echologics uncovered leaks that were causing losses of up to 100,000 gallons of water per day. Echologics did the same for United Water in New Jersey, where its technology detected leaks of 10,000 gallons  a day at a pipeline — all without having to break ground or impact service.

Scaling up this technology to meet a 0.25 megaton CO2e reduction annually would require investments of about $2,000,000 per year; a bargain when you consider that federal expenditures on drinking water will have to be between $10-20 billion the next 20 years just to stay afloat, according to a Congressional Budget Office report.

Echologics Engineering is one of the many revolutionary UpStarts who are finding that greening the “white space” in markets is not only socially responsible, it’s smart business. With continued investment and innovation, the private sector will continue to unlock the tremendous potential inherent in reducing our carbon emissions, making our society more efficient and growing our economy.

Adam James is a special assistant for energy policy at the Center for American Progress. This article is cross-posted at Climate Progress.

Related Upstarts columns:

• B Corporations are Maximizing Long-Term Social Good While Making a Profit

• Solar Service Companies Making Solar Affordable and Accessible

• The Scoop on Poop: Turning Sewage Sludge into Energy Dollars

Job seekers hand out resumes at a job fair. (AP/Elise Amendola)

Science Progress is committed to exploring the links between science, technology, policy, and the economy. We know that science and technology are important drivers of job creation and economic growth. But good science policy must go beyond what happens in laboratories to look at how individuals, businesses, and the economy derive value from science and innovation.

A small but promising new federal initiative aims to create thousands of jobs by leveraging the resources of 16 federal agencies to support innovation in small businesses and regional consortia in 20 regions around the country–and we’ve worked with the economic policy team at American Progress to take a deeper look.  Download the issue brief (pdf), view it in your browser with Scribd, or simply read below.

A Closer Look at a Promising New Federal Program

Since the start of the Great Recession in late 2007, the biggest concern on the minds of most Americans is the job market. With unemployment stubbornly stuck at around 9 percent, and with the global economic picture threatening more difficult times ahead, the biggest question is what we can do in the public and private sectors to spur job creation.

The Economic Development Administration’s Jobs and Innovation Accelerator Challenge is one federal program providing its own compelling answer. This new program is a great example of doing what works—leveraging existing resources to do more with less. The program brings together three previously unrelated programs in separate agencies to make available approximately $37 million in joint grants for coordinated economic development, small business, and workforce-training investments in 20 regions around the country.

The first is the 7(j) small business technical assistance program from the Small Business Administration, which authorizes the SBA to enter into grant or contract agreements with public or private organizations to provide management or technical assistance to workers and enterprises in underserved, high-unemployment, or low-income regions. Approximately $3 million of the program’s existing budget authority of $6.6 million will be directed towards the Jobs Accelerator.

The second is the H1-B job training grants program from the Department of Labor, which provides funding and support for educational institutions, job-training organizations, and civic job-skills projects that encourage skill development needed to enter high-growth industries and industries that “are being transformed by technology and innovation requiring new skill sets for workers.” About $19.5 million from the program’s $240 million will be used to facilitate job training and placement assistance in industries in which employers are using H-1B visas to hire foreign workers due to lack of American workers with the needed skills.

The third is the Economic Adjustment Assistance program from the Economic Development Administration, which provides a wide range of technical planning, public works, and infrastructure assistance to entities in regions suffering through adverse economic changes. The roughly $14.5 million that the EDA will contribute to the Accelerator represents the bulk of all EDA technical-assistance funding.

Combining these three programs the Economic Development Administration recently announced 20 challenge winners out of 121 applicants, to receive an average of $1.8 million each. The winners were selected based on their ability to leverage federal economic development, workforce, and small-business funds to help grow regional innovation clusters that will bring an estimated 4,800 jobs to communities around the country. The winning public-private partnerships are expected to leverage about $69 million in private capital to boost regional innovation and job growth in their areas.

Winners included technology clusters, entrepreneurship accelerators, and other projects crisscrossing the country, from Georgia to Washington, California to Kansas, Missouri, and Kentucky. One of the winners is the Advanced Composites Employment Accelerator, based in Roane, Tennessee. With the help of $1.6 million in funds from the SBA, EDA, and DOL, Roane State Community College will identify supply-chain gaps in their regional composite materials industry, create a new two-year associate’s degree program in the applied science field to train workers to participate in that industry, and conduct outreach to existing companies in the region to engage with strategic local industrial goals.

Another example is the St. Louis Bioscience Jobs and Innovation Accelerator Project, where $1.8 million in federal support will help the Economic Council of St. Louis, the St. Louis Agency on Training and Employment, and the St. Louis Minority Supplier Development Council collaborate to accelerate commercialization of the cutting-edge life science research coming out of St. Louis’s world-class research universities and bioscience firms. A third example is the United Tribes Technical College of North Dakota, which will convene a network of federal, state, local, and tribal project participants to develop curricula and support entrepreneurship in environmental engineering and resource-management services.

The Jobs Accelerator program is set to punch well above its weight. There are three important reasons why this small program is particularly worthy of further attention:

• Focus—promoting growth where it really happens, in communities and working with the private sector
• Collaboration—bringing together a diverse array of regional actors with a shared stake in the economic fate of their regions alongside 16 government agencies—three for funding and 13 for technical assistance—whose pooled resources the program leverages to ensure these winners succeed
• Return on investment—delivering a compelling and measurable return on federal dollars, which is all the more critical in our current budget environment

This issue brief will examine each of these important attributes in this unique federal program. There are vital lessons here for policymakers at the federal, state, and local levels as well as for business leaders and nonprofit groups across the many economic regions of our nation. The reason: This approach offers a uniquely American way to develop bottom-up economic growth strategies that are in sync with the business and economic realities in local communities nationwide.

Regional innovation clusters: Growth on the ground

A large and growing body of evidence shows that the United States does not have one homogenous national economy but rather a patchwork of heterogeneous regional economies, each with a unique portfolio of infrastructural, human capital, institutional, and economic assets. Furthermore, studies show that the geographic agglomeration of these assets and their associated business activity correlates with enhanced, even exponentially improved, economic outcomes.

One reason for this is that shared infrastructure, markets, and talent pools foster a cross-fertilization of ideas and business interactions among diverse economic actors, leading to the formation of what scholars call innovation clusters or networks. Recent studies in the United States, the United Kingdom, Canada, and elsewhere suggest that the inventors, entrepreneurs, and manufacturers located in these clusters or networks are more innovative than those not in clusters. These networks in turn lead to new business opportunities, business models, industries, and technologies—all of which add up to more jobs.

Other studies show that clusters encourage entrepreneurship. Innovative startups in clusters have better survival rates, employ more people, and pay higher wages than those not in clusters. This “cluster effect” is also linked to a positive influence on firm productivity, industrial performance, average personal income, rates of employment growth, and patent filings compared with firms and regions not associated with innovation clusters.

But while there is much recent evidence connecting bottom-up innovation in our nation’s regions to job creation and economic growth, our federal programs are still organized around outdated, even obsolete sector-specific policy silos. Scholars and policymakers from both sides of the aisle are increasingly advocating for policies that take these findings into account.

For innovation to take root in regional economies, those economies must have innovative firms, labs, and universities. But just as importantly, they must have manufacturers, a high-skill workforce talent pool, and access to markets and capital. Absent any one of these components—even in the presence of the others—job growth will flounder. The Jobs and Innovation Accelerator program addresses the need to invest simultaneously in all of these components. It will help regional economies blossom by streamlining the process of obtaining federal funds for each of these core components of growth.

The Jobs Accelerator: A sum greater than its parts

A detailed case study of regional economic development recently identified that one of the biggest hurdles to effectively accessing federal funds is that programs tend to be both complicated and “siloed.” In other words, business and civic leaders from a particular region could have a great economic development plan that depends on federally supported workforce training, a small business loan, and technical assistance from three different agencies. But accessing each separately is cumbersome and costly, and there is no guarantee that their plan would be approved for funding for each component because there has traditionally been little coordination among siloed agencies.

It stands to reason that if a cluster is competitive and promising enough to merit support from one federal agency, then the same project could well merit support from another. The question is whether the participants in a cluster—participants that often don’t self-identify as belonging in a cluster—can find the resources, time, and bandwidth to walk through a government labyrinth. By bringing together 16 federal agencies—three for funding and 13 for technical assistance—the Accelerator program corrals different agencies into one tent so that they can better serve those best able to maximize public resources. And by crafting the federal program as a competitive grant, the Accelerator requires the regions pitching for the funds to self-organize and design a program that fits their unique needs.

We have seen this type of cooperation before with the Department of Energy’s successful Energy Regional Innovation Cluster program, which is now helping accelerate energy innovation and commercialization. Launched last year the program pioneered a new role for the Economic Development Administration as a convener of siloed agencies around shared goals of regional economic development, small-business development, and energy-efficiency technology innovation. The stakes were high in this competition. Instead of 20 separate regional winners, the Energy Regional Innovation Cluster competitive grant program had only one winner, which received $129 million in funding and programmatic support from seven federal agencies.

Following the funding decision in the fall of 2010, the Center for American Progress co-convened a meeting of top stakeholders from the participating agencies as well as from six of the 30-some applicants to review the strengths and weaknesses of this new approach to interagency coordination around economic development. The consensus from the meeting was that scarce federal resources would be better spent by giving out a greater number of smaller bundles of funding, rather than a single big one—and that is exactly what the Jobs Accelerator program does.

But participants of the fall meeting—both winners and losers of the Energy Regional Innovation Cluster competition—overwhelmingly supported the underlying idea that the federal government has a role to play as convener of regional players. The simple act of thoughtful coordination of federal funding for related activities, participants agreed, allows taxpayer money to be spent more effectively and efficiently to create more jobs by leveraging private capital.

What’s more, many of the applicants present at our meeting who did not receive federal funds concluded that even though they didn’t win a single federal dollar, they benefited simply from the relationships and plans formed in the process of putting the application together. Many of the nonwinning applicants indicated that the plans developed during the application process were so strong that they would move ahead with state, local, and private funding even in the absence of federal dollars.

This suggests that there could be even further ancillary benefits outside of those measured and reported over the next two years by the winning applicants. For example, Georgia Tech, which failed in its bid for the Energy Regional Innovation Cluster grant, came back to win a Jobs Accelerator grant for health information technology. “Win or lose, the relationships developed through participating in these competitive programs are valuable,” said Chris Downing, director of industry services at Georgia Tech’s Enterprise and Innovation Institute, whose office put together the applications for both the E-RIC and the Jobs Accelerator challenge.

With funding and support from the 16 agencies involved in the Jobs Accelerator, Georgia Tech will stimulate new business ventures and create jobs through development and commercialization of health information technologies. This is a powerful example of doing what works by bringing together scarce resources to deliver on our most pressing need—jobs.

Return on investment

The Jobs Accelerator grantees promise to deliver a strong return on investment for taxpayers and private and nonprofit participants alike. For $37 million in federal dollars, the Accelerator program already has committed local match funds of $13 million as part of the grantee application process and expects to leverage $69 million from the private sector. These funds are also projected to launch 339 new businesses across the country.

But as the title of the program itself suggests, the metric that is most important in this economy is jobs. Taken together, the winning cluster plans will create an estimated 4,800 jobs, meaning a federal cost per job of about $7,700—an impressive return on investment. The plans are also projected to help retain 2,400 jobs and train 4,000 workers for careers in technical, high-growth sectors—meaning $37 million in micro-investments on the ground will have a substantial impact.

Going to scale?

With a return on investment this compelling, two questions immediately follow. First, what monitoring is in place to ensure these plans deliver? And second, if the promise of the Jobs Accelerator is fulfilled, then how can we take it to scale? Let’s consider each question in turn.

Monitoring

Doing What Works published a “Design for Success” checklist as a tool for new government programs so that policymakers can ask—and answer—the right questions to ensure effectiveness. The questions relate to:

• Articulating goals and cost estimates
• Focusing on whether the right approach is being deployed to address the problem
• Providing evidence that the program is likely to achieve its goals
• Asking whether the program is establishing the right incentives
• Reflecting on whether the implementation phase is likely to be successful
• Ensuring the program is monitored for success and effectiveness

The Accelerator program boasts a clear goal (jobs through existing, promising regional innovation clusters) and focuses on the right approach (bringing together key agencies to leverage government resources). The evidence is promising, and by the projections of private-sector participation, the Accelerator seems to have appropriately aligned incentives.

What that leaves us with is implementation and monitoring. Here, the Economic Development Administration and its fellow participating agencies are taking care to monitor the results of the first round of grantees. The EDA has a track record in publishing metrics related to how its investments have resulted in private-sector investment and jobs created, and this is a critical part of the monitoring process.

If there is to be a second Jobs Accelerator round—and based on early indications, we hope that there will be—there is also, no doubt, opportunity to learn from the first round to improve the second. The Accelerator program allowed participants to use a single application process to access funds from the three agencies (EDA, Department of Labor’s Employment & Training Administration, and the Small Business Administration), but they still had to submit in triplicate. Furthermore, each of the three pots of funds received by applicants must be apportioned to three strictly segregated activities, limiting flexibility.

An executive order directing participating agencies to use a single application would be a straightforward improvement to the process. There also may be additional learning in funding delivery, which should be brought to bear on subsequent Accelerator rounds.

In “Silos of Small Beer: A Case Study of the Efficacy of Federal Innovation Programs in a Key Midwest Regional Economy,” the authors imagined “a process that would be seamless as ideas were vetted and augmented by good advice and sound mentoring, moving along the stages of financing in support of strong regional economic development based on the regions’ self-organized competitive strengths.” With regional economic development now more than ever a national imperative, that is the standard to which the Accelerator would do well to keep tracking.

Funding

The EDA itself is a small team with a big challenge. Its mission “is to lead the federal economic development agenda by promoting innovation and competitiveness, preparing American regions for growth and success in the worldwide economy.” EDA’s budget for fiscal year 2011 was $284 million, representing less than one-tenth of 1 percent of nondefense discretionary spending.

In this budget environment, government agencies are rightly focused on ensuring scarce taxpayer dollars are going to the highest value programs. For EDA, with such a small pot of funds to begin with, this is especially true.

If necessity is the mother of invention (in government, as outside it), then perhaps it was the small size of the EDA itself that underscored the need to collaborate with other agencies. And yet interagency collaboration is exactly the type of activity we need to promote if we are to overcome economic challenges and improve our competitiveness. Targeting scarce resources scattered across different agencies on one coordinated key goal enables a little bit more funding to go a longer way in achieving this objective.

The first round of the Jobs Accelerator had total funding of $37 million, coming from three sources: EDA ($14.5 million), the Department of Labor ($19.5 million), and the Small Business Association ($3 million). So with $37 million supporting 20 clusters, growing the program to $200 million could support more than 100 clusters. If 100 sounds like a lot, consider that it is an average of only two per state.

Also consider that the top 100 U.S. metro areas occupy only 12 percent of the nation’s landmass but contain two-thirds of its people and produce three-quarters of the country’s gross domestic product. 100 grants can go a long way. And it is clear there is a large appetite in regions for this program. Despite only allowing 45 days for the initial application process, 121 clusters applied.

As the Obama administration considers its 2013 budget, every program will be under increasing scrutiny. Due to the Budget Control Act of 2011, the outcome of the debt limit deal forged by Congress this past summer, nondefense discretionary spending faces cuts of 11 percent. This comes at a time when Americans acutely understand the reality that the biggest challenge facing the country is how to get millions of unemployed Americans back to work.

That is why now more than ever we need to be finding and backing the programs that work—programs that have a clear focus on growth, leverage government resources through strategic collaboration, and offer a strong return on investment to taxpayers.

All indicators suggest that the Jobs and Innovation Accelerator represents a step in the right direction.

Jennifer Erickson is Director of Competitiveness and Economic Growth at the Center for American Progress. Sean Pool is Managing Editor of Science Progress, a project at the Center.

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In practice that rarely happens. A more likely scenario is that humble, behind-the-scenes “process innovations” will continue to increase the efficiency and drive down the costs of manufacturing the technologies we already know work.

The Department of Energy has recently completed testing on just such a humble breakthrough. The Optical Cavity Furnace is a new piece of equipment for making solar cells that is about to rock the photovoltaic industry by slashing costs and increasing efficiency. The news should not just excite tech nerds—by reducing the cost of producing solar cells by nearly three-quarters, this new technology represents another big step on the path to making clean energy the cheap kind of energy.

Here’s how it works.  By using optics to more efficiently focus visible and infrared light, the Optical Cavity Furnace can heat silicon wafers used in solar cell production much more precisely and uniformly than previous forms of solar cell manufacture. The resulting solar cells are stronger, more efficient, and have fewer impurities. The National Renewable Energy Lab, or NREL, the DOE office responsible for the research, and a corporate partner AOS Inc. are now working to bring this technology to scale. The partners plan to build an industrial-scale Optical Cavity Furnace capable of producing 1,200 highly efficient solar cells per hour. NREL has cooperative research agreements with many of the country’s biggest solar cell producers.

Even better, in addition to producing solar cells more reliably, quickly, and therefore cheaply, the Optical Cavity Furnace itself is cheaper than traditional equipment used to produce cells. As the cost of manufacturing solar cells goes down, elementary economics suggests the accessibility of solar cells will soar.  Then it’s a matter of harnessing their power in a myriad of other industries in a clean energy domino effect.

The White House has challenged the solar industry to produce clean electricity at $1 per watt. It has also set a national goal to achieve 80 percent clean energy use by 2035.  Though some tout the idea that radically new breakthroughs in energy technology are needed to achieve these goals, incremental process innovation in existing technologies is perhaps a more important part of the solution. Innovations like the Optical Cavity Furnace that make the technologies we already know about cheaper, easier to produce, and more abundant can have game-changing impacts on bringing clean energy to scale.

The concept of “grid parity”—the point at which generating electricity from alternate energy sources is equivalent in cost to generating electricity from grid power—underlies the feasibility of using solar cells as a resource.  Due to the competing forces of supply and demand, consumers likely will not choose clean energy until it is cheap and convenient.  The good news is that researchers are racing toward that goal at an impressive rate.

In fact, the cost of photovoltaic, or PV, cells had already fallen 50 percent in the past two years prior to the DOE announcement.  A June 2011 projection predicted PV module prices would hit the goal of $1 per watt by 2013; now the finish line of the proverbial “race to the bottom” seems even more imminent.

For consumers weary of the daily media promises of a cure-all solution to climate change, consider this: Deflating prices of solar cell manufacturing mirror the downward price slope of other technologies we now take for granted, like cell phones and DVD players. One important driver of those price declines is process innovation. And the government, instead of being an obstacle to competition, is uniquely poised to foster it, as evidenced by the new DOE solar furnace. In addition to the work being done at the Department of Energy’s National Renewable Energy Laboratory, dozens of other federal labs across the country under the DOE Office of Science, the National Institute of Standards and Technology, and the Manufacturing Extension Partnerships are helping push the bounds of process innovation in clean energy manufacturing.

The notion that science or innovation alone can solve our energy and climate challenges may seem like the overoptimistic ramblings of an enthusiastic technocrat.  Yet new technologies like the Optical Cavity Furnace are piling up, creating a stronger and stronger rationale for increased federal investment in innovation.  Through process innovation, we increase efficiency and lower costs, virtually negating the common arguments against climate-conscious energy policy.  Like it or not, most consumers still make energy choices based on the impact those choices have on their wallets rather than based on the impact they have on the environment. With a vibrant national research ecosystem that fosters process innovation, before we know it, more and more consumers will be choosing clean energy not because it is the socially conscious choice but because it’s the cost-effective choice.

On Friday, David Sandalow, assistant secretary for policy and international affairs at the DOE, addressed Yale University on the subject of government’s role in funding innovation. In his speech, he emphasized the importance of the government footing the bill for research that would otherwise be too expensive, too time consuming, or too risky for individual corporations to fund. Sandalow highlighted some key examples of government investments yielding monumental rewards: Google, natural gas from shale, GPS, the mapping of the human genome, and the Internet, just to name a few, wouldn’t have been possible without government-funded research.

The fact of the matter is that the private sector simply doesn’t have the right incentives to invest adequately in the basic science and pre-commercial research from which innovation springs forth.  The Solyndra scandal is a perfect example of this.  Critics point to the Solyndra bankruptcy as a symbol of government investment failure, but it is actually the exception that proves the rule.  Said Sandalow, “Loans for innovative technologies involve extra risk. Many innovations are successful. Some change the world. But innovation is never a sure thing.” He then pointed out that Congress intentionally designed the loan guarantee program in which Solyndra participated to absorb some failures.

Not making investments in future technologies for fear of failure would be far worse than making the investments and seeing a few failures along the way. Learning from failure is a healthy and important part of innovation. Failing to invest in the risky, bold aspects of technology development would hold back the essential trial and error that is innovation.

Said Arun Majumdar, director of the Advanced Research Projects Agency – Energy, or ARPA-E, in a March statement before the House, “The portfolio of ideas that ARPA-E funds are too risky for the private sector to invest in at this time. However, if one of the ARPA-E ideas is shown to be practical, it could indeed change the world.”

Public investment in innovation is not just up against Tea Partiers and the 99 percent movement; the government is contending with human nature itself to maintain funding for the sciences.  One reason technology funding might not seem so appealing is that research and development can take decades to produce results. The Internet boom, for example, that drove economic growth throughout the 1990s and today has fundamentally transformed the way individuals and businesses communicate and access information, was rooted in research initiated by DARPA in the 1960s and 1970s—nearly half a century ago.

The problem is that humans are notoriously bad at gauging the benefits of long-term investments. In behavioral economics, “hyperbolic discounting” refers to the tendency to opt for more immediate rewards, even when waiting would result in a greater payoff.  In the choice between receiving $20 today or $40 in a year, for instance, many people would choose the former.  The longer the delay, the more we discount the second option.

In the case of technology innovation, it’s hard to resist the temptation to spend our money on something more immediately gratifying, especially when the results seem so abstract and out of reach.  But it’s clear that technology has left its fingerprints everywhere in our lives, and has become the primary engine of economic growth. Sandalow’s speech reminded us that investment in research has led to tangible, oftentimes invaluable outcomes. And in the case of clean energy technology, if research does take years, we cannot afford to wait to fund it.

It’s a positive sign for the country’s intellectual health when we are openly engaging in debate over the role of government in society. In this nationwide discussion, it is important to remember that in the instance of science funding, there is a niche that only government can fill, due to the unique financial challenges that research entails.  If we want a country on the cutting edge of the latest technological advances; if we want technologies that will make us safer, smarter, and healthier; if we want to see new markets opened, jobs created, and the standard of living improved, then we must uphold our commitment to science progress in America.

Lauren Simenauer is an intern with Science Progress and a senior at the University of Virginia. She is finishing her degrees in biology and psychology.

So what’s the problem? The problem is that innovative university research is not set free. Currently, university technology commercialization strategies rest on the assumption that university research is most commercially appealing when managed as potentially lucrative, university-owned intellectual property. The current approach to commercializing university inventions is due for an overhaul. Yet, universities and federal agencies continue to invest money and resources in initiatives and programs that merely re-hash the technology commercialization model we already have, one built on the assumption that more, not less, central control over university research is needed to increase its commercial uptake.

Celebrating the status quo

If you scan Google news, you’ll see what I mean. Headline after headline announce university initiatives to build a bigger infrastructure to “protect” and organize university inventions. Universities announce they will hire more staff to better manage the university’s invention portfolio; universities will apply for more patents, offer more entrepreneurship education programs and run various flavors of business plan or best practice competitions. University press releases announce, “A big patent licensing deal was signed! Seventeen university startups were spun off! Amazing new Director was hired who’s gonna turn the ship around!” I know because I used to write those sorts of homages before I learned to apply my powers to tell the unsanctioned story of the Dark Side of university innovation… (that’s a joke).

Celebrating the status quo, however, is just a symptom, not the real problem. The real problem is that innovation does not happen from central planning. Innovation happens when you give intelligent, capable people the tools, resources and storefronts they need. Next, set down some a few minimal ground rules to ensure decency and fair play, and then get the heck out of people’s way (unless they voluntarily come back to ask you to remove a barrier that they can’t remove alone).

Now don’t get me wrong. I applaud that those in charge of university research and funding who understand that change is needed. It’s a good thing that the people who steward our nation’s tax-payer funded university research are struggling to stretch their thinking. There’s no quick and easy solution; change is hard and its effects take years to register. Also, I’ve met plenty of thoughtful, business-savvy intelligent university administrators (who, by the way, are a more diverse-minded bunch than they are permitted to publicly express) who deeply care about their university’s contribution to our nation’s economy and are struggling to figure out how they can help.

The Cathedral and the baazar

Let me frame the situation another way: in the metaphorical context of the cathedral and the bazaar. Before I go into detail, let me explain what this metaphor means. The notion of the cathedral and bazaar refers to two different approaches to technology development. It was articulated by open source visionary Eric Raymond in the late 1990s to describe two ways to build software.

The cathedral model represents a traditional centralized, top-down commercial model in which a lead engineer presides over a tightly controlled group of paid software developers. In cathedral building mode, software code is proprietary and its use is typically permitted in exchange for payment.

In contrast, the bazaar mode symbolizes the open source development paradigm. The bazaar mode of software development is a de-centralized effort driven not by a single company, but by a typically unpaid leader who originated the project. In the bazaar model, a loose federation of volunteer software developers writes the code and the documentation, both of which are shared freely under an open source license.  Community recognition is the reward. Project planning takes place via a process of transparent decision-making from the lead developer, frequently accompanied by heated debate. No single entity owns the project code. Companies are free to utilize portions they need (although different sorts of open source licenses permit different degrees of commercial application).

The cathedral

Raymond conceived of the cathedral and the bazaar in the context of software development. But the notion aptly describes the tension between the formal and informal mechanisms that bring all kinds of university research to market. Here’s how the metaphor can be applied to university research. Imagine a cathedral surrounded by a vast, bustling bazaar. In this scenario, the hypothetical cathedral represents the formal technology commercialization programs and policies celebrated in press releases — the way decision-makers want university research to be doled out to the rest of the world.  In contrast, the hypothetical bazaar represents how university research is actually conducted and shared—through many diverse and informal interactions.

The cathedral mode of formal university technology commercialization consists of licensing patents in exchange for revenue, mandatory compulsory university ownership of anything invented on campus, and ever-lengthening intellectual property policies. So what does the bazaar mode look like? Actually, the bazaar mode is alive and well. More than just alive and well. The bazaar model of university technology commercialization is large and in charge. The vast majority of university knowledge, in the past and today, flows to the rest of the world via the channels of open science: scientific publications, conferences, or open sources. Or via people: graduating students, interpersonal relationships among researchers, investors and entrepreneurs, and faculty consulting engagements.

The cathedral mode is actually a relatively recent method of extracting the commercial value of university research. Before the 1990s, few universities owned patent portfolios. Campus intellectual property policies and commercialization planning committees were either non-existent or not of broad concern. There were few technology transfer offices, no startup boot camps, business plan competitions or degree programs in entrepreneurship. Yet university knowledge found its way over to the marketplace just the same.

The bazaar

Disorganized as it may be, the bazaar is necessary to meet the needs of an increasingly bazaar-oriented commercial world. When asked about the value of various channels of academic knowledge to their company’s R&D efforts, industry researchers ranked university patents well below scientific publications, relationships between research experts, and conferences (“Links and impacts: the influence of public research on industrial R&D,” Cohen, Link and Walsh, 2002). The bazaar mode adapts faster to changes in the industrial climate and new research directions.

The bazaar approach to technology development works. Even in complex environments. Similar to the open source software bazaar, scientific discoveries rarely spring from a single individual. Creating innovative technologies is a haphazard process that relies on serendipity and the free flow of information rather than a centrally laid-out research agenda.  As described by Eric Raymond, the bazaar mode, by letting go of centralized control and rigid procedures unleashes the power of multiple “agents attempting to maximize utility, which … produces a self-correcting spontaneous order more elaborate and efficient than any amount of central planning could have achieved.”

There’s no single path to technology commercialization

The cathedral mode of technology commercialization, however, should still have a place on campus, but as one of several options. Whether you like them or not, patents still play a central role in industry product development strategy. As a result, many companies and startups, particularly those in the pharmaceutical, chemical and medical device industries, prefer to license patents when they work with university researchers. And given how costly it is for universities to build their patent portfolios, some central oversight of where patents get licensed is necessary. For example, if a would-be entrepreneur insists that his startup will only survive if he is issued an exclusive patent license, some screening of this individual’s plans by university licensing staff needs to take place.

In addition, painful and unpopular as they may be, many sweeping campus intellectual property policies originated with good intentions. Although it’s an administrative failure that the tendency is to keep adding, not pruning university policy, some centralized guidelines are needed. After all, most campus policies don’t come out of thin air but were triggered at some point by the misbehavior of one or two bad applies somewhere in the research food chain. Finally, even inventors who happily freely share large portions of their work, in some instances, may prefer to develop some innovations in a proprietary manner.

In an ideal world, the cathedral and the bazaar would happily co-exist on campus. After all, the commercial software world has learned to accept, even embrace the open source bazaar. I’m not sure, however, that universities are adapting as well as have commercial software companies. It’s a troubling trend that efforts to address the problems of the formal university technology commercialization process attempt to expand, rather than moderate, or even shrink, centralized control.  Blind acceptance of the value of the cathedral mode and the strategies and policies that come with it threaten to choke the free, informal and un-choreographed knowledge flow that fuels the bazaar.

So what should be done? Here’s a thought. Wouldn’t it be great if the next technology commercialization competition were to be The Bazaar Cup? The winner of the Bazaar Cup would be the university that had the most success whil doing the least architecting of its formal technology commercialization practices, programs and policies. Entrants to the Bazaar Cup would submit a five-page document describing university strategy and policy “before” and “after.” Extra points to the university that offers detailed, quantifiable descriptions of what practices, exactly, were relieved of central oversight. Entries would be submitted online for anyone to read.  Judging would consist of an open ballot with the condition that each judge make her vote public (to minimize political shenanigans). I’ll bet that the online debate from Cup judges and spectators would kick up a whole lot of valuable best practices for policymakers to pore over.

Melba Kurman writes and speaks about university intellectual property strategy and the journey of innovative technologies from the lab to the commercial marketplace. This article is adapted with permission from a post at Melba’s blog. 

Backstage from the media circus, the Obama administration and Senate Democrats have been quietly drumming up support for a new $90 million program to accelerate innovation in educational technology, or ed tech. Called the Advanced Research Projects Agency for Education, or ARPA-Ed, in the president’s 2012 budget, this lean, mean little research agency would create a platform for ed tech innovators to compete to develop cutting-edge learning tools.

On Wednesday, as the Senate Health, Education, Labor, and Pensions, or HELP, committee moves to overhaul No Child Left Behind, Senator Michael Bennet (D-CO) is expected to introduce an amendment that would bring ARPA-Ed to life. If enacted, ARPA-Ed would put competitive grants and contracts in the hands of innovators seeking to develop technologies to revolutionize the way students learn. Because it kindles competition, ARPA-Ed is an interesting Obama initiative that has the potential to reverse the sputtering trajectory of the U.S. education system.

Education challenges

As it stands, the situation in public education is precarious. In December 2010 the Program for International Student Assessment, or PISA, announced that the United States ranked 14th in reading, 17th in science, and 25th in math among 63 world nations in academic performance. Comparatively, Chinese students in Shanghai ranked first across the board, with Singapore, Korea, and Finland following close behind. This news has fueled concerns on both sides of the political spectrum that the United States is losing its competitive edge amid a crippling educational and economic malaise.

While our students are subject to global competition, U.S. schools are facing mounting pressure at home to conform to the standards set by the No Child Left Behind Act, or NCLB. Schools are scrambling to achieve proficiency in math and reading by 2014, lest they face fiscal penalties. The looming deadline for improved performance—and the fear that it will not be met—has prompted President Obama and his secretary of education, Arne Duncan, to look into restructuring NCLB in a way that will be more consistent with his vision for education. Central to this vision is ARPA-Ed. ARPA-Ed is built on the same model as DARPA, the defense research program responsible for technologies such as the Internet and GPS.

Proponents of ARPA-Ed aim to exploit cutting-edge technology and developmental psychology in education to create a more efficient, individualized, and engaging learning regimen for today’s students. ARPA-Ed would follow its predecessors in adopting a bottom-up, rather than top-down approach to nurturing innovation. Instead of attempting to dictate what the most effective means of instruction might be, ARPA-Ed will reward learning about learning, researching research, and thinking about thinking.

Until now, the strategy for using technology in education has been to bombard schools with gadgets, sometimes at the expense of teachers’ jobs and to the detriment of art and music programs. The Kyrene school district in Arizona, for instance, touts state-of-the-art classrooms, spending $33 million on student laptops, display screens, and accompanying software. Yet despite all its high-tech bells and whistles, Kyrene’s math and reading scores have stagnated since 2005, even as scores in the rest of the state have risen. Further, it is unclear whether some modest improvements can be attributed to better incorporating technology into classrooms or better teachers using said technology. Technology for technology’s sake, it seems, is not a successful approach.

In light of disappointing results, such as in the case of the Kyrene school system, it would appear that a shift in the way we equip our classrooms is in order. A quick survey of the current landscape of public education, with its socioeconomic performance gaps that could be better characterized as canyons, would suggest that our current system isn’t working.

Is technology part of the solution?

Yet there is hope in ARPA-Ed, which holds promise of funding many exciting innovations that could not only produce innovative educational technologies but also transform the way technology is used. Areas of research include:

• Interactive digital tutors that can guide students through curricula and provide constant feedback.
• Adaptive technology that adjusts to students’ learning styles and rates, and improves as the student uses it more.
• Making learning software function more like video games do.

ARPA-Ed would expand upon efforts initiated by the “Digital Promise Center,” which Congress authorized but didn’t fund in 2008. Education Secretary Arne Duncan unveiled the Center in September, acknowledging that the institution represented an “incredibly important turning point.” A major aspect of the so-called “digital promise” is research into digital tutors.

Digital tutors seek to marry the virtual age with psychological principles of learning. One such tenet of learning is that immediate feedback and reinforcement strengthens the association between stimuli. For instance, when an amateur is learning the violin and plays a wrong note, for best results, an instructor should correct the mistake immediately after it is made in order to give the musician the best odds for not repeating the mistake. Hence the revised maxim, “Practice doesn’t make perfect—perfect practice makes perfect.” Yet musical instruction usually only occurs once or twice a week, leaving novices to correct their own mistakes—a difficult feat when you don’t know what you’re doing wrong in the first place. This was exactly the problem researchers at the National University of Singapore confronted when they developed a virtual violin tutor to help kids practice more effectively.

The Navy has also implemented digital tutors to teach recruits to become IT specialist administrators in just seven weeks. A healthy, all-American suspicion of technology—complete with fantasies of a dystopian future where humans are oppressed by Skynet—may inform skepticism as to whether such a program really works, and whether machines are even capable of educating. But Navy researchers found that these computer-trained specialists outperformed their traditionally educated counterparts with up to three years of experience.

New tutoring software will capitalize not only on advantages in immediate feedback but also in the realm of individualizing education. Analytics are already widely used in business to customize the content you see on the Internet. Analyzing online habits is how Amazon manages to recommend merchandise that you really want or how Netflix seems to have a handle on your taste in movies. Companies like Amazon and Netflix collect data from users’ personal choices and incorporate them into algorithms that filter their databases to formulate suggestions for your next rental or purchase.

Research into education software will employ similar tactics to gather information about how a student learns. One test prep company, Knewton, is already leading the pack. In just a few hours, Knewton’s software can collect 150,000 data points on a student—data points like how long it takes a student to answer a question or to learn a lesson, which kinds of modules are mastered more quickly, and where the student is lagging. The highly sophisticated software aggregates this information, determines a student’s unique pattern of learning, and adjusts accordingly. This technique allows for remarkably personalized instruction. Four major universities have already purchased the product for catching up incoming students on college-level math.

Medical schools have also implemented programs for adapted learning, as reported by the NIH. These programs allow for student control of pace and media, though students are quick to maintain that they view the system as a complement to, rather than a replacement for, instructor-based learning.

If ARPA-Ed led to developments in personalized software for students in grade school, the benefits could be substantial, especially due to the plasticity of the young mind. Yet children, as opposed to GRE test takers and medical students, are slightly less inclined to sit in front of a boring slideshow and answer questions about it. That’s where the next ARPA-Ed research area would come in. The National STEM Video Game Challenge aims to make learning more like something kids actually want to do.

Much like sneaking broccoli into the mac n’ cheese, the National STEM Video Game Challenge seeks to trick kids into learning. The 2010 winners of the Developer Prize, Dan Morton and Dan White of Filament Games, created a game to teach kids about the structure and function of pathogens. The game “You Make Me Sick!” compels players to build a virus or bacteria and infect a host. You can play the prototype here.

Engaging and challenging educational games, coupled with personalized curricula, could afford all kids the opportunity to learn skills to prepare them for higher education. Furthermore, integrating computers and other gadgets into classrooms will free up teachers to have more one-on-one time with students and better control disciplinary problems when they arise. A school in South Carolina that implemented iPad technology for all its students reported a noticeable decline in class disruptions.

