98 



these came from NACA. All the rest came from industry, with (in some cases) part 

 military funding. 



Total U.S. R&D spending on aeronautical research from 1925 to 1975 far e 

 ceeded that of NACA/OA&ST. Military and industry spending were roughly equi 

 and amounted to about 95% of the total. NACA/OA&ST funding came to about 5 

 of the total. 



This research paid off handsomely. From 1925 through 1975, productivity of bot 

 capital and labor in the airline industry grew by about twenty-five times. The paybac 

 from aeronautical R&D, in the airline industry alone, was about thirty times greate 

 than would have been obtained by investing the same money in high-grade industris 

 bonds. All other benefits to society were in addition to this. 



Given that most important aeronautical innovations came form outsid< 

 NACA/OA&ST, that NACA/OA&ST funding amounted to only about 5% of the to 

 tal, and that the payback from aeronautical R&cD far exceeded the amounts spent, it ij 

 clear that this subsidy to the airline industry was totally unwarranted. The issue is not 

 that NACA/OA&ST didn't do good work. It did do good work. The issue is that the 

 airline industry alone achieved cost savings which would have justified the aviation 

 industry in funding that research even if NACA/OA&ST had never existed. Instead of 

 the aviation industry funding the research, however, we found middle-class taxpayers 

 subsidizing the airline flights of the jet set. 



This experience with NACA/OA&ST is significant with regard to the future of the 

 Federal labs. Even if they do good work, the benefits to the affected industries will be 

 sufficient that the industries could afford to fund the research themselves. Changing 

 the mission of the Federal labs, to support specific industries, is an unwarranted sub- 

 sidy even if the labs avoid the problems of mediocrity. 



PRIVATIZING 



The Department of Energy's Mound Facility, in Miamisburg, Ohio, is a laboratory 

 in everything but name. Because it includes manufacturing capability, DoE refers to it 

 as a "facility" rather than a laboratory. This installation is scheduled to be closed in 

 1995, and its several missions transferred to other DoE installations. The State of 

 Ohio wishes to retain the high-technology capability of Mound, and has contracted 

 with the University of Dayton to identify those Mound capabilities which have com- 

 mercial potential, and to identify the commercial markets for these capabilities. A 

 follow-on contract will provide funding for the development of business plans for 

 those capabilities which appear to be commercially viable. 



Our findings in the effort to commercialize Mound capabilities have significant 

 implications for any proposals to keep the Federal laboratories open but to convert 

 them to commercial R&D. 



One finding is that the regulatory environment in which Mound operates is in- 

 compatible with a commercial venture. Mound has in the past performed what DoE 

 calls "work for others," primarily for the Department of Defense but also for other 

 government agencies. Obtaining approval for this work has been time-consuming and 

 inefficient. It has often taken 12 to 24 months for DoE to approve contracts between 

 Mound and the military Services. It is clear that if Mound were to remain a DoE facil- 

 ity, it would be impossible for it to respond to the demands of commercial markets. 

 For Mound to operate effectively in commercial ventures, developing and marketing 

 new products, it is essential that Mound be privatized. 



Another finding is that the cost structure imposed by DoE overhead would make 

 it impossible for Mound to compete for business with private firms. Each research or 

 production activity at Mound is burdened by an enormous overhead cost which results 

 directly from DoE regulations. In many cases the people at Mound simply have no 

 idea of what a given activity costs, or how to charge for it if it were offered commer- 

 cially. One of our tasks under the follow-on contract will be to help identify the real 

 costs of doing business at Mound, and gain a better idea of how competitive Mound 

 could be if the DoE-mandated overhead were removed. 



