[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                         U.S. COMPETITIVENESS:
                        THE INNOVATION CHALLENGE

=======================================================================



                                HEARING

                               BEFORE THE

                          COMMITTEE ON SCIENCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 21, 2005

                               __________

                           Serial No. 109-24

                               __________

            Printed for the use of the Committee on Science


     Available via the World Wide Web: http://www.house.gov/science

                                 ______


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                          COMMITTEE ON SCIENCE

             HON. SHERWOOD L. BOEHLERT, New York, Chairman
RALPH M. HALL, Texas                 BART GORDON, Tennessee
LAMAR S. SMITH, Texas                JERRY F. COSTELLO, Illinois
CURT WELDON, Pennsylvania            EDDIE BERNICE JOHNSON, Texas
DANA ROHRABACHER, California         LYNN C. WOOLSEY, California
KEN CALVERT, California              DARLENE HOOLEY, Oregon
ROSCOE G. BARTLETT, Maryland         MARK UDALL, Colorado
VERNON J. EHLERS, Michigan           DAVID WU, Oregon
GIL GUTKNECHT, Minnesota             MICHAEL M. HONDA, California
FRANK D. LUCAS, Oklahoma             BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois               LINCOLN DAVIS, Tennessee
WAYNE T. GILCHREST, Maryland         RUSS CARNAHAN, Missouri
W. TODD AKIN, Missouri               DANIEL LIPINSKI, Illinois
TIMOTHY V. JOHNSON, Illinois         SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia            BRAD SHERMAN, California
JO BONNER, Alabama                   BRIAN BAIRD, Washington
TOM FEENEY, Florida                  JIM MATHESON, Utah
BOB INGLIS, South Carolina           JIM COSTA, California
DAVE G. REICHERT, Washington         AL GREEN, Texas
MICHAEL E. SODREL, Indiana           CHARLIE MELANCON, Louisiana
JOHN J.H. ``JOE'' SCHWARZ, Michigan  DENNIS MOORE, Kansas
MICHAEL T. MCCAUL, Texas
VACANCY
VACANCY






















                            C O N T E N T S

                             July 21, 2005

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Sherwood L. Boehlert, Chairman, 
  Committee on Science, U.S. House of Representatives............     8
    Written Statement............................................     9

Statement by Representative Jerry F. Costello, Member, Committee 
  on Science, U.S. House of Representatives......................     9
    Written Statement............................................    10

Prepared Statement by Representative Vernon J. Ehlers, Member, 
  Committee on Science, U.S. House of Representatives............    11

Prepared Statement by Representative Michael M. Honda, Member, 
  Committee on Science, U.S. House of Representatives............    12

Prepared Statement by Representative Lincoln Davis, Member, 
  Committee on Science, U.S. House of Representatives............    12

Prepared Statement by Representative Russ Carnahan, Member, 
  Committee on Science, U.S. House of Representatives............    13

Prepared Statement by Representative Todd Tiahrt.................    65

                               Witnesses:

Mr. Nicholas M. Donofrio, Executive Vice President for Innovation 
  and Technology, IBM Corporation
    Oral Statement...............................................    14
    Written Statement............................................    16
    Biography....................................................    22
    Financial Disclosure.........................................    24

Mr. John P. Morgridge, Chairman of the Board, Cisco Systems, Inc.
    Oral Statement...............................................    25
    Written Statement............................................    26
    Biography....................................................    31
    Financial Disclosure.........................................    32

Dr. William R. Brody, President, The Johns Hopkins University
    Oral Statement...............................................    33
    Written Statement............................................    35
    Biography....................................................    41
    Financial Disclosure.........................................    42

Discussion.......................................................    51

             Appendix 1: Answers to Post-Hearing Questions

Mr. Nicholas M. Donofrio, Executive Vice President for Innovation 
  and Technology, IBM Corporation................................    76

Mr. John P. Morgridge, Chairman of the Board, Cisco Systems, Inc.    78

Dr. William R. Brody, President, The Johns Hopkins University....    79

             Appendix 2: Additional Material for the Record

Statement by The Institute of Electric and Electronics 
  Engineers--United States of America (IEEE-USA).................    84
















             U.S. COMPETITIVENESS: THE INNOVATION CHALLENGE

                              ----------                              


                        THURSDAY, JULY 21, 2005

                  House of Representatives,
                                      Committee on Science,
                                                    Washington, DC.

    The Committee met, pursuant to call, at 10:05 a.m., in Room 
2318 of the Rayburn House Office Building, Hon. Sherwood L. 
Boehlert [Chairman of the Committee] presiding.





                            hearing charter

                          COMMITTEE ON SCIENCE

                     U.S. HOUSE OF REPRESENTATIVES

                         U.S. Competitiveness:

                        The Innovation Challenge

                        thursday, july 21, 2005
                         10:00 a.m.-12:00 p.m.
                   2318 rayburn house office building

1. Purpose

    On Thursday, July 21, 2005, the House Science Committee will hold a 
hearing to examine the relationship between federal science and 
engineering research and education investments and U.S. economic 
competitiveness.