But the advantages extend beyond the scope of monitoring class behavior and individual children’s performance. Currently, the mainstream model of education—boasting short class periods delineated by bells that signal it is time to herd students to their next room for structured learning—seems ill-equipped to absorb change. Due to images evoked of children on a conveyor belt, scholars have deemed this educational structure the “factory model.” The factory model sets teachers at the center of children’s education, relying on educators to produce material for students to consume, rather than focusing on the needs of the individual learning.

Making the most of technology

Some, like Forbes’s Clayton Christensen, hold that technology in classrooms will be the vehicle by which America’s schools transition from what Christensen termed “teacher-centric” to “child-centric” education. Christensen wrote in 2008 that students suffer from rigidity in the curriculum, which is influenced by state mandates, district regulations, and the expectation that all students will master the same skills to the same proficiency level by the time teachers conclude covering the material. These problems, he argued, must be addressed by shifting the education paradigm to a modular one where learning can be self-directed and tailored to students’ learning styles and paces. In this sense, the new educational technology promised by ARPA-Ed will not simply be an accessory to learning but rather will be crucial to changing the system itself.

Consider, for instance, one contemporary school of thought: the “flip model” of education. Inspired by Salman Khan, founder of the Khan Academy, the central concept behind the flip model is that students listen to lectures for homework and come to class prepared to engage in deeper discussion and analytical activities. The Khan Academy provides clear, concise lectures on a wide breadth of subjects, complete with exercises to test students’ understanding—and most of it is free. All of it is online.

In Lawrenceville, Georgia, some teachers at the Gwinnett School of Mathematics, Science, and Technology have traded homework for lectures and use precious class time for dissecting difficult problems and engaging students in group activities like acting out the processes of a cell in a 10th-grade biology class. This line of thought is consistent with emerging research that suggests that even children who prefer to work alone do better when collaborating in groups. Critics of the system, however, are quick to point out that it is rendered useless in the absence of a basic technological framework for online instruction.

Even if ARPA-Ed fosters competition for the best, most exciting educational tools available, implementation in classrooms is another hurdle entirely. Said Bryan Goodwin, spokesman for Mid-continent Research for Education and Learning, “Good teachers can make good use of computers, while bad teachers won’t, and they and their students could wind up becoming distracted by the technology.”

The reality that those who don’t teach well won’t use technology well, either, exacerbates an underlying problem: Integrating technology into schools in such a way that decentralizes the classroom is incongruous with current pedagogical thinking. In fact, some studies suggest that even teachers who are well-versed in new technology tend not to use it in ways that encourage the aforementioned “student-centric” learning.

Like technology, however, the landscape of the teaching profession is evolving.  Programs like Teach for America are plucking talented college graduates from diverse backgrounds and honing their instructional skills in underserved communities. Notably, the Teacher Incentive Fund holds promise for attracting and retaining motivated young teachers in high-poverty schools by compensating better for better results—a concept not novel to most other professions in the United States. Having grown up, rather than having had to keep up, with technology endows this new generation of educators with an advantage.

Efforts on the Hill to close the comparability loophole, by which schools obtain federal funding by  over-representing teachers’ salaries in less affluent districts, should help alleviate the plague of low teachers’ salaries in schools that need good teachers the most. Finally, the age of teachers’ unions eschewing serious discussions about tenure and performance-based pay has come to a close, as leaders meaningfully engage opposition in the shared goal to protect teachers and secure the best opportunities for more students.

The outlook for ARPA-Ed

But ARPA-Ed still faces opposition from the right. Conservative pundits have called the initiative wasteful and “duplicative,” claiming that $90 million is too steep a price to pay, and that the Department of Education already spent $4 billion on teacher retraining. Advocates like Tom Schatz, president of Citizens Against Government Waste, would rather see that money funneled to the states than appropriated at the federal level. The assertion that ARPA-Ed is just another teacher retraining piggy bank, however, grossly misrepresents the multifaceted, innovative program.

ARPA-Ed breaks with existing programs in that it focuses on research into learning, not teaching. Moreover, $90 million seems like a steal for educational investments designed to yield breakthroughs that could have positive social returns for decades. To put the figure in perspective, the federal government spent $1.34 billion—15 times the price tag of ARPA-Ed—in 2010 on its “Race to the Top” program, in which states competed for funding by implementing the best reforms, like adopting performance-based pay and promoting charter schools. For six times the cost of ARPA-Ed, we fund adult education; still more money is doled out for federal student aid. As it is, the federal government only spends a fraction of its budget on education, and ARPA-Ed’s cost would be a tiny fraction of that.

America’s children deserve the best education science can bring them. Sen. Bennet’s amendment to create ARPA-Ed would be a step toward escaping our educational malaise and helping our students climb back to the top of the ranks. It is through implementing a program that emphasizes core American values like independent learning, creativity, and the individual work ethic, that we can regain our footing in the international sphere and return to doing what we do best: pushing the boundaries of innovation.

Lauren Simenauer is an intern with Science Progress and a senior at the University of Virginia. She is finishing her degrees in biology and psychology. Sean Pool is the Assistant Editor of Science Progress.

Conservative proposals largely echo now-defunct Reagan-era thinking that tax cuts alone can spur the private sector to create jobs. Yet effective corporate tax rates are lower today than they were under President Reagan and are certainly much lower than many of our competitor nations. The same is true of the effective tax rate for top-, middle-, and low-income families. Tax cuts neither created the jobs of the past nor will they create the jobs of the future. Investing in innovation will.

“In America, innovation doesn’t just change our lives. It is how we make our living.” —Barack Obama, Jan. 2011

Innovation is what has created the bulk of American jobs today and it will most certainly be the force that creates the jobs of tomorrow. America is home to the world’s best jobs and most prosperous economy quite simply because we’ve invented and made the things that the world wants to buy. And then we’ve invented ways to make those things better, faster, and cheaper.

The cotton gin, the transcontinental railroad, interchangeable parts, assembly line manufacturing, the automobile, the airplane, the personal computer, the photovoltaic solar cell, GPS technology, the Internet, the mapping of the human genome, the iPhone—these inventions and the companies that produce them have directly or indirectly supported millions of American jobs. As President Barack Obama said in his 2011 State of the Union address, “In America, innovation doesn’t just change our lives. It is how we make our living.”

History is quite clear on the importance of innovation to sustained job creation. The nations that have leveraged the fruits of science and technology for greater social and economic good have led the world in well-paying jobs and standard of living.

Robert Solow’s Nobel Prize-winning attribution of more than half of all economic growth in America since World War II to technological progress has been echoed by everyone from career academics to the Department of Commerce to the National Academies to the Organisation for Economic Co-operation and Development to the White House.

In the 21st century, innovation is what produces wealth and creates jobs. The Kauffman Foundation finds that nearly all net job creation in the economy comes from innovative startup firms that are less than five years old. Meanwhile older, larger firms tend to shed net jobs on average. They went so far as to call such innovative businesses “almost solely the drivers of growth” in the economy. Meanwhile, the Department of Commerce found that innovation leads to higher wages; average compensation per employee in innovation-intensive sectors of the economy increased nearly two and a half times faster than the national average between 1990 and 2007.

Traditionally, America has led the way in seizing the economic opportunity of innovation. In past times our systems of intellectual property and taxation made it easy for businesses to invest in innovation and capture some of the benefits. Our investments in education, basic science, research and development, and infrastructure made possible the technological innovation that put our economy on the cutting edge.

Our public investment in the human genome project, for example, had a return on investment of more than 14,000 percent in terms of economic output per federal dollar invested since 1988, and has led to the creation of millions of biotech jobs that could not have existed without it. Similarly, a seemingly tiny investment of the Defense Advanced Research Agency, or DARPA, spawned the Internet, giving rise to billions of dollars in economic activity, new businesses, and, more importantly, new ways of doing business.

But the 21st century is different. Science and technology haven’t just changed the way we live and do business; they’ve also changed the way we understand and invest in innovation itself—and we haven’t kept up. And while other countries have been more nimble in adapting their policies to keep up with the cutting-edge economy, our investments have begun to lag.

Since the 1960s our federal rate of investment in research and development as a percentage of gross domestic product has declined steadily: from 1.3 percent to 0.9 percent. American students have fallen to 25th place in mathematics ability among the industrialized democracies of the Organisation for Economic Co-operation and Development. Most telling, the American Civil Society of Engineers gives American infrastructure almost failing marks: “D+” on energy, “D-” on roads, “C” on bridges, and “D-” on drinking water, with an overall grade point average of “D.”

These investments in education, in R&D, and in physical infrastructure are needed to ensure companies have access to the talent, markets, funding, and ideas necessary to drive innovation. America’s underinvestment in physical and institutional infrastructure—from undereducated workers to low broadband penetration to the very roads on which companies transport goods—is eroding the competitiveness of U.S. industries and costing jobs and economic leadership.

Meanwhile, other nations have looked critically at the building blocks of innovation and invested strategically to enhance their competitive position. Governments across Europe and Asia have invested in science, technology, engineering, and math education for their children and young workers; in worker retraining programs for the existing workforce; and in fostering regional innovation ecosystems and industrial clusters. They’ve also invested in gathering the metrics and data that their policymakers need to make good innovation policy and have coordinated their governments’ efforts around the interrelated innovation functions of industry, trade, and technology.

While governments of the rest of the major economies of the world are already competing to create jobs through innovation in the 21st century global economy, the United States does not seem to fully recognize it is in competition.

But with Washington finally turning its eye toward the important priority of job creation, perhaps it is time to seize the opportunity to retool our policies to be competitive in the cutting-edge economy of the 21st century. But make no mistake, policy alone cannot produce innovation. Hardworking Americans must do that. But policy can help create the economic and social conditions that promote innovation.

There is no question about what we need to do to create jobs, turn around our economic stagnation, and create optimism for American families and businesses. We know that we cannot simply give tax breaks to big corporations and expect the benefits to trickle down. Instead, we need to invest in the building blocks of innovation and empower the next generation of innovators, entrepreneurs, and motivated, everyday working Americans to “trickle up” and invent their own destinies.

What are these building blocks? Science Progress and the Center for American Progress’s Doing What Works project aim to answer these questions in a series of papers to be released over the course of the next four months. These papers will address six major areas where making smart, progressive investments in innovation can lay the foundation for job creation and future growth.

First, we need skilled, able, and empowered workers who can do and create the kinds of jobs the innovation economy demands. So we must invest in better education in science, technology, engineering, and math from primary school through postsecondary. We must invest in worker retraining programs to help the smart, educated, and out-of-work individuals learn new skills and adapt to the rapidly changing demands of the innovation economy. And we must reform our immigration policies so the best and brightest are encouraged to stay here and lend their creativity to the collective genius of our nation.

A forthcoming paper by my Center for American Progress colleagues Louis Soares and Steve Stiegleder will address some of the gaps in our current education and workforce training policies and what we can do to fill them and ensure that American workers are well-trained to innovate and compete in the global 21st century innovation economy.

Second, a robust system of fundamental science research is a must for a country that seeks to be competitive in the cutting-edge 21st century economy. This means funding fundamental science and research and development in universities and federal labs, and creating wise incentives for the private sector to continue to do the same. Our forthcoming paper from University of Southern California Vice Provost for Innovation Chrisztina “Z” Holly will address this.

Third, innovation isn’t just about invention and discovery, just as critical is the application of invention and discovery to economic good. For this we must invest not just in fostering an active base of science and research but also in the machinery necessary to harvest its fruits and refine them into the juice that fuels economic growth. This means investing in institutional infrastructure that helps regional and national networks of investors, researchers, manufacturers, and customers come together to create new markets, new industries, and new jobs around innovative technologies and business models. Our forthcoming paper on manufacturing and the players in innovation networks by University of North Carolina-Chapel Hill professor Maryann Feldman will address this.

Fourth, we need free-flowing financial capital to fund all of the actors in these networks of innovation. For that we need to review and simplify the corporate tax code while strengthening the research tax credit and new markets tax credits. We also need to overhaul and integrate federal funding and loan programs, such as the confusing alphabet soup of programs such as the SBIR, STTR, TIP, SBIC, SBCDC and i6 programs that drive technology innovation, startup formation, and regional economic development. Our forthcoming paper by Science Progress contributor and former senior Department of Commerce official Jonathan Sallet and me about designing a Department of Competitiveness will speak to this.

Fifth, the free flow of ideas is critical to sustaining innovation. While the United States invented the modern patent system, our intellectual property apparatus has grown rusty and is in dire need of reform. We must increase the independence of the U.S. Patent and Trademark Office to manage its own accounts and increase the speed with which companies can apply for and receive patents, while addressing structural problems with our patent system itself that hinder innovation. Professor Arti Rai at Duke University and the University of Michigan’s Brian Kahin’s forthcoming paper in our series will speak to this issue.

Sixth, we need a government that is equipped to engage with the 21st century innovation dynamics that will determine who will win the future. We need a government agency able to gather and analyze the data relevant to 21st century innovation policy. We also need an agency that can use that information to better coordinate currently siloed activities in trade policy, technology policy, economic development policy, and workforce development policy. Our forthcoming paper about reorganization of federal statistics efforts by George Washington University professor Andrew Reamer as well as the paper by Jonathan Sallet and me on trade, technology, and economic development efforts will explore this issue in more detail.

Last, world-class physical infrastructure is necessary for firms to access markets and suppliers. We must return our deteriorating schools, roads, bridges, and levees to their once-world-class state. We also must invest in making broadband Internet and the economic opportunity it affords more accessible to all communities. My colleague at CAP, Donna Cooper, will be unveiling three papers on these topics later this year.

These elements for creating jobs through innovation may seem disparate and complex in the world of the 15-second political sound bite but they outline a compelling narrative for job creation and growth that is both effective and progressive.

The Reagan-era concept that government can create jobs simply by lowering taxes and getting out of the way is moot in a globally competitive innovation economy where our competitor nations are out-investing us in all of the building blocks of innovation. But what will succeed it in the coming year, decade, and generation is yet to be seen.

Progressives have an opportunity to create a new narrative for growth and job creation. Innovation and progress are intertwined. Investing in the building blocks of innovation means fulfilling the progressive vision for America. It means investing in educating our children, investing in training our workers, investing in science, reforming immigration, making government work more effectively, and investing in the present and future wellbeing of the productive middle class.

“The government can create jobs by investing in innovation” can fill the void in American politics left by self-destruction and intellectual bankruptcy of “the government can only cut taxes and get out of the way to create jobs.” The president set the stage for this new innovation-oriented message in his 2011 State of the Union address when he said “the first step to winning the future is encouraging American innovation.” Tonight he has a chance to play the opening number.

Sean Pool is the Assistant Editor for Science Progress.

While DARPA’s best known for its research on technologies with national security applications, the agency has a strong track record of producing innovations with transformative civilian applications as well. From the Internet, to GPS, to driverless cars and robotic limbs, DARPA-initiated research has often made big if not revolutionary splashes in the marketplace. To quote Jackson, “we [at DARPA] are that genie in a bottle that will make the impossible inevitable.”

In the fields of synbio and bioengineering, scientists introduce new genetic information into microorganisms to coax them into producing useful products. These fields have already made significant strides in the production of some pretty incredible chemicals and materials with applications in agriculture, industry, pharmaceuticals, and more. Recent accomplishments include using microorganisms to produce the anti-malarial drug artemisinin, renewable petroleum, steel-strong spider silk, and even whole battery electrodes and solar cells.

Research agencies across the federal government have shown increasing interest in funding synthetic biology research in recent years, including $700 million from the Department of Energy between 2006 and 2010, $40 million from the National Science Foundation in 2010, and at least $48 million from the National Institutes of Health between 2005 and 2010. Even the Department of Agriculture has put $2.3 million into synthetic biology research in recent years. DARPA’s past work in synthetic biology includes modifying the genome of the tobacco plant to produce vaccines as well as a program to engineer immortal microorganisms with genetically-coded kill switches.

Despite increasing attention to synthetic biology in federal agencies and the research community, research is “…limited to producing only a small fraction of the vast number of possible chemicals, materials, and living systems that would be enabled by the ability to truly engineer biology,” says the Living Foundries funding announcement. The Living Foundries program hopes to set itself apart from traditional synbio research projects and transcend the “ad hoc, laborious, trial-and-error” efforts of the past by investing in platform research that can support a broad range of applications, bring down cost, and increase scale. This approach to research on the process of biomanufacturing itself rather than on the production of specific and siloed chemical outputs DARPA dubs “engineering biology.”

DARPA’s vision for engineering biology is ambitious. The Living Foundries project proceeds from the assumption that modular genetic parts can be “mixed and matched on demand” to create a broader array of chemicals and materials more efficiently. This is perhaps conceptually similar to the introduction of interchangeable parts that transformed manufacturing in the late 18^th century, except on a genetic level. Lena Groeger of Wired.com likens the rearrangement of “modular genetic parts” at the core of the Living Foundries’ research to the way that children play with Legos.

Potential grant recipients, including 170 businesses and a number of academic and government research teams, attended a daylong event on June 28 where DARPA advertised its vision and goals for the program. Having received proposals from academic and corporate research groups, DARPA is now taking the next step of determining winners. Once funding decisions are made, DARPA plans to have projects running over the next three years and to see tangible results by the end.

At a time of sluggish economic recovery and stiff international competition, DARPA’s decision to invest in research with broad potential applications in medicine, energy, agriculture, and consumer products as well seems wise. The initial stage has been set, and the next few years will show whether the program’s goals come to fruition. If so, American manufacturing may witness a new milestone.

Gaurav Dhiman is a former intern with the Science Progress team and a rising senior majoring in biology and political science at the University of Miami.

Early-stage venture capital, private equity, near equity, angel, and other capital resource providers offered insight over the course of a four-hour session. The fund I represented, Maine-based CEI Community Ventures, or CCV, was one of a handful of early-stage equity providers, and one whose charter includes a focus on investment in rural communities in northern New England. Three private equity funds were in the room—late-stage investors such as these often back or own manufacturing companies located in rural communities. The question posed to the group: How can we (the feds and the private sector) collaborate to direct capital to regions that have not typically been high priority for the risk capital community?

The USDA has an understandable interest in leveraging rural markets’ natural assets to serve high-growth sectors such as renewable energy. Additionally, the agency has long supported value-added food and agriculture ventures, sectors in which CCV has made three VC investments since 2005. Biofuels, both waste agricultural stock and newly grown agri-fuel sources, were top of mind for the secretary.

Vilsack asked what the federal government could do to improve access to capital in rural areas. As one might imagine, different capital providers brought different perspectives to the question. Private-equity folks spoke about regulation (less of it) and access to credit markets (more of it). Early-stage VC funds wanted to see the feds make more capital and tax credits available to spur private-sector investment. All early-stage funds present advocated for support of the agency’s Rural Business Investment Companies, or RBIC, program, an initiative funded out the 2002 Farm Bill as a partnership between USDA and the Small Business Administration, or SBA. RBIC was modeled on SBA’s 2000-2001 New Markets Venture Capital, or NMVC, program, which licensed six funds—including CCV—to commit high-risk capital and a unique grant pool to underserved and distressed communities in targeted regions. The RBIC initiative licensed only Meritus Ventures (an early-stage fund based in Kentucky) before program funding was withdrawn in 2005.

From a risk-capital perspective, the rural scene is challenging. Early-stage funds seeking high growth with proven teams are hard pressed to find them laying low in the woodlands, lowlands, or mountains of rural communities. But for a handful of experimental—and so as yet unproven—funds focused on rural and underserved communities, the early-stage equity market has gravitated, for logical reasons, to urban markets. Rural challenges include limited high-growth investment opportunities in sectors that attract capital, few experienced VC management teams, and difficulty attracting management talent to rural communities. It’s not that potential CEOs and senior managers don’t want to live in great livable cities like Portsmouth or Manchester, but they often have to consider what their options are if the venture doesn’t work out and they’ve moved their family to a rural area with fewer fallback opportunities than in a metro area like Boston.

A similar problem exists in finding experienced VCs who want to play in rural markets. A fund targeting rural markets is likely to find few similar funds with whom to co-invest. Small funds do not afford managers the capacity to attract the best talent, let alone continue to support its investments through multiple financing rounds. For this reason, I made a case to USDA to be cognizant of a minimum fund size ($25 million) that can support a fee structure and follow-on investment capacity.

Like many in the room, I supported Vilsack’s case for focusing on renewable energy, though noted that biofuel-based business models are challenging for their commodity nature and regulatory uncertainty. Many venture capital and growth equity funds supported biomass early in its evolution and—having been burned—are not so enthusiastic to double down in this post-recession environment. Biomass is a challenging sector in that its supply source and its end product are commodities, products that compete on volume and thin margins, not a great combination for venture capital.

I and others offered strong support for the value-added producer segment, which can bring higher growth rates and gross margins to rural areas. For example, the fund I manage has had a good run so far in support of food plays, including Pittsfield, New Hampshire-based Rustic Crust. But mine was a qualified endorsement, given that this, too, is a field with limited co-investment support. Risk capital tends to be biased toward high-margin, high-growth web businesses like Facebook and Groupon. This paucity of co-investment capital increases the risk of failure, since a processed food company will find it challenging to support growth through the early stages of development. Companies fail for a lot of reasons—access to growth capital is a pretty important one.

There’s no easy answer to Vilsack’s aim to see greater funding flow into rural markets, but it’s great to see this traditional agency reaching out and looking at how innovation tools like equity can address the short- and long-term challenges of rural economies.

Michael Gurau is president of CEI Community Ventures and is raising a new fund (Clear Venture Partners) to focus on early-stage ventures in secondary rural and small metro regions in New England. You can reach him at mg@clearvcs.com.

Abstract

As a new Congress begins to deal with the federal budget, it is useful to review the budget setting process in the United States as it applies to research and development (R&D). The federal R&D budget process is a complex, often confusing, procedure characterized by a series of lengthy and frequently contentious negotiations between Congress, the Executive Office of the President, and numerous cabinet-level departments and federal agencies, all attempting to respond to an abundance of expectations and conflicting demands. Here we focus on the parts of the federal budget that deal with science and technology R&D funding in particular.

Introduction

While science and technology’s importance is often buried under everyday political struggles, it plays an integral part in the creation of new knowledge and tools as well as driving the world economy. Science and technology positively impacts the economy in a multitude of ways by increasing productivity and improving the quality and variety of available goods. Although tangible returns for science and engineering R&D can be somewhat nebulous, economists over the past half-century have consistently characterized private returns to R&D as “strongly positive,” while social returns are even higher.[i] Not only does U.S. R&D serve to improve the lives of Americans, but it also remains essential in maintaining a strong economy both domestically and worldwide.

Science and engineering R&D in the United States is a complex system of performers, those who do the research, and supporters, those who fund the research. Industry funds the largest share (about two-thirds) of national R&D—most of which is done in its own laboratories and is focused on applied R&D, leaving most basic research to be supported by the federal government. Federal support of R&D is provided by a number of federal agencies (cabinet level departments, agencies within departments, and independent agencies) through annual budget appropriations negotiated by the U.S. Congress and the White House.

With a total federal R&D budget of an estimated $144.4 billion in FY 2011, hundreds of thousands of programs and projects are sponsored in federal laboratories, universities, and industries. Funding for R&D has traditionally enjoyed bipartisan support, particularly in connection with defense (mostly applied research and weapons development) and health (biomedical research). However, making the case for increased funding of long-term, basic science and engineering research has become increasingly difficult, in part due to the intrinsic uncertainties about the ultimate impacts of the research such as religious and ideological concerns about certain kinds of research, (e.g., embryonic stem cells) and inadequate communication between scientists and the public and policymakers at all levels. In present times, when reducing annual deficit spending is high on the list of national priorities, the situation is particularly dire. In the innovation-driven economy of the 21st century, funding R&D is more important than ever. Indeed, basic research can simply get lost in the contentious budget debates and partisan squabbles. With new conservative leadership in the U.S. House of Representatives, following the FY 2010 election, the coming budget negotiations are proving to be especially difficult.

By examining some of the general characteristics of R&D funding and the annual federal budget process, one can get a sense of the inter-related parts that must come together to form the federal R&D effort.

The budget process for science and engineering R&D

The budget process for each federal agency begins roughly two years in advance of the final approval of the budget. The president sets out his overarching priorities, which are sent to all federal agencies in the early fall (e.g., the fall of 2010 for the FY 2012 budget, that covers the period October 1, 2011 to September 30, 2012) and which the president will submit to Congress in February 2011. For agencies dealing with science and technology, the president’s priorities are detailed in a joint memorandum co-signed by the directors of the Office of Management and Budget, or OMB, and the Office of Science and Technology Policy, OSTP.[ii] The agencies are expected to take the president’s priorities into consideration in preparing their budget proposals, which include funding for all of their activities for a given fiscal year.

Next, OMB initiates a series of negotiations with each federal agency, resulting in a final draft that becomes part of the President’s Budget Request and sent to Congress, usually in early February. Once in Congress, the House and Senate Appropriations Committees disaggregate the President’s Budget Request into bundles of agencies that along with a bottom-line allocation, are sent to 12 (nine involving R&D funding) appropriations subcommittees, each of which then prepares a funding bill covering the agencies under its jurisdiction.

The National Science Foundation, or NSF, and National Aeronautics and Space Administration, NASA, are in the same appropriations bill as the Departments of Commerce and Justice. The Department of Energy, DOE, is in a bill that includes energy and water development projects. The National Institutes of Health, or NIH, resides in a bill with the Departments of Education and Labor. And the Department of Defense (DOD) is considered alone.

This disaggregated system of R&D appropriations means that most R&D funding agencies do not compete directly with one another but, rather, with nonscience programs, many of which are popular with the public and special interest groups. These congressional subcommittees wield considerable power over the operations of the agencies. If, at any time during a fiscal year, an agency wishes to deviate from the original budget, even moving relatively small amounts of money from one activity to another, it must obtain approvals from its appropriations subcommittees (House and Senate) as well OMB before proceeding. Thus one often hears agency officials complain about being micromanaged by Congress and spending all of their time on the hill.

The Senate and House must agree on the final 12 funding bills and send them to the president for signature into law by the start of the following fiscal year. Unless an agency “has an appropriation,” i.e., the bill including its funding has been signed into law, by the end of a fiscal year, it cannot spend money and must cease operations, except for a small number of specified essential services.

In recent years, including FY 2011, the federal budget was not approved in time for the start of the fiscal year. Delays typically occur due to partisan discord within Congress or between Congress and the president. This requires the enactment of one, or several consecutive, continuing resolutions, which extend the deadline for negotiations beyond October 1.

Delayed budget approvals can cause severe problems for agencies, which usually must continue to work under the guidelines of their previous budgets and have no way of knowing when their budget will be approved or what it will look like. In order to avoid a chain of continuing resolutions, Congress will occasionally bundle the unresolved budget requests together as a single piece of legislation, known as an omnibus appropriations bill. Omnibus bills, which are becoming progressively more common, tend to contain a diverse set of unrelated legislative items. With specific regard to R&D funding, these last-resort bills provide a convenient platform for members of Congress, often with the encouragement of constituents (e.g., universities) to include earmarks.

Earmarks, also known as “pork-barrel spending” or “carve-outs” are defined as “funds provided by Congress for projects or programs where the congressional direction (in bill or report language) circumvents the merit-based or competitive allocation process or specifies the location or recipient, or otherwise curtails the ability of the Administration to control critical aspects of the funds allocation process.”[iii] Proponents of this practice argue that the money supports excellent research or facilities that would otherwise go unfunded or be delayed by bureaucratic procedures. While that may be true, these earmarks reduce funding available for competitive programs that are held to a higher standard of excellence and are open to proposals from researchers and universities across the country.

In his 2011 State of the Union speech (January 25, 2011), President Obama stated that he would veto any bill that comes to his desk containing an earmark. While many members of Congress agree with him in principle, earmarks have been popular with members of Congress, Democrats and Republicans, for many decades. Even if earmarks can be avoided in the FY 2012 budget, it will require an unprecedented degree of discipline to eliminate them in future years.

In the United States, in contrast to many other countries, there is no central mechanism to assess the nation’s progress in science and technology and coordinate annual R&D budgets across the federal government. Only OSTP in the White House focuses on the nation’s overall science and technology enterprise and federal R&D programs, but OSTP’s role is an advisory one, and it does not have funding authority for these efforts. Large interagency R&D efforts (e.g., the National Nanotechnology Initiative) are coordinated by committees of the cabinet-level National Science and Technology Council, or NSTC, and often have small coordination offices to help track progress. However, funding for such programs is provided through the agencies according to each agency’s process and priorities.

Current status of federal R&D funding

While the level of total nondefense federal R&D funding in the United States has been relatively stable in recent decades at approximately 10 percent of total nondefense discretionary federal spending, science and technology is not routinely a high priority and does not have privileged status with regard to funding. One notable exception in recent decades, has been NIH funding, which grew from 14 percent of the total federal R&D budget in 1970, to 26 percent in 1990, and doubled between FY 1998 and FY 2003 making it half of the total nondefense R&D budget. But the doubling was followed by an extended period of flat funding afterward.

In FY 2011, the federal government allocated $62 billion for nondefense R&D. For research alone (including defense but not development expenditures) this total was $61 billion. Eighty-six percent of federal research funding is divided among five agencies: NIH (50 percent), DOD (13 percent), DOE (12 percent), NSF (8 percent), and NASA (3 percent). (see Figure 1) The remaining 14 percent went to research programs led by a diverse set of federal agencies including the Departments of Agriculture, Interior, Commerce, Homeland Security, and the Environmental Protection Agency, or EPA.

Of the primary R&D funding agencies, NSF is the only one that supports all areas of basic nonmedical science and engineering, as well as science, technology, engineering and mathematics, or STEM, education and outreach. NIH supports biomedical research, with an overarching goal of improving human health. NASA predominately supports development-stage research, but its research focuses on space-based science, earth observations from space, and aeronautics. DOE funds research in the physical and mathematical sciences, including nuclear and high-energy physics, chemistry, basic energy research, and environmental science.

In recent years, there has been a growing concern in Congress, the White House, and the science and technology community and industry that the United States is losing its competitive edge in global science and technology. Reports such as the National Academies’s “Rising Above the Gathering Storm” (and its 2010 update “Rapidly Approaching Category Five”) have made a compelling case for increased investments in research.[iv][v] In particular, there is a need to promote the physical and mathematical sciences as well as many areas of engineering that have been neglected for decades. One reason for some urgency is the rapidly increasing competition from abroad, especially from Asia, in all areas related to science, technology, innovation, and economic competitiveness.

In 2007 and again in 2011, Congress passed the “America COMPETES Act” with the stated purpose “to invest in innovation through research and development, and to improve the competitiveness of the United States.” Increased funding for research also figured prominently in the “American Recovery and Reinvestment Act”, with approximately $20 billion added to the FY 2009 budget for in nondefense R&D, primarily research funded by NIH ($10 billion), NSF ($3 billion), DOE ($4 billion), and NASA ($1 billion). These funds were to be spent in FY 2009 and FY 2010 with no expectation that they would increase the agencies’ base budgets, hence would not contribute to increases in the budgets for FY 2011 and beyond.

In President Obama’s FY 2010 and 2011 budget requests, he emphasized the importance of basic research. Unfortunately, Congress’s failure to send the president any appropriations bills for FY 2011 produced a string of continuing resolutions, the last of which appropriated funding for the remaining months of FY 2011 and resulted in an average of 1 percent cuts relative to the previous year in funding for the major research agencies, including NIH (down $300 million from $30.7 billion in the FY 2010 enacted budget), NSF (down $65 million from $6.8 billion), and DOE’s Office of Science (down $30 million from $4.88 billion).

President Obama’s FY 2012 budget request is an effort to rescue science budgets by raising overall R&D roughly to the FY 2010 levels and providing significant increases for research funding. The proposed budget would increase total R&D funding to $149.1 billion, up by $4.7 billion from the FY 2011 enacted budget. The proposed budget includes a 10 percent increase (or $6.0 billion) for total research, specifically, a 15.9 percent increase for the NSF budget (to $5.7 billion), a 22.3 percent increase to DOE (to $9 billion) and a 3.4 percent increase for NIH (to $31 billion). Additionally, President Obama’s FY 2011 budget request emphasizes energy efficiency and renewable energy as well as climate change initiatives; it includes a 21 percent increase (to $2.6 billion) for multi-agency climate change research, and a 5 percent increase (to $2.4 billion) for DOE’s Energy Efficiency and Renewable Energy R&D programs.[vi]

Unfortunately, the political divide between the Republicans in Congress, especially in the House of Representatives, and the White House as well as the upcoming 2012 presidential election make it unlikely that President Obama’s budget will pass without major cuts to R&D. This is unwise because R&D leads innovations that help drive the economy. Without steady support for science and technology, the economy is likely to stagnate. There continues to be bipartisan support for basic research funded by agencies such as NSF, DOE’s Office of Science, the National Institute of Standards and Technology, NIST, and NIH. But even for these agencies, an optimistic scenario would be very modest increases relative to FY 2011, perhaps only slightly above inflation. If basic research is treated favorably in the budget negotiations, this would signal that concerns raised about American innovation and competitiveness are resonating with the public and the elected representatives in Washington, even in difficult economic times.

International comparisons of R&D spending

While the United States wrestles with its funding priorities, other nations are showing greater resolve to move ahead. According to the Organisation for Economic Co-operation and Development, or OECD, in 2008, the United States led the world in total national R&D spending (public and private) with $398 billion (see Table I and Figure 2), accounting for 35 percent of the approximately $1.1 trillion total global R&D expenditures followed by Japan, China, and Germany.[vii]

Including public and private sources, the United States invested 2.8 percent of its gross domestic product, GDP, in R&D in 2008. This figure ranks the United States behind a number of other countries including Israel, Japan, and Switzerland which all have R&D-to-GDP ratios above 3 percent (Figure 2).[viii] There is no rigorous basis for arguing that a particular percentage of GDP is optimal, however, such comparisons can provide an indication of relative spending priorities among nations. In a recent review from the National Bureau of Economic Research, returns from investments in R&D, both from public and private sources, are “strongly positive” and can be higher than other types of investments.[ix] Furthermore, in 2007, knowledge and technology intensive industries provided almost 30 percent of global economic output.[x]

The increased globalization of science and technology and the growth of national investments in R&D in many parts of the world are also evidenced by the steady increase in research publications worldwide. From 1995 to 2007, the world has seen an average annual increase of 2.5 percent in published research articles.[xi] International co-authorship has also markedly increased during this time period, from 13 to 22 percent. Historically the United States has dominated R&D output, but the U.S. percentage of total publications worldwide has fallen from 34 to 28 percent during this same 12-year period, while the number in East Asia has nearly doubled.[xii]

In his April 27, 2009 speech to the National Academy of Sciences, President Obama announced his goal to “devote more than 3 percent of our GDP to research and development,” and specifically to “promote breakthroughs in energy and medicine.” Realizing this objective would require an increase in federal R&D spending, as well as a significant increase in R&D investment by U.S. industry. In the same speech, Obama committed to a 10-year plan to double the amount of funding going to three key federal research agencies and organizations that focus on research in the physical sciences and engineering: NSF, DOE’s Office of Science, and NIST. The president’s budget requests for FY 2010, 2011, and 2012 have been consistent with this plan. However, especially in FY 2011, Congress has chosen to fund R&D at lower levels than the presidential request and, with the slow pace of economic recovery in the United States, it will very difficult to grow federal R&D funding in the near-term. The arguments for long-term investment in R&D tend to get lost in budget battles over issues that have nothing to do with science and technology, as has often happened in the past.

The future of U.S. science and technology–Bright or cloudy?

America’s continuing leadership in science and technology is largely due to 60 years of investment in long-term, basic and applied scientific research following WWII, especially following the launch of Sputnik in 1957.[xiii] But, over the last four decades, federal funding for the physical, mathematical, and engineering sciences has declined by one-half as a percent of GDP from 0.25 percent to 0.13 percent, while other countries such as China and Japan have emphasized these fields (EOP, 2010).[xiv]

Even funding for NIH has experienced little fiscal growth over the last eight years, in spite of the American public’s strong support of biomedical research. The lack of a coherent government strategy for evaluating the impact of federal programs and setting R&D funding priorities across the federal government, combined with sometimes dramatic “feast to famine” swings in funding, particularly for NIH, should raise the question of whether the American people are getting their money’s worth from federally funded R&D. Many programs and projects start and stop—sometimes abruptly—with the availability of government-funded grants. Such inconsistencies waste money and interrupt careers. The balance between funding for biomedical research and other fields is also an important policy issue in need of high-level discussions.

On the matter of assessing impacts of research investments, the federal government’s implementation of the Government Performance and Results Act, specifically its process of evaluation, is uneven and tends to favor applied areas that have short-term objectives and quantitative metrics. Basic research investments are difficult to evaluate and increasingly difficult to justify. While scientists appreciate that the government has to be accountable to the public, Congress has no process to engage the scientific community to evaluate the impacts and benefits of research, and instead relies on hearings and ad hoc consultations for its external advice.

