Experts Say States, Foundations and Financiers Attempting to Fill the U.S. Innovation Policy Vacuum

In China, R&D investment is growing at a breathtaking rate. In Finland, three established universities that focused on design, business management and technology have been combined into an "innovation university." Singapore has a life sciences initiative that will one day employ thousands of researchers from throughout the world. Australia and the United Kingdom each have established innovation ministries.

And in the U.S., Congress has passed two innovation bills to support traditional education and research, but over the past two years, it has yet to provide full funding for either of them.

It was a prevailing theme at the recent AAAS Forum on Science and Technology Policy: While nations worldwide are committed to economic growth and well-being based on innovation, the White House and U.S. Congress seem unable to shake an ominous state of inertia. "In Sweden, if you want to call the person who's in charge of innovation, I guarantee you, someone answers that phone," said innovation guru John Kao. "In the United States, no one answers that phone."

But in a series of Forum lectures and discussions, some of the nation's top innovation experts described how efforts by states, foundations, and private financiers are helping to fill the federal leadership vacuum. New models are emerging for private funding of innovation. Foundations and others are using lucrative prizes to reward extraordinary breakthroughs. And the states—both state governments and state universities—are quietly investing billions in innovation to bring significant economic benefits to their residents.

Dan Berglund, president and chief executive officer of the State Science and Technology Institute, said that states were taking the leadership role once held by the federal government on stem cell research, climate change, energy, and other fields. "What we've seen in the last four to five years is very visible examples of states stepping in where the federal government has abdicated its responsibility to lead," Berglund said.

Though many of the experts expressed guarded optimism, the Forum featured an undercurrent of concern that the United States risks falling behind because it is complacent and doesn't understand the ambitious new competitors which will challenge its innovation superiority in the 21st century. The times, Kao said, call for "a national dialogue of the sort we haven't had in this country."

The AAAS Forum on Science and Technology Policy is regarded as the premier event of its kind in the United States, focusing on federal budget and R&D issues; public- and private-sector research; education; innovation; and other high-profile domestic and international S&T issues. The 33rd annual Forum, held just a few blocks from the White House on 8-9 May, attracted more than 500 policymakers from government, education, industry, and other fields, plus more than two dozen journalists.

This year, with elected U.S. officials floundering on innovation policy and with presidential and congressional elections just months away, many of the sessions and speakers explored what action the U.S. should take to upgrade its innovation infrastructure.

Kei Koizumi, director of the AAAS R&D Budget and Policy Program, offered context during his talk to the full Forum audience on 8 May.

Generally, he said, one out of every seven discretionary dollars in the U.S. budget goes to research and development. But with the discretionary budget essentially flat since 2004, overall R&D investment (in constant dollars) has been flat, too.

The 2009 budget proposed by President George W. Bush would provide significant increases for the National Science Foundation, the Department of Energy's Office of Science and the National Institute of Standards and Technology, as laid out in the American Competitiveness Initiative (ACI), but R&D funding for key environmental and agricultural agencies would be cut for the 2009 budget year.

The National Institutes of Health received significant increases for a number of years under an initiative to double its budget, but its funding has declined in real terms since 2003. The impact, Koizumi said, is clear: Where one in three grant applications had been approved earlier, now only one in five are being accepted. And average grants, in inflation-adjusted dollars, are smaller.

While the "U.S. compares favorably with other nations in R&D spending," Koizumi said, that investment has fallen as a percentage of its gross domestic product in recent years. And China, South Korea and Japan all are pushing R&D investment on a sharply rising trajectory.

In a three-hour panel discussion on Friday 9 May—"New Models for Funding Research and Innovation"—several experts suggested that R&D underwriters apart from the federal government and industry often are overlooked.

Private foundations and non-profit organizations provide essential depth and dimension to the R&D endeavor in the United States, said Susan M. Fitzpatrick, vice president at the James S. McDonnell Foundation and a member of the AAAS Board of Directors. [Because Fitzpatrick was unable to attend the meeting, her presentation was read by moderator Donna J. Dean, formerly the senior scholar in residence at the National Academy of Engineering and now senior science advisor with Lewis-Burke Associates LLC.]

