The Technology Imperative and · 2021. 1. 13. · Emergence of governments as competitors. 3. ... stem-cell tissue engineering cell encapsulation cell culture microarrays fermentation

The Technology Imperative andThe Future of R&D Policy

Gregory Tassey

Senior Economist National Institute of Standards and Technology

September 2008

[email protected]

http://www.nist.gov/director/planning/strategicplanning.htm

2

The Technology Imperative

Conventional wisdom: “The world is flat”

Global diffusion of competitive assets

Technology has become a major competitive asset

Increasing role of technology enables nations to “tip the flat world” in their favor

Requires a new growth paradigm based on

Evolutionary shift in corporate strategy

National Multinational Global

Result is reduced stake in the “home” economy

Emergence of governments as competitors

3

The Problem:

The United States is no longer “the high-tech economy”

Resistance to adaptation in the face of the emergence of the global technology-based economy is pervasive

Installed-base effect (sunk costs: investments in intellectual, physical, organizational and marketing assets)

Installed-wisdom effect (the current approach is the best one)

“The long run is not a problem until you get there, then it’s a crisis”


4

New growth paradigm requires revisions to long-standing economic concepts

Revision to static version of the “law of comparative advantage”

Imperative: Switch to a dynamic version of this law

Modification of Schumpeter’s “one-sector” creative destruction model

Imperative: Modify to a two-sector, full life-cycle model


5

Response: Improved R&D Policy Analysis

(1) Demonstrate importance of technology for economic growth

(2) Identify indicators of underperformance at the macroeconomic level Productivity growth Trade balances Corporate profits Employment and earnings

(3) Estimate magnitude and composition of underinvestment Specific R&D investment trends Investment by phase of the R&D cycle Technology diffusion rates

(4) Identify causes of underinvestment Excessive technical and market risk Appropriability problems Inadequate innovation infrastructures

(5) Develop policy responses and management mechanisms Policy instruments matched with underinvestment phenomena Economic impact assessments

6

Importance of the Technology-Based Economy

1) Technology accounts for one-half of output (GDP) growth

2) High-tech portion of industrialized nations’ manufacturing output has increased by a factor of between 2 and 3 over past 25 years

3) High-tech portion of global trade in goods has tripled in the past 25 years

4) Median wages in all 29 BLS “high-tech” industries exceed median for all industries; 26 of these industries exceed national median by >50%

5) Technologically stagnant sectors show slow productivity growthresulting above-average price increases

6) Acceleration of U.S. productivity growth in 1990s is entirely due to technology investments

7) Productivity advantage of the U.S. economy over other OECD countries accounts for 3/4 of the per capita income gap

8) Rate of return from R&D is four times that from physical capital

7

-2%

0%

2%

4%

6%

8%

10%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

Non-Farm Private Sector Employment Growth in Post World War II Business Recoveries: Percent Change from Recession Trough

Sources: G. Tassey, The Technology Imperative; BLS for employment data; NBER for recession trough dates

Months

Average of Seven Prior Post-War Recoveries

1990-91 Recovery

2001 Recovery

Underperformance

8

0%

2%

4%

6%

8%

10%

12%

14%

1948 1954 1960 1966 1972 1978 1984 1990 1996 2002

Ratio of Domestic Corporate Profits Before Taxes to GDP, 1948-2007

Source: Bureau of Economic Analysis, NIPA Table 1.14 for corporate profits before taxes (Gross Value Added). Domestic profits exclude receipts by all U.S. corporations and persons of dividends from foreign corporations, U.S. corporations’ share of reinvested earnings of their incorporated foreign affiliates, and earnings of unincorporated foreign affiliates net of corresponding payments.