Science and technology policy actions, including federal R&D budgets, are further complicated by religious, ideological, or political concerns and agendas that often come across as antiscience. While most science-related matters are politically neutral, some recent national issues related to science, such as human embryonic stem cell research, climate change, and evolutionary biology have become highly politicized. When controversial science issues develop into Constitutional dilemmas, which require action from the judicial branch, or into contentious partisan disputes, policy decisions are often made without regard for the scientific evidence. In some instances, research funding for related scientific research suffers as well. There have even been documented efforts by members of Congress to deny funding for specific research grants that have gone through the peer-review process.[xv]

In an effort to insure objectivity in these debates, scientists are needed to help clarify the scientific and technical aspects of the issues and to counter false assertions and misrepresentation of facts. This requires that scientists actively engage policymakers and the public in open dialogues, by talking with students, community groups, and legislators when they have the opportunity. But outreach presents a conundrum for scientists who want to stay out of the fray. Getting involved is not without personal and professional risk—all the more reason we should support those in our community who take on the challenge.

Of the many challenges we have touched on facing the United States science and technology effort, some could be mitigated by improved communication, or more accurately, conversation, between scientists, policymakers, and the American public. The current lack of mutual understanding about scientific and technical matters is, we believe, one of the greatest challenges facing science in the United States, especially during these times of national economic stress and budget cutting.

Fortunately, the general public continues to value science, even if most people have little understanding of science or the scientific process. According the 2010 Science and Engineering Indicators, the majority of U.S. citizens strongly support federal R&D funding and appreciate the positive impact science has on their lives. However, many Americans have not had any formal education in math and science beyond high school and “cannot provide correct answers to basic questions about scientific facts and do not apply appropriate reasoning strategies to questions about selected scientific issues”.[xvi]

It is not clear what can be done about this in the short-term or even how a lack of understanding of mathematics and science influences how people feel about their importance. That said, as science, particularly biomedical science, continues to advance at a rapid pace, there will be many more findings that challenge the comfort level of the average American and citizens of other countries as well. It is risky to assume that the American people will continue to support science, which they do not understand, regardless of the perceived implications. They will need information they can understand provided by people they can trust.

Scientists also need to have a better understanding of the public. Often the message scientists think they are sending out is very different from the message the public hears. The American Academy of Arts and Sciences report, “Do Scientists Understand the Public,” suggests that if we are going to be more effective in convincing the public of the unique importance of investments in R&D, we need to listen to the American people, hear the same voices that their elected political leaders hear, and gain a better appreciation of arguments used by various groups advocating more funding for one cause or another. Sherwood Boehlert, former chairman of the House Science and Technology Committee and strong supporter of science, stated that “The argument that science funding is a long-term investment does nothing to set scientists apart. All that sets [them] apart is that scientists are the only group that thinks it’s making a unique argument.”[xvii] There are many strong advocates for science, but they need our help. Words like investment, exploration, discovery, innovation, competitiveness, security, and health are appropriate and sound good—but they are not enough. We will have to be more specific. The American public is well aware that spending 50 percent of all federal research dollars on biomedical research has not resulted in affordable health care. We might start by demonstrating that we intend to do something about that dilemma. Most Americans understand that climate change is a problem, but they are not hearing realistic solutions that they can understand and support. True, there are well-funded organizations dedicated to confusing the public on this topic. But that just means we will have to work harder and smarter.

Scientists who step outside their traditional roles as researchers and practitioners to engage the public and policymakers in a dialogue are often referred to as “civic scientists.” Thousands of “civic scientists” are working with K-12 schools; lecturing to Rotary Clubs and other community organizations; giving interviews to the media,’ writing books, articles, and blogs for the pubic; advising governments at all levels; and even spending time working in government agencies and in Congress. All of them need and deserve our support for their efforts. And they could use some company.

Author bios

Kirstin R.W. Matthews, Ph.D. is a fellow in science and technology policy at Rice University’s Baker Institute for Public Policy who focuses on ethical and policy concerns related to biomedical research.

Kenneth M. Evans is a Rice University graduate student in applied physics and a Baker Institute graduate intern.

Neal F. Lane, Ph.D. is the Malcolm Gillis University Professor at Rice University, a senior fellow in science and technology policy at the Baker Institute, and former science adviser to President Bill Clinton.

References

[ii] H.A. Neal, T. Smith, and J. McCormick, Beyond Sputnik: U.S. Science Policy in the Twenty-First Century (Ann Harbor: The University of Michigan Press, 2008).

[iii] R. Portman, “Memorandum For The Heads Of Departments And Agencies: Collection of information on earmarks” (Washington: Office of Management and Budget, Executive Office of the President, 2007).

[iv] National Academies, “Rising Above the Gathering Storm” (2005).

[v] National Academies, “Rapidly Approaching Category Five” (2010).

[vi] White House Office of Science and Technology Policy, available at http://www.whitehouse.gov/administration/eop/ostp.

[vii] Organisation for Economic Co-operation and Development, “OECD Factbook 2010: Economic, Environmental and Social Statistics. Science and Technology” (2010).

[viii] Organisation for Economic Co-operation and Development, “OECD Main Science and Technology Indicators” (2010).

[ix] Hall and others, “Measuring the Returns to R&D.”

[x] National Science Board, “Science and Engineering Indicators: 2010, “(2010), available at http://www.nsf.gov/statistics/seind10/start.htm.

[xi] Ibid

[xii] Ibid

[xiii] Neal, Beyond Sputnik.

[xiv] Executive Office of the President, “A Strategy for American Innovation: Driving Towards Sustainablee Growth and Quality Jobs” (2009).

[xv] D. Vergano “How some politicians stumble on science,” USA Today, December 5, 2010.

[xvi] National Science Board, “Science and Engineering Indicators.”

[xvii] S. Boehlert, “They Said It,” Science (304) (2004): 45.

When the Gates Foundation initiated the first round of Grand Challenges in Global Health five years ago, the objectives were clear: Revolutionize global health within a few years by flexing the muscle of the Gates’s billions to foster a global health innovation revolution, and solve basic challenges. But all did not go according to plan. Despite billions of dollars in grant funding, we still haven’t solved basic problems like vaccination, malaria, malnutrition, or the spread of HIV in developing countries.

Since that initial round, the foundation has scaled back its originally ambitious agenda by reducing the amount of each grant awarded and tempering proclamations of any imminent revolutions. This past December, a New York Times article highlighted some of the failed projects from the first round of grants. These included a project aimed at developing dried vaccines, and an expensive attempt at a portable lab.

While other projects have had more success, most of them will require more funding and a few more years before they can be widely used where they are most needed. In fact, a majority of the 43 initial projects, some of which were aimed at innovations such as single-dose vaccines, genetically altered mosquitoes, and portable diagnostic machines, will not receive any further funding. Bill Gates seems resigned to a change in approach, acknowledging the initial project was too ambitious.

Even if we accept a change in strategy, examining the reasons for these initial failures can perhaps yield instructive lessons. Research on global health problems is inherently difficult and is hampered by issues that go beyond surface-level financial constraints. In order to conduct global health research that’s efficient and produces results, we need to focus on five key issues: cost, power sources, portability, local needs, and obstacles to training and support.

Cost

The Grand Challenges were aimed at addressing one of the major barriers to innovation and scientific progress on key health problems in the developing world: the lack of research funds. But the issue of cost isn’t simply one of providing research funds. Researchers need to consider the cost of prototypes and end-user costs from the start. The initial projects funded by the Gates Foundation demonstrate why this is such a crucial consideration.

Initially, there were no limits to the size of initial awards. For instance, one project designed to develop portable diagnostic labs received an initial award of $15 million. The problem was that each prototype cost about $1,000 and this cost was never adequately reduced. This grant has not been renewed, with a cheaper alternative having been created by another researcher. Most surprising is that the alternative lab is designed to conduct similar tests using pieces of paper that costs pennies to buy and use—startling, compared to the original $1,000 prototype. Today, the organization Diagnostics for All has developed paper kits for liver function tests, and hopes to have kits that can test anything from malaria to HIV.

Such a stark contrast in costs for similar tests demonstrates why it is so important to factor these costs in project proposals. A $1,000 price tag for a prototype should have been a working sign, especially considering the target recipients. In countries where governments and clinics are poor and patients are even poorer, the affordability of medical technology is essential. Even $1 per day for malaria treatment can be prohibitively expensive when you are living on $1 per day. Technologies with low upfront costs but high lifetime costs, such as special parts or constant replacements, are no improvement upon high-cost prototypes.

Power sources

Power sources are another key problem. In resource-limited settings, power is often spotty, at best. Even in a country like South Africa—with a strong infrastructure and an extensive power grid—power outages are a problem. For instance, a recent power outage in the Mpumalanga district of South Africa was expected to keep the Rob Ferreira Hospital without power for 6 weeks.

Researchers need to anticipate unreliable and inaccessible power sources and think of possible solutions. Can an instrument run on batteries? If an instrument is battery powered, the batteries should be easily accessible, rechargeable, and long lasting. Many health clinics often serve as points of care for widely dispersed populations and, as a result, portable machines should be able to hold charges for long periods. As laptops become more common at global clinics, one possible solution could be the development of tools powered through USB cables, but those laptops will also require adequate power options.

Portability

Related to the issue of power supply is the question of how easily a technology can be used to reach people over a wide coverage area. In rural areas, mobility is one of the biggest concerns. With clinics few and far between, people often delay seeking medical attention until their conditions progress to critical levels. Developing portable devices and medicine that is easy to store and transport allows clinicians in resource-limited settings to provide earlier care to more people. This also creates a mechanism for care when patients are no longer able to make it to the clinic.

But portability isn’t just about size: Clinics need to use portable devices in remote locations. With the increasing use of cell phones even in resource-limited settings, cell-phone-based tools and applications are a great idea. Nonetheless, connectivity issues need to be factored into the development of any such tools. Additionally, instruments also need to be rugged and durable.

Responsiveness to local needs

Another key challenge in global health is that health care barriers often stem from deeper, nonhealth-related issues. Politics, infrastructure, and complex social norms often stand in the way of substantive progress in health outcomes. As a result, global research priorities should be on high-impact, low-disruption solutions. Researchers need to focus on interventions and technologies that can be implemented without requiring extensive structural or operational changes, as these are often impractical and unrealistic.

For example, handheld diagnostic and monitoring tools will probably have a greater immediate impact than larger, more complex technologies. Consequently, focusing on handheld technologies is a more efficient and realistic way to help clinicians in resource-limited settings establish legitimate and practical mobile health care solutions. Clinics, which are often critical points of care, would have their reach expanded to people in remote locations. Such an approach gives providers a fighting chance against opportunistic co-infections that often go undiagnosed simply because people aren’t getting to the clinics. The way to navigate these structural limitations is often through homegrown efforts and direct engagement with, and input from, the target population. How can structural barriers be identified? Ask the locals. What’s the best way to navigate social norms? Engage the affected population.

Training and technical support

Lastly, proposed interventions and tools have to alleviate the dearth of qualified technicians and physicians in most resource-limited settings. For example, when the President’s Emergency Plan for AIDS Relief, or PEPFAR, program made antiretroviral therapy a realistic option in 15 focus countries starting in 2003, clinics went from not having enough medicine for HIV-infected patients to not having enough doctors to prescribe available medicine. Solutions need to be developed to both brain drain and the low number of physicians and technicians in these settings. We need technologies that are easy to use and don’t require extensive training or large amounts of technical support. Smaller, simpler instruments that any can learn to use in a short period are crucial in places where primary health workers may not have a lot of education.

More medical doctors are needed in Africa, but so are medical schools. Then there is the very real problem of brain drain, with the few physicians present vulnerable to leaving for Europe and the United States. These issues cannot be resolved overnight, so solutions need to be developed for the available health workers.

Técnicos: A pragmatic example of success

Several African countries have started to address this personnel issue by focusing on the development of nonphysician clinicians. These clinicians can be trained in a shorter amount of time and can provide wide-ranging support to physicians. In Mozambique, the emphasis is so great that the government has developed specific guidelines for these clinicians, who are called “técnicos.” These guidelines allow técnicos to be able to care for patients and make important decisions such as determining a patient’s HIV stage. While técnicos do not solve the lack of qualified physicians, they provide an important bridge to care for many people. They also relieve pressure on physicians who may each be in charge of a large number of patients. This effort allows health care from qualified clinicians to reach people who might otherwise go without treatment.

The técnicos of Mozambique demonstrate the approach we should take toward the global health challenges in resource-limited settings. Técnicos provide a low-cost solution to an expensive problem and expand the reach of clinics while alleviating heavy training requirements. They also strategically confront the lack of physicians where it’s needed most. Técnicos are a homegrown idea that is locally managed, providing the kind of expertise to address structural barriers. In essence, técnicos are an attempt to solve complicated problems in a straightforward and pragmatic way. This seems to be the best way to deal with complex global health problems.

Global health innovation will only occur with approaches sensitive to the limitations present in resource-limited settings. The Gates Foundation is taking a step toward encouraging this kind of innovation. They now focus on grants for smaller amounts, which foster true ingenuity as project managers have to figure out how to do more with less, much like those they are trying to help.

There’s more they can do, however, to spur the kind of innovation that’s needed in global health. A small step would be to require all research teams to include collaborators from research-limited settings. If a team thinks a dry vaccine will work in a remote village in Zimbabwe, then they should collaborate with health workers and community leaders from that country to come up with strategies and to learn about possible barriers. This approach, already common in the development world, could go a long way to addressing some of these key issues in global health research.

Takunda Matose is a human subjects protection specialist focusing on HIV/AIDS research at Technical Resources International and has a master of bioethics from the University of Pennsylvania.

The Supreme Court settled a six-year-long patent dispute between Stanford University and Roche Molecular Systems Inc., a global diagnostics and pharmaceutical company based in Switzerland, over the rights to an HIV test developed by a researcher who worked at both institutions. A major point of contention was an interpretation of the University and Small Business Patent Procedures Act of 1980, commonly referred to as the Bayh-Dole Act, which allows research institutions and universities to obtain patents for federally funded inventions they produce. The question in this case was whether or not the Bayh-Dole Act automatically grants the rights to such inventions to the institutions responsible for their creation, or if the individual inventor can unilaterally assign the rights to third parties.

The Stanford researcher who developed the test, Mark Holodniy, signed a contract that assigned Stanford University the rights to his invention in 1988. Since research on the HIV test was funded in part by the National Institutes of Health, the university acquired several patents for the procedure under the Bayh-Dole Act. When Holodniy used facilities at Cetus, a biotechnology company later purchased by Roche, in 1989 to conduct some of his work he signed a visitor confidentiality agreement that assigned the rights to his inventions to Cetus (and therefore Roche).

When Roche commercialized and distributed the completed HIV test, Stanford sued for patent infringement. Roche claimed the suit was invalid because the contract Holodniy signed with Cetus made Roche a co-owner of the patents. Stanford argued that the Bayh-Dole Act granted the university superior rights to the invention, and that Holodniy never had the right to assign ownership of the test to Roche (via Cetus).

In a 7-2 majority decision, the Supreme Court ruled in favor of Roche and interpreted the Bayh-Dole Act to not automatically vest ownership in federally funded inventions to public institutions, leaving room for the individual inventor to contract the rights to his or her invention to other parties. Roche and Stanford University were deemed co-owners of the patents.

A close look at the Bayh-Dole Act

The Bayh-Dole Act, named for Sens. Birch Bayh (D-IN) and Bob Dole (R-KS) was created in 1980 to respond to the need to transform research findings into commercialized products that could be distributed to the public, a process known as “tech transfer.”

Before the Bayh-Dole Act, patents on federally funded inventions could only be acquired by the United States government, an inefficient arrangement that left it with tens of thousands of patents, few of which were ever licensed to private industries and brought to the marketplace. Since the act allows research institutions to patent the products of their federally funded projects, these institutions can license their inventions to private companies so that they can be produced and distributed—an arrangement that has significantly improved tech transfer over the last few decades. It also allows publicly funded institutions to receive a share of the profit on the sale of the commercialized inventions, ensuring that public funding for research products returns to the public institutions that created them for investment in future research.

In light of the history and goals of the Bayh-Dole Act, the Court’s majority decision to vest the primary ownership of an invention to the inventor instead of the associated public research institution seems to contradict the act’s central purpose. This opinion is in line with an amicus curiae brief filed by the United States on behalf of Stanford, which stated that “allowing an inventor to transfer ownership of a federally funded invention outside The Bayh-Dole Act’s framework frustrates Congress’s purposes” in the creation of the act: protecting taxpayer investments, encouraging research and innovation, and benefiting United States industry and labor.

Arti Rai, the Elvin R. Latty Professor of Law at Duke Law School and an expert in patent law and innovation policy, said that the Court’s decision to prioritize the inventor even in the context of publicly funded research is not unexpected. “The default rule in patent law has long been that patents belong in the first instance to the inventor, and then can be assigned away via contract to other parties,” said Rai in an interview with Science Progress. The majority opinion in this case cited an over 200-year-old tradition of U.S. patent law, which indicates the inventor as the primary proprietor of his or her ideas and inventions, as a significant reason for their ruling.

Justice Stephen Breyer’s dissenting opinion, which was joined by Justice Ruth Bader Ginsburg, suggested that the history and framework of the Bayh-Dole Act changes the traditional hierarchy of ownership retention in the special circumstance of federally funded research, giving the highest priority to the federally funded institution, followed by the government, and then the inventor.  Whether or not the language of the Bayh-Dole Act actually provides for this is difficult to determine.

“There are situations where the default has been changed by particular statutes, but they tend to be more definitive than the Bayh-Dole Act is in terms of changing that rule,” said Rai. “It’s difficult when the specific language is hardly a model of clarity. There is nothing in legal history or the Bayh Dole Act that suggests [Congress and the creators of the act] thought about the possibility of conflicting assignment agreements.”

Implications of the decision

While the decision in this case lends difficulty to balancing the specific language of the Bayh-Dole Act with its overall purpose, the alternative ruling would present several issues as well. The majority opinion noted that allowing institutions to automatically retain ownership of federally funded inventions opens the door for institutions to do so even if only one dollar of federal funding is used. It also cited the possibility that institutions could automatically acquire ownership of ideas that were conceived by an inventor before he or she affiliated with the institution in question.

Stanford v. Roche also reflects difficulties in accounting for the collaborative nature of scientific research and innovation. In this case, the research and conception of the HIV test did not exclusively occur at Stanford, and Roche’s role in the process was not limited to the commercialization of the finished product. Roche (via Cetus) had already started working on developing an HIV test before they entered into collaboration with the university. Although the inventor was employed by Stanford and not Cetus, he still utilized Cetus’s facilities with the purpose of learning how to perform a fast DNA replication technique called polymerase chain reaction (PCR), a relatively new procedure at the time. This technique was developed and patented by Cetus (and then sold to Roche), and also happened to be crucial to Holodniy’s development of the HIV test.

“I think the majority opinion did raise the idea that Roche, in this case, was a really involved third party,” said Rai. “If the university automatically got rights to everything their funding had played even a small part in, a third party like Roche would be negatively affected.” The automatic retention of ownership by public institutions when third-party collaborators make instrumental contributions to the research process does seem problematic. A ruling of that kind might have alienated the private sector, which could hinder innovation and commercialization by making private industries more reluctant to collaborate with public and academic institutions.

However, the majority ruling’s establishment of Roche as a co-owner of the patents to the HIV test means that Roche has no contractual obligation to share royalties with Stanford University, rendering the Supreme Court’s interpretation of the Bayh-Dole Act as one that seems to support transnational corporations at the expense of research institutions funded by the American public. “The dissent was a bit more concerned with the overall purpose of Bayh-Dole, which is commercialization,” said Rai. “The majority was perhaps more concerned with what would happen to the private sector that thought it had rights because it funded some of the work.”

Stanford University warned that the Court’s decision could have significant negative impacts on federally funded inventions, but it is possible that these impacts may be more symbolic than effectual. “It is a preservation of status quo more than anything else,” said Rai.

Although the ruling may not seriously affect the tech transfer process, it might strain already-tense public-private and academic-industrial relationships. But the same would be true for an opposite ruling. “It just shows that no matter how you set the default rule, if universities and the private sector are both concerned about making money, as they are, you’re going to have conflicts.”

In the meantime, universities and other research institutions can continue to acquire patents for federally funded inventions under the Bayh-Dole Act; they will just have to pay closer attention to the contracts they engage in with their employees and work harder to ensure that their researchers do not sign conflicting contracts with third parties.

Michelle Spektor is a Science Progress intern at the Center for American Progress and is an undergraduate at Cornell University in Ithaca, New York.What do you think? Comment on this article and join the conversation at facebook.com/scienceprogress or by tweeting at us @scienceprogress.

The top five ways companies are integrating renewables into the grid are:

1.  Intelligent Demand Response
2.  Microinverters and Maximum Power Point Trackers
3.  Wind Energy Management Tools
4.  The Virtual Power Plant
5.  The Hybrid Solar-Gas Power Plant

Explanations of each of these with videos are below.

Background

Intermittent renewables at high penetrations will bring new challenges for the grid. But how big will they be? And is it true that wind and solar will necessarily need storage or natural gas back-up at high levels?

The International Energy Agency wanted to know, so it modeled a variety of high-penetration scenarios in eight geographic regions around the world. Hugo Chandler, a senior policy analyst with the IEA explains the organization’s findings to Climate Progress:

Variability is not just some new phenomenon in grid management. What we found is that renewable energy is not fundamentally different. The criticisms of renewables often neglect the complementarities between different technologies and the way they can balance each other out if spread over certain regions and energy types.

Grid operators are constantly working to balance available supply with demand – it’s what they do. There are always natural variations that cause spikes in demand, reductions in supply or create disturbances in frequency and voltage. Once you see there are a variety of ways to properly manage that variability, you start whittling away at the argument that you always need storage or a megawatt of natural gas backup for every megawatt of renewable energy.

Theoretical modeling is important. But what companies are doing in reality?

Here’s five of the top methods for integrating renewable energy into the grid – proving that intermittency isn’t the show-stopper that critics make it out to be.

Intelligent Demand Response

Intelligent demand response is often called the “killer app” of the smart grid. Demand response is not a new concept – but the “intelligent” part is still somewhat new.

The demand-response leader, EnerNOC, is now applying this concept to renewable energy. The company announced earlier this year that it would work with a Northwestern transmission operator to help manage demand to meet the fluctuating output of wind electricity in the system. EnerNOC president David Brewster calls it “the perfect dancing partner for wind.” By ramping up demand at facilities during time of peak supply and lowering demand when supply drops off, the grid can respond to changing conditions in real time without the need for storage.

Microinverters and Maximum Power Point Trackers

Inverters are the gateway to the grid – turning Direct Current electricity from solar PV systems to grid-friendly Alternating Current. Over the past several years, there’s been a revolution in inverter technologies that allow project owners to more effectively regulate system performance. One technology, the microinverter, is installed on the back of individual panels, turning each module into its own unit and providing real-time data on how each is operating. Therefore, if clouds roll over a PV system, the “Christmas tree light effect” is avoided, and each panel still functions normally, maximizing the output of a system – sometimes by 20% or more.

Speaking of maximizing output, that’s where Maximum Power Point Trackers (MPPT) come in. These pieces of power electronics are also installed on the back of individual panels. But they’re not microinverters; instead, they boost voltage to an optimal range for a central inverter, thus allowing the device to run more efficiently. By allowing a system owner to control a PV plant at the module level, you can boost performance on the module level and regulate voltage even as weather patterns change.

Wind Energy Management Tools

SCADA systems that remotely monitor wind farm performance have been around for years – but there are a host of new applications being developed that allow grid operators and utilities monitor system-wide performance in an easier, more compelling way.

The Wind Energy Management System from the Portuguese company Logica is a great example. The company manages over 3 gigawatts of wind farms in the U.S. and Europe using its WEMS, which allows for real-time monitoring of a set of geographically dispersed wind plants – providing the tools to balance voltage, ramp wind farms up and down quickly, and plan for maintenance.

A company like EnerNOC provides the tools for better management on the demand side; a company like Logica provides the tools for better integration on the supply side.

The Virtual Power Plant

Virtual power plants combine intelligent demand response with supply-side management software, bringing distributed renewable energy plants together to form a “virtual” centralized resource.

We previously wrote about Germany’s Regenerative Combined Power Plant, a project that proved existing renewable energy technologies could provide 100% of the country’s electricity. The project blended three wind farms worth 12.6 MW, 20 solar PV plants totaling 5.5 MW, four biogas systems equaling 4 MW and a pumped storage system with 8.4 GWh of storage. By using geographically dispersed renewable resources that compliment one another, the plant operators were able to meet needs on the grid as supply and demand shifted. The project shows that with better information technologies and a balanced set of resources, the intermittency issue can be dealt with.

The Hybrid Power Plant

While innovative grid management tools will allow us to scale wind and solar without an equivalent MW to MW backup, there will definitely be a need to better integrate renewables and fossil energies to boost output and maximize current infrastructure.

Concentrating Solar Power can be a great way to increase efficiencies of newer fossil fuel-based infrastructure that may be around for a while. A number of companies are integrating direct-steam CSP technologies into coal or natural gas plants. FPL recently finished a 75 MW combined CSP/natural gas plant in Florida, with plans to add 500 more MW of hybrid plants in the coming years; Areva Solar is building a 44-MW plant at a coal facility in Australia; and GE, which recently invested in e-Solar, plans to integrate CSP technology into its natural gas plants, boosting power plant efficiencies substantially.

In an ideal world, CSP would be developed on its own to phase out fossil-based plants. And that is happening. But in order to scale these technologies, drop costs and better utilize power plants that are in operation (or switch from burning coal to far more efficient natural gas), the hybrid approach is a very attractive option. Here’s how one type of direct-steam CSP plant works:

To categorically claim that intermittent renewables can’t scale without hurting the grid ignores the very real innovations that are evolving today.

As the IEA’s Hugo Chandler explains: “We want to explode the myth that there’s a technological limit.”

Stephen Lacey is a reporter with Climate Progress, where this article is cross-posted.

The speakers agreed with Rep. Hoyer that manufacturing is essential to the American economy and that the United States needs a solid long term game-plan to keep manufacturing clean and in America.  The discussion echoed the main points of a CAP Paper “Low Carbon Innovation: A Uniquely American Strategy for Industrial Renewal” that was released at the event.  Below is a summary of the paper. You can also access the full report here, and the introduction and summary here.

Innovating for a Low Carbon Future

Our nation’s innovation and competitive drive in the 20th century powered the U.S. economy to global leadership, helped win two World Wars and one Cold War, created unprecedented and broad-based economic prosperity, and established the technology that enabled the conquest of the moon and today’s Information Age.  Today, this same engine of innovation is in serious jeopardy as we look across the competitive landscape of the 21st century.

There are a number of reasons for this.  First, in recent years the manufacturing sector, which for decades supplied millions of Americans with stable, well-paying jobs and sustained our country’s ability to innovate has shrunk. U.S. companies found many reasons to shift manufacturing overseas. This not only costs jobs but also, as the Harvard Business Review points out, it costs our economy’s ability to make high-tech products and invent new ones.

Compounding this threat to American competitiveness in coming years are the increasing risks that U.S. businesses will face from global warming. The consequences of global climate change will deliver real, and potentially very large, economic costs.  America also suffers from a confused planning environment for infrastructure and economic decision making, which makes it difficult to move forward on any comprehensive plan to bolster sustainable economic growth. Congressional inaction on climate legislation and policies to deploy clean and efficient energy technologies here at home are creating deep uncertainties for business planning.  Meanwhile, our competitors in other nations, are already retooling their industries and infrastructure for a clean energy future.

The U.S. needs clear long-term climate and clean energy policies, and a supporting low-carbon economic growth strategy to overcome the challenges above.  Accordingly, in a paper entitled “Low-carbon Innovation: A Uniquely American Strategy for Industrial Renewal,” the Center for American Progress is proposing a low-carbon economic growth strategy to keep America the innovative industrial leader of the world.   The strategy builds on our existing regional ecosystem of economic development policies and it aligns policies across different branches of government.  The purpose is to put forth smart incentives that engage private capital markets in deploying essential low-carbon technologies and reinvigorating investment in cutting-edge infrastructure.

The U.S. economy is an “innovation-driven” economy, according to the World Economic Forum. The United States became a global economic leader by building a diverse economy driven by a continuous innovation business model—one that values inventing, manufacturing, and continually reengineering value-added products and sophisticated technologies. Innovation is our area of expertise and it is at the center of our low-carbon industrial strategy.

Building innovation networks that are greater than the sum of their parts

In the paper we’ve identified five types of market actors whose participation is essential for low-carbon industrial renewal, and identified key policies for each to spur the innovation.  These include:

Coordinating policymakers and regulators

Policymakers, regulators, and program officers in federal and state agencies play an important role in  every stage of innovation and industrial development, whether by siting new transmission infrastructure,  permitting a new wind farm, providing programmatic support to help finance an advanced manufacturing facility, or coordinating public R&D research funds. Policymakers, regulators, and  government agencies can directly facilitate the growth of low-carbon markets and industries by aligning all efforts to build strong market demand, by influencing government procurement practices, and by offering clear frameworks for business planning within their rulemaking and legislating.

Empowering clean energy researchers

From advanced electric vehicle batteries to super-cheap solar panels to the manufacturing processes that produce them, research conducted in government, university, and corporate labs is critical to advancing innovation and the growth of low-carbon industries. Public policies provide important support for scientists and engineers as they work to create low-carbon solutions to industrial challenges, and ensure their discoveries can move quickly into the market.

Mobilizing clean energy manufacturers

Manufacturers who develop the supply chains, production processes, and marketing strategies to scale up the supply of American clean energy products, equipment, and technology play an important role in innovation and form the basis of industrial growth. Public policies play a critical role in helping America’s existing industrial base navigate the transition to a clean energy economy, supporting worker training and retooling manufacturing for low-carbon technologies.

Incentivizing clean energy investors

The task of innovating and scaling up a new technological foundation for U.S. industry based on clean energy requires harnessing flows of private capital. Clean energy and energy efficiency standards can send powerful signals to investors on the permanence of clean energy markets, while targeted financing assistance programs can help mitigate risks and unlock private capital for clean energy. These policies can leverage private capital more effectively within stalled capital markets and can improve incentives for private investment in clean energy research, commercialization, and deployment.

Engaging clean energy consumers

The consumers of clean energy products and technology provide the critical domestic market demand that makes industrial growth and innovation possible. Without consumers to purchase and use zero-emission vehicles, building owners and construction firms to use energy-efficient building materials, or utilities to invest in and operate renewable-energy-generating technologies, there is no revenue stream for the manufacturers of those goods, no reason for investors to provide capital, and no market application for clean energy research. Consumer-driven demand—from families to businesses to utility companies— is what makes clean energy innovation and industrial transformation possible.

Public policies can increase demand for clean energy goods and services by establishing meaningful incentives for utilities, building owners, and consumers to invest in clean energy technologies instead of fossil-fuel energy generation. Indeed, policy is essential to dramatically increase the predictability, transparency, and long-term certainty of clean energy markets to reach economies of scale and bring down cost.

The bottom line is that when these five groups work together by exchanging information, money, and risk, the network they form is more innovative than the sum of its parts. Together they can accomplish what none of them can do alone. With this understanding, we’ve organized our discussion of specific policies through the lens of how to engage each of these constituencies and encourage the formation of an informal national clean energy innovation network. In the paper we further lay out the principles for how policy can align the interests of each of these industrial and economic actors around shared efforts to drive low-carbon innovation in America’s economy.

Access the full report here.

Access the executive summary here.

Bracken Hendricks is a Senior Fellow at the Center for American Progress. Sean Pool is an Assistant Editor with the Center’s Science Progress project. Lisbeth Kaufman is a Special Assistant at the Center.

The antagonist de jour, of course, is China. Rapidly building advanced energy plant, grid, and end-use infrastructure that will outclass their creaky U.S. counterparts, the Asian giant, remarked Chu, is winning the “energy race.” Worse, more and more Americans worry that China is on the verge of surpassing the United States in science-and-technology innovation, even though the authoritarian nation faces a host of problems in its own innovation ecosystem.

Secretary Chu’s prescription? Increased federal investment in “scientific R&D.” In short: Remember the Sputnik moment.

Aerospace history has become a stock American folk syllogism recalling a fall from, and challenging a return to, grace. If we can put men on the moon, surely we can build a better mousetrap, or close the gap in the energy race. But is the problem really a crisis of American innovation?

If so, it does not stem from a lack of trying. Nuclear and photovoltaic power are American inventions, fuel cells were first made practicable in this country, and, for a time, electric cars and hydrogen power seemed just around the corner. The last 40 years have witnessed booms and busts in all of these systems. Yet American researchers do not appear to be running short of new ideas, as research in high-efficiency batteries, polymer photovoltaic systems, and artificial photosynthesis shows.

The issue instead seems to be the relationship between innovation and national industrial recovery and job creation. To the energy secretary, the broader federal science-and-technology policy establishment, and legions of private-sector R&D contractors, innovation policies and industrial policies are virtually one and the same. China, held Chu, had progressed industrially by taking a page from the U.S. playbook, using the state as a “slight rudder” to guide the private sector in taking the dominant role in R&D.

Actually, the Chinese government does quite a bit more to shape its energy economy than simply keeping a light hand on the tiller of national R&D. In fairness to Chu, he might have found those sorts of issues beyond his purview. Department of Energy Science Undersecretary Steven E. Koonin was a bit more forthcoming about the relationship between science, technology, and industry in an address at the University of California, Santa Barbara, in January 2010. He pointed out that change occurs much faster in IT than in the power source industry partly because it is physically less difficult to shift bytes than molecules, but also because in the United States there has been a disjunction between academic research and commercial manufacturing in the latter sector.

Koonin did not elaborate, but the reasons for this gap stem from the deep-seated belief of U.S. policymakers that government-supported science and technology can supplant regulation and planning in stimulating industrial growth. As it emerged after the Second World War, federal science-and-technology policy attempted to reconcile statism with free-market principles. This hybrid approach—call it American-style quasi-planning—assumed that the private sector and government had similar interests and, hence, that government-sponsored advanced science and technology could simply be injected into the economy much like a vaccine, with near-immediate salutary effects.

“Partners” in name only

This approach worked well in certain sectors, particularly in cases when the government was the sole or major customer for certain novel and otherwise unobtainable products that it asked industry to produce. In these cases it could bolster existing industries such as aviation and help incubate new ones such as electronics that readily spun off technologies into the civilian market without seriously disrupting existing interest groups. Business and state interests also meshed in the established fossil-fuel-based energy and ground transportation systems, with the federal government funding development of the interstate freeway system and prosecuting policies that secured plentiful supplies of cheap crude oil.

Where power sources were concerned, however, these interests frequently clashed for a mix of physical, political, and economic reasons. During the zenith of the Cold War, the federal government promoted work on photovoltaic cells, fuel cells, hydrogen, and nuclear power for special-purpose military and semimilitary roles. It also encouraged civilian applications of these technologies, largely, as in the case of nuclear power, for reasons of prestige and national security. But this was not easy and manufacturers had no strong incentive to try owing to the abundance of primary energy sources of various types in this period. They had to be plied with generous subsidies and even then they were not always enthusiastic.

Such conflicting imperatives were no better illustrated than in the Clinton administration’s Partnership for a New Generation of Vehicles, or PNGV. Styled by Vice President Al Gore as the automotive equivalent of the Apollo project, this cost-shared program in automobile R&D was initiated by the federal government on the false premise that automakers would welcome its efforts to encourage the modernization of the industrial base and increase fleet fuel efficiency through advanced systems like hybrid and fuel cell electric drive as politically acceptable alternatives to higher CAFE standards. The idea was to encourage voluntarism as an alternative to regulation, which Detroit regarded as forced technological change. But American manufacturers did not brook even this minimal interference in their affairs. They chose not to commercialize the supercar demonstrators they produced with government assistance and successfully resisted California’s efforts to legislate battery electric power.

Nor were American consumers then much interested in the new technologies, preferring massive, relatively unsophisticated gas guzzlers with improved safety features. But they changed their minds after Toyota and Honda introduced the hybrid electric passenger car in the early 2000s and the price of fuel skyrocketed around mid-decade. Belatedly, U.S. carmakers realized alterative products could be profitable, yet they lacked the capacity to produce them cost-effectively. The episode was something of a comedy of errors. In the 1990s Detroit spurned the mild medicine offered by the paternal hand of the state, only to collapse, atrophied, into the arms of government after a decade of brutal competition in the 2000s.

Nanotechnology: An energy revolution on the cheap?

So is nanotechnology the answer? A form of materials research emerging in the 1990s, nanotechnology was touted as another free-market solution to our energy problems. Its advocates believed that special nanoscale materials could make batteries, fuel cells, and photovoltaic cells cheaper, more durable, and more powerful by exploiting the high surface area and quantum properties of existing substances produced as nanoscale particulates and novel materials like carbon nanotubes and quantum dots.

Accordingly, an initial nudge by the federal government in the form of a relatively small R&D investment was expected to spawn a special materials industry that in turn would “self-assemble” (a favorite rhetorical flourish of nano-advocates drawn from utopian visions of molecular engineering) an industrial revolution on the cheap. Thus would the social and environmental collateral damage that had always attended such events in the past, and hence the need for government regulation, be obviated. The lobbying of nano-advocates prompted the Clinton administration to establish the National Nanotechnology Initiative, or NNI, in 2000.