2. Witnesses

Mr. Nicholas Donofrio is Senior Vice President for Technology and 
Manufacturing at IBM Corporation.

Mr. John Morgridge is Chairman of Cisco Systems, Incorporated, and 
part-time Professor at Stanford University's Graduate School of 
Business. From 1988 to 1995, Mr. Morgridge was CEO and President of 
Cisco.

Dr. William Brody is the President of The Johns Hopkins University. He 
has previously served as Director of the Department of Radiology, 
Professor of Electrical and Computer Engineering, and Professor of 
Biomedical Engineering at Johns Hopkins, and Radiologist-in-Chief at 
The Johns Hopkins Hospital. He is also Co-chair of the Council on 
Competitiveness National Innovation Initiative.

3. Overarching Questions

          How do federal science and engineering research and 
        education programs foster innovation and contribute to U.S. 
        economic competitiveness?

          How is the global competitive landscape changing, 
        particularly with regard to innovation capacity, and what does 
        this mean for future U.S. economic performance? What are the 
        principal innovation-related challenges U.S. businesses face in 
        terms of competing in the global economy?

          How can research and development (R&D) and math, 
        science, and engineering education and training better 
        contribute to the Nation's innovation system and the U.S. 
        competitive position? What specific steps should the Federal 
        Government take to ensure that the U.S. remains the world 
        leader in innovation?

4. Brief Overview

          The importance of a strong scientific and 
        technological enterprise as a primary factor in driving 
        economic growth is well-established. Substantial and sustained 
        U.S. investments in research and education over the last 50 
        years spawned an abundance of technological breakthroughs that 
        transformed American society and helped the U.S. to become the 
        world's dominant economy. Economists estimate that these 
        technological advances have been responsible for up to half of 
        U.S. economic growth since the end of World War II. The 
        relationship between innovation and economic growth has only 
        grown in recent years as the world shifts to an increasingly 
        knowledge-based economy.

          While the U.S. continues to lead the world in 
        innovation capacity--R&D spending, number of scientists and 
        engineers, scientific output, etc.--recent indicators of the 
        level of U.S. support for research relative to other countries 
        show that this lead may be slipping. Overall U.S. federal 
        funding for R&D as a percentage of gross domestic product (GDP) 
        has declined significantly since its peak in 1965, and the 
        focus of this R&D has shifted away from the physical sciences, 
        mathematics, and engineering--the areas of R&D historically 
        most closely correlated with innovation and economic growth.

          At the same time, other nations--particularly 
        emergent nations such as China and India--have recognized the 
        importance of innovation to economic growth, and are pouring 
        resources into their scientific and technological 
        infrastructure, rapidly building their innovation capacity and 
        dramatically increasing their ability to compete with U.S. 
        businesses on the world stage.

          It has become increasingly apparent that the growing 
        innovation capacity of foreign competitors, combined with the 
        rise of the global economy and a relative erosion of federal 
        support for innovation in the U.S., could present a long-term 
        challenge to U.S. economic competitiveness.

          As a result, some industry and academic leaders have 
        raised concerns that U.S. Government policy has been slow to 
        react to the rapidly changing competitive landscape. In 
        particular, calls from U.S. industry for a revitalization of 
        the U.S. innovation system have become louder and more 
        frequent. Numerous business associations representing nearly 
        every industry sector are now calling on the Federal Government 
        to respond to the competitiveness challenge by increasing 
        investments in the science and engineering research and 
        education.

5. Background

History of U.S. R&D Funding
    Prior to World War II, the private sector funded most research and 
development activity in the U.S. Federal Government support was 
uncoordinated and targeted toward solving a small number of specific 
problems. The onset of the war led to a substantial (and successful) 
investment and effort to harness science and technology to meet the 
challenges of the war. In 1945, President Roosevelt's science advisor, 
Vannevar Bush, published a seminal report entitled Science: the Endless 
Frontier, which argued that continued and expanded public support for 
long-term, fundamental scientific research was as an important of 
investment in peacetime as it was in wartime, noting that building the 
knowledge base would ultimately lead to accelerated innovation and 
greater future economic growth.
    In response to the report, Congress made support for civilian 
fundamental research a national priority, creating the National Science 
Foundation (NSF) in 1950. The Soviet launch of Sputnik in 1957 further 
broadened federal support for science and technology, resulting in the 
creation of the National Aeronautics and Space Administration (NASA) 
and significant spending increases on R&D and math, science, and 
engineering education. Another important response to Sputnik was 
passage of the National Defense Education Act in 1958, which provided 
unprecedented resources for math and science education at the 
elementary, secondary, and post-secondary levels. Together these events 
led to a dramatic shift in the Federal Government's approach to funding 
research and education. In 1935, the Federal Government support for R&D 
comprised only 13 percent of overall U.S. expenditures. By 1962, the 
federal portion had risen to 70 percent. Today, the federal portion has 
declined to roughly 30 percent, in part because of increased 
development funding by the private sector.
Role of R&D in Innovation
    These efforts placed the U.S. at the forefront of innovation by 
building a massive U.S. R&D enterprise and educating the next 
generation of scientists and engineers. Ultimately, this paid 
significant dividends for the Nation. While economists are not able to 
precisely determine the economic impact of federal support for R&D, the 
advancements resulting from such support have undeniably transformed 
every aspect of American life. Computers, the Internet, lasers, jet 
aircraft and modern telecommunications are just a few examples of 
products made possible by federal R&D investments since World War II.