Underperformance

9-1,000

-800

-600

-400

-200

0

200

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

All GoodsAdvanced Technology

Products

$ Billions

Source: Census Bureau, Foreign Trade Division

U.S. Trade Balances for High-Tech vs. All Goods, 1988-2007

Underperformance

10

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005

R&D Intensity: Funding as a Share of GDP, 1953-2006

Source: National Science Foundation

Total R&D/GDP

Federal R&D/GDP

Industry R&D/GDP

Indicators of Underinvestment – Amount

4.49

3.89

3.483.33

2.98 2.902.78

2.622.48 2.46

2.252.13

1.98

1.74

1.33

Source: OECD, Main Science and Technology Indicators, May 2007

National R&D Intensities, 2005 Gross R&D Expenditures as a Percentage of GDP

11


12

• High-Tech Sector:

Electronics

Pharmaceuticals

Communication Services

Software and Computer-Related Services

• Accounts for 7 – 10 percent of GDP

• Bottom Line: The other 90+ percent of the economy is susceptible to market share erosion and decline


13

Trends in Value Added

Industry (NAICS Code)% Change in Value Added1985–2000 2000–2006

R&DIntensity

GDP 132.6 34.4 2.6

Manufacturing (31–33) 92.7 8.7 3.6

Motor vehicles and parts (3361‐63) 84.0 ‐18.0 2.5

Textiles, apparel and leather (313‐16) 8.2 ‐34.7 1.6

Computer & Electronic Products (334) 144.5 ‐24.7 9.0

Publishing, Including Software (511) 225.1 28.8 17.1

Information & Data Processing (518) 305.4 81.7 8.7

Professional, Scientific & Technical (54) 249.6 37.1 10.0

Health Care (621‐23) 194.6 50.4 3.9


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Geographic Concentration: • Six states account for almost one-half of all R&D

• Ten states account for 60 percent of all R&D

• Bottom Line: The remaining 40 states are not a high-tech

economy


15

Geographic Distribution of U.S. R&D: Top Ten States by Share of R&D Performance, 2006

State % of Population % of National R&DCalifornia 12.0 19.8% Michigan 3.3 5.7% New York 6.3 5.5% Texas 7.8 4.4% Massachusetts 2.1 4.9% Pennsylvania 4.1 4.6% New Jersey 2.8 4.4% Illinois 4.2 3.9% Washington 2.1 3.7% Maryland 1.8 3.7% Total 46.5 60.5%



0

20

40

60

80

100

120

140

160

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Industry Funds for R&D by Major Phase, 1991-2006 (in constant 2000 dollars)


Development: up 94.3%

Applied Research: up 45.7%

Basic Research: up 7.4%

$ Billions

16

Indicators of Underinvestment – Composition

17

Major Innovations (14% of Launches)

Incremental Innovations

(86% of Launches)

62% of Revenue 38% of Revenue

61% of Profits

39% of Profits

Profit Differentials for Major and Minor Innovations

Source: W. Chan Kim and Renee Mauborgne, “Value Innovation: The Strategic Logic of High Growth”, Harvard Business Review, 1997

Indicators of Underinvestment – Composition

“Black Box” Model of a Technology-Based Industry

Proprietary Technology

EntrepreneurialActivity

Market Development

Value Added

Value Added

Strategic Planning Commercialization

Science Base

18

Causes of Underinvestment — Composition

G. Tassey, The Technology Imperative, Edward Elgar, 2007

StrategicPlanningStrategicPlanning ProductionProduction

MarketDevelopment

MarketDevelopment

ValueAddedValueAdded


RiskReduction

RiskReduction

ProprietaryTechnologiesProprietary

Technologies

GenericTechnologies

GenericTechnologies

Science Base

Economic Model of a Technology-Based IndustryValueAdded

Gregory Tassey, The Economics of R&D Policy, 1997 19


20


Application of the Technology-Element Model: Biopharmaceuticals

Science Base

Infratechnologies

Generic Technologies Product Process

Commercial

Products genomics immunology microbiology/

virology molecular and cellular

biology nanoscience neuroscience pharmacology physiology proteomics

bioinformatics biospectroscopy combinatorial chemistry DNA sequencing and

profiling electrophoresis fluorescence gene expression analysis magnetic resonance

spectrometry mass spectrometry data nucleic acid diagnostics protein structure

modeling/analysis techniques

antiangiogenesis antisense apoptosis bioelectronics biomaterials biosensors functional genomics gene delivery systems gene testing gene therapy gene expression systems monoclonal antibodies pharmacogenomics stem-cell tissue engineering

