April 2006

How the Government Refocused on Innovation and Competitiveness (Part II)

by Debra Schiff

Last month, we looked at the Council on Competitiveness' influential report, Innovate America, which provided the foundation for some pivotal legislation that is making its way through Congress. That report also paved the way for a second (and equally influential) report from the National Academies called Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future. In Part II of this series, we will examine this report, and how it is changing the political landscape in America's examination of its own competitiveness challenge.

Recent Winds of Change

Two innovation-centric initiatives President Bush announced during his State of the Union address on 31 January were the Advanced Energy Initiative and the American Competitiveness Initiative. Advanced Energy includes a 22-percent increase in clean-energy research, to be hosted by the Department of Energy. The initiative has two arms:

• investments in zero-emission coal-fired plants, revolutionary solar and  wind technologies, and nuclear energy

• research for hybrid, electric, ethanol and hydrogen-powered cars.

The American Competitiveness Initiative is a movement intended to plant valuable seeds in the U.S. economy through innovation and math and science education in the K-12 grades.

President Bush wishes to commit $5.9 billion in FY 2007, and more than $136 billion over the next 10 years, to increase investments in R&D, strengthen education, and encourage entrepreneurship and innovation. Specifically, nanotechnology, supercomputing and alternative energy would be the chief beneficiaries of the proposed increases. The president's proposed doubling of the federal basic research budget in the physical sciences over the next 10 years came as a bit of a surprise to some in the science and engineering community, after his administration had cut the federal science and technology basic research budget by 1.2 percent a year ago, while keeping applied research flat.

Why the Turnaround?

In May 2005, Sen. Lamar Alexander (R-Tenn.) and Sen. Jeff Bingaman (D-N.M.), members of the Senate Committee on Energy and Natural Resources, challenged the National Academies to assess the nation's ability to compete and prosper in the 21st century — and to propose specific actions to enhance the likelihood of success in that endeavor.

To that end, the National Academies formed a committee — a veritable who's who of CEOs, Nobel laureates, university presidents and former presidential appointees to tackle the assignment — which, in turn, consulted some 60 subject matter experts and numerous prior studies on America's future prosperity. The committee chair was none other than IEEE Fellow and retired chair and CEO of Lockheed Martin Corporation, Norman R. Augustine. Other luminaries on the committee include Craig Barrett, chair of Intel; Steven Chu, Nobel prize winner in physics; Charles Holliday Jr., chair and CEO of DuPont; Richard Levin, president of Yale University; Lee R. Raymond, chair and CEO of Exxon Mobil; among many others. Notably, many of the luminaries involved in the National Academies' report also participated in the drafting of Innovate America.

When Augustine faced the 109th Congress on 20 Oct. 2005 to relate their findings, he did not beat around the bush. "It is the unanimous view of our committee that America today faces a serious and intensifying challenge with regard to its future competitiveness and standard of living. Further, we appear to be on a losing path," he said. Raising the specter of lost jobs, Augustine shared some of the salient points from his committee's report, Rising Above the Gathering Storm.

Following is a sampling of the report's key points:

• Americans are living off the benefits of past investments

• For the cost of one engineer in America, a company can hire 11 in India

• In international tests involving mathematical understanding, U.S. students finished in 27th place

• Two thirds of U.S. high-school students are taught science by teachers with no major or certificate in chemistry or physics

Rising Above the Gathering Storm made 20 specific recommendations to steer Congress in the direction of a prosperity initiative. Those recommendations are divided into four primary focus areas:

• Improve K-12 science and mathematics education

• Invest in long-term basic research

• Attract and retain the best and brightest students, scientists and engineers from the United States and around the world

• Create and sustain incentives for innovation and research investment

Congress responded quickly. Less than two months after the report came out, Senators Alexander, Bingaman, Pete Domenici (R-N.M.) and Barbara Mikulski (D-Md.) introduced an omnibus bill called the Protect America's Competitive Edge Act (PACE). On 8 March, the Senate Energy and Natural Resources Committee voted unanimously to pass PACE-Energy (S. 2197) out of the committee for full Senate consideration. Meanwhile,  the Committee on Health, Education, Labor and Pensions Subcommittee on Education and Early Childhood Development has held hearings on the other half of the package, PACE-Education (S. 2198), but no vote has been recorded.

Does the PACE package adequately address the report's recommendations? Augustine thinks so, saying that the National Academies report "is obviously broad and cuts across a lot of parts of the Congress in terms of committee jurisdictions, but they went through all 20 of our recommendations and I think did a remarkably good job."

Show Me the Money

Questions about funding for PACE keep popping up because Domenici and Mikulski are key appropriators in the Senate. Says Augustine, "The current funding probably makes up a small part, but the creation of a new curriculum in science and technology for grades K-12 is the kind of thing that foundations are usually pretty amenable to addressing. Some of the other parts of the bill package are the kinds of initiatives that companies have been spending money on, but not in any coordinated fashion. Maybe there's a chance to get more bang for their buck here." Private funding will be a very small part of the $9.5 billion package.