6. Issues

Overall Federal Support for R&D
    The amount of the country's overall wealth devoted to federal R&D 
has declined significantly since the post-Sputnik surge in support for 
R&D. According to Office of Management and Budget statistics, in 1965, 
funding for R&D as a percentage of GDP (measured as outlays), also 
known as R&D intensity, was slightly over two percent (Chart 1). In 
2005, it is estimated to be 1.07 percent.
    While this ratio has recently begun to increase again, turning 
upward over the last five years, the majority of those increases have 
gone toward short-term defense development and homeland security 
applications. For example, the Department of Defense (DOD) R&D 
increases alone--most of which have supported development projects that 
have very little impact on innovation or broader economic development--
has accounted for almost 70 percent of the overall R&D increases of the 
last five years. Of the remaining increases, 75 percent has gone to the 
National Institutes of Health (NIH) and the Department of Homeland 
Security (DHS). At $71 billion and $29 billion, respectively, the R&D 
budgets of DOD and NIH now account for over 75 percent of all federal 
R&D. Meanwhile, funding for the physical sciences and engineering--the 
areas historically most closely associated with innovation and economic 
growth--have been flat or declining for the last 30 years.





    The increased emphasis on short-term development at the expense of 
longer-term basic and applied research, as well as the emphasis on 
defense and biomedical R&D spending, has led many in industry and 
academia (as well as the Science Committee) to question whether federal 
R&D priorities are appropriately balanced to maximize innovation and 
ensure long-term economic competitiveness.
    Compounding these concerns, the long-term outlook for the federal 
budget does not favor future increases in discretionary spending 
(through which almost all R&D is funded). Absent major policy changes, 
the growth in mandatory federal spending--primarily for health and 
retirement benefits and payments on the national debt interest--will 
demand a significantly greater share of the government's resources.
Shift of Private Sector R&D
    During the heyday of the corporate research laboratory in the 
middle decades of the 20th century, U.S. corporate laboratories 
supported all stages of R&D, from knowledge creation to applied 
research to product development, and were quite successful in their 
efforts to nurture innovation. The most notable example of this was 
AT&T's Bell Laboratories, which grew to be one of the world premier 
research organizations of the last century, developing numerous 
breakthrough technologies that changed American life, including 
transistors, lasers, fiber-optics, and communications satellites. 
Researchers at Bell Labs and other corporate laboratories were eligible 
for, and received, grants from federal research agencies such as NSF 
and DOD, but they received core support from the parent company and 
they conducted basic and applied research directed toward developing 
technology relevant to the company's business.
    While overall growth of industry-funded R&D has remained strong in 
recent years, the focus of this R&D has shifted significantly away from 
longer-term basic research in favor of applied research and development 
more closely tied to product development. Because of market demands 
from investors to capitalize on R&D quickly, large corporate 
laboratories of the Bell Labs model are increasingly rare (notable 
exceptions include companies such as IBM and GE). Instead, corporations 
now focus research projects almost exclusively on lower-risk, late-
stage R&D projects with commercial benefits, leaving the Federal 
Government as the predominant supporter of long-term basic research.
Increasing Competitiveness of Foreign Countries
    While trends of support for the innovation system in the U.S. have 
showed signs of slowing and even eroding, other nations are committing 
significant new resources to building their science and technology 
enterprises. More than one-third of OECD (Organization for Economic 
Cooperation and Development) countries have increased government 
support for R&D by an average rate of over five percent annually since 
1995. The European Union has recently established a target to achieve 
EU-wide R&D intensity of three percent of the EU economy by 2010. (By 
comparison, the current U.S. R&D intensity, public and private sector 
combined, is 2.6 percent of GDP.) Similarly, individual nations, 
including South Korea, Germany, the U.K. and Canada, have recently 
pledged to increase R&D spending as a percentage of GDP.
    However, no nation has increased its support for innovation as 
dramatically as China. It has doubled its R&D intensity from 0.6 
percent of its GDP in 1995 to 1.2 percent in 2002 (this during a time 
of rapid GDP growth). R&D investments in China by foreign corporations 
have also grown dramatically, with U.S. investments alone increasing 
from just $7 million in 1994 to over $500 million in 2000. China is now 
the third-largest performer of R&D in the world, behind only the U.S. 
and Japan.
    The increased innovation capacity of other countries is also 
becoming evident in output-based R&D benchmarks. For example, the U.S. 
share of science and engineering publications published worldwide 
declined from 38 percent in 1988 to 31 percent in 2001, while Western 
Europe and Asia's share increased from 31 to 36 percent and 11 to 17 
percent, respectively. Similar trends have occurred in the area of U.S. 
patent applications and citations in scientific journals.
Education and Workforce Issues
    While the supply and demand of future scientists and engineers is 
notoriously difficult to predict, most experts believe that the 
transition to a knowledge-based economy will demand an increased 