cell encapsulation cell culture microarrays fermentation gene transfer immunoassays implantable delivery

systems nucleic acid

amplification recombinant

DNA/genetic engineering

separation technologies

transgenic animals

coagulation inhibitors DNA probes inflammation

inhibitors hormone restorations nanodevices neuroactive steroids neuro-transmitter

inhibitors protease inhibitors vaccines

Public Technology Goods

Mixed Technology Goods

Private Technology

Goods


R&D Cycle

Commercial Products

Overcoming the Innovation Risk Spike (Valley of Death)

Risk

Basic Research

Generic Technology Research

Applied Research and Development

6 years10 years Commercialization

R0Science Base

Source: G. Tassey, “Underinvestment in Public Good Technologies”, Journal of Technology Transfer 30: 1/2 (January, 2005)

Measurement & Standards Infrastructure

“Valley of Death”

21


New Global Life Cycles

Old Domestic Life Cycles

Potential or ActualPerformance/Price

TimeA C B

Compression of Technology Life Cycles

22G. Tassey, The Technology Imperative, Edward Elgar, 2007


23

•

•

A

BCurrent Technology

New Technology

Potential or Actual Performance/Price Ratio

Time

Transition Between Two Technology Life Cycles

Source: Gregory Tassey, The Economics of R&D Policy, 1997


24

Time

Potential or Actual Performance-Price Ratio

Life-Cycle Market Failure: Generic Technology

B

C′•

•

Current Technology

New Technology

A

•• •

D

C

Policy Response


•A

B

New Technology

Potential or Actual Performance/Price

Time

••

Life Cycle Evolution: Infratechnology

Current Technology

CC′

Source: Gregory Tassey, The Technology Imperative, Edward Elgar, 2007

•C′′

•

25

Policy Response

26

StrategicPlanning Production

MarketDevelopment

ValueAdded


RiskReduction

ProprietaryTechnologies

GenericTechnologies

Science Base

Joint Industry-Government Planning

Market Planning Assistance

Acceptance Test Standards; National Test Facilities

Interface Standards

Measurement Standards

National Labs (NIST)

Intellectual Property Rights

National Labs

Direct Funding of Firms, Universities,

Consortia

Technology Transfer (Universities, MEP)

Tax Incentives

Universities

ValueAdded

Targets for Science, Technology, Innovation and Diffusion (STID) Policy

Policy Response


27

Tax Incentives: R&E Tax Credit

Still temporary after 27 years (renewed 13 times)

No consensus on what market failure is being targeted

Limited analysis of the credit’s impacts

No analysis of alternative forms of tax incentives

Government Funding of R&D

Okay to fund breakthrough technology research and even applied R&D to support social objectives (defense, health care)

Not okay to fund any technology research to support economic growth (ATP TIP)

No explicit agreement on underinvestment (market failure)

Response: Improved R&D Policy Analysis

1) The high-income economy must be the high-tech economy – higher R&D intensity

2) Technology life cycle must drive policy – R&D and diffusion policy efficiency over entire cycle

3) Technology-based competition is a public-private problem – public-private asset (multi-element) growth model

4) Policy emphasis must be on relatively immobile assets– skilled labor and innovation infrastructure

5) U.S. technology-based growth policy process must be improved – more resources and better scope and integration

Policy Principles

R&D Policy Imperatives

1) R&D intensity should be doubled to ~ 5 percent

2) R&E Tax Credit must be restructured and enlarged to a 10 percent flat credit

3) Federal R&D must be better balanced across IT, nanotechnologies, biotechnology, etc.

4) Government R&D funding must be element baseda) scienceb) generic technology (proofs of concept)c) infratechnologies

5) R&D efficiency must increaseda) more technology clusters b) better timing of policies over technology life cycle

“Sooner or later, we sit down toa banquet of consequences”

– Robert Louis Stevenson

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The Technology Imperative and · 2021. 1. 13. · Emergence of governments as competitors. 3. ... stem-cell tissue engineering cell encapsulation cell culture microarrays fermentation