In a presentation that focused on life and biological sciences, Fitzpatrick based parts of her talk on the influential 1970s-era Commission on Private Philanthropy and Public Needs, better known as The Filer Commission after its chair, business leader John H. Filer.

One key part of the Commission's message, she said, is that "society benefits from having many different ways for striving to advance the common weal."

Fitzpatrick cited several innovation agents in the life sciences: privately endowed foundations that fund particular areas of science; privately endowed foundations focusing on particular disease or diseases; and disease-specific charities that provide financial support to research while also engaging in education and advocacy.

"Having a large number of funding organizations with diverse decision-makers helps ensure flourishing of alternative models and approaches that may depart from the common wisdom or challenge the status quo," she said. Their role also includes "support for controversial or unpopular topics where government is reluctant to tread and nurturing of ideas early in their inception prior to broader acceptance."

While private funders often debate which model is right and which is wrong, she concluded, "what we really need is to consider them natural philanthropic experiments from which we can learn."

John C. Crowley, a consultant to the American Academy of Arts and Sciences, told the Forum audience that while more funding would be welcome, the reality is that it may be constrained in coming years. In such a climate, he said, it will be important to focus on "transformative research," and to rebalance the R&D portfolio to include more support for early-career researchers and for higher-risk, higher-payoff initiatives.

Crowley was appearing on behalf of the American Academy of Arts and Sciences, and his talk focused on a new report from the Academy's Initiative for Science, Engineering, and Technology. [The white paper is called ARISE: Advancing Research in Science and Engineering.

When funding is tight, Crowley said, the tendency of government research agencies is to fund research perceived as having lower risk and a higher probability of success. But a long-view of the nation's innovation strength suggests that "research grant mechanisms must empower rather than inhibit creative thought and empower the pursuit of unexpected findings," he said. "Special programs to support emerging, untested but potentially breakthrough ideas are needed as well as enhanced tolerance for unanticipated new directions within ongoing programs."

Funding agencies must recognize the "inherent uncertainty" and that "additional time is required to carry out such research," he said. The report recommends a streamlined process for innovation-oriented grant funding, with shorter applications, different evaluation mechanisms, and funding periods lasting up to 10 years.

A parallel view came from Ravi Kapur, president of Anudeza Consulting Group and entrepreneur-in-residence at Massachusetts General Hospital in Boston. Like the ARISE report, Kapur suggested to the Forum audience that government should expand its investment beyond R&D into the broader innovation process, using creative means to fund entrepreneurs.

While far more resources are available in the world of finance and entrepreneurs, the patterns of investment there are changing and new models are emerging, he said.

The process of innovation—and bankrolling innovation—is usually seen as linear and straightforward, Kapur said. The researcher has an idea, and government agencies provide grant support to pursue it. That results in an invention. An entrepreneur recognizes the invention's potential value, and drives a further cycle of innovation to create and capture the value, and then teams with a corporation to produce and sell the product.

That view has given rise to a "folklore," Kapur said, in which the government, venture capital and corporate partners all do their part—and "at the end, everyone lives happily ever after."

In reality, he argued, there's more chaos in the model, less predictability. He likened the cycle of innovation to climbing an unexplored mountain: The ascent to the peak is riddled with uncertainty, but its successful execution creates economic value; a successful descent enables capture of the economic value. But a stumble—financial, structural, or technical—during the climb or the descent can have serious consequences in realizing the innovation.

Plus, Kapur said, on-the-ground realities have changed. Corporations are more interested in product improvement than groundbreaking new products. Venture capital has become risk-averse. And entrepreneurs—the men and women who found the start-up companies—want what he called "a more complete experience"—with "controlling interest on direction and delivery of the idea, and personal wealth creation."

"They want the name, the fame, and the dame since they got the game," he quipped.

The challenge to the entrepreneur—and to the U.S. innovation process—is to line up sufficient funding on reasonable terms. While venture capital firms are perceived as playing that role, Kapur said, the firms in fact are not interested in R&D—they're seeking the largest possible return on investment in the shortest time, and the funds they provide to start-ups are prohibitively expensive. Start-ups such as Google and Vizio relied on friends, families, credit cards, second mortgages and the occasional "angel" investor for their early development.