quality and quantity of the world's scientific and technical workforce. 
As is the case with R&D figures, trends in the distribution of the 
world's science and engineering workforce are also unfavorable to long-
term U.S. competitiveness.
    The world is catching up and even surpassing the U.S. in higher 
education and the production of science and engineering specialists. 
China now graduates four times as many engineering students as the 
U.S., and South Korea, which has one-sixth the population of the U.S., 
graduates nearly the same number of engineers as the U.S. Moreover, 
most Western European and Asian countries graduate a significantly 
higher percentage of students in science and engineering. At the 
graduate level, the statistics are even more pronounced. In 1966, U.S. 
students accounted for approximately 76 percent of world's science and 
engineering Ph.D.s. In 2000, they accounted for only 36 percent. In 
contrast, China went from producing almost no science and engineering 
Ph.D.s in 1975 to granting 13,000 Ph.D.s in 2002, of which an estimated 
70 percent were in science and engineering.
    Meanwhile, the achievement and interest levels of U.S. students in 
science and engineering are quite low. According to the most recent 
international assessment, U.S. twelfth graders scored below average and 
among the lowest of participating nations in math and science general 
knowledge, and the comparative data of math and science assessment 
revealed a near-monopoly by Asia in the top scoring group for students 
in grades four and eight. These students are not on track to study 
college level science and engineering and, in fact, are unlikely ever 
to do so. Of the 25-30 percent of entering college freshmen with an 
interest in a science or engineering field, less than half complete a 
science or engineering degree in five years.
    All of this is happening as the U.S. scientific and technical 
workforce is about to experience a high rate of retirement. One quarter 
of the current science and engineering workforce is over 50 years old. 
At the same time, the U.S. Department of Labor projects that new jobs 
requiring science, engineering and technical training will increase 
four times higher than the average national job growth rate.
Industry Concerns and Reports
    As a result of the aforementioned trends, U.S. businesses have 
become increasingly vocal about concerns that the U.S. is in danger of 
losing its competitive advantage. In an effort to call attention to 
these concerns, several industry organizations have independently 
produced reports specifically examining the new competitiveness 
challenge and recommending possible courses of action to address it. 
Prominent among these efforts is the National Innovation Initiative 
(NII), a comprehensive undertaking by industry and university leaders 
(including those representing IBM, Cisco, and The Johns Hopkins 
University) to identify the origins of America's innovation challenges 
and prepare a call to action for U.S. companies to ``innovate or 
abdicate.'' The December 2004 NII final report, Innovate America: 
Thriving in a World of Challenge and Change, intends to serve as a 
roadmap for policy-makers, industry leaders, and others working to help 
America remain competitive in the world economy.
    Other industry associations that have also produced recent reports 
include AeA (formerly the American Electronics Association), the 
Business Roundtable, Electronic Industries Alliance, National 
Association of Manufacturers, and TechNet. While the companies and 
industry sectors represented by these organizations varies widely, one 
general recommendation was common to all of the reports: the Federal 
Government needs to strengthen and re-energize investments in R&D and 
science and engineering education.

7. Witnesses Questions

    The witnesses were asked to address the following questions in 
their testimony:
Questions for Mr. Donofrio

          What role does innovation play in bolstering U.S. 
        competitiveness?

          What principal innovation challenges do your company 
        and its industry sector face in terms of competing in the 
        global economy?

          How can research and development and math, science, 
        and engineering education and training better contribute to the 
        strength of the Nation's innovation system and to the U.S. 
        competitive position?

          What should the Federal Government be doing to 
        strengthen the Nation's innovation system, particularly with 
        regard to federal programs to support research and technical 
        workforce development?

Questions for Mr. Morgridge

          What role does innovation play in bolstering U.S. 
        competitiveness?

          What principal innovation challenges do your company 
        and its industry sector face in terms of competing in the 
        global economy?

          How can research and development and math, science, 
        and engineering education and training better contribute to the 
        strength of the Nation's innovation system and to the U.S. 
        competitive position?

          What should the Federal Government be doing to 
        strengthen the Nation's innovation system, particularly with 
        regard to federal programs to support research and technical 
        workforce development?

Questions for Dr. Brody

          What role does innovation play in bolstering U.S. 
        competitiveness?

          What principal innovation challenges does the U.S. 
        face in terms of competing in the global economy?

          How can research and development and math, science, 
        and engineering education and training better contribute to the 
        strength of the Nation's innovation system and to the U.S. 
        competitive position?

