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22 / IMPROVING THEAUOCATIOy PROCESS 



development will occur largely in the private sector. Firms motivated by market 

 forces and judged by their performance in satisfying demand have a better record 

 than governments of investing in new technologies with large commercial payoffs. 

 As the presumptive owner of the results, the private sector should be the funder of 

 such commercial technology' development projects. 



The federal government's main role in encouraging commercial technology 

 development and ensuring economic success is to maintain an envirorurent condu- 

 cive to private-sector development and adoption of new technologies. Such an 

 environment depends on a range of federal policies that influence taxation, 

 macroeconomic stability, national savings, and the volume of international trade. 

 Economic success also is determined by legislation concerned with unfair monopo- 

 lies, patent protection, product liability', and environmental and consumer protec- 

 tion. Although examination of these critical issues is beyond the scope of this 

 report, the committee believes that government policies, such as those related to 

 taxation, regulation, intellectual property rights protection, social manaates. and 

 others, are usually more important to commercial outcomes than is direct govern- 

 ment funding to industry. 



The government should not subsidize specific private firms for projects that 

 they would undertake anyway^' In a suitable economic context, a firm engaged in 

 product or process innovation will capture or "appropriate " a large fraction of the 

 benefits that it creates. If so, market incentives will guide firms to undertake the 

 right kinds of innovations without any central planning or guidance. 



In many cases, however, no one firm can capture the full benefits of its invest- 

 ment. This is generally the case for investment in basic research and can also apply 

 in development related to emerging technologies. One approach to addressing thi.s 

 problem is represented by Sematech, an industry- consortium created to improv>i 

 semiconductor manufacturing, and for which the federal government provided 

 some initial funding. Federal funding may help to establish such consortia in limited 

 and highly specific areas and can be appropriate to support research in ccodortia 

 formed by industry. 



In addition, the government may still have a role in fostering new enabling 

 technologies. Many people believe that nanotechnology (i.e.. at scales of one- 

 billionth of a meter) and micromanufacturing, for example, offer exciting commer- 

 cial opportunities. Government should support training and research that will 

 establish the general scientific and technical principles that firms will ultimately 

 exploit to develop new commercial products and processes. Such investments are 

 appropriate for the federal goverrmient because they can generate large benefits 

 that accrue to the nation but would not be captured by any one firm. For example, 

 federal support for research as a component in the education of individuals entering 

 careers in electrical engineering and computer science has helped to produce the 

 skilled people who have developed our modem information technology' industries. 

 Support for the work at universities has resulted in the development of the proto- 

 cols used to exchange information over computer networks, a crucial piece of 

 intellectual capital that all firms have been able to exploit as they enter this new 

 field. Transfer to industry of state-of-the-art technical knowledge produced at sci- 

 ence and engineering schools occurs most effectively when faculty', graduate stu- 

 dents, and postdoctoral fellows move to the private sector 