Such assumptions cocked skeptical eyebrows in some parts of the science community but were generally tolerated, at least in quarters dependent on federal cash, if only because of worries of the effects of criticism on the money flow. Today there are a number of U.S. startup companies engaged in commercial development of nanomaterial-enabled power source technologies, including Konarka, a maker of organic photovoltaics, and battery component manufacturers Envia and Nanosys.

Probably the best known is Massachusetts-based A123. Its lithium-ion rechargeable battery uses nanostructured iron-phosphate electrodes to achieve what many observers regard as superior performance. Supported at every stage of its growth by the Department of Energy, A123 would, if successful, become the first American company to compete in the global market for rechargeable lithium-ion batteries, one U.S. battery makers dabbled in but then abandoned in the early 1990s, when it amounted to only a few hundred million dollars. Today it is worth anywhere from $10 billion to $14 billion.

In the mid-2000s A123 set its sights on electric automobility, potentially the richest market of all, collaborating with General Motors in developing the Chevrolet Volt plug-in hybrid. The denouement revealed the paradoxes and limits of nanotechnology. Ultimately, GM selected South Korea’s LG Chem Ltd. to supply the Volt battery for a number of reasons that probably boiled down to a belief that its lithium manganese spinel technology, parts of which contained materials developed by the DOE’s Argonne National Laboratory, posed fewer manufacturing and operating unknowns than A123’s more radical design.

The deal, which helped set up LG Chem in this emerging sector, will see batteries produced overseas until the firm opens a U.S. factory in 2012. Its manufacturing base hitherto located in Asia, A123 opened its first American plant in September 2010 using stimulus money intended to attract battery industry to the United States. For the time being, the company must make do servicing niche markets.

In essence, the various branches of the U.S. state worked at cross-purposes. With one hand, the DOE stood up a promising American company that was promptly punished for its inexperience by an auto company part-owned by the U.S. taxpayer; with the other, it indirectly helped a foreign company profit by the first American mass-produced hybrid electric passenger auto.

The battle of the electric automobile batteries is only the latest example of the hazards of quasi-planning. Tasked by the Obama administration to stimulate a job-rich sustainable energy industry, the DOE can conceive and gestate firms but is ill-equipped to bring them to maturity. It has virtually no power to alter industrial relations in the domestic market, much less in the global economy, especially the odd, asymmetrical system of codependency evolved by the United States and China that incentivizes American manufacturers to relocate abroad to exploit cheap labor in producing goods destined for the U.S. market but largely bars them from competing in the host country.

As A123 founder and MIT professor Yet-Ming Chiang explained to me at the Nanotechnology Innovation Summit last December, at a certain point in his company’s growth, the issue became one of industrial policy as much as research and development. Asian automakers, he remarked, would never dream of using batteries not produced in their home countries. An industrial pioneer brought to, but not yet quite over, the threshold of success, A123 faces challenging years ahead.

This tableau highlighted the complexities and contradictions of basing the revivification of one ailing heavy industry (automobile) on another (electrochemical energy storage) that was even more moribund. In a sense, given these complexities, the decisions of GM and the DOE were rational. The quickest way for American manufacturers to access advanced battery technology on an industrial scale was to ally with those foreign firms with advanced battery-manufacturing capabilities. If the objective of industrial rejuvenation is jobs, as U.S. politicians frequently claim, the strategic dependency that will result from such arrangements is less of a problem (where it involves staunch friends like South Korea and Japan) than the fact that much of the economic benefits are likely to remain abroad.

So while great strides have been made in nanotechnology, it is no free-market elixir. As a compound neologism, wrote former National Science Foundation chief Neal Lane in 2001, nanotechnology expressed, in a general sense, both current basic research (nano) and deep-future application (technology). But there has been a programmatic gulf between the two within the DOE. The third-most important federal sponsor of nanoscale science, engineering, and technology, or NSET, DOE has contributed $2.14 billion of the $12 billion spent thus far in the National Nanotechnology Initiative. Most of this has been spent through the DOE’s Office of Basic Energy Science, work conducted separately from the Office of Energy Efficiency and Renewable Energy and its Industrial Technologies Program. Here, far less—only about $7 million in 2009—has been devoted to nanomanufacturing, although this figure is set to triple by the end of fiscal year 2011.

To be sure, this cleavage will probably have little immediate effect on long-term projects like the DOE’s ambitious effort in artificial photosynthesis, which aims to develop cheap single-crystal silicon nanowire semiconductors coated with cheap earth-abundant nanoscale metal catalysts to produce hydrogen and oxygen from sunlight and water. Researchers hope such systems can meet an expected doubling of current annual global energy consumption of around 15 terawatts by midcentury.

Last July the DOE’s Office of Science launched the Joint Center for Artificial Photosynthesis, investing $122 million in a Caltech-led partnership under the banner of Secretary Chu’s new “Energy Innovation Hubs” initiative. Berkeley Lab Director Paul Alivisatos opined that such work requires sustained support rather than a “pulse of money” and then stepping back to see the results, as has happened in other science fields in the past. And there are serious engineering, organizational, and economic issues entailed in building the auxiliary systems of a hydrogen economy that go far beyond the scope of the DOE.

Conclusion

So what of the “Sputnik moment” and Chu’s formula for America’s energy calculus? This crisis is not a discrete, galvanizing event amenable to a quick fix, but part of a broader historical process of adapting an economy based largely on the technology and social relations of the previous century to rapidly changing circumstances in the new one. One can’t fault the secretary for demanding more money for “scientific R&D.” We expect him to do that as chief of an agency dedicated to such activities. But “scientific R&D” and the patents that are its proximate product cannot by themselves form the basis of national recovery because the great ideas that inform technological innovation and industrial manufacturing, like, say, giant magnetoresistance or lithium manganese spinel energy storage, can originate anywhere in the world (France, Germany, and South Africa, respectively). The historian David Edgerton has long argued this point, one recently illustrated by W. Patrick McCray in his history of the commercialization of giant magnetoresistance.

And so it is unrealistic to shoulder the DOE with the lion’s share of the burden of easing energy innovations into the marketplace. True, there is a long record of and justification for federal intervention in the American economy. But students of history might point out that if U.S. business and government leaders were serious about creating millions of new high-tech jobs in green energy, they would augment science and technology policies by protecting manufacturing. After all, they would only be playing by rules followed by all countries in achieving industrial liftoff, including Japan, China, and, back in the day, Britain and the United States of America.

There are, however, no easy answers. Up to 60 percent of Chinese exports to the United States are actually produced by American companies. Yet some form of protection combined with long-term federal countercyclical spending are likely the most effective ways to spur a national energy renaissance. Of course, such options aren’t likely to be pursued anytime soon. In the United States, the chief instrument of industrial policy appears to devolve from currency manipulation. Encouraged by the Obama administration, the Federal Reserve has maintained interest rates near zero and flooded the market with cheap credit, resulting in a decline in the value of the dollar that some believe will allow the United States to export its way out of the recession. Given the understandable reluctance of Asian governments to open their markets any more than necessary, this seems wishful thinking.

In America’s current political climate, boosting science spending will be far cheaper and simpler than dealing with such complexities. For that reason, it will likely be the default response in the energy race.

Matthew N. Eisler is a postdoctoral fellow at the Center for Nanotechnology in Society at the University of California, Santa Barbara.

This material is based upon work supported by the National Science Foundation under Grant Nos. SES 0531184 and SES 0938099. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author and do not necessarily reflect the views of the National Science Foundation.

Further reading

Jay Inslee and Bracken Hendricks, Apollo’s Fire: Igniting America’s Clean-Energy Economy (Washington: Island Press, 2008).

David A. Kirsch, The Electric Vehicle and the Burden of History (New Brunswick, NJ: Rutgers University Press, 2000).

Neal Lane, “The Grand Challenges of Nanotechnology,” Journal of Nanoparticle Research 3 (2001): 95–103.

Gijs Mom, The Electric Vehicle: Technology and Expectations In the Automobile Age (Baltimore: The Johns Hopkins University Press, 2004).

Bruce Podobnik, Global Energy Shifts: Fostering Sustainability in a Turbulent Age (Philadelphia: Temple University Press, 2006).

Reuters, “LG Chem sees more battery orders for GM’s Volt in 2011,” November 13, 2010, available at http://www.reuters.com/article/idUSTRE6AD00220101114.

Joseph J. Romm, Hell and High Water: Global Warming – the Solution and the Politics – and What We Should Do (New York: William Morrow, 2007).

Richard H. Schallenberg, Bottled Energy: Electrical Engineering and the Evolution of Chemical Energy Storage (Philadelphia: American Philosophical Society, 1982).

Amid the bitter and protracted negotiations over this fiscal year’s federal budget, U.S. investments in science and innovation were largely spared from the deepest cuts some federal programs faced. But they may not be safe for long as Congress considers making further spending cuts in the fiscal year 2012 budget beginning in October against the backdrop of debate this summer over raising the national debt ceiling.

That’s why it is critically important that members of Congress on both sides of the aisle distinguish between federal “spending” and “investments.” What many fiscally conservative lawmakers omit in their zeal to slash spending is that many federal programs actually have positive rates of return, meaning they bring in more revenue—to the government, economy, or both—than they cost the taxpayer. To put it another way, some federal investments are profitable to the public balance sheet and save the taxpayers money in the long run.

Need proof? Look no farther than two reports released last week, which looked at the economic benefits and return on investment in the Human Genome Project, and the National Institutes of Health, respectively, and showed that both federal programs have had a tremendously positive economic impact. Let’s examine each in turn.

The National Institutes of Health and economic growth

The first report “An Economic Engine: NIH Research, Employment, and the Future of the Medical Innovation Sector,” published last week by a consortium of science and research medical organizations, looked at the consequences of the public investment in the NIH on employment and economic output. The study, authored by Dr. Everett Ehrlich, a leading business economist and former Clinton-era undersecretary of commerce, found that the NIH directly and indirectly supported nearly 488,000 public and private sector jobs, and generated $68 billion in new economic activity in 2010 alone. Meanwhile, NIH research grants in FY 2010 cost the taxpayers only $26.6 billion. This would represent a 150 percent single-year return on public investment, counting total economic output from the research as revenue.

The economic activity and jobs supported by the NIH are not limited just to the NIH’s Bethesda campus outside Washington, D.C. They are spread across every state and territory in the country. In 2010 NIH research awards supported 12,000 public and private sector jobs in Georgia, 5,300 in Iowa, 1,300 in Alaska, and 31,000 in Texas, just to name a few.

In California, a company called Syntouch LLC is developing synthetic tactile sensors for prosthetics thanks to NIH-funded research. In Alabama, a company called DiscoveryBioMed, Inc. is using principles discovered by NIH-funded research to identify new therapeutic compounds for respiratory, metabolic, inflammatory, and hyperinflammatory diseases. West Virginia-based Protea Bioscience, Inc. is developing technology based on NIH research that improves the quality, reproducibility, and speed of processing protein samples, a technique that will aide with drug development across the board. See the map below for the number of jobs supported in each state by NIH federal research awards.

Source: Map by Science Progress with data from United for Medical Research

Critics of federal investment in R&D programs often argue that public programs like the NIH crowd out private investment. But a recent study conducted by the National Bureau of Economic Research found that the opposite is in fact true for the NIH. Each dollar of federal investment leads to a 32-cent increase in private medical research investment as discoveries diffuse out of academia and filter into the market. Another study found that NIH-sponsored research was more likely to be considered “advanced,” “novel,” or be related to “orphan diseases” than entirely privately funded drug research. This means that the NIH not only supports an ecosystem of business and innovative companies, but the innovation that comes out of this research is more likely to be novel and substantial.

The evidence in this report contradicts an oft-repeated fiscal conservative argument that public investments cannot create jobs. To quote the report, “simply put, NIH—and the research, jobs, technology, and businesses surrounding it—is nothing less than…an economic engine.”

The Human Genome Projects’ incredible return on investment

The second report, published by the Battelle Memorial Institute, is even more stunning. The report looked specifically at the economic impact and return on the federal investment of the Human Genome Project, an iconic federal science research program begun in the late 1980s.

The findings of the study speak for themselves: the public investment of $3.8 billion spread between1988 and 2003 yielded $796 billion (three-quarters of a trillion dollars), in economic output, and created nearly 4 million job-years over the 23-year period between 1988 and 2010. In 2010 alone, while it costing the government nothing, this farsighted, bipartisan investment in genomics research added $67 billion to U.S. gross domestic product, created $20 billion in personal income for American families, and sustained 310,000 public and private sector jobs.

If looking at these public investments from the point of view of a business, these numbers would represent phenomenal growth and profitability. If the total public investment in the Human Genome Project were a private investment fund, and the total public benefits thought of as revenue, the investments made in it would be said to have a return on investment, or ROI, of 14,000 percent over the 23-year period. A return like that would be enough to make any investor drool. Or, to look at it another way, imagine a family that put just $1,000 of their savings into the Human Genome Project in 1988. Today, they would have $140,000.

These figures are remarkable in and of themselves, but they don’t even take into account the intangible fact that these investments lead to innovation in medical treatments, medicines, and technologies that save lives and improve our public health. NIH research made possible the implementation of the Human Genome Project and genetic sequencing. It has also led to new cardiovascular treatments, neurotransmitters, and monoclonal antibodies, which were a component in 5 of the top 20 best selling drugs in 2010, generating worldwide revenue of $35 billion.

The project also had a tremendous impact not just on economic growth and job creation, but on innovation that is helping save lives. This research has helped launch an entirely new industry around personalized medicine and direct-to-consumer genetic testing, both making it easier to target specific medicines and treatments to patients’ needs. A 2009 study showed that 15 percent of healthcare providers reported at least one patient brought them results from a direct-to-consumer genetic test in the previous year, and 75 percent said they changed some aspect of the patient’s care based on the information. This new technology and the fast-growing industry around it were made possible entirely thanks to the research directly funded and indirectly catalyzed by the federal investment in the Human Genome Project.

The takeaway is that while these public investments have led to jobs, growth, and new technologies, more important is that the product of all this is new medical knowledge that benefits the public good. In the words of Greg Lucier, the chief executive officer of Life Technologies, whose foundation sponsored the Battelle analysis:

“From a simple return on investment, the financial stake made in mapping the entire human genome is clearly one of the best uses of taxpayer dollars the U.S. government has ever made. This project has been, and will continue to be, the kind of investment the government should foster…one with tangible returns.

“The initial dollar investment has already been returned [12 times over] to the government via $49 billion paid in taxes. Now we sit at the dawn of the ‘Genomics Revolution’ and all humankind will reap the benefits as we transfer what we now know about the human genome into major breakthroughs including: new forms of ‘personalized medicine’ and genetics therapy better suited to solving the problems we all care so much about, such as cures for cancer, cardiovascular diseases, Alzheimer’s, HIV/AIDS, and many more terrifying diseases. These major advancements are rapidly creating multiple new industries and companies and those companies are creating quality jobs for thousands of people. Life will be even better for all of us thanks to the HGP.”

Conclusion

When times are tough and budgets are tight, everyone—families, businesses, and yes, even the government—must make difficult choices and prioritize the things they really need while giving up some of the things they don’t. This process of economic recalibration, while painful, is a necessary and healthy step in making our economy more efficient in the long run.

But advocating cuts to government investments that bring in more revenue throughout the economy than they cost to run is self-defeating in terms of both deficit reduction and job creation. Cuts to these high-performing programs would be like a business cutting its best-selling product lines in the name of cost reduction. McDonalds doesn’t cut french fries from its menu just to save a buck. They know their french fries are profitable and draw customers to their restaurants. Such cuts would make McDonalds’ balance sheet worse—not better.

Similarly, cutting programs such as the NIH that demonstrably create jobs, catalyze private investment, and drive economic growth in excess of their public cost is misguided. As we proceed in the discussion of how best to make our government more efficient, and reduce our mounting foreign debt, our lawmakers need to adopt the same mentality. Investments in innovation—fundamental science and the research, development, and commercialization of new technology—have long been shown to have not only a positive return on investment for the government, but also great spillover benefits for private enterprise, small businesses, consumers, and ultimately for American families. Congress can’t forget this as it debates government investment targets for FY 2012 this fall.

Sean Pool is the Assistant Editor for Science Progress.

In As Time Goes By: From the Industrial Revolutions to the Information Revolution, a seminal work in cliometrics—the study of economic history—Chris Freeman and Francisco Louçã use historical data on technological advances, economic structure, salaries, and political unrest to derive a clear pattern linking innovation to the performance of the economy. These generational cycles of invention, expansion, and depression are called “Kondratiev waves” in honor of Nikolai Kondratiev, the Russian economist who first postulated their existence.

Cliometrics was founded in 1960 as a response to the simplistic models of neoclassical economics. By combining historical facts and economic theories, cliometrics seeks to create a fuller picture of economic growth than either discipline alone can provide. Combining the quantitative field of economics with the qualitative study of history leads to conclusions that may not always fit squarely under the methods of either discipline, but nonetheless the exercise tosses up some intriguing conclusions. Here are several of them.

Kondratiev waves carry transformational technologies into the market and create new industries

When we think of the industrial revolution, we think of steam engines and factories, but in fact, this was only one of many industrial revolutions. Freemand and Louçã show the correlation between repeated technological revolutions and the waves of economic growth that carry them. Each of these Kondratiev waves is driven by a “carrier-branch technology,” defined as a new way of doing things so much more efficiently than the old ways that it reshapes every aspect of the economy. The five carrier-branch technologies that Freeman and Louçã identify are:

• Water-powered machinery
• Steam power
• Electrification
• The internal combustion engine
• Computerization

Carrier-branch technologies have a core input, for example coal, or iron, or oil, or computer chips, and give rise to a whole secondary economy of supporting industries and social institutions. And each Kondratiev wave follows a similar economic pattern—the initial invention creates a period of boom, with rising material wealth, but as the technology reaches a point of saturation, the economy enters a downswing or “crisis of structural readjustment.” These upswings and downswings in the past lasted from 20 years to 30 years each, leading to a total cycle time of around 50 years.

Let’s use the familiar example of steam power. Practical steam engines were invented in 1712 by the English engineer Thomas Newcomen, but it took nearly a century for this invention to find widespread adoption. Invention is just the first step in technology lifecycle that drives a Kondratiev wave. Newcomen’s early engine was heavy and inefficient, and was used only for pumping water out of mines.

By the early 1800s, advances in metallurgy and cylinder boring allowed the creation of efficient, high-pressure steam engines. In 1829, George Stephenson demonstrated the first practical steam locomotive, kicking off a two-decade long railroad-building boom. Better mining techniques lowered the cost of iron and coal, while railroad barons made immense fortunes and businessmen everywhere benefited from the lowered cost of transport. Tourism, hotels, restaurants, and national markets all owe their origins to the low cost and high speed of rail travel. The demands of financing and administering the new railroads led to new forms of social organization such as the joint stock corporation, dedicated administrators, and new educational institutions such as the Harvard Business School.

But nothing lasts forever, and by the 1870s, all the profitable rail lines had already been created. Competitive pressures and price wars between railroad companies, along with wartime inflation from the American Civil War and Franco-Prussian War, initiated a worldwide long depression. In the United States, prices of basic commodities like grain, cotton, and iron fell by over 50 percent, devastating the earnings of farmers and industrial laborers. Unemployment reached 25 percent in some states, while businesses defaulted on over a billion dollars of loans and multiple banks collapsed. Social unrest exploded with a wave of strikes, including the Great Railroad Strike of 1877. The corrupt machine politics of the time lead to a popular disenchantment with both major parties, laying the foundation for the first progressive movement. The world economy did not recover until well into the 1890s, buoyed by new industries based around electrical power.

Similar patterns can be seen with the other Kondratiev waves, but I would like to focus on the one that we are most familiar with, having lived through it. Computing and information technology have driven unprecedented productivity gains in the U.S. economy and underpinned much of recent growth. The dawn of the computer era can’t be precisely pinned down; good arguments can be made for the creation of ENIAC in 1946 or the integrated circuit in 1959.

But I prefer the mid-1960s, with the first standardized commercial computers, such as the IBM S/360 and DEC PDP-8. Like the steam engine it took a little while for society to recognize the value of a new transformational technology. The astounding growth in Silicon Valley since then has driven innovation around these machines, making them cheaper, more reliable, and more user friendly. The presence of computers, and especially networked computers, changed every aspect of business over the past 45 years, leading to whole new markets and products that could scarcely be dreamed of before, as well as socially transformative access to information and knowledge through computer networks.

The next Kondratiev wave?

Computers are rapidly approaching the point of saturation in many markets. Microprocessors are in every imaginable device, and there are over 4.6 billion cell phone users on the planet. Computer processor and memory manufacturing is a cut-throat business conducted on the slimmest of margins, and while technology keeps improving, at this point, much so-called “innovation” has become about advertising and sales, not fundamental technological breakthroughs. The dot-com bubble and recent financial crisis, which was made possible by complex computerized financial instruments, are two signs that the Kondratiev wave based off of computers may be reaching its peak, and we are now in a period of structural adjustment.

Kondratiev wave theory would posit that the Great Recession cannot be blamed only on complex derivatives, bad mortgages, or greedy bankers, or government deficits, although these are all contributing factors. Rather these are signs that we have reached the limits of our present technology. Escaping it will require a new carrier-branch technology, with all that that entails. I can’t tell you what that technology will be renewable energy, an industrial revolution founded on nanotechnology and synthetic biology, completely recyclable zero-waste products that turn trash into gold, or advances in robotics and artificial intelligence. What is certain, however, is that it will be based on a fundamental breakthrough in science and technology.

The federal government must play a crucial role in that breakthrough. Look to the historical record: The steam power revolution did not begin in England by accident; rather England held an advantage in the core inputs: iron and coal, stemming from the Crown’s casting of thousands of cannons for the Napoleonic Wars. With peace and the loss of their primary market, English ironmongers turned their ingenuity to new products and techniques. Early railroads required an Act of Parliament before they could be built, demanding the active involvement of government, and eventually changes in law that made it easy to incorporate.

In America, the Federal government played a central role in the computer revolution. The SAGE air defense network consumed approximately half of the nation’s programmers and computers in the 1950s, creating an immense base of institutional knowledge that kickstarted the computer revolution. The Internet began as a military project in the Defense Advanced Research Projects Agency, and only later found civilian applications. The Federal government has played a valuable role as the first customer for technologies too risky for industry to invest in.

Beyond the role of a customer, the Federal government can also build the foundations for the sixth Kondratiev wave, by supporting science and engineering and encouraging investment in new technologies. At the heart of America’s lead in science and technology is the human capital of its scientists and engineers. This human capital must be maintained and reinforced, through science, technology, engineering, and math, or STEM, education at the primary and secondary level, visas for skilled workers and innovators, and a world-class system of universities and research centers which can train the next generation of scientists, and attract them to interesting and useful projects. Because the next carrier branch technology is still unknown, and cannot be foreseen, all areas of science and technology should be supported robustly. Program like the Marine’s “Green Company” are a good start, but the government has to be both more creative and aggressive in finding ways to harness the power of the market.

The Federal government represents the interests of all Americans, not just for the next quarter or the next election cycle, but for the next century. Real job creation and prosperity depend on finding new carrier branch technologies to start the next Kondratiev wave sooner rather than later, and finding them in America, not overseas. But it won’t happen if we don’t invest in the building blocks of innovation here at home. With the active participation of the government in crafting forward-looking regulation and laws, funding fundamental research in our universities and national labs, helping innovative technologies navigate the commercialization “valley of death”, and supporting human capital through public science and technology education, the grand project of forging the next carrier branch technology for the 21^st century is within our reach.

Michael Burnam-Fink is a PhD student with the Consortium for Science, Policy and Outcomes at Arizona State University.

Vibrant entrepreneurial markets such as those in and around Boston and Silicon Valley are nationally recognized for their high-octane venture capital fuel. Perhaps less well known is the degree to which the federal government has served as something of a “venture catalyst” by providing nondilutive grants, equity, contracts, and resources to high-growth startups. Some examples include:

• The Department of Defense, which supports, with research contracts, important technologies that support military (and, subsequently, commercial) applications, particularly its legendary Defense Advanced Research Projects Agency, or DARPA
• The Small Business Investment Company program, or SBIC, a more-than-50-year-old program that complements private-sector capital in support of growth companies
• The Small Business Innovation Research, or SBIR, program, a nearly 30-year-old program that provides grants to small businesses in support of federal needs for research that also have commercial corollaries
• The Department of Energy, which most recently added a Defense Department-inspired energy-centric version of DARPA called the Advanced Research Projects Agency—Energy, or ARPA-E, to its private-sector support suite for energy innovation

For decades, the federal government has  partnered with the private market to advance public product or service innovation needs related to defense and energy security—and, of course, to serve its agenda for jobs, competitiveness, and economic growth. For the most part, programs from Small Business Administration (SBIR, SBIC) and defense technology spending have been well supported on both sides of the political aisle. Most of these programs are agnostic to the demographics of an applicant—whether location, gender, race, or income. Whether applying from VC-hub Boston, MA, or Biloxi, MS, individuals and companies of all variety have access to some form of federal grant, loan, or equity.

But during the last two decades, two of the past three presidents have focused particularly on underserved communities and people. The Clinton administration’s New Markets Tax Credit and New Markets Venture Capital programs (run by the Treasury and SBA, respectively) seek to fill the capital gap that exists and persists for these target places and people. The Obama administration has continued the tradition, adding new initiatives that focus on underserved people, regions, and sectors. These programs provide resources from multiple agencies to women, minorities, Native Americans, veterans, and low-income communities.

A few examples include the Small Business Administration, with both existing and new programs that support loans and mentoring for small businesses, and the Treasury’s Community Development Financial Institution, or CDFI, Fund, which supports loan and equity pools that focus on targeted rural and urban low-income communities. SBA recently announced a chair for its new Advisory Council for Underserved Communities. The Advisory Council was formed to look across SBA’s assets (and others of the government) to align similar initiatives that serve targeted low-income people and places. Even the Obama administration’s multiagency Regional Innovation Cluster push—covered in SP in February—includes specific callouts for addressing underserved in each of the SBA and EDA cluster funding initiatives.

Indeed, the Economic Development Administration by mandate has always been about addressing low-income, high-unemployment, and otherwise challenged communities in disaster zones, regions with substantial outmigration of population, or those suffering from the loss of industries. The EDA’s recently announced i6 Green competitive grant for innovative Proof of Concept Centers mirrors a number of similar Obama initiatives in that it seeks to drive the innovation ecosystem (in this case on the green economy) but does so with EDA’s emphasis on distressed regions. The program enables existing grantees from SBIR programs at the National Science Foundation, the U.S. Department of Agriculture, and the Environmental Protection Agency that are part of winning i6 Green consortia to share half of the $12 million program award. This unprecedented flexibility and multiagency approach—with a single agency leading and other agencies contributing—are emerging hallmarks of Obama’s efforts to reduce silos and to align resources at the federal level.

As I noted in February, two new $1 billion SBA capital access programs are intended to drive debenture-funded risk capital into underserved inner cities and into clean energy, respectively. While clean energy is a pretty hot area for VCs in their traditional hunting grounds of Silicon Valley and Massachusetts, it’s still very much an emerging sector in other communities. Driving more risk capital into this strategic sector will make a difference for U.S. competitiveness—especially with countries like China plowing far more government money into this strategic high-growth sector.

Providing incentives for venture capital and mezzanine investors to drive capital into underserved regions that don’t normally see private investment dollars, too, is smart strategy. Our tech-and-innovation economy cannot be just about the rich city centers like Boston or the Silicon Valley. Other metropolitan regions need to develop the patterns of innovation and entrepreneurship that drive long-term economic growth. Consistent with its democratic roots, the Obama administration attends—if not equally, then meaningfully and substantively—to the underserved rural regions of our country that need essential capital and innovation infrastructure as much or more so than their rich city brethren.

At risk of appearing self-serving, let me share with you one emerging success story that speaks to the importance and impact of public-private partnerships such as those described above. Since 2000, I have managed one of six Clinton-era venture capital funds—part of the so-called New Markets Venture Capital, or NMVC, funds licensed by SBA  in 2000-2001. The NMVC program is an SBA initiative that matches 1-to-1 venture capital raised in the private sector for the purpose of directing this innovation rocket fuel in regions that lack the kinds of assets one finds in Boston. The fund I’m involved in backed nine companies, eight of which saw their first professional capital from this specialized pool, and all of which leveraged each dollar from the fund 5-to-1 with private follow-on capital.

One of the fund’s two remaining investments is Nanocomp Technologies, an advanced nanomanufacturing  company that has subsequently received several DOD contracts, SBIR awards, and recently a special designation that is given to a handful of companies in the United States deemed “essential to national defense.” This designation comes with additional federal funding—which will leverage additional private capital to help get this technology to scale to solve real problems related to both national defense and  commercial customers.

The product is an advanced material with game-changing structural, thermal, and electrical properties that has applications in aviation, electrical transmission, thermoelectric power generation, and commercial electronics, among others. It is among the lightest, strongest, and most electrically and thermal conductive materials known to man, and was presented in 2010 by the Office of Science and Technology Policy to President Obama as one of the three most significant nanotechnology innovations of 2010. Since I led the company’s first professional round of capital in late 2006, the company has grown from 2 to 40 staff and looks to grow to a few hundred in the next five years. With the help of the NMVC program, the company was able to locate its headquarters and manufacturing facility in an economically distressed region in New Hampshire.

While it’s early to declare this investment a victory, this emerging company funded through a public-private partnership makes a hell of a case for specialized federal programs that support innovation and entrepreneurship in underserved regions. These kind of public-private partnerships catalyze private-sector innovation to develop game-changing technologies of national priority, move private investment dollars, and create jobs in underserved regions. That’s a good thing for future U.S. economic competitiveness and broad-based prosperity.

Michael Gurau is a venture capitalist with CEI Community Ventures and is also president of Clear Innovation Partners, a company formed to catalyze and accelerate regional innovation clusters.

Indeed, for the greater part of the last decade, legislative proposals for patent reform have languished as competing industry and trade group interests fought to a standstill. Meanwhile, the Supreme Court and the executive branch have taken up the mantle of reform, producing significant improvement in such areas as standards for evaluating patentability, remedies for patent infringement, and numerous administrative reforms to improve both the timeliness and quality of review.

Yet there is important patent reform that only the legislature can implement. Thus, last week’s 95-5 Senate vote in favor of the America Invents Act represents something of a watershed. Indeed, given the background history of fierce clashes between interest groups, and the everyday difficulties of achieving bipartisan agreement, the Senate action deserves commendation irrespective of what ultimately happens in the House.

There is no question that our patent system needs further improvement. It currently takes at least 34 months on average for the Patent and Trademark Office, or PTO, to finalize a patent application. The average wait is even greater (more than 40 months) if one counts the large number of applications that are resubmitted one or more times. As a consequence, a backlog of more than 700,000 patent applications currently awaits review. These long waits create uncertainty for inventors, investors, and entrepreneurs, dampening innovation. What’s more, although the PTO is entirely supported by applicant fees, it does not even possess fee-setting authority. No self-supporting institution that lacks the ability to charge for the costs it incurs can possibly perform efficiently.

The America Invents Act, if taken up by the House of Representatives and signed by the president, would address these problems in several ways. First and most significantly, it would confer fee-setting authority upon the Patent and Trademark Office. As I have discussed at length elsewhere, with fee-setting authority of the sort given in the Senate bill (and a related guarantee that fees won’t be diverted by Congress to other uses, as has happened repeatedly in the past), the PTO could much more readily work to create processing times that were suitable both for applicants and for potential competitors. The PTO could also, if it so desired, use this authority to create incentives for applicants to file well-drafted applications that could be processed in one cycle without having to be resubmitted, thereby further reducing administrative delays.

Another significant (though contested) feature of the legislation is its enactment of a first-to file system. Currently, unlike every other major global economy, the United States operates under a “first-to-invent” system. At least in theory, the U.S. approach therefore accords patent rights to whomever can prove they first invented a product or technology. The operative word is theory, however, as the actual impact of the first-to-invent system is far from clear. So-called interference disputes—that is, the length and expensive administrative proceedings in which first and second patent filers settle who was first to invent—account for only about .01 percent of cases. Meanwhile, the asymmetry between the U.S. system and that of other major economies creates problems both for applicants who file globally and for PTO efforts to reuse the work product of other patent offices.

In response to data regarding the negligible role of interferences, proponents of the status quo (typically small inventors) raise two reasonable points. First, ordinary patent prosecutions, not interferences, are the arena where a first-to-invent system matters. In the prosecution context, the U.S. system allows an applicant to argue that third-party disclosures of invention that arise after the date of invention, but before the date of filing, should not be used to reject the patent application. As a recent study by Dennis Crouch documents, however, attempts by applicants to assert a pre-filing invention date arise in only 0.1 percent of cases. Moreover, small inventors appear to assert pre-filing invention dates “less often and less successfully than large, publicly traded companies.” Thus, at least in the prosecution context, the first-to-invent system appears to disadvantage precisely those small inventors who are lobbying to keep it.

Second, some critics assert that empirical studies of current interference proceedings cannot necessarily predict what would happen in the counterfactual situation of a shift to a first-to-file system. Perhaps in that context, critics of reform argue, large firms that no longer feared an interference challenge would race to the patent office and file applications, including applications based on information appropriated from small inventors. That scenario seems unlikely, however. The current interference system would hardly seem to present much of a barrier to racing activity on the part of large firms. Additionally, the Senate bill bars those who appropriate information from others from using that information to file patents or even to create prior art.

In addition to fee-setting authority and first-to-file language, the Senate bill also contains improved administrative alternatives to costly and inefficient litigation over the validity of issued patents. Although these improvements may not go as far as one might like, they are certainly a step forward.

The incremental improvements driven by the judicial and executive branches in the last few years must be accompanied by legislation that addresses what only the legislature can do. The Senate bill is thus a worthy and necessary endeavor.

Arti K. Rai is the Elvin R. Latty Professor of Law at Duke Law School. From 2009–2010, she served as the administrator for external affairs at the USPTO. This article represents her views only.

At the forum, the president and his White House team engaged with small business owners and entrepreneurs to discuss how bottom-up, place-based innovation and small business development policies are helping to reinvent American industry. In particular, the president praised the Rust Belt for its emblematic endeavors to reinvent itself as the Tech Belt. “Each time I come here, you’ve done more to retool and reinvent yourself,” the president said. “And that is something [Cleveland] is doing right now. It’s reinventing itself.”

At the event, cabinet members hosted break-out sessions on the various building blocks of innovation-led economic growth, including entrepreneurship, access to capital, smart tax policy, workforce development, export assistance, and clean energy. The president also commented on how one of his new signature public-private partnerships, Startup America, is making job opportunities more accessible by helping bring together different types of public and private innovation participants to help cohere nascent networks of knowledge creation and technology commercialization. “[It] doesn’t cost the U.S. Treasury anything to set up but may make all the difference in terms of success,” the president said.

One of these innovation building blocks, as we’ve long argued at Science Progress, is a concerted federal investment in the formation of bottom-up, place-based innovation clusters. “We’re all familiar with clusters like Silicon Valley,” said the president.

When you get a group of people together, and industries together, and institutions like universities together around particular industries, then the synergies that develop from all those different facets coming together can make the whole greater than the sum of its parts.

Last year, Science Progress and the Center for American Progress published an in-depth case study that showed the real impact that federal investments have on crystallizing regional innovation clusters comprised of small business incubators, universities, suppliers, manufacturers, and other innovation participants. The report talks about the important role that federal programs have in facilitating collaboration and leveraging investment from both the public and private sectors to create jobs in emerging industries.

President Obama spoke about the need to forge better connections between businesses and colleges, and the importance of workforce development in ensuring our businesses remain cutting-edge and competitive.

When it comes to workforce development, one of the most important things that we’ve all learned is how important it is to get businesses in early with the universities and the community colleges—a hugely underutilized resource—to develop the actual training program so that young people have the confidence if they go through this training program, they’ve got a job; businesses have confidence that if they hire these young people who went through this training program, they are trained for those jobs.

The collaboration that takes place between researchers, manufacturers, and investors in these clusters, or “entrepreneurial ecosystems,” is a critical ingredient for technology development and commercialization. Using liquid crystal displays as an example, President Obama noted the importance of fostering collaboration between researchers in universities, and local investors and entrepreneurs who can help bring their research to market. The Liquid Crystal Institute at Kent State University was a critical source of basic and applied research which fed the creation of the Flex Matters cluster, a fast growing global epicenter for the research and manufacturing of flexible electronics.

But without help from a U.S. Small Business Administration contract, as well as assistance from a local innovation cluster development organization called NorTech, that research may never have made it into the hands of investors, entrepreneurs, and manufacturers who could use it to create new technologies, companies, and jobs. The president recognized Kent Displays, one of the first manufacturers to emerge from the nascent innovation cluster, as a pioneer in advanced manufacturing and as a kernel for the now growing technology cluster in the Midwestern Tech Belt.

At the core of the conference was a notion that intelligent investment will lead the United States out of the economic recession.  But the president made the distinction between vital investments in innovation that we need to win the future, and other spending that we must scale back.