          What should the Federal Government be doing to 
        strengthen the Nation's innovation system, particularly with 
        regard to federal programs to support research and technical 
        workforce development?
    Chairman Boehlert. The hearing will come to order. I want 
to welcome everyone here today to hear from our witnesses, who 
are true captains of industry and intellectual leaders.
    The reason for this hearing should be clear. We want to 
send a message. If we don't invest today in science, 
technology, and education, then our economy simply will not 
continue to thrive. Happily, we have some key allies in 
Congress promoting this message, such as Chairman Frank Wolf on 
the Appropriations Committee, the Chairman of the subcommittee 
of jurisdiction, and his fellow appropriator, John Culberson, 
but we have more work to do to ensure that all of Washington 
understands what is at stake.
    We used to be so far ahead of everyone else that when we 
looked around, we couldn't find the people in second place. 
Guess what? They are breathing down our neck now. I like being 
preeminent. I like being number one. We have got our work cut 
out for us to maintain that position. We live in financially 
constrained times in Washington. The jockeying for federal 
funds gets more intense each year, and most of us have scars to 
prove it. We need more forceful and more vocal advocates, both 
inside and especially outside of government, if research and 
education are to get the attention they need.
    Today's hearing is just one effort among many to raise the 
profile of these issues. Many associations have gone into high 
gear, and I want to draw particular attention to the National 
Innovation Initiative of the Council on Competitiveness, which 
is now moving into a legislative stage. Also, we hope the 
Innovation Summit this fall, which Dr. Vern Ehlers, our 
distinguished colleague on the Committee, and a scientist in 
his own right, we are working on this together, to put together 
with industry groups, thanks to Chairman Wolf, that will 
galvanize the type of support we need for this most important 
and most urgent mission we are upon.
    This is a critical time for research and education, as 
Congress and the Administration are working on both the Fiscal 
2006 and 2007 budgets. We need to act now if future generations 
are to enjoy the standard of living that leaders like our 
witnesses today have brought to the United States. And I remind 
people all the time of so-called glory days of the '90s. Ten 
consecutive years, quarter after quarter, year after year, 
growth in our economy. More Americans employed than ever 
before. Guess what? That was a technology-driven era, and we 
have got to replicate that in this generation and in the next 
generations to come. And we are going to succeed if we do it 
right, and we are going to fail if we fail to recognize the 
importance of the basics, like K-12 math and science education. 
Like federal investment in the science enterprise.
    And I remind everybody of this saying right up here on the 
wall: ``Where there is no vision, the people perish.'' We are 
not going to perish, because of the work that we are doing on 
this committee, and because of the outstanding leadership we 
enjoy from people like our distinguished panel of witnesses 
today.
    With that, let me give the microphone to another very 
distinguished American, my colleague from Illinois, Mr. 
Costello.
    [The prepared statement of Chairman Boehlert follows:]
          Prepared Statement of Chairman Sherwood L. Boehlert
    I want to welcome everyone here today to hear from our witnesses 
who are true captains of industry and intellectual leaders.
    The reason for this hearing should be clear; we want to send a 
message; if we don't invest today in science, technology, and education 
then our economy simply will not continue to thrive. Happily, we have 
some key allies in Congress in promoting this message such as Chairman 
Frank Wolf and his fellow appropriator John Culberson. But we have more 
work to do to ensure that all of Washington understands what's at 
stake.
    We live in financially constrained times in Washington. The 
jockeying for federal funds gets more intense every year. We need more 
forceful and more vocal advocates, both inside and especially outside 
of government if research and education are to get the attention they 
need.
    Today's hearing is just one effort among many to raise the profile 
of these issues. Many associations have gone into high gear, and I want 
to draw particular attention to the National Innovation Initiative of 
the Council on Competitiveness, which is now moving into a legislative 
stage. Also, we hope the Innovation Summit this fall which Dr. Ehlers 
and I are working to put together with industry groups, thanks to 
Chairman Wolf, will also galvanize support.
    This is a critical time for research and education as Congress and 
the Administration are working on both the fiscal 2006 and 2007 
budgets. We need to act now if future generations are to enjoy the 
standard of living that leaders like our witnesses today have brought 
to the United States.