A big chunk of the costs of the proposed package is attributable to the R&D tax credit. By doubling the R&D tax credit from 20 to 40 percent, and, more importantly, by making it permanent, Congress and the president will encourage companies to commit funding to research in the longer term because they can now count on taking the tax deduction. "Just making the statement that this is permanent would be an enormous benefit," says Augustine.

Congressman Rush Holt (D-N.J.) agrees. Said Holt, "The R&D tax credit rewards companies that invest in research. The problem is that it has been used as an annual means of fundraising. It's only renewed year by year. Each year, hosts of lobbyist come in and say ‘we need you to renew the R&D tax credit.' So the leaders renew it for one more year. If you want companies to make decisions that are affected by the tax credit, they've got to know that the tax credit is permanent, that it will be there 10 years from now."

Finally, some of the funding will come from projects that are phasing out, so the funds will be diverted. But most of the money, says Augustine, will be new money, from new allocations from the federal budget. "If we think this is important, they can find the money to fund this. The question is the importance you attach to it," he says.

Why the Department of Energy?

Part of Rising Above the Gathering Storm focuses on energy as a centerpiece of the work to be done in science and technology. Augustine explains, "If you go back to post-Sputnik when President Kennedy increased the R&D budget and addressed K-12 and higher education, he set up the space program as a centerpiece to pull it together. We felt that we needed some centerpiece to pull this together."

America's top technical problems include the provision of energy because it affects national security and the economy. Just about everything is influenced heavily by energy issues today. For example, if a local school system budgets a certain amount for fuel, when the fuel prices increase exponentially, that school system will resort to cutting the number of teachers on staff to make up for the fuel needed to run its buses and heat its classrooms.

"The most important consideration is that our focus was on physics, chemistry, mathematics and engineering. Energy happens to be an area that more than most any other encompasses those specific fields. If you want to invest in math and the physical sciences, energy is a great place to pull it all together," says Augustine.

"We've laid out in our report the essential ingredients. It's one of those things that it will succeed if they get good people on it. If they don't, it won't. It will be up to the Department of Energy to put the meat on those bones," says Augustine.

Next Steps

The handful of bills introduced in Congress that cover all or part of the Rising Above the Gathering Storm and Innovate America reports will have to be reconciled before the voting begins. "Then, the Washington system will do what it usually does, evaluate how sound a case we've made, and the leaders will appropriate the funds and approve the projects, or they won't," says Augustine, taking a wait-and-see approach.

Congressman Holt has a better idea for Augustine. He suggests taking a page from the 9-11 Commission. "They introduced a good report. It was so good, it became a bestseller. Very little of the stuff they had recommended would have been implemented, if they had not formed an office in Washington with marketers, lobbyists and press people. After the commission ceased to exist, the authors formed an office in Washington whose purpose was to hold Congress's feet to the fire, lobby and keep the spotlight on their legislation," he explains.

Warns Holt, "The number of similar reports sitting on the shelves and the number of bills introduced in Congress based on those reports that just died when that session ended are legion. So, Rising Above the Gathering Storm could easily be just another good report unless the authors actually follow up on it and devote time and money to see that congress doesn't just leave the report on the shelf."

IEEE-USA and Innovation

IEEE-USA supports reforms that will channel federal resources toward long-term research goals that will foster innovation. Such investment helps foster innovation in two ways. First, it will generate scientific discoveries and technological breakthroughs that drive innovation, indirectly creating entire new industries. Second, the research itself provides valuable educational opportunities for the next generation of engineers and scientists, opportunities that cannot be reproduced any other way.

IEEE-USA believes that legislators and administration leaders should work to strengthen the nation's current and future engineering workforce by improving the U.S. education system and enhancing life-long employment opportunities for scientists and engineers. IEEE-USA supports the recommendations set forth in Rising Above the Gathering Storm, with specific emphasis on those recommendations targeted at:

• Improving the nation's education system from preschool through graduate school and beyond, with special emphasis on improving math, science and communications skills in grades K-12

• Early recognition and support for students with aptitude and passion in Science, Technology, Engineering and Math (STEM) fields

• Strengthening the skills and recruitment of science and mathematics teachers

• Increasing incentives for individuals to pursue an education and career in STEM fields, and promote more effective utilization of STEM personnel by public- and private-sector employers

• Making continuing education available to practicing scientists and engineers R&D Policy Objectives

IEEE-USA further believes that federal research and development policies and investments should be redirected, as recommended by the Council on Competitiveness' Innovate America report and in the National Academy's report, to:

• Intensify support for research in the physical sciences and engineering to achieve a more robust national R&D portfolio

• Enact a permanent, restructured research and experimentation tax credit, and extend the credit to research conducted in university-industry research consortia

• Address the looming energy concerns of the nation by supporting appropriate innovative energy technologies

• Promote innovative research through new approaches, such as establishing innovation "hot spots" to capitalize on regional assets and leverage public and private sector investments, and/or reallocating at least three percent of agency R&D budgets to "Innovation Acceleration" grants

Debra Schiff is a freelance writer who has written for EE Times, IEEE Spectrum and Electronic Design. Comments may be submitted to todaysengineer@ieee.org.