We’ve also got to get our fiscal house in order,” the president said, “and that’s why I’ve put forth a budget that includes a five-year spending freeze that will help reduce the deficit by $400 billion and will get annual domestic spending down to the lowest levels since Dwight Eisenhower. I want to work with Democrats and Republicans to make even bigger dents in our deficits—find new savings, cut excessive spending wherever it exists. At the same time, we can’t sacrifice investments in our future.

Indeed, Science Progress has done a lot to show how federal investments in research, development, and commercialization of new technologies are critical for sustaining long-term economic growth and competitiveness. It has been clear since his State of the Union address that the president agrees. Investments in cutting-edge research, workforce training, and next-generation transportation and communication infrastructure are key components of his Strategy for American Innovation.

I was just with a group of young people, and one young man who is in the sciences pointed out that he’s concerned that his professors are having more and more trouble getting grants because our R&D budgets in this country have been declining as a relative share of GDP. We’ve decided we’ve got to increase that back up. And that’s part of our budget—investing in innovation.

And there’s reason to hope that the president will put his money where his mouth is when the budget debates between House and Senate get tough. President Obama has shown he’s hustling to make the lofty goals in his Strategy for American Innovation into political reality. In his speech at Cleveland State, he even added a new word to his oft-repeated recipe for winning the future: “If we want to win the future, we’re going to have to out-innovate, out-educate, out-build, and yes, we are going to have to out-hustle the rest of the world.”

Sean Pool is Assistant Editor for Science Progress. Elaine Sedenberg is an Intern at Science Progress and an undergraduate in honors biochemistry at the University of Texas at Austin.

The partnership reflects the president’s new innovation-driven economic competitiveness agenda. It is designed to coordinate and cohere a variety of existing and emerging (i.e. not yet funded) public- and private-sector efforts focused on supporting strategic sectors (energy, advanced manufacturing, information technology, etc.) and small, high-growth ventures with capital and counsel. The capital portion of the announcement started with announcements that partners such as IBM and Intel would commit stated dollar amounts to supporting and/or investing in emerging growth companies. Intel Capital’s $200 million commitment to new companies as part of this initiative is arguably nonnews; in 2009—the nadir of the downturn—Intel Capital invested $327 million in 107 investments.

Of greater note was Mills’s announcement that SBA was repurposing it’s existing Small  Business  Investment  Company , or SBIC, debenture program to create two $1 billion matching fund commitments ($200 million per year for each program for five years) to risk equity venture funds seeking early stage capital and to growth equity funds interested in addressing underserved communities and/or clean energy ventures. Debenture SBIC funds (a debt-like form of risk capital) have long been available to proven growth capital funds capable of uncovering established businesses with cash flow that can support regular interest payments. What’s new in the announcement is the twin focus on underserved communities and on clean energy ventures. The former program, on the other hand, seems a bigger deal; debenture SBICs have not generally been used to support early-stage VC as these emergent ventures—typically loss making in their early years—cannot support regular interest payments.

As it happens, I’ve managed a debenture SBIC focused on early-stage VC since 2001 and so I viewed this prospective commitment to early-stage debenture SBICs with great interest. The basics of the SBIC program are that SBA matches a VC fund’s capital either 1-to-1 (in the case of the early-stage version) or 2-to-1 in the case of the growth equity. The difference is that early-stage ventures usually back companies with very young technologies or business plans with very limited revenue and early losses while growth equity supports more established businesses that have meaningful revenue and good cash flow from profits.

For this latter fund type, private capital-matched by SBA support–can afford to pay interest on the loans the SBIC fund offers the target company. In the case of early-stage funds, they don’t have cash flow to support debt service. For the debenture fund structure that I manage, SBA does a neat trick by “over-matching” the private capital my fund raised (e.g. matching the $5M private capital the fund raised with $7.5M of SBA matching funds) and then retaining a portion of that match ($2.5M) as pre-paid interest for the early years of the fund (years one through five); after companies funded in early years have had some breathing room to grow, they can presumably afford to carry interest payments that come due in the second five years. SBA’s Startup America Innovation Fund plans to do a 1-to-1 match rather than the 1.5-to-1, pre-paid match structure I described for the fund I manage; to address the “loss-making companies can’t service debt in early years” problem, SBA plans to allow funds to use their private capital to service the debt throughout the life of the fund—something that has not been possible in the current SBIC debenture programs.

The beauty of the debenture program is that SBA will accept a low interest return for its commitment, leaving private investors with the upside of gains made in excess of SBA principal and interest. Given the government’s apparent disinclination to resuscitate the equity version of the SBIC program (so-called Participating Securities SBIC—see my column “It’s time for a stimulus package for venture capital” in Massachusetts High Tech, or MHT), this is a pretty creative way to leverage public capital to get new private capital flowing into small, high-growth businesses.

Startup America also announced partners and support for entrepreneurship education and mentorship. As noted by MHT in its February 3 piece about Techstars joining the Startup America Partnership, the principals behind this program understand the value of mentorship and—as with IBM and Intel—are referencing entrepreneurship support organizations like Techstars, Mass Challenge, Jumpstart America, and Network for Teaching Entrepreneurship that have existing programs that the Startup America Partnership will highlight (and, perhaps, encourage foundation and other capital to support) as part of this initiative. In all likelihood, participation in this partnership will be little more than public- and private-sector showcasing—events, web, and other forms of promotion and exposure for these organizations, presumably increasing their profile and thus their ability to raise capital and provide more services. While not new, per se, this is not a bad thing.

I’ve got great hopes for Startup America. While many would (and have) understandably characterize it as a lot of fanfare without much new resource, I’m confident that the importance of small business to this president coupled with the commitments of Case and Kauffman will have us looking back a few years down the road and concluding that it was more than just a high test press conference and website.

SBA’s Administrator Mills is fond of noting that a substantial majority of net new jobs created in this country are driven by small businesses. If so, then capital to fuel small-business growth—in the context of a contracting private-sector VC market—could be transformative in terms of net new jobs. Moreover, small technology businesses are responsible for some of the most innovative developments in the last half century; the Google and Facebook mentions in the president’s State of the Union are both companies seeded and accelerated with venture capital. So SBA’s proposed new programs give us a twofer: jobs and innovation. You go, SBA!

Michael Gurau is the managing general partner of Clear Venture Partners, a New England venture capital fund-in-formation. You can reach him at mg@clearvcs.com.

A tough-love budget

In what OSTP Director John P. Holdren referred to as a “tough-love budget” at the release event, this year’s request to Congress keeps overall nondefense spending flat while increasing the crucial investments in science and technology R&D, so-called STEM (science, technology, engineering, and math) education, and 21st century infrastructure that we need to “out-innovate, out-educate, and out-build” our economic competitors. Proposing $147.9 billion for federal research and development overall, the budget provides increases for areas identified by the president as critically important to America’s competitive future, such as sustainable energy, information technology, advanced manufacturing, and STEM education initiatives.

Programs that were uncompetitive with these high-priority areas were reduced, including the R&D programs at the Department of Veterans Affairs (falling 12 percent from the 2010 enacted level) and the Environmental Protection Agency, which was cut by $11 million. Developmental research overall saw a decrease in funding from previous budgets with a total of $79.4 billion—a decrease mostly due to cuts made in defense research. The budget proposes a $4 billion decrease for the Department of Defense R&D budget from 2010 levels, putting it at $76.6 billion.

Holdren credited tactical, hard-nosed financial discipline as the reason why the 2012 budget, which begins in October this year, achieved what most people thought wasn’t possible. This year’s budget calls for a total nondefense R&D budget of $66.8 billion ($4.1 billion or 6.5 percent more than the 2010 enacted budget).

Doubling path for key science agency budgets

The FY 2012 budget proposed by the White House does not lose focus on previous long-term agency goals set by the Obama administration. The three key agencies identified by the president as crucial to national competitiveness—the National Institute of Standards and Technology, the National Science Foundation, and the Department of Energy’s Office of Science—maintain financial momentum to reach their budget-doubling goal by 2017. The budget proposes an increase for these agencies of 12.2 percent from the 2010 enacted budget for a total of $13.9 billion in funding. The NSF increases 13 percent from 2010 enacted levels to $7.8 billion, the DOE Office of Science increases 10.7 percent to $5.4 billion, and NIST intramural laboratories increase to $764 million, a 15.1 percent increase over 2010.

Clean energy innovation

To further advance American clean energy innovation, $550 million was directed to continue to fund DOE’s Advanced Research Projects Agency-Energy, or ARPA-E. Additionally, the budget provides financial support to double the number of Energy Innovation Hubs from three to six in order to promote collaboration between industry and academia.

The three new hubs will focus on rare earth materials, advanced car batteries, and new materials to advance the smart grid. Funding for the existing hubs for building energy efficiency, fuels from sunlight, and nuclear modeling continue to receive funding.

Educating our children in science, technology, engineering, and math

Recognizing that a workforce well trained in science, technology, engineering, and math, or STEM, is a critical building block for long-run, innovation-driven economic success, the budget also includes $3.4 billion across the federal government for STEM education. New STEM initiatives include a $100 million “down payment” on preparing 100,000 new STEM teachers within the upcoming decade with 80 percent going to the Department of Education and 20 percent of the down payment going to NSF.

Also included is $90 million for the Department of Education to create a new agency called Advanced Research Projects Agency-Education, or ARPA-ED. This new agency mimics the successful model used by DARPA and ARPA-E to develop and commercialize game-changing and transformational new technologies of national importance. ARPA-ED, according to the OSTP, will:

Push the field of education research, development, and demonstration forward by: sponsoring synthesis and vetting of public and private R&D efforts; identifying breakthrough development opportunities; shaping the next wave of R&D; investing in the development of new education technologies, learning systems, and digital learning materials; and identifying and transitioning the best and most relevant R&D from other federal agencies.

Infrastructure to keep people, goods, and information on the move

At the budget-release event at the AAAS on Monday, U.S. Chief Technology Officer Aneesh Chopra discussed how investments in 21st century infrastructure will provide the foundational capacity to foster the growth of new jobs and industries. Specific infrastructure investments that the budget makes include a one-time $5 billion investment in the Universal Service Fund to ensure all Americans have access to 4G high-speed wireless, even those living in remote areas. Some of this will be paid for by increasing the wireless spectrum available for mobile broadband. The auction of these new frequencies to companies will cut the deficit by nearly $10 billion over the next decade.

Advancing manufacturing innovation

We’ve pointed out at Science Progress many times that innovation does not just take place in labs; it also happens on assembly lines. The president’s budget would increase funding for the National Science Foundation, the National Institute of Standards and Technology, the Department of Energy, and the Defense Advanced Research Projects Agency to support development of advanced manufacturing technologies. Investments in nanomanufacturing, biomanufacturing, next-generation robotics, and cyber-physical systems are important to keeping American manufacturing on the cutting edge of innovation. In addition, the budget proposes reauthorizing the wildly successful and oversubscribed section 48(c) clean energy manufacturing tax credit for $5 billion.

Leveraging private-sector investment in innovation

The FY 2012 budget also displays a solid realization of the importance of private-sector investment in innovation. The government simply does not have the size, expertise, or resources to directly develop the technologies of the future. The research and experimentation tax credit helps unlock private investment in research and development by encouraging companies to develop new technology.

But since 1981 the R&D tax credit has been renewed by Congress on a temporary basis every two to three years, creating considerable uncertainty for businesses trying to make the necessarily long-term investments in technology research and development. The president’s budget proposes finally to expand, simplify, and make permanent the R&D tax credit.

The budget also includes a new Innovation Fund within the Small Business Investment Company, or SBIC, program. The new fund will specifically address the “valley of death” financing gap that prevents promising technical ideas from becoming job-creating business plans by making $200 million in matching grant funds available to augment private investments that support job-creating and innovative startup technology companies with high growth potential.

In addition, the budget includes $15 million for the Small Business Administration’s Emerging Leaders initiative to “enhance small business participation in regional economic clusters.” By signaling to the private sector that investments in research and development will carry tax benefits long into the future, this administration hopes to help kick start innovation across all of America’s industries.

Looming budget battle

Though these key investments in science and innovation have made it into the president’s budget, they still face a long road ahead to secure funding in the eventual FY 2012 budget that Congress must pass and the president must sign. President Obama’s budget can be thought of as an “opening bid,” as he characterized it earlier this week, in a long process of haggling that will take place between the Republican-controlled House and the Democrat-controlled Senate and White House.

Elaine Sedenberg is an Intern at Science Progress and an undergraduate in honors biochemistry at the University of Texas at Austin. Sean Pool is Assistant Editor for Science Progress. Also see our new “charticle” on U.S. Science R&D 101 (pdf).

President Obama this week released his budget proposal to Congress for fiscal year 2012, which begins in October of this year. The president’s budget matches his important State of the Union observation last month that “maintaining our leadership in research and technology is crucial to America’s success” with new investment targets for an array of key science and innovation programs. Republicans have mapped out a different strategy, arguing that we need to cut almost all of these science R&D programs in a bid to reduce the federal budget deficit.

The budget debate every fiscal year sparks new questions about how much support the federal government should provide for the critical research and development in science and technology. But in this year of a politically split Congress, the question of “how much” is center stage. Perhaps the better question is not “how much” but “what for?” After all, if policymakers can agree on what has to be done to ensure our future economic competitiveness, then deciding how much to spend should become an easier task.

This “charticle”—a series of charts with accompanying explanations—breaks down U.S. spending on scientific research and development to its key components. The purpose: to enable a meaningful discussion about the kind of investments we need to make as a nation to remain globally competitive in the 21st century.

Download the charticle (pdf)

The White House report outlines a series of sustained efforts to stimulate American innovation—steps that are directly at odds with deficit-cutting proposals aired this week by the Republican leadership in the House of Representatives. In light of persistent unemployment and in response to other nations’ highly focused economic investments, Congress and the Obama administration need to agree on a coordinated set of innovation policies that ensure the nation’s long-term economic competitiveness. The president’s Strategy for American Innovation provides the roadmap—it should be built-out, filled-in, and implemented with abandon.

So let’s explore this strategy document. The administration’s most comprehensive, detailed innovation policy effort to date articulates a coherent narrative about our economic prosperity’s dependence on innovation, private firms as the engines of innovation, and the essential role of the federal government in facilitating firms’ innovative capacities. It then lays out the strategy’s elements in a logical framework with a three-part sequence:

• Investing in innovation building blocks such as education, research, physical infrastructure, advanced information technology
• Promoting market-based innovation through the R&D tax credit, intellectual property policy, entrepreneurship, and open, competitive markets
• Focusing on national priorities, including clean energy, biotech, nanotech, advanced manufacturing, space, health care, and education technologies

Essentially, the document provides the first detailed view of the administration’s effort to frame the president’s “winning-the-future” argument through competitiveness and innovation. More inclusive and integrated than its September 2009 predecessor, the strategy provides a broad, logical foundation for action.

At the same time, it is a work in progress. Its framework would benefit from being built out and filled in to more fully justify and capture current and desirable administration activities that support innovation. To that end, here are a few suggestions.

Expand the discussion of the effort to create a world-class workforce with 21st century skills

The president’s strategy should

• Indicate that desirable postsecondary educational attainment is not limited to formal degrees but also includes community college certificates and industry certifications.
• Address the fact that to sustain a world-class workforce, adult workers will constantly need to return for skills upgrading due to occupational and industrial change.
• Add as a strategic element implementation of a national labor market statistics system that allows students, workers, and postsecondary institutions to make better education and training decisions. The administration’s current and proposed investments in the Bureau of Labor Statistics, the National Center for Education Statistics, the Employment and Training Administration, and the Census Bureau will help ensure that students and laid-off workers choose education and training programs that lead to decent jobs, and that educators can match program offerings to regional and national demand.

Expand the list of activities that support U.S. leadership in fundamental research

The president’s strategy should include mention of the Technology Innovation Program of the Commerce Department’s National Institute of Standards and Technology. TIP supports innovation through investments in “high-risk, high-reward research in areas of critical national need.” As President Obama noted in his recent remarks to the U.S. Chamber of Commerce, innovation in manufacturing is a critical component of competitiveness.

Expand the list of efforts that promote high-growth and innovation-based entrepreneurship

The strategy should include discussion of NIST’s Manufacturing Extension Partnership. MEP links existing small manufacturers to technical advisors who facilitate the development, commercialization, and adoption of product and process innovations.

Expand the list of activities that promote innovative, open, and competitive markets

The strategy should include administration efforts to improve federal international trade and investment statistics. Better data would allow businesses and state and local governments to make smarter investment decisions in support of innovation. For instance, the International Trade Administration is examining ways to better measure services trade data. For a mere $3 million the Bureau of Economic Analysis wishes to restore and enhance data on over $1.4 trillion in foreign direct investment in the United States by state, industry, and type of investment.

Recognize the importance of building the capacity for intelligent government

The strategy should include a fourth category in its framework, “build the capacity for intelligent government.” To more effectively develop strategy and policies that facilitate market-based innovation over the coming years, the federal government requires access to substantially improved information about the innovation trends and dynamics over time and in comparison to other nations.

Right now, the federal government cannot determine the efficacy of most of its innovation policy spending because there are few tools that enable it to judge how well or ill these investments led to new technology products and services, company creation, and job growth. Addressing this information gap is crucial for policy makers to gauge how the private sector lacks sufficient incentives to invest in our nation’s future competitiveness and how federal government might reshape those incentives.

Categories of needed information include data, indicators, research, and program evaluation.

• Mention important innovation data-related efforts underway, including recently revised R&D and innovation surveys produced by the National Science Foundation and BEA’s new Innovation Account, aimed at understanding the presence and contributions of innovation to the U.S. economy
• Note BEA and BLS proposals to improve the value and reliability core economic statistics—such as new quarterly Gross Domestic Product by industry and more accurate price indices—that are valuable in the design of effective innovation policies
• Identify current efforts to measure the outcomes of federal innovation-related programs, such as MEP and NSF’s STAR METRICS, and the need for similar efforts in all federal innovation-related programs
• Call for more social science research and program evaluations to better understand the market and program factors that support and impede innovation

Map the link between innovation and competitiveness

This new category of building the capacity for intelligent government also should discuss the need for periodic comprehensive assessments of U.S. competitiveness and innovation capacity and the translation of findings into an updated competitiveness and innovation strategy. The first round of such an effort is mandated by the recently passed America COMPETES Act of 2010. The current strategy document, then, represents a credible down payment on a more analytical, detailed roadmap for action.

The White House has put forth a much needed story about the economic importance of innovation and has outlined concrete approaches for encouraging it. As strategy development will be an iterative process (this Federal Register notice makes clear), the above suggestions for building out and filling in are offered for consideration in the next round.

Andrew Reamer is a research professor at the George Washington Institute of Public Policy, George Washington University.

The past

The first element of “the new reality” is the post-crisis world. Forum participants were in a much happier frame of mind this year than in the last two when it was not at all clear that the global economy wasn’t going off a cliff (2009), or if there wouldn’t be a double-dip recession (2010). This mood varied from near euphoria to cautious satisfaction. The bankers’ view is clearly that they did what needed to be done. They see a new danger in regulatory overreaction by governments.

A fascinating encounter between Jamie Dimon, chief executive and chairman of JP Morgan Chase & Co., and French President Nicolas Sarkozy embodied this tension, when Sarko roundly and dramatically rejected Dimon’s challenge on that point. In this prominent instance it was evident throughout the meeting that the consensus about the new reality does not necessarily extend to shared norms, at least not so far as the private bankers are concerned. Most of the central bankers and economists, however, seem to agree that the worst has passed but that markets will always produce the odd crisis, so prudence is justified.

The future

The future, of course, is China. This is the second major element of the new reality. The widespread premise at the forum was that mathematically China is on course to surpass U.S. gross domestic product, the total value of goods and services produced in our economy, in 2020. In fact, many at Davos believe they’re deliberately holding down their published growth rate to try to deflect pressure to revalue their currency, the renminbi. There was also a lot of talk about how China is handling its $3 trillion foreign exchange reserve.

Prime ministers from around the European Union urged completion of the World Trade Organization’s Doha Round on international trade, a process into which China has attempted to insert itself as a mediator on stalled agreements to lower trade barriers. The inexorable shift from West to East (called by one panelist the “great convergence”), was also tied into inequities and burdens on the health sector. Industrialization brings developed-world diseases and globalization enhances opportunities for epidemic disease—convergence with sweeping economic ramifications for this century.

The present

The third element of the new reality turned out to be the political turmoil in Egypt, an unexpected new reality that began to unfold just as the forum was taking place. A pundits’ panel on the last day was reoriented from a grab-bag discussion to reflection specifically on events in Egypt and the Maghreb. The World Economic Forum, which presupposes the international financial framework and its institutions, isn’t necessarily well equipped to engage in such multifactorial and high-level historical and cultural assessment. The dominant sense of the panel of journalists and senior men of affairs (the panel was all-male and there were no Egyptians), was that caution should be exercised in affecting any predictions, but that a turning point of some sort has been reached for at least some countries in the region.

And in the Science Progress wheelhouse, “innovation” was a word on the lips of virtually every one of the heads of state who marched through the main auditorium, all thinking about the next source of value to further stimulate global recovery. What the “I” word really means undoubtedly varies with the speaker, but several sessions focused on emerging biotechnologies, including synthetic biology and neurotechnology.

Though the national leaders didn’t often refer explicitly to President Obama’s State of the Union address the evening the meetings began, they didn’t’ need to. As much as anyone else, they got the message that the administration is determined to find new ways to push ahead in science and technology. In the words of national leaders from Russian President Dmitry Medvedev at the meeting’s opening to Prime Minster Naoto Kan of Japan at its end, it was evident that the idea of innovation as the key to economic competitiveness is likely to grow stronger in the coming year.

Jonathan D. Moreno, Ph.D., is the David and Lyn Silfen University Professor of Ethics and Professor of Medical Ethics and of the History and Sociology of Science at the University of Pennsylvania, and the Editor-in-Chief of Science Progress.

The Obama administration is no stranger to public-private partnerships. As part of the president’s Educate to Innovate campaign, the White House helped launch Change the Equation, “a non-profit organization dedicated to mobilizing the business community to improve the quality of science, technology, engineering and math education in the United States,” and secured commitments from a number of other corporations to help fund math and science education programs for children. This way of using executive authority and prestige to leverage private capital toward socially beneficial goals is in and of itself an innovation in policymaking.

Startup America follows this trend by leveraging private capital from a long list of more than 20 major corporations to invest in an array of programs to spur entrepreneurship in the United States. The initiative focuses on three main goals:

• “Education: Expanding high-impact entrepreneurship education programs to more high schools, community colleges, and universities, reaching thousands of additional students.
• Commercialization: Clearing the path to market for primary research in more universities, through a combination of regional ecosystem development, faculty engagement, and streamlined technology licensing.
• Acceleration: Replicating successful entrepreneurship accelerator programs in more cities and universities, by recruiting more experienced mentors to support more startups.”

In pursuit of these goals, specific commitments include:

• “Intel’s venture capital arm, Intel Capital, will commit $200 million of new investment in U.S. companies. Senior Intel leadership will also serve the Startup America Partnership and share best practices from years of successful programs designed to support Intel portfolio companies.
• IBM Corp. will invest $150 million in 2011 to fund programs that promote entrepreneurs and new business opportunities in the United States.
• Hewlett Packard is investing more than $4 million in 2011 in its HP Learning Initiative for Entrepreneurs, a global program launched in 2007 that uses educational and technology outreach aimed at helping entrepreneurs and small business owners create and grow commercial opportunities.
• Facebook will launch Startup Days, a new series of 12-to-15 events around the country designed to provide entrepreneurs with access to expertise, resources and engineers to help accelerate their businesses.
• The Blackstone Group LP’s charitable foundation plans a $5 million expansion of the Blackstone LaunchPad program piloted at two Detroit colleges as part of its overall $50 million commitment to entrepreneurship in higher education. Based on a model created by the University of Miami, LaunchPad will be replicated over the next five years in five other distressed regions around the country.
• The Network for Teaching Entrepreneurship, or NFTE, a nonprofit group that provides entrepreneurship education for at-risk high school students from low-income communities, launching a number new programs supporting young entrepreneurs and their teachers in partnership with Startup America’s corporate partners:
  • The Pearson Foundation is working with NFTE to build its Digital Teacher Network, a free online community for teacher collaboration and training that will be used not only by NFTE’s 5,000 certified teachers but also by any educator interested in entrepreneurship.
  • Google is sponsoring two new efforts in NFTE’s Bay Area programs: The Flat Classroom Exchange will allow local educators to team-teach the NFTE program in real time and leverage each teacher’s individual expertise, while the Makers Class project will integrate NFTE’s curriculum with invention and engineering lessons.
  • New Markets Education Partners is providing NFTE with seed capital to launch in 2011 an interactive, online business planning course and social network connecting mentors, teachers, and students.”

In addition the administration also announced a set of new initiatives and small business incentives of its own, which, according to the official White House fact sheet, include:

• The president’s budget will propose making permanent the capital gains tax exemption for key investments in small businesses. A temporary form of this provision passed in the 2010 Small Business Jobs Act in September. The budget will also add a New Markets Tax Credit that encourages investment in small business in low-income communities.
• The Small Business Administration, or SBA, will direct $2 billion in existing loan guarantee authority over the next five years to match private-sector investments. $1 billion of this will go toward investments in underserved communities and economically distressed areas where an influx of capital can make the biggest difference. The other $1 billion will back investments in early-stage companies with promising innovations traversing the “valley of death” commercialization gap.
• The Department of Energy, SBA, and the Advanced Research Projects Agency-Energy, or ARPA-E, will launch a high-quality mentorship and business acceleration programs for clean-tech startups. This effort will provide resources to help launch an estimated 100 new clean-tech companies across the country.
• The Department of Commerce, or DOC, will launch the “i6 Green” initiative, which, building on the existing collaboration between six federal agencies, will make $12 million in funding available to help catalyze bottom-up, regional clean energy innovation cluster formation and “encourage innovative, ground-breaking ideas that accelerate technology commercialization, new venture formation, and job creation across the United States.” The Patent and Trademark Office, also within the DOC, also announced a new patent review program that will expedite patent review by as much as two years for some entrepreneurs.
• The Treasury Department will host a conference exploring access to capital for small and entrepreneurial businesses, and will also take steps to simplify the rules for $5 billion in tax credits for private investment in lower-income communities.
• The Veterans Administration will launch a business incubator program and mentorship to help returning veterans start their own businesses.

In his State of the Union address President Obama alluded to the importance of innovation in driving economic growth when he said, “In America, innovation doesn’t just change our lives. It is how we make our living. … maintaining our leadership in research and technology is crucial to America’s success.” Experts including Nobel Prize-winning economists, the Information Technology and Innovation Foundation, the Center for American Progress, Science Progress, the OECD, and others have also pointed this out before, noting how technology innovation accounts for between 50 percent and 85 percent of all economic growth in this century.

The initiatives enacted under Startup America will bring private capital to bear on innovation and business creation at a critical time when the nation’s job growth still lags behind corporate profitability. Small, innovative businesses and startups are among the brighter spots in a dark recession. Research conducted by the Kaufman Foundation finds that small businesses and startups are more recession-proof than larger firms, experiencing fewer layoffs even in tough times.

To entrepreneurs, a recession can also be a time of new opportunities, said Gene Sperling, the recently anointed director of the National Economic Council yesterday. He pointed out that half the companies in the Fortune 500 were founded during a recession, adding “it’s these times when people come together and take a chance.”

By putting entrepreneurship training and private capital in the hands of Americans with good ideas, the Startup America partnership is helping to—as Carl Schramm, founding board member of Startup America and president of the Kauffman Foundation put it— “democratize entrepreneurship.” With the right tools, entrepreneurship is approachable by anybody, he said. And entrepreneurs and small-business owners are in many ways the engines of our economic growth. “‘Every time we help someone start a business,’” he said, quoting Kauffman Foundation founder Ewing Marion Kauffman, “‘we strengthen the nation’s economy.’ The great moment in economics is when a business is started. There is no economy without firms. Recessions are nothing more or less than firms shrinking, and expansion is nothing more or less than firms growing.”

Not only do small firms, startups, and innovative small-technology companies represent a major component of our way out of this particular recession, but they are also key drivers of innovation and long-term economic growth. According to the Kauffman Foundation, 40 percent of our GDP this year comes from companies that did not exist in 1980. More striking is the fact that nearly all net job creation in the economy comes from firms that are less than five years old. The Kauffman Foundation’s recent report went so far as to say that startup companies are “almost solely the drivers of job growth.” As a result, “effective policy to promote employment growth must include a central consideration for startup firms.”

It is good to know that top administration officials are in touch with the most current economic statistics. Austin Goolsbee, the chairman of the president’s Council of Economic Advisers, echoed these sentiments yesterday when he alluded to how small business policies are “big job creators, start-up creators, and innovation drivers.” He went on to conclude that “ultimately, it’s the creation of new ideas that keep America the premier economy in the world. That’s why we’re doing start up America; because everybody deserves at least one chance to change the world.”

In his plan for winning the future, President Obama called on the private sector to help our economy grow by “out-innovating, out-educating, and out-building our competitors.” The CEOs, university presidents, entrepreneurs, foundations, nonprofits, and federal officials involved in the Startup America Partnership are helping make that plan a reality.

Sean Pool is the Assistant Editor for Science Progress.

But what is the correspondingly simple mantra for the progressive economic philosophy? That is a harder question to answer, even for progressives. But after last night’s address we now have a strong candidate: innovation and competitiveness.

The president mentioned innovation and competitiveness numerous times throughout his address Tuesday, and outlined with surprising clarity a strategy to invest in all of its building blocks: science, education, workforce training, infrastructure, manufacturing, small businesses, access to domestic and export markets, and incentives to spur private capital investment.

This is encouraging news for us at Science Progress, since we have been working to advance the notion of the innovation-driven economy for years. Our unpublished prospectus—the document that, like a constitution, launched our little program—begins with the statement, “An appreciation for the importance of innovation must be central to any progressive philosophy.” Our mission statement from 2007 talks about the important role that science (and by extension, innovation) has on driving economic growth [emphasis added]:

“Science Progress proceeds from the propositions that scientific inquiry is among the finest expressions of human excellence, that it is a crucial source of human flourishing, a critical engine of economic growth, and must be dedicated to the common good.”

In a more recent article, we pointed out the long-simmering but still rarely discussed consensus that innovation is what drives modern economic growth, and how the United States is falling behind in educating our students with the skills to succeed in the 21st century innovation economy. Obama echoed these words when he said,

“Maintaining our leadership in research and technology is crucial to America’s success. But if we want to win the future—if we want innovation to produce jobs in America and not overseas—then we also have to win the race to educate our kids.”

In another article, we talked about how innovation and competitiveness are inseparable. An economy that does not innovate cannot compete in the long run. We pointed out how technological innovation, broadly speaking, had been responsible for between half and three-quarters of all economic growth over the 20th century. To this, the president pointed out that,

“In America, innovation doesn’t just change our lives. It is how we make our living.”

In that article we also observed how the private sector alone tends to under-invest in innovation because of the positive externalities of knowledge spillover. Much of the benefit of innovation is invisible to the market because of the unexpected ways the inventions of today influence the development of the technologies of tomorrow. This necessitates the intervention of public policy.

Today, as in the past, public policy has a strong role to play in setting the course for innovation-driven economic growth, job creation, and competitiveness. The federal government must set goals that signal to investors that there are lucrative opportunities awaiting those who invent and commercialize technologies that help solve social, medical, and environmental problems. But at the same time, we should not pick winners, but must instead let businesses in the private sector compete to commercialize only the best and most cost-effective new technologies and production methods. Again, the president echoed these sentiments in his State of the Union speech:

“The first step in winning the future is encouraging American innovation. None of us can predict with certainty what the next big industry will be or where the new jobs will come from. Thirty years ago, we couldn’t know that something called the Internet would lead to an economic revolution. What we can do—what America does better than anyone else—is spark the creativity and imagination of our people. We’re the nation that put cars in driveways and computers in offices; the nation of Edison and the Wright brothers; of Google and Facebook…

Our free enterprise system is what drives innovation. But because it’s not always profitable for companies to invest in basic research, throughout our history, our government has provided cutting-edge scientists and inventors with the support that they need. That’s what planted the seeds for the Internet. That’s what helped make possible things like computer chips and GPS. Just think of all the good jobs—from manufacturing to retail—that have come from these breakthroughs.”

In our most recent report, “Rising to the Challenge: A Progressive U.S. Approach to China’s Innovation and Competitiveness Policies,” we noted how China’s growing prowess in science, education, research, information technology, and infrastructure are all contributing to the emergence of a Chinese innovation economy. “China,” the president said on Tuesday, is

“educating their children earlier and longer, with greater emphasis on math and science. They’re investing in research and new technologies. Just recently, China became the home to the world’s largest private solar research facility, and the world’s fastest computer…[they are] building faster trains and newer airports.”

Indeed, China is also home to the world’s largest hydroelectric dam, and the world’s fastest bullet train. The number of published scientific articles in China recently surpassed that of Germany and Japan to take the number two spot behind the United States, and is on course to surpass even that within the decade.

“This is our generation’s Sputnik moment,” the president said, implicitly comparing our lack of investment in a space program, research, and education in an era of Soviet competition then to our lack of an innovation-driven competitiveness strategy in an era of global competition now.

On the whole, the president’s words on Tuesday very clearly pointed to one realization: we live in an innovation-driven global economy. The sooner our government becomes savvy to this reality, the sooner we can start to systemically accelerate our progress toward fulfilling our national priorities. Our nation needs a cross-cutting and comprehensive innovation agenda to shape federal policies toward maximizing the potential for innovation in all sectors.

And yes, the president pointed out in his address, a key part of achieving our goals will require us to rein in our deficits. But, as the president put it on Tuesday,

“Gutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may make you feel like you’re flying high at first, but it won’t take long before you feel the impact.”

The president has talked about Innovation before, noting that ”innovation is in our DNA.” But during Tuesday’s speech we glimpsed how innovation has the potential to become a new intellectual architecture underpinning progressive thought. Obama’s speech on Tuesday elevated innovation from just a nice sounding word that corporate CEO’s sometimes throw around, to a core element of the progressive strategy for winning the future.

Such a strategy rests on the idea that every dollar that improves a child’s abilities in math; or helps a worker obtain new skills in technology, science, engineering or business; or helps a small business find the capital to invest in new manufacturing equipment to make its product cheaper, faster, or more reliably; or connects a brilliant university researcher to an investor willing to support commercialization or his potential breakthrough; or helps a technology company market a new clean energy product overseas will pay us back down the road in innovation, job creation, tax revenue, and competitive economic growth.

“We know what it takes to compete for the jobs and industries of our time,” the president said. “We need to out-innovate, out-educate, and out-build the rest of the world.”

His words suggest that “innovation,” in its broad sense, has the potential to be as synonymous with progressivism as “tax cuts, less government” are with conservatism. After 30 years witnessing the shortcomings of trickle-down economics, it’s about time we shed those old ideas. After all, as the president said in his concluding remarks, “that’s what Americans have done for over 200 years: reinvented ourselves.”

Ed Paisley is the Vice President of Editorial at the Center for American Progress and Editorial Director for Science Progress, Sean Pool is the Assistant Editor for Science Progress.

The days of China as the low-cost, low-tech manufacturer of the rest of the world’s high-tech innovations may soon be coming to a close. China now leads in the production of not just low-end manufactured consumer goods but also some high-tech devices, many of which were developed in the United States. This is making it harder and harder for even our high-tech companies to create jobs and compete in lucrative export markets.

The goals President Barack Obama presented in last night’s State of the Union address for U.S. competitiveness vis-à-vis China are right on the mark. He acknowledged the fundamental role innovation plays in driving economic growth when he said, “In America, innovation doesn’t just change our lives. It is how we make our living. … maintaining our leadership in research and technology is crucial to America’s success.”

But the president also recognized the strides China has made in investing in their innovation-driven future. “China,” he said, is “educating their children earlier and longer, with greater emphasis on math and science. They’re investing in research and new technologies. … and China is building faster trains and newer airports.”

These statements echo the findings of our recent report, “Rising to the Challenge: A Progressive U.S. Approach to China’s Innovation and Competitiveness Policies,” and so did his conclusion. “If we want to win the future,” he said, “if we want innovation to produce jobs in America and not overseas … we need to out-innovate, out-educate, and out-build the rest of the world.”

The president is right. Staying competitive means investing in the building blocks of an innovation-driven economy, from science and math education to university research, including partnerships with small businesses, investors, and manufacturers who create jobs by building markets for new technology. Accomplishing these goals, however, will require a well-crafted and comprehensive policy vision. As the president and the new Congress work together to build a new foundation for economic growth, here are the top 10 things they can do to ensure our world-class innovation engine continues to run smoothly.

Invest in future talent through strong science, technology, engineering, and math education programs and workforce training

Science and math expertise are critical to sustaining an innovative economy. But as the president said last night, “the quality of our math and science education lags behind many other nations.” Students in China consistently score higher on standardized math and science tests. Furthermore, 59 percent of Chinese students major in fields related to science or engineering, as opposed to only 32 percent in the United States. To remedy this disparity, we need to add 10,000 new STEM teachers each year and strengthen the skills of the 250,000 current STEM teachers by implementing the programs in the president’s Educate to Innovate agenda. The president also needs to ensure that reform of No Child Left Behind includes a strong emphasis on science and math training.