    Mr. Costello. Mr. Chairman, thank you, Mr. Chairman. I have 
a full statement that I will enter into the record. I do have 
brief comments that I would like to make.
    First, let me thank you for calling this hearing, and let 
me join you in welcoming our witnesses here this morning, to 
explore the Nation's innovation capabilities and its 
competitiveness in the global economy.
    There are many examples of how the excellence of our 
science and technology enterprise has played a central role in 
our economic competitiveness. To stay in the lead, as you 
indicated in your opening statement, as the rest of the world 
makes increasing strides to catch up, we must make the 
appropriate investments in research and development, and in the 
education of new generations of scientists and engineers.
    Unfortunately, the Administration has not placed a high 
priority on research investments, particularly for non-defense 
research. The best measure of federal support for the research 
that underpins innovation and creation of advanced technology 
is the federal science and technology budget. The 
Administration proposed a 1.4 percent spending reduction in its 
budget for Fiscal Year 2006. While the House passed the 
appropriation bills increasing this funding level, the increase 
is still below the inflation level. If we continue to chip away 
at the research base, we jeopardize our economic strength and 
technological competitiveness for the long-term.
    Of perhaps even greater concern for the long-term is 
whether the correct policies are in place to ensure that we 
have the type of scientists and engineers needed in the future. 
Ranking Member Gordon and myself have recently organized and 
held in this very room a roundtable discussion to look at 
supply and demand of science and technology workforce, 
including the effects of offshoring.
    Several things became apparent as a result of that 
roundtable discussion. First, there is no straightforward 
answer on whether there is a shortage or a surplus now, and 
there is no accurate way to predict future demand in this 
country. It is also very clear that we have entered a new era 
of international competition, in which our economic competitors 
are producing increasing numbers of well-trained scientists and 
engineers, and that the U.S. companies are going offshore for 
their low-cost technical talent.
    The question then is what kind of skills will enable U.S. 
scientists and engineers to differentiate themselves from, and 
thereby command higher salaries than, foreign scientists and 
engineers. With unemployment levels in engineering at historic 
highs and U.S. companies announcing that they are reducing 
their professional workforce, it is difficult to see how these 
careers will attract the most talented young people, our 
American students, who have other career options.
    These are difficult issues that go beyond simple solutions, 
such as more funding for R&D, or training more scientists and 
engineers. We need more information on the factors that lead to 
the offshoring of science and engineering jobs, and on the 
impact of this trend on the career choices of our students.
    It does little good to invent new technologies if the 
manufacturing and production is done offshore, yet we are 
hearing that in venture capital invested high tech firms, that 
this is exactly what is happening. Developing successful 
policies to address these issues will require a frank and open 
discussion between industry, government, and universities.
    Mr. Chairman, I look forward to hearing the testimony of 
the witnesses here today, in particular, as to how they think 
that innovation will create more jobs in the United States, as 
well as other important issues. And again, I thank you for 
calling this hearing this morning, and look forward to hearing 
our witnesses.
    [The prepared statement of Mr. Costello follows:]
         Prepared Statement of Representative Jerry F. Costello
    Mr. Chairman, I am pleased to join you in welcoming our witnesses 
this morning to this hearing to explore the Nation's innovation 
capabilities and its competitiveness in the global economy.
    No one serving on the Science Committee can fail to appreciate the 
relationship between innovation economic strength and security.
    We have had many opportunities to review through the Committee's 
hearings how the excellence of our science and technology enterprise 
has played a central role in our economic competitiveness.
    To stay in the lead in competitiveness, as the rest of the world 
makes increasingly greater strides to catch up, requires that we 
progress even faster. That means making appropriate investments in 
research and development and in the education of new generations of 
scientists and engineers.
    And I want to stress the word appropriate, we can't expect to re-
cycle the policies of twenty years ago and expect them to work today.
    Unfortunately, this Administration has not placed a high priority 
on research investments, particularly for non-defense research.
    The best measure of federal support for the research that underpins 
innovation and creation of advanced technology is the Federal Science 
and Technology budget.
    The Administration proposed a 1.4 percent spending reduction in its 
budget for fiscal year 2006. While the House-passed appropriation bills 
have turned this into an equivalent increase--even so, the increase 
will trail the inflation level.
    If we continue to chip away at the research base, we jeopardize our 
economic strength and technological competitiveness for the long-term.
    Of perhaps even greater concern for the long-term is whether the 
correct policies are in place to ensure we have the type of scientists 
and engineers needed in the future.
    Ranking Member Gordon and I recently organized a roundtable 
discussion to look at supply and demand for the science and technology 
workforce, including the effects of off-shoring.
    Several things became clear from that event. First, there is no 
straightforward answer on whether a shortage or surplus now exists, and 
there is no accurate way to predict future demand. Indeed, one of the 
witnesses pointed out that past predictions of shortages of scientists 
and engineers have been notoriously wrong.
    It is also clear we have entered a new era of international 
competition in which our economic competitors are producing increasing 
numbers of well trained scientists and engineers and that U.S. 
companies are going off-shore to avail themselves of this low-cost 
technical talent.
    The question then is what kinds of skills will enable U.S. 
scientists and engineers to differentiate themselves from, and thereby 
command higher salaries than, foreign scientists and engineers. With 
unemployment levels in engineering at historic highs and U.S. companies 
announcing that they are reducing their professional work force it is 
difficult to see how such careers will attract the most talented 
American students, who have other career options.
    These are difficult issues that go beyond simple solutions, such as 
fund more R&D or train more scientists and engineers. For instance, we 
need more information on the underlying factors that lead to the off-
shoring of science and engineering jobs and on the impact of this trend 
on the career choices of our students.
    It is timely to explore what policy options are available to ensure 
the Nation maintains its current prominence in technology and 
innovation. In addition, we need to address how innovation will create 
more jobs in the U.S.
    It does no good to invent new technologies if the manufacture and 
production is done off-shore. Yet we are hearing that in venture 
capital invested high-tech firms that this is exactly what is 
happening.
    Developing successful polices to address these issues will require 
a frank and open discussion between industry, government and 
universities.
    I look forward to discussing these matters with our distinguished 
panel, and I thank the Chairman for convening this hearing.