Currently, new wealth in India and China may prove a source of funds for entrepreneurs in the United States, Kapur said, but that puts them in line to reap the payoff for ideas generated by U.S. innovators. "If we continue to focus on increased money for idea generation, and not enough on innovation for conversion to commerce, we run the risk of subsidizing innovation for the rest of the world."

Crowley also suggested prizes and awards that could be oriented to transformational research. That theme was the focus of a presentation by Stephen A. Merrill, executive director of the Board on Science, Technology, and Economic Policy at The National Academies.

Even in the 18th century, Merrill said, prizes were used as incentives to improve ocean travel and develop vacuum-sealed food for military operations. More recently, discrete prize competitions have been held for everything from solving mathematical problems to providing inexpensive space transportation.

In some cases, organizers are now providing a series of prizes. A prime example: The X PRIZE Foundation is offering $10 million or more for "radical breakthroughs for the benefit of humanity" in the areas of education, space and underwater exploration, energy and environment, life sciences and global development.

Not only can such prizes help achieve technical objectives, Merrill said, but they can galvanize investors; encourage collaboration and team-building; and both educate and inspire participants and the public. At least partly as a result, S&T leaders such as NASA, the Defense Advanced Research Projects Agency (DARPA) and the National Academy of Engineering are showing renewed interest in prizes.

Berglund, the president and CEO of the State Science and Technology Institute, said many states are already showing how it is possible to expand beyond R&D to fund the full innovation spectrum. More than 1,000 state agencies and universities are engaged in R&D, he said; in the 2006 budget year, some 250 state agencies spent more than $1 billion combined on R&D. And tech-based economic development organizations are increasingly being used to drive the innovation process.

Why do states do this? In great part, he said, because they see clear economic benefit for their economies and their people. By generating growth and jobs in S&T fields, the states stave off competition from overseas and meet the changing demands of domestic industry. Wages for technology jobs on average were 84% higher than the U.S. average in 2003, he said.

For example, in the mid-1980s, the average income North Carolina and nearby Kentucky were nearly the same. But North Carolina began investing in education and R&D, and Kentucky didn't. Fifteen years later, income for the average North Carolina resident is dramatically higher that for residents in Kentucky.

In 2007 alone, Berglund reported, states authorized millions of dollars in investments for new R&D and innovation initiatives, including education, energy and life sciences. Florida approved $80 million for a genomics research institute and $100M for centers of excellence. North Dakota and South Carolina established funds of $15 million each to fund competitive grants for energy research. Michigan is investing in a 21st Century Job Fund to diversify its economy. And Kentucky is continuing to invest in its 10-year-old "Bucks for Brains" initiative, which seeks to boost R&D capacity in the state's colleges and universities.

But not all of the speakers saw state innovation spending as an answer to the inaction of the federal government. In remarks after the Forum, Fitzpatrick suggested that while the states' programs are valuable, it is misleading to think of them as a see-saw, where one goes down when the other goes up.

"States have a responsibility to invest in research when a major goal of such an investment is local economic development," she said. "States should also continue with their commitment to support their state universities independent of efforts by the administration and faculty to secure large federal grants and contracts. States can and should serve as incubators and opportunities to test alternative models for solving problems like health care delivery or energy conservation. Federal, state, local, and private support for research should be part of a broad national effort—no one sector can or should try to assume sole responsibility."

Kao is the author of Innovation Nation: How America is Losing Its Innovation Edge, Why It Matters, and What We Can Do to Get It Back, and in a luncheon speech to the Forum, he suggested that these efforts of foundations, non-government organizations and states are both visionary and practical. But like other Forum speakers, he argued that it's essential for the federal government take a leadership role in the effort.

It's not just a matter of creating policies and allocating funds, Kao said. The next presidential administration must help bring about a tidal shift in relations between science, political leaders, and the public. The president and other leaders must engage the country in a new national narrative that makes research and innovation compelling, even sexy. The United States needs to "mobilize national energy to pursue this agenda," he said, "especially among the young."

Edward W. Lempinen

18 June 2008