Create new opportunities and improve educational quality for working learners

Only 34 percent of working learners who return to college actually complete a degree after six years of study. Creating opportunities for working learners is critical to giving them the necessary skills to be competitive in emerging fields. To keep our workforce educated and competitive, we need to build bridges from STEM education programs and academia by revising and revitalizing the Workforce Investment Act of 1998, which is up for reauthorization.

Invest in seizing the clean energy opportunity

U.S. public investment in renewable energy has fallen from $9 billion in inflation-adjusted dollars in 1980 to $3.2 billion in 2006. Meanwhile, by some estimates, China spends as much as $12 billion monthly on new energy technologies and export expansion. Six of the top 10 global photovoltaic manufacturers are now located in China, accounting for roughly one-quarter of global production.

The United States needs to get back in the race to seize the vast economic opportunity embodied in clean energy. From cleaner air to increased energy security and price stability; to more job creation; to lower heating, lighting, and transportation bills; clean energy innovation is a win-win-win for those countries willing to invest in it.

To that end, we need to invest in a three-tiered approach of expanding markets, harnessing private financial capital, and building the infrastructure needed to seize the job-creating, economic benefits of clean energy. More concretely, we need to put a price on pollution to help clean energy become the profitable kind of energy; set a clean energy standard to signal long-term market stability to investors; and reform the outdated regulatory system that governs our aging national transmission grid so that a new and smarter grid can bring clean energy and efficiency savings to every household in the country.

Focus federal investments in technology innovation on the critical valley of death gap

Part of what China has done to help leapfrog the technological ladder is to double down in not just research and development but critical commercial activities where new technologies enter the market and wean themselves off of government funding. Programs funded by the Recovery Act of 2009, such as the Advanced Research Projects Agency-Energy, or ARPA-E, and the regional innovation cluster grant competition are already helping move technologies from the university to the assembly line. We need more federal attention for this kind of activity in the coming years.

Harness private capital flows toward innovative, job-creating small businesses

The pool of venture capital for innovative new technologies has decreased in recent years, making it difficult for small businesses with new technologies to grow and bring their products to market. In this financial environment, VC investors are choosing to take less and less risk in their investments, which deprives promising young technologies of the capital they need to get off the ground.

What’s more, programs such as the Small Business Innovation Research grants, Small Business Technology Transfer grants, Technology Innovation Program grants, and others are poorly coordinated to ensure maximum effectiveness of their already small program budgets. And for clean energy, we need a green bank to extend credit enhancements to financers for investments in clean energy and other technologies of national priority such as information technology and advanced manufacturing.

Policymakers need to turn their attention to how we can lure private capital toward the job-creating and innovative small businesses that drive technology commercialization and make up the backbone of our economy.

Increase our focus on domestic manufacturing capabilities

Manufacturing is an essential component of a successful innovation and competitiveness strategy. Not only do high-tech goods account for $231 billion in export earnings, or roughly a quarter of our overall manufactured exports, but manufacturing is a key element of successful technology innovation.

Unfortunately our balance of trade in high-tech manufactured goods has declined from a $60 billion surplus in 1990 to a deficit of $60 billion in recent years. To stay competitive with China we need to make the technologies we invent here, rather than letting China take all the benefits of incremental improvements and cost-reducing assembly line innovation.

As a nation, we need to commit to the manufacturing of high-end products in the United States, by strengthening federal investment in the Manufacturing Extension Partnership Program and by expanding and extending the 48C advanced energy manufacturing tax credit program to give it a long-lived lifespan and predictable sunset.

Reform immigration laws to encourage the immigration of skilled foreigners

Foreign nationals comprise two-thirds of Ph.D. students and are responsible for founding 50 percent of Silicon Valley startup companies. Yet our immigration laws make it difficult for immigrants to transition from education to work, and to move from job to job in the innovation economy, drastically reducing the potential that these skilled workers have to contribute to growth.

We need to streamline visa processing for international students, make it easier for students graduating with degrees in STEM fields to remain in the United States, make the cap on highly-skilled visas more flexible, and create easier paths to permanent residence for highly skilled workers with graduate-level degrees in these fields. We also need to ensure those undocumented immigrants raised in the United States and now in college get the chance to become citizens and contribute to the nation they call their own.

Invest in regional races to the top and clustered industry growth

Study after study shows that regional innovation clusters are an efficient means of facilitating industry collaboration and synergy. Chinese innovation and economic planners are also well aware of the importance of clustering by encouraging Chinese companies in similar industries to clump together to improve their access to incremental innovation, share supply chains, and boost the competitiveness of their workforces.

The America COMPETES Act signed by the president late last year unfortunately did not include language passed by the House of Representatives to support regional innovation cluster grant programs. We need to establish far-reaching programs like the Energy Efficiency Regional Innovation Cluster grant that align national innovation priorities with regional economic development plans. One way to do this would be for Congress to take back up the Energy Innovation Hubs Authorization Act of 2010, which would provide $860 million in grants over five years to encourage the R&D and commercialization of critical clean energy technologies.

Pass legislation to spur long-term innovation

While the America COMPETES Act is a solid stepping stone, the passage of three additional pieces of legislation is critical to bolstering the United States’ long-term innovation strategy. The Department of Energy Office of Science Authorization Act of 2010, the ARPA-E Reauthorization Act of 2010, and the Energy Innovation Hubs Authorization Act of 2010 would collectively work not only to fund additional groundbreaking research but also to find new commercial applications and help bring emerging technologies to market.

Establish metrics for competitiveness by which to measure progress, and create a coordinated interagency effort to address our innovation and competitiveness challenges

In “A Focus on Competitiveness,” CAP outlines a few mechanisms that should be put in place to help coordinate the kind of cross-cutting, multi-agency collaboration needed to implement a real innovation and competitiveness agenda. Metrics and oversight are needed to promote collaboration of otherwise uncoordinated activities across many federal agencies. To this end we suggest a Quadrennial Competitiveness Assessment, a Biannual Presidential Competitiveness Strategy report, and an Interagency Competitiveness Taskforce to point the United States in the right direction.

Conclusion

With a strong contingency of well-trained workers, the proper infrastructure for innovation, and a government dedicated to investing in research for the next great technological breakthroughs, the United States would be properly equipped to stay competitive in a future of booming growth in China and elsewhere. We can and must rethink, retool, and reinvest in our nation’s innovation potential if we are to succeed. As the president said last night, “that’s what Americans have done for over 200 years: reinvented ourselves.”

Sean Pool is a co-author (along with Kate Gordon, Susan Lyon, and Ed Paisley) of the recent report from the Center for American Progress titled “Rising to the Challenge: A Progressive U.S. Approach to China’s Innovation and Competitiveness Policies.” David Murdter is an Intern in the Online Communications department at the Center. This article is cross-posted on the Center for American Progress website.

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It’s hard to imagine a meaningful response to President Obama’s “Sputnik moment” that does not involve the nation’s research universities. With a history measured in centuries rather than years or decades, combined endowments in excess of $250 billion, Nobel prize-winning faculty, and a generation of students as intellectually curious and socially committed as any in history, research universities are among the crown jewels of our society. The demise of many leading private research facilities further underscores the importance of universities in igniting a national innovation agenda.  In the words of Stanford’s President John Hennessy, “If the universities don’t work on the world’s biggest problems, who will?”

Since the publication three months ago of our book Engines of Innovation—The Entrepreneurial University in the 21st Century, readers and reviewers have agreed that universities have no choice but to assume leadership in what some are calling a “national reset.” As is often the case, the real challenge is how to make it happen. Although one size never fits all, we want to suggest some basic principles and make some recommendations to make universities more innovative and as a result increase their impact on the world’s biggest problems.

First, we want to assert a core belief: Universities are about problem solving—the bigger, the better.  They encourage independent and unfettered thinking. They have stood the test of time because of the unique position they occupy somewhere between government, religion, and private enterprise. Increasing the impact of universities involves building on their unique culture, which is particularly well suited to foster innovation.

A corollary to this belief is that commercialization, in and of itself, is not central to the mission of most universities. Private corporations and NGO’s that respond quickly to markets, customers, and opportunities are much better suited to turn new knowledge into viable enterprises. Relationships between universities and the private and civic sector are important because they help academics determine what problems to work on, and they increase the impact of the work that is being done. The new companies, jobs, and wealth created by relationships between academia and the private sector are important by-products of the academic enterprise. If these relationships help universities become better problem solvers, the rest will take care of itself.

We are convinced that culture is more important than structure in encouraging innovation.  Encouraging problem-centered, multidisciplinary teams that can quickly come together and, as appropriate, come apart, is one important element of an innovation culture.  Tolerating, and even celebrating, failure is another. Examining the reward structure, especially as it applies to young professors, is also important. Welcoming innovators and entrepreneurs as speakers and teachers has an enormous and often unpredictable impact on university culture. Ultimately we are talking about an environment that gives permission and encouragement to innovate and then gets out of the way.

High-impact innovation requires that universities focus on big problems. This is what best furthers the university’s research and teaching mission and is most consistent with its core competencies. It is also what captures the imagination of students, faculty, and alumni and is the best use of its existing resources. Big problems, especially these days, are highly complex and require multiple perspectives and points of view. No other institution in our society can assemble teams of physicians, engineers, chemists, biologists, and computer scientists to attack a particular disease. We suggest that such teams are even more effective if they include an ethicist, an economist, and a historian.

Maximizing innovation at a research university also requires involving the entire campus, not just the sciences and engineering. This is a lesson that was hammered home on our own campus after the publication of our book. During a symposium led by the chairman of the history department, we discussed the need to accept failure as part of the innovation process. It was suggested that the history department could be renamed the Department of Ambiguity and Failure and, as such, had an important role to play in both encouraging risk taking and learning from mistakes. We also learned that when high-impact innovation is characterized as attacking the world’s biggest problems, humanists and social scientists are eager to join with scientists and engineers in the problem-solving process.  Soon after the symposium, a veteran faculty member stopped one of us on campus and said, “I have one piece of advice:  Get history and chemistry, and the hearts and minds will follow.”

We have found that to be the case not only in the traditional disciplines, but also in medicine, public health, education, law, journalism, and business.  No one wants to be left out of a great mission, and attacking big problems certainly qualifies.

Redefining who can belong to the academic community will also impact the volume and quality of innovation on a university campus. The arts long ago realized that practitioners were essential to the effective teaching of dance, music, writing, and filmmaking and welcomed nonacademics to join their departments. Such an approach can be applied throughout the university by enlisting practitioners as innovators and entrepreneurs in residence.  Adding practitioners to the multidisciplinary teams we have already described results in dramatic and often unexpected impact, and they often provide an important bridge between academia and the commercial world.  In response to a question from a delegation from Malaysia asking what was the single most important action that could be taken to develop a culture of innovation on a university campus, we answered, “Invite some entrepreneurs to join the faculty and then get out of the way.”

The last principle we want to emphasize is that creating an innovative environment within a university requires the support of the ecosystem that surrounds the university. By now it should be clear we believe a university cannot by itself maximize all of the new knowledge it creates. It requires a robust collection of entrepreneurs, financers, large corporations, and nongovernmental organizations to truly perform its function as an engine of innovation. In some cases, innovation hubs have naturally grown up around great universities, and in others, they have been purposefully created. Whatever the case, high-impact innovation will not happen without a supportive adjacent eco-system. Where such systems do not exist, public and private efforts should be focused on creating them.

The process of writing our book, the run-up to its publication and countless conversations, seminars, and a universitywide symposium have provided us with many ideas for maximizing innovation and impact at research universities. We begin with funders—government, foundations, and individual donors—because in the current environment of austerity, outside funding can have an extraordinary impact on university culture. Government and foundation grants that are problem based insist on measurable goals and require multidisciplinary cooperation and can contribute significantly to creating an on-campus culture of innovation. Grants that require partnerships with external companies or other entities and the participation of practitioners as well as academics are also a good idea. Employing competitions and prizes that require the kind of cooperation we have described will provide funding agencies with incredible leverage if such cooperation is a pre-condition for receiving funding. The recently passed America COMPETES Act explicitly authorizes the use of such competitions by federal agencies, and private foundations such as the Gates Foundation have demonstrated the impact of prizes and competitions as well.

Every university will approach differently the challenge of increasing impact by creating a more innovative environment.  A day-long symposium at our own university yielded a series of provocative suggestions, including the following:

1. Encourage multidisciplinary classes, preferably problem based, as a means of encouraging multidisciplinary research.
2. Consider establishing one campuswide initiative with a multiyear duration focused on a single problem as a way of marshalling resources and creating a unified mission.
3. Involve the humanities and social sciences in problem-based teams because they provide an important perspective that is often missed if only scientists and engineers participate.
4. Create physical environments that facilitate cross-disciplinary conversations.  We are absolutely convinced that space matters.
5. Establish clinical experiences because they ignite passion. Getting students, especially graduate students, in touch with real problems will “fire them up.”
6. Help younger faculty to negotiate the university bureaucracy so that they can maximize the impact of their work and succeed in their discipline.
7. Encourage collaboration with practitioners as a way of increasing impact.  Entrepreneurs in residence is a great model.

The president’s Sputnik moment should be a cause for celebration among those of us who work in higher education. It is an invitation to academics to do more.

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When Chinese president Hu Jintao alights in Washington, D.C. next week for a summit meeting with President Obama, he will learn firsthand that China is fast becoming the touchstone against which everything wrong with the U.S. economy is measured. In the run up to last year’s midterm congressional elections, candidates across the country accused one another of “sending jobs to China” instead of creating jobs at home. Members of Congress on both sides of the aisle regularly promise to seek trade sanctions against China for undervaluing its currency. The United States recently accepted a United Steelworkers petition accusing China of unfairly subsidizing its exports and hoarding raw materials essential for clean energy technology development. And U.S. companies across a range of industries are increasingly voicing their complaints about China’s theft of their intellectual property and the country’s forced transfer of cutting-edge U.S. technology in exchange for access to the nation’s vast and fast-growing domestic market.

The overarching message coming from the United States is this: If China would just stop cheating, the U.S. economy would rebound, helping both nations and the rest of the world recover more sustainably from the Great Recession and sparking broad-based economic growth on both sides of the Pacific. Equally forcibly (though in more diplomatic language), President Barack Obama is expected to deliver that same message.

What this view assumes is that if only China would stop cheating, the U.S. economy would do what it has done best for the last hundred years or so—lead the world based on our prowess at science, technology, and innovation. After all, our universities are the best in the world, or entrepreneurialism is world-renowned, and our ability to turn new ideas into new job-creating products and services is unsurpassed. But this interpretation is not entirely accurate.

China is now investing in many of the building blocks of innovation-driven economic growth that the United States has all but abandoned over the past several decades. Pick your sector and you’ll find China spends more on a per capita basis, and sometimes in total amounts, on public investments in basic science and education, research and development, or R&D, infrastructure development, and workforce training. What’s more, China’s leaders have crafted coherent policies and programs in support of domestic manufacturing and services for export abroad and to ensure Chinese companies have the prime positions in China’s rapidly growing domestic economy.

China, in short, is actively and methodically building up the basic foundations for future economic growth while also ensuring a market for its current and future products and services at home and abroad. The country’s leaders understand completely the message driven home by The World Economic Forum, in its monumental Global Competitiveness Report 2010-2011, which underscores the importance of innovation as the basis for long-term economic growth:

Although substantial gains can be obtained by improving institutions, building infrastructure, reducing macroeconomic instability, or improving human capital, all these factors eventually seem to run into diminishing returns. The same is true for the efficiency of the labor, financial, and goods markets. In the long run, standards of living can be enhanced only by technological innovation. Innovation is particularly important for economies as they approach the frontiers of knowledge and the possibility of integrating and adapting exogenous, [or imported,] technologies tends to disappear.

China and the United States have very different legal, political, and economic systems, but both are bound by the same reality that to be competitive in the 21st century global economy, they have to innovate. But unlike most political leaders in the United States, China’s leaders recognize that innovation is not created in a vacuum. Across the globe, developed and developing countries are realizing what economists have known for years—that technological innovation, more than any other factor, fuels long-term economic competitiveness and growth, and that innovation in turn requires a robust and well-integrated foundation of education, research, and infrastructure.

The widespread recognition of these principles has sparked a global race to the top in innovation, science, and technology policy. But judging from the state of our innovation policy, the United States seems to have missed the memo. Other nations see innovation and competitiveness as two sides of the same economic coin. And not surprisingly, as John Podesta, Sarah Wartell, and Jitinder Kohli point out in CAP’s recent report, “A Focus on Competitiveness,” “…other countries organize their economic policy apparatus more explicitly around the question of how to effectively compete.”

China in particular does this very well. In this paper, we examine the challenges posed to current and future innovation-led economic growth in the United States by China’s drive to boost innovation at home by any means available. As we will demonstrate, some of these challenges cut to the core of our nation’s own global economic and scientific strengths—even though some of China’s innovation policies and programs are plagued by inherent liabilities that are built into the country’s approach to innovation.

Some Chinese R&D spending, for example, ends up fueling academic fraud, a huge problem in China, where local scientists often try to lay claim to new discoveries that are bogus. But the spending levels are still impressive, as is the fact that China has taken pains to invest across the entire innovation chain from basic science, to R&D, to market creation for new technologies, to production and deployment of these technologies. This is paying innovation dividends in hybrid electric vehicles, advanced batteries, high-speed rail, and solar power systems, to name a few.

Indeed, one of China’s other innovation “assets” is its growing direct investment in basic research and development. In 2008, China’s gross national expenditure on research and development stood at roughly $66 billion, or about 1.5 percent of China’s gross domestic product. This is the highest investment level among developing economies as a percent of their domestic economy and ranks China fourth in the world in overall R&D spending behind the United States, Japan, and Germany.

Similarly, China’s massive domestic investments in global market-scale industries such as clean technology products, transportation, mobile telecommunications and aerospace are now enabling Chinese companies in these sectors to compete for business abroad and dominate their home market. Again, there are liabilities built into this strategy: Economists can point to costly misplaced investments in some of the infrastructure needed to get these industries off the ground—misinvestments that saddle the Chinese state-owned banking system with an entire new raft of non- performing loans and resulting in way too many empty science parks and regional industrial zones that are no more than property speculation gone awry.

This same strategy—key directed investments in science and innovation to spur rapid economic growth no matter the cost—is even evident in the Chinese government’s planning processes. China’s famous communist-era “five-year plans,” which often bore little relation to reality, are now precise blueprints for strategic market-oriented, innovation-led economic growth to spur job creation at home and exports abroad. Then as now, however, local political and business leaders in China’s provinces and cities, counties and townships continually go their own way in interpreting these plans and then spending the cash, often resulting in misleading statistical data flowing back to Beijing “proving” the metrics of the blueprint are being met while in fact the funds are being spent on a variety of other activities, including local property development and speculation.8

But these liabilities do not mean that U.S. policymakers can afford to be complacent. China’s so called “import/assimilate/re-innovate” model of technology development, for example, actively drives foreign companies to share their technologies with Chinese joint venture partners in exchange for access to the cheap Chinese workforce and burgeoning domestic marketplace. This strategy poses a direct challenge to U.S. competitiveness because it enables Chinese (often state-owned) companies to gain access to cutting-edge technologies but also build upon them incrementally to create a Chinese innovation ecosystem. Never mind that economists recognize that the downside to this model of economic development is that it delivers diminishing returns without genuine domestic innovation delivering world-class breakthroughs.

In the pages that follow we will examine China’s innovation assets and liabilities as the country races to build a globally competitive innovation-led economy, and then consider how the United States should react to these challenges. We then offer our recommendations to U.S. policymakers on steps our own government can take to ensure our nation rises to meet the challenges posed by China. Briefly, though, we will argue that the U.S. government needs to give our nation’s innovation engine a tuneup by:

• Modernizing our basic infrastructure to allow businesses to more effectively collaborate and compete in domestic and international markets
• Investing more in science and math education and workforce development to ensure we have workers able to participate in the technology-driven economy of the present and future
• Crafting finance policies to make more public and private capital available to innovators and bolster our culture of entrepreneurship by rewarding risk-taking and competitiveness
• Promoting international trade policies that ensure access to foreign markets, and the free flow of goods, services, knowledge, and capital across borders
• Honing our research and development policies so that we invest not just in basic research but also the full innovation lifecycle from invention, to development, to production and commercialization

These are progressive proposals that would boost our national competitiveness and jobs growth in the short run and ensure our once-dominant position in science and technology, innovation and entrepreneurship, and job creation is not eclipsed by China in the 21st century. On the eve of Chinese president Hu Jintao’s visit to Washington, these are progressive proposals that Congress and the Obama administration dearly need to take to heart.

Kate Gordon is the Vice President for Energy Policy, Susan Lyon is a Special Assistant for Energy Policy, Vice President for Editorial, and Sean Pool is the Assistant Editor for Science Progress.

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Download the executive summary (pdf)

View this post at the Center for American Progress Website.

So let’s delineate what meaningful investment is all about. To do so, investment should be paired with another “I” word: innovation. President Barack Obama’s State of the Union speech and his administration’s expected reiteration of its innovation policy next month will surely focus on economic growth and competitiveness, as will the president’s Fiscal Year 2012 budget, which begins October 1, 2011. And the key to the success of the president’s policy objectives will be how innovation powers our economy and our global competitiveness.

The glide path back to sustainable, broad-based economic growth that delivers full employment over the next decades is fairly straightforward. No one expects a surge in our labor force to drive up productivity, as happened over the past four or five decades as women entered our labor markets in force. Women now constitute half of our labor force, our population is aging, and immigration reform remains so controversial that little progress is expected in 2011. Even historically low interest rates are unlikely to propel a flood of brand-new capital into new investments and jobs—witness the nearly $2 trillion in unspent cash being held by American corporations. And the discovery of an economy-reviving cache of new natural resources (even as we learn to use renewable ones) would be a surprise in the near-to-medium term.

That leaves innovation, the “X” factor that makes capital, labor, and natural resources more productive. Innovation, however, is not solely about “technology.” We instead should use the term “Ingenuity,” with a capital “I,” because Ingenuity is the creation of additional economic value through the creation or recombination of knowledge in any sector, in any place. Ingenuity includes technological advances, of course, but also better product design, better business models, better distribution systems—any combination of known and newly-known insights that add up to a more compelling value proposition.

In a time of tight federal budgets and polarized politics, what can our national government do to spur Ingenuity? Much is obvious. Well-functioning capital markets are important. Additional educational and workforce development opportunities, especially in science and technology, are key. And basic research and development that will not be adequately funded by the private sector needs to remain a top federal priority. In early 2011, however, there are five big steps that the Obama administration and Congress can take to boost American Ingenuity at the federal level or through carefully targeted federal investments without requiring too much new money:

• Innovation impact assessments by the federal government
• The federal government as an early innovation adopter
• Organizing the federal government to be more efficient
• Federal support for regional economic success strategies
• More federal support for international trade that drives global innovation

Let’s look at each of these steps in turn.

Innovation impact assessments by the federal government

Federal regulations are scrutinized on many grounds, including their projected costs and economic benefits. But current regulatory requirements do not include an explicit assessment of the impact of proposed action on “innovation.”[i] That should be changed.

Specifically, President Obama this coming year should do what is within his power to require that all regulations reviewed by the Office of Management and Budget expressly ask: “Does the Regulatory Impact Analysis reasonably assess the anticipatable impact on innovation, in the affected economic sector and beyond?” Congress should apply the same standard as necessary through legislation so that all agencies engage in this analysis.

Innovation impacts are not precisely predictable. Indeed, it is the uncertainly surrounding innovation that should be considered carefully by regulators. But the discipline of making this judgment will rightly focus regulatory discussions on long-term growth dynamics and not just short-term outcomes.

The OMB instruction on cost-benefit analysis, for example, calls for an assessment of technological changes but does not “discuss with any sophistication the costs and benefits of alternative regulatory mechanisms for stimulating innovation.”[ii] An Innovation Impact Assessment would require examination of whether a regulatory approach—say the use of auctions versus permits for the distribution of limited resources—constitutes the best available means stimulating innovation outcomes.

The federal government as an early adopter

Innovation comes to market when “early adopters” both demonstrate tangible demand and teach other consumers about the advantages of the products and services arising from innovation. The same principle should guide all government procurement.

By one estimate, the federal government has been purchasing about $350 billion in goods and services each year. Although strides have been made to improve the procurement of technology and to advance our national interests, the scope of procurement reform should be broader—to ensure that governmental purchases serve the national interest in spurring innovation in the American economy.

To this end, we should reject the artificial debate between short-term prices and the long-term encouragement of innovation, especially since innovation and productivity improvements are key drivers in driving prices down. That the two goals are compatible is proven every day by the private sector, with its adoption of cutting-edge information technology and biotechnology, and even at times in health care and renewable energies.

When the Pentagon purchases a new weapons system, it includes in its evaluation the ability of the seller to meet the long-term needs of our national defense. Indeed, the Internet itself is a commercial offshoot of the Pentagon’s desire for a redundant communications network. The same opportunities exist for civilian procurement, including the ability to build upon the current Small Business Innovation Research program to ensure procurement opportunities for innovative small- and medium-sized companies.

In fact, Europe has taken just this kind of attitude toward procurement, positioning government as a “lead customer.” As one European expert explains, “Innovation is often initiated by changing customer requirements. Public procurement could play a vital role in fostering innovation.”[iii] The United Kingdom, for example, has adopted an explicit policy to foster innovation-based procurement and has applied it to governmental tasks as varied as boosting hygiene and pathogen detection for its Department of Health, improving online education, and even disposing of worn-out mattresses and pillows from its prisons in a way that decreases costs and reduces landfill volumes.[iv]

The United States, with much greater buying power, should not lag behind. For instance, a barrier to the commercial adoption of renewable energy can be its initial cost. To give one example, energy derived from wind was estimated last year to cost 50 percent more than energy from coal.[v] But the cost of the first unit of any high-technology product is prohibitively expensive; think of what it would cost to build just a handful of new computers. That’s why a legitimate goal of governmental procurement is to drive down the cost of new energy sources by stimulating new innovation and allowing the creation of scale efficiencies. But the lesson is a broader one, and should be applied to all forms of governmental procurement from all sources of supply.

Organizing the federal government to be more efficient

I spent much of 1995 as a Department of Commerce employee, in opposition to the proposed abolition of the Department of Commerce. That was the right thing to do. But governmental organization doesn’t last forever, and now it’s important to squeeze every ounce of additional efficiency out of governmental operations.

One important proposal is to reconstitute the pieces of the Department of Commerce and other executive branch agencies into a new Department of Business, Trade, and Technology composed of relevant parts of “the Department of Commerce with trade and business-focused agencies and offices, including the Office of the United States Trade  Representative, the Small Business Administration, the Export-Import Bank of the United States, the Overseas Private Investment Corporation, and the U.S. Trade and Development Agency.”[vi] That should be on the table.

Another approach would be to reorganize the approximately 164 federal economic development programs, which carry a total budget in the Obama administration’s FY2011 budget request of about $173.5 billion. That includes economic development programs in the Departments of Agriculture, Commerce, and Labor. Multiple programs engaged in similar activities would deliver more bang for the buck if they were coordinated and shared a common purpose. What we need in the 21st century are “economic success strategies.”

The difference from traditional “economic development” circa the 20th century is that an “economic success strategy” cannot focus just on a building or a highway or on a research institution or a business incubator or on worker training, though each is important. Success requires that each element work in harmony with the others. That cannot be achieved either by “stovepiped” or “siloed” federal efforts by individual departments and agencies or through federal efforts that fail to be tightly aligned with local and regional conditions and strengths. Thus, the president should use his full executive power to create a “virtual” economic growth agency, and should seek congressional authorization to make that reorganization permanent.[vii]

Federal support for regional economic success strategies

We know now that industries clustered in different economic regions of our nation register higher employment as well as higher growth of wages, more businesses, and more patents.[viii] Thus, support for regional economic success strategies aligned with place-based competitive strengths is a pragmatic, bottom-up, fiscally leveraged, bipartisan approach that works on a simple economic principle—local leadership can best determine how to deploy the inherent advantages of an economic region to boost business growth and job creation. And that local leadership includes not just (and definitely not primarily) local, state, and federal policymakers but also corporate and small business leaders, community leaders and nonprofit organizations, and institutions of higher education, including community colleges.

The basic fiscal principle underlying this regional economic development strategy is leverage—by creating incentives for private parties to coordinate their pre-competitive activity and share R&D and other infrastructure resources, an initial public investment can be leveraged at a 4-to-1, 5-to-1, or even 10-to-1 ratio. And, by federal budget standards, the total amount of spending would be very low, representing less than 1 percent of the federal innovation budget, while empowering the federal government to help frame national priorities, fund competitive awards to self-designated regions, and facilitate local strategic development, especially by spurring access to private capital.

Indeed, evidence abounds that private capital is unavailable in sufficient quantity for the task of boosting broad-based regional economic development and innovation, which is why the federal government also needs to play a convening role for capital, via public-private partnerships, to boost the amount of capital available. The Obama administration has already made important strides through efforts by agencies that include the Departments of Agriculture, Energy, and Commerce, and the Small Business Administration. Now the time has come to establish ongoing support for economic strategies that demonstrably work.

More federal support for international trade to drive global innovation

If we can’t sell or reap the legitimate rewards of what America invents, then we are suffering a deadweight loss that harms the U.S. economy and the ability of U.S. companies to export. The Obama administration is taking important steps to ensure open markets to U.S. ingenuity, negotiating a free trade agreement with South Korea and cracking down on intellectual-property theft, for instance. But there are other steps that need to be given priority as international trade issues.

Today’s Internet economy stands at an “inflection point” in which new forms of economic organization are possible because of modularity and interoperability of technologies.[ix] That makes international data flows important to global trade, justifying the application of trade policy, including dispute resolution, to international implications of even domestic Internet regulation. When a foreign nation blocks its users from reaching the Internet, for example, the impact is not just domestic; that action also disrupts international data exchanges.

Similarly, when the U.S. economy creates forms of innovation desired around the world, whether in movies and music, biotech, agriculture, or any other arena, the actions of foreign governments need to be examined for their potential impact in limiting the success of U.S. knowledge-based industries. This includes the unfair protection of their domestic innovation industries, which can take the form of improper subsidies to innovation-based industries or attempts to force the relocation of U.S. businesses and/or technology.

And this isn’t just about punishing our trading partners when they game the international trading system at our expense. There is a potential upside as well. Our ambassador to the European Union, William Kennard, recently called for Europe and the United States to work together to coordinate regulatory policies and standards for new products, conduct joint research and development, and create and connect transatlantic innovation clusters,[x] an important reminder that U.S. competitiveness can also be boosted through “win-win” strategies with our international partners.

Ingenuity to improve U.S. economic growth and competitiveness

These are five, not necessarily easy, parts of a successful Ingenuity policy. If implemented as a package, the Obama administration and Congress could make government more efficient and more favorable to innovation, increase the chance of U.S. economic success through bottom-up strategies, and clear the path for international success. “Yankee ingenuity” arose as shorthand for America’s historic record of “improvisation, adaption and overcoming of dire straits when faced with a dearth of materials.”[xi] Added to the global strengths of the U.S. economy, an extra dose of Yankee ingenuity is just what we need in 2011.

Jonathan Sallet is Special Advisor to the Center for American Progress’s Science Progress project on Regional Innovation Clusters and a partner in the Washington, D.C., office of O’Melveny & Myers LLP, where he practices in the integrated legal strategies practice group. The opinions expressed in this article do not necessarily reflect the views of O’Melveny or its clients, and should not be relied upon as legal advice.

Last week the Center for American Progress and its Doing What Works project launched a new policy platform aimed at bolstering U.S. economic competitiveness by better coordinating federal efforts around trade, education, infrastructure, and innovation, among other areas. To accompany the new report, for seven days CAP will be hosting an online discussion on competitiveness, innovation, and economic issues with a diverse array of heavy-hitting industry, labor, and political leaders.

The report aptly notes “that amid short-term efforts to address the consequences of the Great Recession, too little attention was being paid to the equally important job of increasing America’s long-term competitiveness.” And it lays out a number of policy recommendations aimed at reforming federal agencies in order to bolster long-term economic planning. What the report does not explicitly state, but some of these online discussion participants broach, is the central role that innovation must play in sustaining this long-term competitiveness, and the need for public policy to recognize and internalize the benefits of innovation’s positive externalities.

Too often in these discussions the idea of economic or industrial “planning” gets painted as a defunct communist idea and is accordingly cast aside. But that is 20^th century thinking. What we are seeing all around the world in the 21^st century is that there is nothing contradictory about long-term economic planning and the bottom-up, market-based capitalism that we all know and (most of us) love. Staying competitive in the 21^st century means identifying national priorities, and using the levers of government to harness, rather than replace, private capital flows to achieve them. The benefits of innovation to society are largely external to the market, so we must have public policy to ensure that we get the most out of our markets as we can.

Although we know that innovation, broadly speaking, had been responsible for between half and three-quarters of all economic growth over the 20^th century (or more, according to the Information Technology and Innovation Foundation) , the private sector alone tends to underinvest in innovation. As Rob Atkinson, president of the Information Technology and Innovation Foundation, notes in his comment, smart governments around the world are waking up to the fact that without innovation, they cannot stay competitive in the 21^st century. They are realizing that innovation is competitiveness, and planning accordingly.

But in the United States, argues Atkinson, innovation continues to play second fiddle to neoclassical economic models that are more focused on “symbolic figures and quantities like prices, exchange rates, and the balances of payments to the neglect of real quantities, like goods and services produced and traded.” Ignoring the real economy, where innovation takes place, in favor of the financial one—where, as former Council of Economic Advisors head Michael Boskin famously said, there is no difference between a computer chip and a potato chip—is dangerous.

From the perspective of innovation economics there is a huge difference between potato chips and computer chips. Contrary to popular imagination, innovation does not happen only in labs, it happens on assembly lines and in board rooms and garages too. Innovation requires that industries on the cutting edge of technology continue to push the frontiers of what is possible. So every high-tech manufacturer that is replaced by a potato-chip maker takes with it not just the jobs and investment capital that power its operations, but also a little bit of our economy’s long-term innovation potential. This makes us less competitive in the long run.

The new CAP report does a good job of identifying the lack of public planning as one major hurdle to ensuring long-term competitiveness. But planning for planning’s sake is no good either without clearly defined goals, as Bruce Mehlman, the former assistant secretary of commerce for technology policy under President George W. Bush aptly notes on the Doing What Works competitiveness discussion board. So what are the goals?

Inputs and outputs of innovation

We know broadly speaking what the outputs of innovation are: New technologies, new firms, new industries, new jobs, and ultimately, economic growth, prosperity, and international competitiveness. Though it’s hotly debated whether and how innovation can be measured, we even have a few basic metrics of its success. Patents issued, venture-capital dollars invested, new companies and jobs created, and their market share, revenue, and/or profitability relative to various baselines can all help us to glimpse the overall effectiveness of our innovation economy.

If innovation is a function the final output of which (competitiveness) we want to maximize, perhaps identifying and prioritizing the inputs would be a good way to go about doing it. So what are the inputs?

Kevin Sharer, CEO of Agmen, Inc. in his comment on the discussion board lists five good candidates in the specific context of our biotechnology innovation system. The first is a robust fundamental science research base in our universities. As we have noted before at Science Progress, university research continues to play a major role in technological advancement, especially when university research, entrepreneurs, and sources of private financial capital can effectively collaborate to form nascent innovation networks. The World Economic Forum ranks the United States first in the world on university-industry collaboration in R&D, but scholars such as University of Southern California Vice Provost Krisztina “Z” Holly believe that we’ve only picked the low-hanging fruit, and that much more needs to be done to maximize the impact of universities in our national innovation system.

The second input is a strong intellectual property rights regime to reward innovators for their good ideas. The U.S. patent system certainly has shown its merit. As Sharer notes, “there is widespread acknowledgment that the government should be preventing and prosecuting piracy.” But legitimate questions loom about whether a first-come-first-served model for intellectual property rights are the right fit for every industry in the 21^st century, and reform in our patenting system is desperately needed.

The third input is a “vibrant and working market,” with ample demand that can be awoken to draw new technologies out of labs and on to assembly lines quickly and decisively. New technologies require a source of “demand pull” in order to bridge the commercialization gap and scale up. Without this critical factor, technologies languish in a pre-market purgatory unable to bring their potential benefits to society.

In many industries across our nation, such as the relatively heavily regulated energy industry, the vibrancy of the market is muted by entrenched incumbent industries, perverse government subsidies, and/or general regulatory chaos. We need policy to ensure market demand for new innovation is strengthened in the high-potential sectors that are leading global economic growth.

Fourth, according to Sharer, is access to angel, seed, venture, and other forms of early stage capital. He notes that:

Scientific innovation is risky and competitive, and market-based rewards drive investment. Direct government investment in the private sector has historically been unsuccessful. But government tax incentives that drive research and development, encourage capital investment by allowing more rapid expensing, and expand credit for small- and medium-sized enterprises can complement the market. Investors in America are willing to reward risk takers who invent, discover, or develop innovative products and services—from the iPhone to Google to the electrical smart grid.