    [The prepared statement of Mr. Ehlers follows:]
         Prepared Statement of Representative Vernon J. Ehlers
    As a firm believer that innovation is the key to U.S. economic 
growth, vitality, and national security, I am pleased that the Science 
Committee is holding this important hearing. One of my top priorities 
in Congress has been to educate other Members about innovation and 
foster policies that enhance it. The United States is on the cutting 
edge of global competition because of our past investments in science 
and technology. Whether we remain in that position depends on how well 
we understand the drivers of innovation and how we choose to respond.
    There are many ways we can foster innovation and competitiveness at 
the national level, but some are less obvious than others. I have 
consistently advocated for two main goals: increased funding across the 
federal agencies that support fundamental research; and strengthening 
math and science education in our current and future workforce. 
Economists attribute more than half the economic growth in the past 50 
years to technological innovation. Federally funded basic research has 
been responsible for groundbreaking technologies, such as magnetic 
resonance imaging (MRI), the global positioning system (GPS), human 
genome mapping, fiber optics, lasers, and the Internet. Bolstering our 
workforce requires improving current training programs and 
strengthening core math and science teaching and curricula throughout 
our K-12 system. In the House I co-chair the Science, Technology, 
Engineering and Math (STEM) Education Caucus, a member organization 
that works to support STEM Education at all levels. Improving the 
science literacy of our current and future workforce will ensure the 
quality of our intellectual infrastructure. In addition to the ways I 
have mentioned, we must continue to be aware of other areas that impact 
the innovation process and maintain Congressional awareness and support 
of those areas.
    I have been working on these issues for some time now. In 2002, as 
Chairman of the Science Committee's Subcommittee on Environment, 
Technology and Standards, I held a hearing about innovation in 
manufacturing. Following that hearing I developed the Manufacturing 
Technology Competitiveness Act, which passed the House overwhelmingly 
in the 108th Congress. Unfortunately the Senate did not have time to 
take it up last year, but we are at it again even stronger this time 
around and expect this year's bill, H.R. 250, to be on the House Floor 
soon. The Manufacturing Technology Competitiveness Act authorizes the 
highly successful Manufacturing Extension Partnership program. This 
federal-State partnership program, run by the National Institute of 
Standards and Technology (NIST), provides expert advice to small and 
medium-sized manufacturers who want to improve their processes to 
remain competitive. My manufacturing bill also establishes 
collaborative research programs at NIST that would foster partnerships 
between small and large manufacturers, academic researchers, and other 
partners to do manufacturing-specific research.
    I know that today's witnesses will share personal experiences and 
creative ideas on ways we can promote an environment of innovation to 
maintain U.S. competitiveness across all sectors of the economy. I am 
happy to see the Committee has invited representatives of both the 
business and the academic communities, because there are no ``islands 
of innovation'' and I believe new partnerships between traditionally 
separate communities will be important for future innovation. I look 
forward to learning from all of our witnesses how we might make 
government, industry, academia and others work together as a team for 
creative innovation.

    [The prepared statement of Mr. Honda follows:]
         Prepared Statement of Representative Michael M. Honda
    Chairman Boehlert and Ranking Member Gordon, thank you for holding 
this hearing today with these distinguished witnesses to address the 
vitally important issue of U.S. competitiveness in the global economy 
and the role of innovation in maintaining the U.S. preeminence.
    I represent from Silicon Valley, where tens of thousands of high 
tech workers have lost their jobs over the last few years. Many of 
these jobs have moved overseas, a fate formerly only associated with 
unskilled jobs. These are highly skilled jobs, though, held by highly 
educated people. We can't just ``retrain'' them to move up into higher 
skilled jobs these jobs are at the top rungs of the engineering ladder. 
This aspect of the problem makes it a very difficult one to tackle.
    One thing that has troubled me about the debate over out-sourcing 
is that it has been portrayed as an ``us vs. them'' confrontation, 
pitting the U.S. against other nations, usually Asian ones such as 
India, China, or Taiwan. I disagree with this notion, however, because 
the truth is that American executives running American companies are 
making decisions to move jobs to other countries. They are not coming 
in and ``stealing our jobs,'' we are giving those jobs away.
    Why are we doing that? It seems to be a complex question. Simple 
business sense tells us that there must be something about the demands 
placed on companies by American consumers that is driving this out-
sourcing. And there must be some benefit that companies see to making 
the move.
    Until we can identify those factors, we will not be able to figure 
out what needs to be done. We will be left to flail about, trying 
stopgap measures that do not really address the root of the problem.
    In the end, it looks like either we need to stop the jobs from 
moving out of the country, become resigned to the fact that these top 
tier technology jobs going away and accept a workforce shift to the 
service sector, or maybe create whole new high tech fields in which the 
U.S. leads the rest of the world, so that the jobs need to stay here.
    I am not sure how we are going to do that, since I do not know the 
underlying factors that have led to the problem. I hope that our expert 
witnesses can help us understand some of the causes behind the trends 
and then develop some policies to address some of these questions.

