165 



vestments in firms or consortia confer proprietary advantage and yet ensure pub- 

 lic accountability and fair access by other firms to data, results, and expertise? 

 Recommendation 8 clearly indicates that some direct federal funding in private 

 firms is justified in pursuit of government missions. The committee was also open 

 to such funding outside mission areas in cases where private R&D funding is un- 

 available because of market structure, a "chicken and egg" problem of market 

 interdependencies, or other factors. We recommend raising the standard by calling 

 for comparative assessment — not asking only whether the program funds work 

 along the lines intended, but judging whether direct industrial funding programs 

 are as effective as the other methods of "technology transfer" that have proven effec- 

 tive over the past five decades, mainly through mission-driven R&D linked to train- 

 ing and education as well as procurement of leading-edge technologies that further 

 existing federal missions. 



The direct experience of committee members weighed heavily in our deliberations. 

 Two of its members, Harold Shapiro and Paul Romer, are economists who have 

 carefully studied the interactions between federal and industrial funding of R&D. 

 Several other members — Forest Baskett (co-founder, Silicon Graphics, Inc. and for- 

 merly of Stanford University), Richard Mahoney (former Chief Executive Officer of 

 Monsanto), and Steve McKnight (cofounder of Tularik Pharmaceuticals and now at 

 the University of Texas Southwestern Medical Center) — have direct experience with 

 one or more such programs, as industrial participants and beneficiaries of such fed- 

 eral funds. Robert J. Hermann, Senior Vice President for Science and Technology 

 of United Technologies Corporation, also briefed the committee, drawing on his ex- 

 tensive personal experience as well as his diverse formal advisory and analytical 

 roles. At the time. Dr. Hermann was vice chair of NIST's Visiting Committee on Ad- 

 vanced Technology; he now chairs that committee. He is also a member of the De- 

 fense Science Board and chaired the Board's review of FFRDCs, and testified before 

 the Senate Armed Services Subcommittee on Acquisition and Technology in May 

 1995 on dual-use technology. 



The committee was thus richly familiar with commercial exploitation of federally 

 funded R&D, and several members had direct experience. The committee realized 

 that very few of the empirical evaluations address the question of how best to spend 

 federal R&D dollars. And yet several committee members, particularly those respon- 

 sible for major R&D efforts at private firms, face dilemmas of how to direct cor- 

 porate R&D efforts that are similar to the questions federal policy makers must 

 face. 



b. In addition, you mentioned in response to a question during the hearing 

 the need to compare the return on investment of these programs in de- 

 termining whether they should be continued or not. What metric is used 

 to measure the return on investment of university-based basic research? 

 The committee's main concern was the relative effectiveness of investment alter- 

 natives. There is no precise metric of return on academic research, although the 

 economist Edwin Mansfield and others have attempted to make estimates. ^ Neither 

 is there a metric for privately funded research. The absence of precision, however, 

 does not necessarily preclude comparative analysis, if comparisons are to common 

 measures of effectiveness. That effectiveness can be measured in many ways. The 

 case histories diagrammed in Supplement 4 implicitly assess the development of 

 powerful new technologies, with establishment of a new billion-dollar market as the 

 ultimate outcome. Other measures include the size of a new market, the rate of 

 growth of a sector, the creation of new companies, job creation, and the broad appli- 

 cability of the resulting technologies. It also includes nonfinancial metrics, such as 

 number of lives saved by preventing and treating high blood pressure or improved 

 quality of life of U.S. citizens. There are dozens of studies of the return to R&D in- 

 vestment, summarized recently by the Council of Economic Advisors. ^ These are dif- 

 ficult and complex, and interpretation is not straightforward, but these studies gen- 

 erally show very high rates of return. These studies, however, for the most part ag- 

 gregate all forms of R&D investment and do not address whether one form of invest- 

 ment has higher returns than another. 



There would be many possible metrics, but the committee's concern is less about 

 which measures are used than being sure to compare alternative means of federal 

 investment. This is not an easy task, and the process will surely involve not only 

 quantitative measures but also expert judgment, subject to the caveats and limita- 

 tions discussed in Recommendation 11. 



2 Edwin Mansfield (in press), "The Contributions of New Technology to the Economy." 



3 Council of Economic Advisors (1995), Supporting Research and Development to Promote Eco- 

 nomic Growth: The Federal Government's Role. 