Yet especially in today’s capital-constrained fiscal environment, more is needed to tap flows of private capital to fund innovation in sectors of national priority. When trillions of dollars are invested in risky, securitized, mortgage-backed bonds while only millions are invested in areas of national concern such as clean energy, policy needs to change.

Fifth, Sharer sites our strong, transparent, and science-based regulatory system as an enabler of innovation. Having a consistent product regulatory system is essential to investors, who don’t want to see their investments go to waste due to a capricious or unpredictable government regulatory system. But there are many areas, again, with clean energy paramount among them, where our regulatory system has broken down and needs to be substantially addressed.

To this list we should add a few additional potential inputs for innovation. How about a work force highly skilled in science, engineering and math to help populate the universities, government research labs, and private R&D operations that are essential members of innovation ecosystems? How about a primary, secondary, and post-secondary education system capable of training these scientists, engineers, and entrepreneurs of the future? Last week Brian K. Fitzgerald of the Business-Higher Education Forum noted on Science Progress that:

In 2007, some 230,000 bachelor’s degrees were awarded in these fields to U.S. students, or fewer than 16 percent of all degrees awarded at this level. However, this share actually decreased during the past five years. Compared to the rest of the world, the United States has a significantly lower rate of degrees awarded in these critical subjects, ranking 27^th among 29 developed countries. By contrast, China awarded nearly half of its first university degrees in these fields (47 percent), while South Korea awarded 38 percent and Germany awarded 28 percent.

Maintaining competitiveness in the 21^st century over the long run will not be a passing fad of this administration, it must be a priority of every Congress of the coming century. And, as Dan Carol points out in his comment today, climbing out of this recession will require us to take a hard look at these underlying inputs of innovation, and “go fast” to bolster them in the short run as well. But over time, allowing our innovation inputs to continue to slip will erode the foundation that sustains our economic competitiveness. Reversing this trend will be hard, but losing our innovative high technology industries, and jobs they create, to China, Germany, India, Brazil, or others will be harder.

Policymakers will need to recognize the essential and irreplaceable role that innovation plays in our economic growth, and pursue policies that internalize and invest in its benefits. Innovation and competitiveness in the 21st century are inseparable. The Quadrennial Competitiveness Assessment, Biannual Presidential Competitiveness Strategy, the Interagency Competitiveness Task Force, and the Presidential Competitiveness Advisory Panel advocated for in A Focus on Competitiveness would do well to take a systems-thinking approach to measuring and strategically bolstering the inputs of innovation, so that we can all enjoy its outputs: progress, growth, prosperity, and yes, competitiveness.

Sean Pool is Assistant Editor for Science Progress and Climate Progress.

The Republican provenance of clusters in policy

Harvard Business School Professor Michael Porter is the most widely recognized advocate for this strategy for regional competitiveness. And one of the earliest organizations formed to advocate for competitiveness—including a full embrace of clusters—is the Council on Competitiveness, a nonprofit policy group formed in 1986 by the chairman of then President Ronald Reagan’s Commission on Industrial Competitiveness, John A. Young; Porter was on the council’s board and still serves on its executive committee.  The council sponsors conferences, seminars, and other special events to help catalyze new ideas and solutions, and to circulate its findings in topics that speak to competitiveness in specific regions (e.g. Brazil) and in key sectors (e.g. energy).  The council’s Regional Initiatives reports serve to describe and prescribe cluster development process and strategies.

Michael Porter’s support for a Republican viewpoint is not limited to the council.  Porter was tapped to chair Republican Mitt Romney’s Global Competitiveness Policy Advisory Group, which also included ex-eBay CEO Meg Whitman and JP Morgan Chair William Harrison.  A Google search turns up Porter’s personal donations to Republican campaigns and organizations in Massachusetts. HBS’s Institute for Strategy and Competitiveness, ISC,—founded and led by Porter—serves as the center of Porter’s life’s work on the competitive advantage of companies, of region, and of nations.

SBA Administrator Karen Mills—an Obama appointee—began working with Porter when she chaired Maine’s Council on Competitiveness and the Economy for Maine Gov. John E. Baldacci and helped organize a boat-builders cluster in the state. Mills is widely recognized for introducing and driving Porter-centric cluster policy and programs at the federal level—from SBA to the Department of Commerce’s Economic Development Administration, EDA, to Department of Energy to USDA.  Mills co-authored a 2006 Brookings Institute report that described a roadmap for a federal role for clusters; like most cluster reports, this one cited Porter’s work as its framework.  During 2010, each of these federal agencies funded regional innovation cluster related projects—including EDA granting $1 million to ISC for its Cluster Mapping Project—catalyzed by Mills’ advocacy and leadership.

Another historical point of interest—the America COMPETES Act—America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Act of 2007—was signed by President George W. Bush and became law in August 2007. This act was designed, “to invest in innovation through research and development, and to improve the competitiveness of the United States.” COMPETES was reauthorized in May in the House by a vote of 262-150—so included more than a few Republicans. This updated version of the act included language to create a competitive regional innovation cluster grant program. While this House approved bill has yet to pass the Senate, it shares the same right-leaning legacy that spawned the Council on Competitiveness.

Clusters are good value for money

As argued by SBA’s Karen Mills and others, cluster development is private sector led and is a good “bang for the buck”—activating, growing, and sustaining clusters requires convening and connecting regional sector market actors for education, network-formation, and commerce.  Existing technology, trade, economic, and community development organizations are well suited to lead and tend to find ready support for these activities through private-sector sponsorship and member fees.  The FY 2010 slew of cluster awards is meant to be just the first step in a multiyear push for clusters at the federal level. In the contentious political environment that seems to suggest stalemate across a range of fiscal and social issues however, this initiative could get swallowed up with a host of other Democratically developed plans to stimulate the economy to create jobs.

An opportunity for agreement

Given that cluster policy has its roots in Republican thought, has a high return on investment, and is inexpensive and thus deficit-friendly, there seems to be an opportunity for this issue to gain bipartisan support even in a contentious political environment. Republicans in Congress ought to be happy (and justified) to claim it as their own, while Democrats too can tout their success in advancing progressive, job-creating, innovation-accelerating economic policies.

Both federal and state governments have precious little capital lying around to fund much of anything new.  But considering its historical Republican support and the cross-agency buy-in from a Democratic administration working to find common ground, this seems one program that ought to be win-win for both parties and for the country.

Michael Gurau is president of Clear Innovation Partners, a firm formed to catalyze, grow, and sustain regional innovation clusters.  You can reach Michael at mgurau@clearinnovationpartners.com

But many Americans may also be unaware that failed harvests in Russia have again sent world food prices soaring. Or that the fertilizer used to grow the food on their table is helping to wipe out marine ecosystems in our streams and estuaries. Or that the carbon-rich topsoil that is vital for many crops is being depleted at an astonishing rate. They even may not know that climate change threatens to intensify regional drought and flooding, risking global food shortages, or that the resulting price fluctuations will exacerbate chronic hunger, potentially leading to civil unrest and instability.

Indeed, while agricultural innovations have made it possible for 6 billion humans to live comfortably on the same land that once supported only 1.5 billion, many challenges remain to ensuring our global food system continues to support our society in a sustainable way.

Yet despite these pressing challenges, Americans have been disinvesting in agricultural research for the last three decades. Our agricultural innovation engine has become too narrowly focused on piecemeal adjustments in plant and animal genetics, to the exclusion of potentially valuable research into alternative, low-input methods such as organic, no-till, and poly-crop agriculture. This leaves us in a dangerous position with too few options for the future.

The dawn of the USDA land-grant innovation model

Agricultural science is one of the great accomplishments of American intellectual culture. Although the acknowledged progenitor of 20^th century scientific agriculture is the German chemist Justus Leibig (1803-1873), there is little disputing the claim that agricultural science realized its greatest potential in the combination of the United States Department of Agriculture Agricultural Research Service and the land-grant university system in each of the 50 states. This system had its origins in President Abraham Lincoln’s creation of the USDA in 1862, and its philosophy was succinctly articulated in a speech that candidate Lincoln gave in 1859. Lincoln advocated science and technology development that would aid farmers by increasing the yield of agricultural crops, a vision popularized long before by Jonathan Swift with the adage “Make two blades of grass grow where one grew before.”

In the century and a half between its inception and the era of biotechnology, the USDA land-grant system produced hundreds of plant varieties specifically tailored to local growing conditions around the United States and pioneered the use of soil testing and other methods for helping farmers optimize their farming methods.

The USDA and land-grant universities could be thought of as an early case of federal funding for place-based innovation—an idea that has seen a resurgence in recent years and about which Science Progress has written extensively.  The historian Charles E. Rosenberg argues that this system for developing and demonstrating the economic viability of new crops and farming techniques won the American public over to the possibilities of science-led progress in the late 19^th and early 20^th centuries. The USDA land-grant model expended great effort in making minor adjustments to crop methods that would make them more useful to farmers in specific sub-regions of each state, conducting fairs and demonstrations so that farmers themselves could minimize risky experiments with new methods, and working within real farmers’ fields to diagnose problems and identify workable solutions.

Shifting priorities and the rise of the NIH model

Despite its utility, however, this was not especially sexy science. In the years after World War II, it was the National Institutes of Health model for sponsoring science that captured the imagination of Washington, D.C. In contrast to the USDA’s approach that spread support for practical process innovation to virtually every county in the nation, the NIH model was built on nationwide competitive grants that would concentrate on breakthrough science, relying on drug companies, clinics, and physicians (e.g. the private sector) to commercialize these discoveries and move them to useful application. The NIH model enrolled scientists from the most prestigious private universities, none of which had significant programs in agriculture.

This new basic science-oriented model of innovation funding quickly gained in popularity and soon began to be applied to agricultural research. In 1975, a National Research Council report entitled “Agricultural Research Production Efficiency” lambasted the USDA land-grant research system for wasting resources on multiple trials and demonstration efforts. The study, colloquially known as the Pound report, urged more effort on lab-oriented basic science, and less attention to on-farm studies and problem-solving research.

In comparison to NIH-style science, the report argued that agricultural research was spending entirely too much public money on incremental technical improvements that were of little scientific interest.  Demonstration projects conducted at regional experiment stations allowed researchers, county extension agents, and local farmers to work collaboratively in solving highly localized production problems, but they did not result in the important peer-reviewed journal articles that were the hallmark of breakthrough science.

Meanwhile, the beginnings of the molecular biology revolution in agricultural science were shifting the point at which efficiency gains could be made from the farm to the lab. With biotechnology research, university scientists could concentrate on basic plant science, including genomics and methods for plant transformation, while the development of new crops and their dissemination to farmers fell to private-sector biotechnology companies. That is to say, biotechnology made it possible for the USDA to shift its model.

It would be naïve to suggest that trends were not moving in that direction well before genetic engineering. The great fortunes in agricultural machinery were made in the late 19^th century. And as historian Deborah Fitzgerald has shown, seed companies had their great period of growth decades before the Pound report. The influence of chemical companies on pesticide research programs in agricultural universities was the subject of a blistering attack by Robert van den Bosch in 1977. Nonetheless, genetic engineering and genomics provided a way for the agricultural sciences to emulate more prestigious models of biological science being conducted at institutions such as the NIH that had never been deeply involved in agriculture.

Farmers, seeing these shifting priorities as a threat, did not countenance the abandonment of a scientific infrastructure deeply committed to solving their problems peacefully. They didn’t want to see research funding that had been focused on solving their local problems instead go to research that seemed only to benefit biotechnology firms. State-by-state, farm groups have lobbied legislators for continuation of favored programs.

For the most part, however, these battles were fought in piecemeal fashion, as labs and programs dedicated to highly specialized activities at USDA and the universities have been closed one by one over the last 35 years. Farmers complained to deans and directors of agricultural programs, but state governors and U.S. Congressmen have become less and less responsive to these complaints as the relative size of the farm population declined.

It is, ironically, the success of the agricultural research establishment in making two blades of grass grow where one grew before that contributed to this decline, but that is a story for another time and place. The result has been that it has become more and more important for researchers in institutions formerly dedicated to agriculture to source external funds through grants and contracts. As USDA funding itself has declined as a proportion of total U.S. research funding, a primary source for agricultural research grants has become NIH itself, which means contracts to agricultural scientists have shifted increasingly to chemicals and biotechnology.

Reducing our options

There was, however, a small cadre of farmers who were becoming enamored with farming technologies that had never received a great deal of support from the USDA land grant system, even in its heyday. These techniques stressed composting and complex mixes of crops and animal production. They tended to eschew chemical amendments, and those who were developing these approaches were fond of describing them in language suggestive of vitalism: seeing the soil, the earth, or the farm itself as an organism, as a living thing. Joel Salatin’s Polyface Farms in Swoope Virginia is a prime example.

With very little support from established agricultural research in the developed world, these low-input methods (many of which have become the core of organic agriculture) have been tested and spread by farmers themselves. It is really only in the last decade that a few scientists in the USDA land-grant system have begun to notice the level of sophistication in present-day low-input farming, and have begun to reinvent scientific approaches to understand, improve, and spread them.  But this research into alternative farming methods has had an uphill fight.

As it happens, the emergence of genetically engineered crops in the late 1990s coincided with development of a marketing standard for a loose group of these production methods, the USDA Certified Organic label. The fear that large biotech companies would undermine the organic movement caused organic leaders to ban all use of genetic engineering in organic farming. Organic production and GE crops were thus on a philosophical and practical collision course. Agricultural research eager to prove itself more “scientific” had little interest in the metaphors and trial-and-error methods of the organic world, while organic growers, fiercely independent to start with, had every reason to view the trend toward NIH-style relationships with industry as a conspiracy against them.

There is debate about these alternative approaches here in the United States, but there is really no debating the fact that poor farmers around the world could imitate many of Salatin’s farming practices, given some adaptive research that tailors them to local soils and climate. In contrast, the more industrial approach requires two things that poor farmers lack. One is the infrastructure of local seed, fertilizer, and chemical companies, along with an effective regulatory system to monitor the impact of high-tech farming. The other is the money to buy these inputs from the private sector, even when they are available.

Indeed, low-input farming methods emphasize management of soils, crop rotations, tillage, and water to reduce the need for purchased inputs, even while increasing yields. A convincing account of why the USDA land-grant system ignored “alternative agriculture,” as some called it, awaits the attention of some future historian, but a few points might be noted.

For one thing, the on-farm style of research that would have been needed to support organic production requires more time in the field (hence more cost). Unlike genetic engineering, research into organic methods is tied to real-time cycles of farming: A scientist must design experiments and data collection methods that coincide with the annual cycle of farming. And like farming, such research is subject to variations in the weather and economic conditions that limit the opportunity for controlled experiments. It is thus arguably less amenable to the metrics used to evaluate scientific productivity (peer-reviewed publications, patents, and grants) in the NIH model.

For another, as the work of Fitzgerald and van den Bosch showed, USDA land-grant researchers were too cozy with big-money industry players, and probably did not lobby very hard for funding programs that would support alternative strategies. Finally, the organic farming community’s attraction to vitalistic metaphors and unsubstantiated health-claims alienated many scientists whose careers depended upon pursuing a research program that could pass the laugh test.  On each of these three points, research focused on genomics and genetic engineering was much more promising to a budding scientist than the iffy strategy of partnering with the organic growers.

In conclusion, there are two questions that we should be asking in tandem as we sit down for our Thanksgiving turkey (or tofu, as the case may be). First, has the decline in funding and the shift toward a breakthrough science model left us adequately prepared to solve the problems with our national and global food system? And second, would simply bolstering, as opposed to also broadening, our current system of agricultural research be an adequate response?

Paul B. Thompson is the W.K. Kellogg Chair in Agricultural, Food and Community Ethics at Michigan State University.

Further reading:

Deborah Fitzgerald, The Business of Breeding: Hybrid Corn in Illinois, 1890-1940 (Ithaca, NY: Cornell University Press, 1990).

Charles E. Rosenberg, No Other Gods: Science and American Social Thought (Baltimore, MD: Johns Hopkins University Press, 1976, rev. ed, 1997).

Paul B. Thompson, The Agrarian Vision: Sustainability and Environmental Ethics (Lexington, KY: The University Press of Kentucky, 2010).

Robert van den Bosch, The Pesticide Conspiracy (Garden City, NY: Doubleday, 1978).

In its new report, “Managing University Intellectual Property in the Public Interest,” NRC concludes that Bayh-Dole indeed works as advertised, helping to translate research advances for the public interest. It also concludes that significant room for improvement remains, and through its 128-page report the council proposes useful and concrete suggestions for universities to more effectively apply their research for the public good.

Universities—and the intellectual property generated through their research—have played a huge role in innovation in this country, sparking game-changing ideas as diverse and valuable as the Internet, recombinant DNA technology (the basis for the biotechnology industry), Kentucky bluegrass, plexiglass, liquid crystal displays, magnetic resonance imaging, open source software, insulin, rocket fuel, the pacemaker, and the seatbelt, to name a few.

The NRC report is a fantastic first step because we can benefit from the best practices it identifies, and universities are eager to continually further their ability to address societal needs. However, now it’s time to look beyond universities.

Don’t get me wrong: universities are absolutely critical—I work at one—but they are only part of the equation. In the final analysis, it is the complex interplay between academia, government, the private sector, and the not-for-profit world that will make or break our ability to turn the next generation of ideas into real economic growth. Turning IP into jobs is not something that universities can do alone; we need to look at how all players can improve and contribute.

U.S. taxpayers, for example, spend more than $50 billion annually on university research, and while we certainly have benefited from this work, we contribute virtually nothing to the processes and ecosystems at universities to optimally translate this research into the marketplace. Technology transfer is tough sledding for universities, and most institutions lose money in the process.

Although big profitable “hits” are well publicized, they are rare, so universities must view IP transfer and licensing in the full context of their own mission and goals. Some schools, like the University of Southern California, have the strategic commitment to focus resources on this process in order to serve their faculty and students, as well as the broader society. But not all schools have the luxury to do so; even at USC we could be more effective with more grants and mentoring for faculty and student teams.

How can we accelerate innovation from campus to the economy? To start with, the federal government should fund an initiative to develop and nurture innovation ecosystems around universities. These programs would provide proof-of-concept grants, engage the business community in on-campus projects, and mentor faculty and student teams at a local level. Based on proven models and described in a proposal I wrote called IMPACT, featured in Science Progress last June, this approach would provide approximately $20 million in much-needed support for the innovation process. In fact, at this point IMPACT should be even bolder—along the lines of $75 million, spread among 40 or 50 university-affiliated programs receiving up to $2 million per year.

These innovation ecosystems do not have to be limited to supporting university projects, either. Although they should be tightly coupled to universities at their core, they could be expanded to engage and support researchers at nearby smaller institutions or entrepreneurs that have Small Business Innovative Research, or SBIR, grants in the local area, to maximize the impact of the federal funding invested in them as well. In essence, the IMPACT proposal is about identifying and scaling best practices for creating the ideal environments for innovation to happen, and replicating it throughout the country.

Other changes in the federal government would help, too, such as augmenting all research grants to provide vital funding for patenting and licensing activities on the most promising inventions. Currently indirect costs do not cover this activity, but a small increase of 1 percent would be transformative for universities’ ability to engage with critical commercialization pursuits. Further, any new funding mechanism for commercialization must engage technology transfer offices rather than marginalize them; recently there have been moves to spend money and build around them, which is wasteful and counterproductive.

And the federal government can make some changes that don’t cost a dime. For example, right now the National Institutes of Health is reviewing its extramural conflict-of-interest policies, which could have a large negative impact on the ability of researchers to engage in commercialization activities depending on how they are written. On one hand, the federal government is placing increased pressure on universities to commercialize their inventions; yet on the other it is proposing conflict-of-interest policies that would disallow a university to advance promising research in their labs and clinics if the intellectual property might become commercially successful. Why? Because it might lead to a revenue stream down the line. Just as NIH works to ensure that institutions manage potential conflicts of interest, it should also work to ensure that its policies don’t get in the way of new venture and industry creation.

Other broader policy changes would create a much better environment for new venture creation and growth. Just to name two: we need to overhaul Sarbanes-Oxley, the 2002 law that requires a variety of reporting and compliance standards for public companies, so the law doesn’t overburden small companies. We also need immigration reform to enable entrepreneurs and scholars to stay in this country. Foreign nationals make up two thirds of our Ph.D. students and have founded 50 percent of Silicon Valley startups in the past decades, but they now have other options and we make it very difficult for them to stay after they graduate.

We should consider players beyond the federal government, too. Local governments and economic development initiatives need to value the role that universities can and do play. Foundations and nonprofits can contribute greatly as well. The Coulter Foundation has contributed $50 million towards university-based proof-of-concept programs, leading to 60 biomedical spinouts in the last four years. Also, the Kauffman Foundation piloted an Entrepreneur Postdoctoral Fellows Program last year, which enables researchers to learn how to translate their research into marketable technologies. These are great role models for powering the innovation ecosystem in this country.

And finally, industry should be brought in as champions and supporters of this process, to find common ground with the goals of academia and the public. Just as the Obama administration recently brought together over a hundred corporations to tangibly support so called STEM (science, technology, engineering and math) education through its Educate to Innovate initiative, we should do the same for innovation and entrepreneurship. Perhaps the Department of Commerce’s new National Advisory Council for Innovation and Entrepreneurship will take on this challenge.

The late U.S. Senator and ambassador to India, Pat Moynihan, was once asked by his host country how they might build a great world city, and he answered, “Create a great university and wait 200 years.” He might have been partially joking, but there is truth to his answer in that universities serve as the cultural and economic engines of a region.

We certainly can’t wait that long—but fortunately we don’t have to. With the involvement of all parties, we can enhance and expand the impact of our country’s already extraordinary system of higher education.

Krisztina “Z” Holly, an engineer and entrepreneur, is the vice provost for innovation at the University of Southern California and executive director for the USC Stevens Institute for Innovation.

On October 6, Spanish wind giant Gamesa Corp Technologica SA, a leading global designer and manufacturer of wind turbines, and Northrop Grumman Shipbuilding, America’s largest shipbuilder, signed a research and development agreement to jointly develop two prototypes of what will be the world’s largest offshore wind turbine, known as G11X -5.0 MW. The prototypes will be built piecemeal and then deployed and tested for kinks in U.S. waters, likely off the Virginia Coast.

At five megawatts each, just one of these turbines running at full speed could power nearly 4,000 homes. The turbine also builds off of Gamesa’s recent incremental innovations that have made its previous designs operate more efficiently and cost-effectively. These include:

• Innoblade: a blade that has been divided into sections allowing it to be easily transported. It also includes new aerodynamic features to minimize noise.
• Multismart: a turbine control system modulating the pitch of each blade, reducing vibration and lessening load.
• ConcreTower: a tower made of steel and concrete with the aim of reducing costs and facilitating transportation.
• Flexifit: a crane coupled to the nacelle (the main housing for a wind turbine) that can hoist or lower components such as the drive train or generator.
• GridMate: a permanent magnet synchronous generator using a full converter, “to guarantee the compliance with grid connection regulations.”

Once a final design for the turbine and marine stabilization platform are finalized, Gamesa will build a manufacturing facility to mass-produce the equipment, creating hundreds of jobs, according a spokesperson. Gamesa was the first foreign turbine manufacturer to come to the United States and since then has established two turbine manufacturing facilities in Pennsylvania that today sustain 800 permanent manufacturing jobs. Despite being a foreign-owned subsidiary, Gamesa’s U.S. operation has one of the highest domestic content rates (more than 50 percent) of any turbine maker in the country.

What’s more, on October 7, Interior Secretary Salazar finally approved the lease for the Cape Wind wind farm, bringing to a close the nine-year regulatory and political stalemate that had ensnared it. Cape Wind will deploy 130 turbines designed and built by Siemens Energy, and an agreement between Cape Wind Associates, LLC, Mass Tank Sales Corporation and EWW Group of Germany will result in the construction of first manufacturing facility for offshore wind foundations and other metalwork in the U.S., creating hundreds of jobs.  Cape Wind is the first of a handful of offshore wind projects currently winding their way through various local, state, and federal regulatory hurdles in search of approval. According to a third party analysis, the Cape Wind project will create between 600 and 1,000 construction and manufacturing jobs in the region while boosting labor income, state GDP, and increasing tax revenue by millions of dollars.

On October 12, Trans-Elect, a major transmission line developer, announced its intention to develop a subsea electrical transmission backbone that could one day connect and support the thousands of megawatts of offshore wind capacity being planned for development off the East Coast. This American Wind Connection would span 350 miles from northern New Jersey to the North Carolina/Virginia border and could support enough wind farms to power 1.9 million homes upon its completion in 2016. What is unique about this particular proposal is that its backers—Google; Marubeni Corp., a Japanese trading firm; and Good Energies LLC—have no plans to ask for a single federal dollar to finance the project. This indicates that offshore wind energy is approaching profitability and commercial readiness today.

At Science Progress we have written extensively about the formation of bottom-up innovation “clusters” or “ecosystems” around particular technologies in certain regions of the country. These networks are often anchored around a particular geographic location where shared infrastructure, favorable policy conditions, and a large pool of human talent can be leveraged by collaborating public and private entities. All of these recent announcements show the clear outlines of what could be the kernel of an offshore wind technology innovation cluster anchored in the Northeast and extending across the country.

The Northeast and Mid-Atlantic are particularly well-suited to serve as a cradle for a new offshore wind innovation ecosystem thanks to of a host of region-specific assets. These include:

• The availability of a vast amount of potential offshore wind resources (over 60,000 megawatts).
• A shallow coastal shelf that extends miles out to sea. These shallow waters make it cheaper and easier to install large turbines further out to sea where they can harness stronger and more consistent ocean winds while remaining virtually out of sight.
• Close proximity to large population centers where the power can be used, day or night.

Innovation networks form when different types of firms in an industry collaborate, create shared objectives, and exchange money, knowledge, and risk in the pursuit of those objectives. This can happen through a joint agreement for technical collaboration and development between companies with R&D operations, such as that of Gamesa and Northrop Grumman; through an economic exchange between buyer and seller, such as Siemen’s sale of 130 of its turbines to Cape Wind; or through advancing an investment in infrastructure, such as Google’s intention to take a stake in the development of the American Wind Connection.

All of these interactions exemplify the kind of collaboration among technology researchers, producers, users, and financiers that is so essential to the formation of a functional innovation ecosystem. New project finance expertise will be developed as Google, Good Energies, and Marubeni Corp. work with Trans-Elect to piece together the first-of-its-kind multijurisdictional offshore transmission system. The infrastructure created by this collaboration will make it easier for project developers to accelerate construction of planned and future offshore wind farms in the Northeast, which in turn will drive demand for turbines and equipment designed and produced by Siemens, Gamesa, Northrop Grumman, General Electric, and others.

All of these activities will help to increase scale and decrease cost while creating jobs in the Northeast and in turbine component manufacturing plants around the country. According to a recent report published by Oceana, the offshore wind industry in the United States has the potential to create and sustain as many as 212,000 permanent American jobs annually by 2030. This is more than three times as many jobs as the American Petroleum Institute predicts could be created by aggressive expansion of offshore oil and gas drilling. This finding is consistent with an analysis released by CAP and the Political Economy Research Institute last year that showed a similar figure.

The offshore wind innovation milestones reached this week stand as a testament to the innovative power of America’s entrepreneurs and businesses but much more could be accomplished if the government were to take an active partnership role in this nascent innovation network. Innovation ecosystems thrive when private sector producers, users, financers, and researchers can collaborate closely with public sector regulators, program administrators, and policymakers to address both market and regulatory barriers to technology development.

While the preliminary accomplishments of the American Wind Connection, Cape Wind, and the Gamesa-Northrop partnership demonstrate the potential of America’s private sector to innovate, so much more would be possible if the federal government could articulate a remotely coherent offshore wind energy strategy. The federal government needs to address regulatory hurdles like ones that ensnared Cape Wind for decades.

Some steps have been taken, such as the formation of the Atlantic Offshore Wind Energy Consortium among 10 Eastern states and the U.S. Department of the Interior, and the recent rulemaking by the Federal Energy Regulatory Commission, which will make it easier to site new clean energy transmission lines like the American Wind Connection. But much more is needed and our economic competitors are beating us to the punch.

Earlier this year China beat the United States to join the offshore wind club alongside Denmark, the United Kingdom, Ireland, Germany, the Netherlands, and Sweden. This puts China’s command-and-control economy fully two years ahead of the United States in offshore wind, since the first U.S. wind farm, Cape Wind, will not be complete until 2012 at the earliest. (see chart)

(Data from the National Renewable Energy Laboratory, p. 42.)

As technologies like offshore wind advance along the innovation lifecycle toward commercialization and maturity, mobilizing large amount of private capital becomes a paramount objective. But private capital won’t flow where there is no return, so besides collaborating to clear away regulatory hurdles, it must also sustain policies to keep demand for clean energy technologies strong.

Until now, the states have carried the burden of implementing demand-driving renewable energy standards in a piecemeal fashion, and these policies have been instrumental in helping the wind industry increase scale and reduce costs as much as it has. But in our current environment of political uncertainty and state budget shortfalls, this patchwork of policies is in jeopardy. The job then falls to the federal government to provide the regulatory clarity and long-term policy certainty needed to keep big investors at the table financing innovation.

There is a lot of work to do but the events of the past week have shown that the building blocks are there to develop a job-creating innovation ecosystem for offshore wind energy in the American East. With a little federal leadership, America’s private sector is ready to bring its capital and expertise to the table to build the factories, wind farms, and research centers that will drive energy innovation into the future.

Sean Pool is Assistant Editor at Science Progress.

In the midst of a difficult economic recovery, it is only natural that we are here today to discuss the best means to restore sustained economic growth and broadly shared prosperity.

And we are concentrating on an important strategy. We all know now that regional economies are fundamental—a key ingredient in national economic success.

We know that industries in a cluster register higher employment as well as higher growth of wages, more businesses, and more patents.[1]

Indeed, it is important to remember that clusters help create new sectors, rather than just strengthening old ones.[2] Recently, for example, I talked with a senior executive from a solar-panel company located in Denver. Why Denver? Because his CEO and important technological insights had been transferred from the aeronautics sector located in the same place.

So it’s no surprise that recent research indicates that productivity in regions with successful clusters is 12 percent greater than in other regions.[3]

We know all this through a combination of excellent academic work and careful analysis of case studies. Indeed, we are in a position to implement effective cluster strategies now in large part because of the substantial research efforts that have been conducted both in the United States and Europe.

In the United States, the work of Harvard University’s Michael Porter, of course, pioneered the way. And that work has been supported, and advanced, by scholars at The Brookings Institute, the Council of Competitiveness, the Center for American Progress, and Silicon Flatirons, the last two of which I work with now.[4]

In Europe, the work of the EU Clusters Observatory and the Directorates of Enterprise and Industry and Research, Innovation and Science have been—and remain—invaluable.[5] This work has significantly furthered both our theoretical and practical understanding of economic clusters, and will provide, I believe, a continuing benefit to European economic growth.

On this foundation of facts, we can build policy. You all may recall what Commissioner Maire Geoghan-Quinn said earlier this year: “It is the duty of politicians to be optimistic.”[6]

I think we should all strive to be politicians in that sense of the term today. We should all apply that spirit of optimism to the search for better solutions to our current economic challenges.

And in that spirit of optimism, I would like to offer a perspective from, and of, the United States.

Before we go forward, however, let’s talk about what we in the United States call these places. I like the phrase that the Obama administration is using—“regional innovation clusters.” I like it because it explains, piece by piece, the essential elements of smart clusters policy:

• Clusters are geographic places where the formula of economic growth is this: 1+1=3. Why? Because positive externalities and complementary forces attract businesses and help businesses located in the cluster to grow. That’s the kind of economic math we need.

• Innovation is the key driving force of economic growth, especially in developed economies. In encouraging innovation, we need to always remember that innovation is more than technology, and that it is not confined only to certain sectors, like computing and biotechnology. Perhaps it would be clearer if we called it “ingenuity”—the creation of additional economic value through the creation or recombination of knowledge in any sector, in any place.

• Regions explain the geography of economic activity—and thus where leadership needs to be located. In the United States, for example, most clusters cross state lines, not to mention municipal and other local borders. So the leadership can’t be defined by traditional political categories. Moreover, clusters can exist anywhere (urban, suburban, or rural) where competitive advantage exists. That means it is within these economic, not political, borders where economic strategies need to be created in the first instance.

I believe that the United States has evolved a distinct approach to the building of clusters—one that works from the ground up but enjoys strategic support of the federal government. The United States has long been a place where clusters have been studied and where they have prospered. Case in point: It’s hard to have a conversation about clusters that doesn’t mention Silicon Valley. But now, largely because of recent efforts by the Obama administration, the pieces of the American approach to clusters have truly come into place.

As you may know, the Obama administration is the first U.S. administration to expressly embrace the strategy of supporting what it calls “regional innovation clusters.”  Over the past two years, programs to support clusters have been launched at the Departments of Agriculture, Commerce and Energy, at the Small Business Administration, and in league with the National Science Foundation and the National Institutes of Health. Indeed, thus far in 2010, these departments and agencies have made 44 cluster-related grants, totaling about $150 million, to support efforts that range from the development of a regional food network in rural California to the commercialization of the next generation of medical device technology in the southeast United States.

The administration also recently formed an interagency task force to better coordinate the disparate federal efforts that are targeted to regional innovation clusters. And the administration has called on Congress to provide additional financial support for regional innovation clusters.

A clusters policy that is “Made in America” may not be suitable for any other part of the globe. But, in the spirit of transatlantic dialogue, I would like to talk this morning about this new American clusters policy and its capacity to stimulate economic growth. And I also would like to give a perspective on the next challenges that clusters policy will face, certainly in the United States and perhaps elsewhere as well.

We should be frank that clusters policy has not yet been embraced in the United States as widely as it should be. I first encountered the idea of clusters in the early 1990s when I worked in the U.S. Department of Commerce and Michael Porter came by to talk about his then-new idea. Although the practice of clusters seemed in the United States to be a naturally occurring phenomenon, and although state and local governments increasingly grasped the principles of building clusters, by the beginning of 2009, two big holes remained. First, the U.S. government had not adopted any explicit measures to support clusters. Second, mainstream economists still had not validated the critical tenets of what businesses and communities had already experienced.

We should also be frank that our knowledge of clusters is, in many respects, lacking. We do not know all that we could know or all that we would want to know about the economic impact of clusters. Nor do we know enough about the impact of governmental policies on cluster success. As a practical matter, it is difficult to run a “control” test of clusters policy—in these economic times we cannot withhold potential economic gain from a community for the sake of the scientific method. And, of course, the differences between clusters would make such tests difficult to assess.

And yet, despite these deficiencies, progress on clusters policy has been made, in the United States, in Europe, and around the world.

We now have an Obama administration policy in place, which is being implemented and expanded. And scholarship on clusters is moving forward, although not as quickly as one might wish. So, in the United States, the work of building support for the idea of clusters must proceed in parallel with the work of supporting clusters themselves.

In my view, the best way to build such support in the United States is to focus on three principles that I believe are critical to the next generation of clusters policy.

First, I believe that support for regional innovation clusters is more important in times of fiscal constraint, not less important. The politics of budget cutting is hard, but the consequences of getting those decisions wrong would be worse. This is a point that must become more broadly understood.

Second, I believe we must simultaneously lead and learn. We must build better policy now, because we cannot afford to wait, but we must simultaneously take steps to improve our understanding of clusters so that we can learn how to build better policy tomorrow. This is absolutely critical, particularly in a time when cluster policy is one among multiple economic-growth tools that must be tested. In a moment, I will briefly review the new initiatives implemented by the Obama administration, which I believe can teach us how to do both—to lead and to learn.

Third, we must reinforce the connection of clusters to a global economy. We are not playing the World Cup, with national challengers knocking each other off until a single champion is crowned. One way to think about clusters is as nodes connected to international networks. To achieve economic recovery, we will need both strong nodes and robust networks—of people, of commerce, and of places.

Let’s now address these three principles in more detail.

More innovation, little money

The truth is stark. The world’s real gross domestic product (after adjusting for inflation) dropped from a growth rate of 5.4 percent in 2006 to negative 0.6 percent in 2009.  We are recovering, however, with real GDP and private sector employment both growing in the United States. But growth remains too low and unemployment remains too high.

At the same time, there is a strong desire in Europe and the United States for an end to deficit spending. It seems safe to say that we are in for a prolonged period of tight budgets in order to ensure that we do not live above our means.

Most proposals to end deficit spending have focused on slashing government expenditures and cutting back on government programs. But, of course, there is another way to ensure that we do not live above our means: We can raise our means. We can grow our economies and create jobs.

Before we discuss the strategy of clusters specifically, it’s important to outline the key principles of innovation policy that should govern government in a world of tight budgets and tough economic conditions. That’s the context that will, I believe, help us to understand the critical role that a focus on regional economic policy can play (the glue, as it were, that holds together the other parts of a pro-innovation agenda).

I think it is axiomatic that fiscal responsibility, while necessary, is itself not sufficient. We cannot only cut our way to prosperity. We must take additional action to restore growth if we are to be able to return to full employment, to shoulder our social obligations, and to pass along real economic opportunity to our children and to theirs.

Recently, attention has turned to this issue. For example, the Information Technology & Innovation Foundation has just published an important paper entitled, “Innovation Policy on a Budget: Driving Innovation in a Time of Fiscal Constraint.”[7] In it, Rob Atkinson and his co-authors confront the challenge of designing innovation efforts to fit current budgetary and macroeconomic needs, and set out ten categories of action that the federal government can take which would increase support for innovation at little to no additional cost to the federal budget.

In this vein, let me offer a few, broad principles that I believe should guide innovation policy generally, and support for clusters, specifically.

First, we have to get the macroeconomics right. Fiscal and monetary policy must be pro-growth. There is, in the United States, a debate about whether we need to do more right now.

I’m of the view that we should ensure that demand does not collapse and that, over the next two fiscal years, the right policy is to ensure that we prevent the economy from stalling. It’s important to understand the divided nature of governmental spending in the United States to see why this is so important. The federal government’s stimulus package of 2009 totaled $787 billion, of which about $530 billion has now been spent.[8] But, at the same time, state spending has been dramatically curtailed.  And the cumulative effect of state cutbacks is significant. According to one analysis, state budget shortfalls from FY 2009 through FY 2012 will exceed a cumulative total of $600 billion dollars.[9]

And that is not all. Private expenditure is also at extremely low levels. It has been widely reported that nonfinancial U.S. companies have been holding as much as $1.845 trillion in cash and short-term assets that is available for capital investment.[10] As an aside, we need to create the conditions for investment, which goes hand in hand with innovation. But, as the OECD has explained, we also need to keep in mind the importance of public investment during times of crisis so as not to aggravate pro-cyclical behavior of firms who are themselves reducing investment.[11]

So, in the United States, we’ve been hitting the brake and the accelerator at the same time. With more state cutbacks on the way, it’s important that the federal government not allow the economy to stall. That’s why it’s so important that the Congress has just passed legislation providing additional incentives to small businesses, and why it is critical that other Obama administration economic initiatives be implemented, such as permanently extending the R & D tax credit, improving America’s infrastructure, and expensing capital investments made through the end of next year.

But the time will come, and soon, when budget-tightening will be paramount. One way to reconcile the two goals, by the way, is to employ an effective mechanism to assure markets that long-term structural deficit reduction will be governing federal policy in fiscal 2013 and beyond.

Second, we must provide the public goods—education, basic R&D, workforce development—that the markets will not provide in sufficient quantity on their own.

Third, the operations of government must be attuned to innovation as a core goal. Innovation-oriented spending is not only efficient but also can jumpstart markets and innovation that might otherwise not exist. Governmental procurement processes therefore should have innovation as a built-in objective.

Fourth, all forms of governmental regulation and oversight should have innovation as a very explicit goal. In the 1980s, the U.S. government adopted a requirement that all new federal regulations be subject to a cost-benefit analysis before promulgation. Today, we should mandate analysis of a proposed regulation’s impact on innovation as a part of every regulatory analysis. This includes tax codes, international trade, and all forms of domestic regulation.

Fifth, micro-economic strategies must be used that will promote broad economic growth in an efficient and inclusive way. They must support but not supplant business strategies. They must focus on positive-sum, not zero-sum, outcomes. And they must reform or even eliminate past programs that are not effective.

I should say that there isn’t a big constituency in the United States for things labeled “microeconomic.” If you had a choice between being a macroeconomist or a microeconomist, which would you choose?

But the very best tools for economic growth must be used, and cluster strategy is one of the very best tools.

How can this be done in a time of tough budgets? We really must be ruthless about asking whether dollars or euros spent in the past should be spent in the future.

Cutting budgets is tough. It is an inexorable law of politics that every program that has been funded for a while will tend to acquire both a champion and a constituency. The champion’s career is entangled with the program. The constituency relies on it. Both will tend to find reasons for its continuation.

Regional innovation clusters, however, represent the champions and the constituencies of the future.  These are businesses that can grow but have not; communities that can thrive but do not; people who will work but who cannot now find employment. As beneficiaries of cluster initiatives, these people, businesses, and communities are politically invisible. Indeed, they may not even yet know how thriving clusters will advantage them.  But it is the obligation of public-policy leaders to represent them in the here and now.

Innovation itself is like that—it’s imagination and commitment to a product or service or market that does not yet exist. It’s a look to the future. We can, here in the United States and around the world, fuse the two—innovative policy for an innovation economy.

There are important reasons why an innovation policy focused on regional innovation clusters is particularly critical in a time of tight government budgets. They all revolve around a single idea—more bang for less buck.

Cluster initiatives do not require substantial public sums to be successful. The focus of clusters policy is on encouraging private parties to collaborate and on leveraging nonpublic resources. Public funds frequently represent a relatively small proportion of a cluster’s collective budget.  The basic principle underlying cluster initiatives is leverage—by creating incentives for private parties to coordinate their activity and share resources, an initial public investment can be leveraged at a 4, 5, or even 10-1 ratio. And, by federal budget standards, the total amount of spending is very low, representing less than 1 percent of the federal innovation budget.[12]

Here’s a leading example of how public funds can be leveraged. Over the past 15 years, the Dan River region in Southside Virginia has developed a burgeoning technology cluster. This region, which previously had an economy centered on tobacco and the textile and furniture industries, now boasts a strong network of research institutions, a growing technology-oriented workforce, and a variety of high-tech companies in areas such as polymers.

And yet public funding for the Dan River region was largely limited to partial support of the regional institution that coordinates strategy and resources across the cluster, the Institute for Advanced Learning and Research.[13] But IALR only succeeds because it is able to marshal private and university resources to carry out its mission—public funding for IALR is dwarfed by the funds provided by private sources in connection with cluster activities.[14]

Other clusters have similar patterns. Although projects connected with the Albany nanotechnology cluster received more than $800 million in public funding, the cluster has attracted approximately $5 billion in private investment—a ratio of better than 5-to-1.[15] And a representative of the Artisanal Cheese cluster in Vermont recently reported that the cluster was able to leverage public funds on a ratio of 11-to-1.[16]

In addition, cluster initiatives rely on a bottom-up approach that improves the likelihood of success, and, therefore, the efficacy of public policies. In the United States, the focus has been on using competitive processes in which the local clusters present their own strategies, to be tested against each other. This, I believe, is very important. As a result, before any federal money is provided to a regional innovation cluster, regional leaders must design an innovation strategy, organize stakeholders, and otherwise lay the foundation for a successful innovation cluster. And because of the competitive process, the likelihood of eventual success is greatest.

Take, for example, several recent regional cluster innovation grants awarded by U.S. agencies.  On September 23, 2010, the Department of Commerce announced the six winners of the i6 Challenge, a $12 million innovation competition led by the Department’s Economic Development Administration with the assistance of the National Institutes of Health and the National Science Foundation.[17] The i6 Challenge divided the United States into six economic regions and invited the clusters from each region to compete over who had the strongest proposals for accelerating the commercialization of technology and expanding new venture formation.  Each of the six winners of the i6 Challenge, therefore, needed to provide a better proposal than every other applicant from their region. Unsurprisingly, the winners were clusters which were well-organized, with broad local coalitions and networks and with substantial private resources, and which possessed a comprehensive strategy for how to win the i6 Challenge money.

Case in point: The winner from the Denver Region was a St. Louis-based coalition comprised of three St. Louis-based research universities, including Washington University; the Donald Danforth Plant Science Center; the St. Louis County Economic Council; and the St. Louis Development Corporation, all of which teamed up to present a proposal to advance bioscience technology commercialization through, among other things, collaborative targeted pre-company translational research and the provision of incubation funding for new bioscience companies.[18]

Two weeks ago, the U.S. Small Business Administration announced an “Innovative Economies” grant program, under which it provides 10 clusters with $600,000 apiece to strengthen small business participation in their clusters.[19] The 10 “Innovative Economies” awardees were selected from 173 applicants and, as with the i6 Challenge, represented clusters that are already well-organized at the local level and that possess detailed innovation strategies. Awardees included the Illinois Smart Grid Regional Innovation Cluster, a collaboration of more than 100 entities including 70 businesses in the Chicago area focused on the acceleration of smart grid innovation, deployments, and new market developments, and the Upper Michigan Green Aviation Coalition, a public-private partnership with 41 active members that focuses on expansion of the green aviation industry.[20]

Similarly, in late August, the Department of Energy announced that the Greater Philadelphia Innovation Cluster was the winner of its $129 million Energy Regional Innovation Cluster, or E-RIC competition.[21] The Greater Philadelphia Innovation Cluster is a consortium of five industry participants; 11 academic institutions; two U.S. Department of Energy laboratories; and several economic development agencies, and the cluster’s winning proposal was to create an energy innovation hub centered on the Philadelphia Navy Yard, which has its own utility infrastructure and thus is well-suited to test out new energy-related technologies.[22] Participants in the competition, including the winner and many of the losing consortiums that bid for the grant, say the exercise led them to develop important new links within their regional innovation ecosystems—links they believe would only be further strengthened by such federal cluster catalyst programs.

And last month, the Department of Agriculture announced the 27 winners of its Regional Business Opportunity Grants, selected from more than 400 applicants.[23] As with the other cluster initiatives, the grantees were well-organized coalitions with comprehensive innovation strategies.  For instance, the California Association of Resource Conservation and Development Councils—an association that is composed of 11 councils that provide economic and natural resource conservation aid throughout California—received a Regional Business Opportunity Grant to develop a regional food system, add value to livestock processing and marketing, utilize biomass, and develop renewable energy and agricultural resources.[24]

These forms of competition offer another advantage. Federal support can address the impact of clusters on national priorities. That’s back to the need to fix market failures. If, for example, market forces would underinvest in important new technologies that would benefit the nation as a whole—say support for a new electrical “smart grid” or new healthcare technologies—then federal support can be magnified and enhanced by using a national framework as one portion of the competitive process. Thus, a national priority can be addressed in an effective manner that relies on local leadership and the involvement of business and community institutions, including research universities.

Finally, cluster initiatives can provide a substantial return on investment. The research that has been done on clusters shows that they lead to statistically significant increases in productivity, job growth, wage growth, new industry incubation, and patent development.[25] In fact, a recent Harvard Business School study found that regional innovation clusters not only enhance growth opportunities for the businesses that form the cluster itself, but also actually enhance growth opportunities and direct and indirect job creation in other industries.[26]

The success of individual clusters is striking. Over the past decade, for example, the Indiana Life Sciences Cluster has funded BioCrossroads, a cluster initiative that provides seed investments and business development assistance to over 250 start-up companies and nonprofit enterprises that address specific cluster needs. During that period, job growth in the cluster outpaced national life sciences growth 17.2 percent to 15.8 percent, and the cluster now supports over 52,800 workers.[27] In the case of the Puget Sound Video Game Industry Cluster, the region has leveraged off the Seattle area’s existing strength in software and design to create a cluster that generates $4.2 billion in annual output and has created more than 50,000 additional jobs for the Washington State economy.[28] And the biomedical cluster in Northeast Ohio, which is now made up of more than 600 firms, “grew at an annualized rate of 7.4 percent from 2003 to 2008 and in 2008 alone attracted $395 million in venture capital and National Institutes of Health funding.”[29]

Now is the time for the federal government to play a critical role in supporting regional efforts by framing, facilitating, and funding cluster strategies. By that, I mean that the federal government can identify the critical national goals, such as energy independence, that serve the national interests. The federal government can improve the efficiency of cluster strategies by improving the delivery of various forms of federal expertise to the clusters that need them and by increasing the ability of clusters to learn from each other. And, of course, in difficult fiscal times for states, the federal government can provide additional resources that can smartly leverage existing local and private funds. As Jason Furman, the deputy director of the White House National Economic Council, recently put it very succinctly: “In the face of fiscal constraints, the president is committed to spending federal resources responsibly, on programs that we know work…We know that this cluster strategy works.”[30]

Next steps in cluster-based public policy

Today’s conference will dig into great detail on the role of clusters in the creation of new economic growth. I will briefly review some of our current experiences, just to support my proposal that support for regional innovation clusters is particularly important now.

As I said earlier, clusters are geographic places where the formula of economic growth is this: 1+1=3. By this I mean, more formally, that a “cluster” is a geographic region that generates positive externalities that quicken or increase the ability of firms to create value through innovation. The positive externalities flow from the natural interchanges between businesses that come from proximity—say the ability of new businesses to connect with angel investors or venture capitalists—which creates an environment that is more conducive for the next business to connect with its own sources of capital. Positive externalities can, of course, be spurred by nonbusiness action, such as the ability of companies to access basic research being conducted by local universities.

The term “innovation” in the phrase “regional innovation clusters” is a term we should define very broadly in several important ways: First, by recognizing the broad sweep of innovation itself; second, by remembering that innovation is not linked only to specific sectors; and third, by reemphasizing the manner in which innovation can be forged by both collaboration and competition.

As to the definition of innovation, let’s think of it in this context as the use of the creation of additional economic value through the creation or recombination of knowledge. This is not the same as the invention of technology. This is an important point. We tend to think of innovation as if it were the province of information technology or biotechnology or nanotechnology. But innovation can come from better business practices, novel uses of resources, or smart design.

Of course, innovation is not limited to “innovation industries.” It would be a mistake for every place in the world to try to be the world’s leader in, say, information technology or biotechnology. But we need not believe that they are the only sources of innovation. Any industry can become more innovative as a result of employing technological advances in the way that it does business. Even more fundamentally, innovation, as we’ve defined it today, can be employed by any business.

Like cheese. One of the most successful clusters in the Northeast United States is the Artisanal Cheese cluster in Vermont, which over the past 20 years has developed from a handful of local cheesemakers to a cluster with nearly 50 members who produce more than 150 varieties of cheese.  Although cheesemaking is far from a new industry, the Vermont Cheese Council has taken advantage of new technologies and collaborative approach to marketing, distribution, and R & D to post double-digit annual growth in production since 2003. The cluster is now supported by the Institute for Artisanal Cheese at the University of Vermont, the nation’s only research institution devoted to the artisanal cheese industry.[31]

The “regional” in the phrase “regional innovation clusters” tells us where to look for leadership, as well as providing an understanding of the borders of innovation. In a paper I co-authored last year, we reproduced a map of the United States, identifying 11 high-tech clusters located across the country.[32] Only 1 of the 11 clusters was entirely contained within a single state. And then, even within a single state, clusters will cross municipal and county lines. This puts a very large premium on defining a cluster initiative by economic, not political, borders.

Thus, a regional innovation cluster should be viewed as an ensemble of various organizations and institutions that are defined geographically, interact formally and informally, and contribute collectively to the achievement of all kinds of innovations within a given industry.[33] And each will be different, a fact that has important implications for any federal or multistate program. As Mark Muro and Bruce Katz at Brookings explained recently, cluster thinking and cluster strategies “are more a paradigm than a single program.”[34]

Of course, we know quite a bit already about what makes a cluster strategy successful.[35]

First, place matters. It is important for regional economies to emphasize what they can do best, capitalizing on existing strengths or new strengths that spring naturally from existing advantages. Solar power is a good strategy for New Mexico; hydroelectric power is not. Existence of institutions of knowledge-creation, availability of capital, and the presence of high-skill labor with programs to spur talent generation will all be parts of a region’s assessment of its competitive strengths.

Second, connections are key. The economic theory of a cluster recognizes the importance of both competition, which makes businesses more successful and increases consumer welfare, and cooperation, to create an environment of mutual advantage. Universities and community colleges, for example, can add to the store of knowledge and help educate workers in a manner that advantages multiple, even competing, local businesses. But that is best done with explicit networks of collaboration and knowledge-sharing of the kind found, for example, connected to the Albany nanotechnology cluster.

Third, practice makes perfect. As demonstrated by North Carolina’s Research Triangle and the greater Phoenix cluster, it can take a long time, even decades, to build a new cluster from scratch. The observation reemphasizes our belief that short-term gains will come mainly from existing advantages that have yet to be fully realized. An analysis of Tennessee’s furniture cluster, for example, both identifies existing strengths, such as office furniture, and also areas in which the region can be potentially competitive, such as mattress manufacturing.[36] Areas of potential strength are likely to be areas that will result in quicker results.

Fourth, success depends on local leadership. There is no substitute for the ability of local businesses, governments, nonprofits, universities, and colleges to all work together. That has been demonstrated in areas and industries as diverse as San Diego’s CONNECT program, Toledo’s photovoltaic cluster, and Minneapolis’s medical devices cluster. Toledo is a particularly good example. The University of Toledo, recognizing its strong engineering and manufacturing science programs and the city’s highly skilled workforce and economic infrastructure, led a 20-year effort to create a new photovoltaics and clean-energy cluster. The university has assembled a team of world-class faculty in photovoltaics and has built laboratories and support centers that have spun off dozens of businesses and reinvigorated the city. In partnership, the state of Ohio committed $18.6 million to the university in 2007 to spur the continued development of the photovoltaics cluster, generate new high-tech jobs, and increase industry revenue. From this university and government leadership, the Wright Center for Photovoltaics Innovation and Commercializiation is now an internationally recognized photovoltaics research and development center with infrastructure attractive to companies incubating the future generations of photovoltaic technologies.[37]

But our work is scarcely done. Let me identify just two important areas which require further attention as we further develop clusters policy.

The first is to reform the idea of economic development itself in order to ensure that economic-development efforts are tightly aligned with regional economic strategies. And that is tightly connected to the second—to make sure that distinct economic-development efforts are just as tightly coordinated with each other—which itself will boost the efficiency and efficacy of governmental programs.

Let me give you an example.[38] The Midwest of the United States has had it especially tough in these difficult economic times—declining manufacturing, higher unemployment, and shattered communities. Plenty of existing federal programs can help this region rebound from the Great Recession and build new industries to compete anew in the 21st century. But do these programs work? And do they work together?

Well, at least in this part of the country, businesses say these federal programs are too small and too disconnected from each other to be as effective as they must be. That’s the conclusion of a new report by noted regional economist Maryann Feldman of the University of North Carolina, Chapel Hill, and her graduate assistant, Lauren Lanahan. They find that federal funding to help companies innovate and commercialize new products and services, “at less than 10 percent of the $150 billion a year that the federal government invests in basic scientific research, is ‘small beer’—a trivial amount given the challenges our nation faces from our global competitors.”[39]

This new report, published by the Center for American Progress, is based on a survey of more than 4,000 companies in the Pittsburgh-Cleveland region. Its purpose is to inform federal policymakers about the effectiveness of their innovation programs.

While doing their research, though, Feldman and Lanahan also discovered that two important state-based innovation programs—Ben Franklin Technology Partners in Pennsylvania and Ohio Third Frontier—are mostly providing the right mix of resources that companies need to compete.[40] Alas, businesses say the two programs aren’t providing enough of it due to limited state fiscal resources.

Feldman and Lanahan’s report also highlights another problem with current U.S. clusters policy—a lack of coordination among cluster initiatives. Feldman and Lanahan found that these effective but limited state programs do not match up well with the welter of existing federal innovation programs. And they also concluded that “federal programs designed to implement these policies are divided into a chaotic array of ‘silos’—policy-speak for mutually unconnected programs—that make it exceedingly hard for the federal government to act upon any strategy designed to overcome our nation’s economic policy limitations.”[41]

This lack of coordination among cluster programs is not a new problem. In 2008, a Brookings report by Karen Mills, Elizabeth Reynolds, and Andrew Reamer identified 250 separate federal programs with activities connected to economic development. They concluded that “the federal government’s current approach of a multitude of fixed silos has high transaction costs, low synergy, and, ultimately, insufficient return on taxpayer investment.”[42]

Fixing this problem is vital to the long-term success of U.S. clusters policy. Federal efforts should be tightly aligned with economic strategies of regional innovation clusters so as to avoid federal programs that duplicate each other or fail to coordinate their activities. That is why it is so encouraging that the Obama administration just announced the creation of the new Taskforce for the Advancement of Regional Innovation Clusters, which has been charged expressly with fostering collaboration among six agencies and departments in order to support the success of regional innovation clusters.[43]

It is important, in Europe and the United States, and around the globe, for us to continue to learn while we lead. One aspect of the Feldman-Lanahan report that deserves particular emphasis is, of course, that the study asks businesses themselves to evaluate governmental action. That is very important because business needs to be a part of the creation of regional innovation strategy, its implementation and, therefore, its evaluation.

As we evaluate cluster efforts, we need to measure the real impact of governmental actions on cluster success in order to further refine what works and what does not. Important work has begun, of course. The OECD, for example, has explored very specifically the question of how best to evaluate the effectiveness of cluster policies. [44] These lessons learned from the development of cluster policies are worthy of study. And the Center for American Progress report that I discussed a moment ago starts down the same path.[45]

This is again an area where the Obama administration is making progress. The Commerce Department recently announced a $1 million grant to the Institute for Strategy and Competitiveness at Harvard Business School, headed by Michael Porter, to develop a nationwide cluster map analyzing regional assets, which should assist in the development of comprehensive cluster strategies.[46]

Networks and nodes

Finally, I’d like to address the relationship of clusters to the global economy. One of the most common definitions of the Internet is this: A network of networks. But if you look at one of the original hand-written diagrams of the Internet drawn in the late 1960s, it looks different. It’s a sketch of networks and nodes—four places, each at a research university, all linked together. And that makes sense, networks connect; nodes supply and consume content.

The world of clusters is like that—networks and nodes. As a technical matter, when we discuss the economic impact of regional innovation clusters, we are actually discussing “traded services,” or those economic activities created in the clusters and consumed elsewhere.

Most of the scholarship is, not surprisingly, focused on very local analysis. How does a cluster form? How does it perform. How can it be strengthened?

Some recent analysis, however, has begun to examine the international relationships that bind clusters together. Note that the phrase “international relationships” is common parlance, but it suggests, of course, that the building blocks of economic relationships are nation-states.

A better phrase might be “intercluster relationships.” Because, for all of our emphasis on clusters as the building blocks of national economic success, we have yet to ask ourselves: What do trade issues look like from the perspective of a cluster? In other words, would a cluster-focused examination of current international trade issues lead us to any increased understanding of the global economy and the public-policy that should be applied to those jurisdictional entities—nations—that house regional innovation clusters?

Regional economies have never operated in isolation. Not only do they trade with other places, but the citizens and entities that make up regional economies are often international in character. Large corporations are located in multiple countries, and they expect their employees to work together. Value chains stretch across continents. The interaction of people, a critical ingredient of cluster success, is not limited to face-to-face contact. Put simply, communities are not only geographic. Communities are also communities of people inhabiting the same discipline, for example. Or people who share a common heritage and move back and forth from their home nation to their new homes.

A study of the biopharmaceutical sector, for example, demonstrates that Boston biotech firms develop strong relationships with companies located in other clusters, both within and beyond the borders of the United States.[47] Thus, “biopharmaceutical clusters tend to broaden their support. . . . through a broad range of interregional, national, international or global formal and/or informal relationships.”[48]

Even more to the point, leading sectors are simultaneously very local and very global. Take two sectors with which I myself work—the Internet ecosystem and agriculture. In both, the motto might be: “Act local. Act global.”

Analysis of Internet markets starts at a scale even smaller than the cluster, asking for example about the choices in a marketplace available to consumers in their homes. But in today’s world of mobile broadband, even that market definition may seem too big. We all carry the Internet with us—personalizing and shaping it as we go.

At the same time, the information and communications marketplace is global in its essence. Not only because value chains stretch across continents but because some products—say the semi-conductors that power computing devices—are actually the same the world over. The product market is, in some sense, the whole world. One apt description of the ICT industry in Ireland, for example, described it as “boundaryless,” not because the geographic location of Irish business was missing on a map but rather “in the sense that its global character defies traditional stereotypes of domestic rivalry and collaboration.”[49]

Agriculture has the same characteristic. My wife and I own a small farm near the Chesapeake Bay in Maryland, in the United States, where she’s set to grow vegetables for market next year. There is nothing much more local than the place where a seed is planted. And, of course, in the United States, local food harvests and distributions have been the basis for the growth of new regional innovation clusters themselves—in Northeast Ohio for instance.[50]

But the challenge of agriculture could not be more global. The United Nations estimates that agricultural production will just about have to double in the next forty years if we are going to be able to supply a global population that will reach nine billion people.[51] That is an innovation challenge of the first order.

So let’s think for a moment about how intercluster relationships might be studied.

Start with the biggest trade issue facing the United States right now—the economic relationship with China.

The tension is palpable. The Obama administration is pressing China to stop undervaluing its currency, which boosts China’s exports. Last week, the U.S. House of Representatives voted by a huge majority to give the Obama administration authority to impose tariffs on almost all Chinese imports to the United States, more than $300 billion worth, in retaliation for China’s failure to revalue its currency in the face of estimates that a fairly valued Chinese currency could add as much as a half-million jobs in America.[52] Then U.S. Treasury Secretary Timothy Geithner weighed in on the eve of the annual meetings of the International Monetary Fund and World Bank, calling for the two nations’ global trading partners to pressure China to revalue its currency. Meanwhile, tariff battles are escalating—most recently when China announced that it would impose big tariffs on American poultry, the latest skirmish in a contest over the application of antidumping rules.[53]

Currency and tariffs are, of course, classic instruments of national policy. But clusters are implicated as well.

Here are two views. One paper published earlier this year called expressly for a cluster-based approach to enhance US-China economic relationships, arguing that “China has the labor costs advantage, while America has technology and capital advantage. A comprehensive mutually beneficial merging of both advantages is certain to transform and enhance the Chinese industrial cluster.”[54]

From a very different perspective comes the recent petition filed by the United Steelworkers  union claiming that China “engages in illegal practices that stimulate and protect its domestic producers of green technology, ranging from wind and solar energy products to advanced batteries and energy-efficient vehicles.”[55] The trade union charges that China restricts access to critical raw materials, provides improper subsidies and export financing, discriminates against foreign firms and products, and improperly forces foreign firms to transfer intellectual property to China, all with adverse consequences to the U.S. economy.

This is not the place to decide the merits of the Steelworkers complaint. China has rejected it, saying that its actions are appropriate. The steelworkers, of course, plan to press on. But even without deciding the merits, it may be possible, nonetheless, to consider whether the theories advanced by the union offer a perspective on an interclusters trade policy. One could think of a similar set of allegations designed to draw the line between a permissible and impermissible support of clusters. Such an approach might argue that clusters are inherently local and global, so that their policies should not distinguish between foreign and domestic participants.

Such an approach would bring us back to the “boundaryless” cluster and the observation that markets are increasingly very local and supremely global. The node of a cluster may be in a particular place, but its network is not—it is network for capital, for supply, for collaborators, for the creation and sharing of intellectual property, for design, for manufacture and, of course, for customers. Moreover, participation in the cluster, by this token, is international as well—as firms congregate to find mutual advantage without regard to their nation of origin, as we have seen in leading clusters in both the United States and Europe. In other words, the node is local but the network is not.

From the perspective of a nation, this may be confusing. Foreign and domestic firms are labeled as such by reference to national borders, national origins, and national headquarters.

But from the perspective of a cluster, the picture may look simpler. Regional innovation clusters fuel local economic growth, without regard to the ostensible nationality of the participant firms.

Let’s ask ourselves, then, if the following statements are true and if they could contribute to our understanding.

Cluster-based policy does not ask, “Who are you?” It asks, “What is your contribution to economic growth in this place?”

Cluster-based policy does not ask, “Is your business domestic or foreign?” It asks, “What are the strongest ways you can build a network that fuels economic success and the creation of positive economic spillovers that make the cluster and its participants stronger?”

And cluster-based policy does not ask, “How do we artificially motivate businesses to move from one place to another?” It asks, “How do we encourage our regional innovation cluster to be as competitive as it can be?”

I do not mean to suggest that the principles of trade policy should be ignored. Issues of currency manipulation, for example, can only be analyzed at the national or supranational level. I only suggest that we might increase understanding of how commerce actually works—and how it should work—by devoting more attention to the relationships between clusters and asking ourselves, “What does intercluster trade policy look like?”

At the end of the day, the conclusion is simple—regional innovation clusters need international trade. And international trade is what moves information, goods, and services between clusters. In the future, I suggest that the relationship between these nodes and the global networks should gain additional emphasis. We need to empower the nodes and the networks and achieve a better policy understanding of how they may work together.

Conclusion

There’s a lot on the table as we begin our discussions today. Let me just briefly recap the important points that I have tried to emphasize.

First, clusters policy is more important, not less important, in tough times and tight budgets.

Second, we must simultaneously lead and learn, implementing better policies today, and learning from each other how to improve those policies even more in the future through the collection and analysis of data.

Third, we must reinforce the connection of clusters to a global economy and begin to ask, “How do regional innovation clusters view their relationship to that global economy?”

We have assembled the right people in the right place today.  We might consider ourselves a one-day cluster—global in composition, local in our discussions.  Ready to learn and, of course, to lead.

Acknowledgments

The author would like to thank Charles Borden for his substantial editorial assistance and the following individuals for their insightful comments: Brad Benthal, Peter Cowhey, Karen Maguire, Mark Muro, and Ed Paisley. The views expressed herein are those of the author’s alone and not necessarily shared by any of the institutions with which he is affiliated.

Endnotes

[1] Mercedes Delgado, Michael E. Porter, and Scott Stern, “Clusters, Convergence, and Economic Performance” (Cambridge: Institute for Strategy and Competitiveness, 2010), available at http://www.isc.hbs.edu/pdf/DPS_ClustersPerformance_08-20-10.pdf.

[2] Ibid.

[3] Michael Greenstone, Richard Hornbeck, and Enrico Moretti, “Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants,” Working Paper 07-31 (MIT Department of Economics, 2007).

[4] Mark Muro and Bruce Katz, “The New ‘Cluster Moment’: How Regional Innovation Clusters Can Foster the Next Economy,” (Washington: Metropolitan Policy Program at the Brookings Institute, 2010); Karen G. Mills, Elisabeth B. Reynolds, and Andrew Reamer, “Clusters and Competitiveness: A New Federal Role for Stimulating Regional Economies,” (Washington: Metropolitan Policy Program at the Brookings Institute, 2008); Council on Competitiveness, “Collaborate: Leading Regional Innovation Clusters” (2010); Maryann Feldman and Laura Lanahan, “Silos of Small Beer: A Case Study of the Efficacy of Federal Innovation Programs in a Key Midwest Regional Economy” (Washington: Science Progress, 2010); Jonathan Sallet, Ed Paisley, and Justin Masterman, “The Geography of Innovation: The Federal Government and the Growth of Regional Innovation Clusters” (Washington: Science Progress, 2009); “Entrepreneurship Initiatives,” available at http://www.silicon-flatirons.org/initiatives.php?id=entrepreneurship.

[5] “World Class Clusters at Your Fingertips,” available at http://www.clusterobservatory.eu; “European Commission: Enterprise and Industry,” available at http://ec.europa.eu/enterprise/index_en.htm; “European Commission: Research Directorate-General,” available at http://ec.europa.eu/dgs/research/index_en.html.

[6] “Máire Geoghean-Quinn, EU Commissioner for Research, Innovation and Science Interview,” available at   http://www.research-europe.com/index.php/2010/05/595.

[7] Robert D. Atkinson and others, “Innovation Policy on a Budget: Driving Innovation in a Time of Fiscal Constraint,” (Washington: The Information Technology and  Innovation Foundation, 2010), available at http://www.itif.org/files/2010-innovation-budget.pdf.

[8] “Overview of Funding,” available at http://www.recovery.gov/pages/textview.aspx?List=%7BEB595CCA%2DD93F%2D48F4%2DAF96%2D11E2D41DE73D%7D&xsl=Charts/FundingOverviewChartTextView.xsl.

[9] Elizabeth McNichol, Phil Oloff, and Nicholas Johnson, “State Continue to Feel Recessions, Impact,” (Washington: Center on Budget and Policy Priorities, 2010), available at http://www.cbpp.org/cms/?fa=view&id=711.

[10] Justin Lahart, “Companies Still Holding Lots of Cash,” The Wall Street Journal,September 17, 2010.

[11] Organisation for Economic Co-Operation and Development, “Policy Responses to the Economic Crisis: Investing in Innovation for Long-Term Growth” (2009), available at http://www.oecd.org/dataoecd/59/45/42983414.pdf.

[12] Sallet, Paisley, and Masterman, “The Geography of Innovation”

[13] The IALR is central to the success of the Dan River Region; it “provide[s] research services to [the region’s] technology sector, use[s] distributed research in conjunction with Virginia Tech to stimulate start-up companies, incubate[s] early stage companies and provide[s] state-of-the-art learning facilities and services for the region’s educational system.”  See Council on Competitiveness, “Collaborate: Leading Regional Innovation Clusters”

[14] Ibid.

[15] Rick Moriarty, “New York State Plans to Spend $28 Million to Create Nanotechnology Lab in Salina,” Syracuse Post-Standard, September 9, 2010.

[16] Remarks of Allison Hooper, Founder of Vermont Butter and Cheese Creamery, at Regional Innovation Clusters: Advancing the Next Economy, September 23, 2010.

[17] U.S. Department of Commerce, “U.S. Commerce Secretary Gary Locke Announces Winners of i6 Challenge,” Press release, September 23, 2010.

[18] Ibid.

[19] U.S. Small Business Administration, “SBA Announces Support for 10 Regional ‘Innovative Economies’ Clusters, Local Job Creation,” Press release, September 20, 2010.

[20] Ibid.

[21] Muro and Katz, “The New ‘Cluster Moment’”

[22] Ibid.

[23] Closing Keynote Remarks of U.S. Secretary of Agriculture Thomas Vilsack, at Regional Innovation Clusters: Advancing the Next Economy, September 23, 2010, available at http://www.usda.gov/wps/portal/usda/usdahome?contentidonly=true&contentid=2010/09/0488.xml.

[24]U.S. Department of Agriculture, “Secretary Vilsack Announces Awards to Support Regional Economic Development Strategies,” Press release,  September 23, 2010.

[25] Delgado, Porter, and Stern, “Clusters, Convergence, and Economic Performance”; Greenstone, Hornbeck, and Moretti, “Identifying Agglomeration Spillovers.”

[26] Delgado, Porter, and Stern, “Clusters, Convergence, and Economic Performance”

[27] Muro and Katz, “The New ‘Cluster Moment’”

[28] Ibid.

[29] Ibid.

[30] Remarks of Jason Furman, Deputy Director of the National Economic Council, at Regional Innovation Clusters: Advancing the Next Economy, September 23, 2010.

[31] Muro and Katz, “The New ‘Cluster Moment’”

[32] Sallet, Paisley, and Masterman, “The Geography of Innovation”

[33] Abdelillah Hamdouch, “Conceptualizing Innovation Clusters and Networks” Working Paper 3 (Research Network on Innovation, University of Lille, 2008).

[34] Muro and Katz, “The New ‘Cluster Moment’”

[35] Sallet, Paisley, and Masterman, “The Geography of Innovation

[36] Ibid.

[37] Ibid.

[38] The following passage is adapted from Ed Paisley and Jonathan Sallet “Rebuilding Regional Economies,” Cleveland Plain Dealer, September 23, 2010.

[39] Feldman and Lanahan, “Silos of Small Beer”

[40] Ibid. at 29-31.

[41] Ibid.

[42] Mills, Reynolds, and Reamer, “Clusters and Competitiveness”

[43] Remarks of Jason Furman, Deputy Director of the National Economic Council, at Regional Innovation Clusters: Advancing the Next Economy, September 23, 2010.

[44] Organisation for Economic Co-operation and Development,  Reviews of Regional Innovation: Competitive Regional Clusters (2007).

[45] Sallet, Paisley, and Masterman, “The Geography of Innovation”

[46] U.S. Department of Commerce, “U.S. Commerce Secretary Gary Locke Announces Winners of i6 Challenge”

[47] Hamdouch, “Conceptualizing Innovation Clusters and Networks.”

[48] Marc-Hubert Depret and Abdelillah  Hamdouch, “Multiscalar Clusters and Networks as the Foundations of Innovation Dynamics in the Biopharmaceutical Industry” (Regional Studies Association, 2010).

[49] Roy Green and others, “The Boundaryless Cluster: Information, Communications & Ireland” (2001).

[50] Sallet, Paisley, and Masterman, “The Geography of Innovation”

[51] United Nations Department of Public Information, “Food Production Must Double By 2050 To Meet Demand From World’s Growing Population,” Press release, October 9, 2009, available at http://www.un.org/News/Press/docs/2009/gaef3242.doc.htm.

[52] Sewall Chan, “The U.S.-China Exchange Rate Squeeze,” The New York Times, September 18, 2010.

[53] Keith Bradsher, “China Imposes a Steep Tariff on U.S. Poultry,” The New York Times, September 26, 2010.

[54] William Lawrence and Weidong Sun, “A Cluster Approach towards Enhancing Chinese-American Trade Opportunities” (2010).

[55] United Steelworkers, “United Steelworkers’ Section 301 Petition Demonstrates China’s Green Technology Practices Violate WTO Rules,” available at http://assets.usw.org/releases/misc/section-301.pdf.