    [The prepared statement of Mr. Davis follows:]
           Prepared Statement of Representative Lincoln Davis
    Thank you, Mr. Chairman and Ranking Member, for holding today's 
hearing. Many say the U.S. is losing its competitive edge when it comes 
to technology and innovation. In Tennessee's Fourth Congressional 
District, I see jobs being lost or jobs going overseas, where labor is 
cheaper. At the same time, I see other nations investing more heavily 
in research and technology than we are. Other countries are surpassing 
the U.S. when it comes to certain areas of technology like computer 
chip manufacturing or technology customer service.
    How can the U.S. regain its competitive edge? I believe that the 
Federal Government should support math and science education in our 
public schools to encourage more children to pursue science and 
technology careers.
    I also believe we should look carefully at our national budget and 
find a way to maintain balance, providing cost-effective health care 
and Social Security, while also giving adequate funding to science and 
technology research.
    Most federal research dollars go to university scientists, who are 
training tomorrow's generation of innovators. We must fund federal 
research in a balanced way so that the physical sciences receive the 
same level of support as the biomedical sciences did a few years ago.
    I am interested in hearing ideas from today's witnesses on how the 
U.S. can regain its competitiveness. Thank you, Mr. Chairman. I yield 
back the balance of my time.

    [The prepared statement of Mr. Carnahan follows:]
           Prepared Statement of Representative Russ Carnahan
    Mr. Chairman and Mr. Ranking Member, thank you for hosting this 
very important hearing today.
    Many have noted recently that manufacturing plants are shifting 
off-shore, but we must also recognize that high-end engineering jobs 
are being moved off-shore. Additionally, U.S. companies are moving to 
establish industrial research labs abroad.
    Like many other Members sitting here today, I believe strongly in 
promoting science and engineering education. We have a tremendous 
responsibility as legislators to recognize that our nation is no longer 
leading the pack in STEM (science, technology, engineering and math) 
performance and that related job markets are shifting overseas. 
Deciding if and how we will remedy this situation is our greatest 
challenge.
    Mr. Donofrio, Mr. Morgridge, and Dr. Brody, thank you for your 
willingness to join us. I am eager to hear your testimony and your 
recommendations.

    Chairman Boehlert. Thank you very much, Mr. Costello, and 
our panel today is composed of three very distinguished people 
in their own right, and I want to thank each of you for serving 
as instructors for this committee. And we do something on this 
committee that some people might find a little bit rare. We 
sort of sit back and listen. We invite people like you, who 
have distinguished records in the real world, if you will. We 
have Nobel laureates. And we sit back and we listen, and we 
hope to learn, and we respect you for your willingness to serve 
as guides for us, and to help inform us.
    In the final analysis, Congress is going to be a success or 
failure based upon the direction in which we take this country, 
and we are not going to do it in the dark of the night, on the 
back of an envelope, in some lobby. We are going to do it in 
open hearings, where we get the best guidance we can get.
    And with that, let me present to my colleagues and to the 
audience our distinguished witnesses: Mr. Nicholas Donofrio, 
Executive Vice President for Innovation and Technology for the 
IBM Corporation; Mr. John Morgridge, Chairman of Cisco Systems, 
Incorporated; and Dr. William Brody, President of The Johns 
Hopkins University.
    Thank you very much, gentlemen, for appearing here. And we 
would ask you to summarize your statements as much as you can, 
which would provide greater opportunity for the interaction 
here. We ask the obvious questions, and then we sit back and 
say, hmm. You will notice we have a timer there, and Mr. 
Morgridge, in front of you, you are all veterans. You have been 
through this drill before. The chair is not arbitrary. I am not 
going to cut you off in mid-sentence or even mid-thought or 
mid-paragraph, but we would try to summarize it, so that we can 
get to the exchange here.
    With that, Mr. Donofrio, you are up first.

STATEMENT OF NICHOLAS M. DONOFRIO, EXECUTIVE VICE PRESIDENT FOR 
           INNOVATION AND TECHNOLOGY, IBM CORPORATION

    Mr. Donofrio. Good morning, Mr. Chairman, and distinguished 
Members of the Committee. My name is Nick Donofrio, and it is 
my pleasure to be with you today. At the outset, I extend my 
most sincere gratitude to Chairman Boehlert for his personal 
leadership, and to the committee for its longstanding support 
of science, technology and innovation.
    My testimony this morning is focused on the principal 
innovation challenges we faced in IBM and within the 
information technology industry, and I will also share my views 
on the role innovation plays in the competitiveness of the 
United States of America.
    IBM's transformation over the past few years has been 
driven by new global marketplace realities and opportunities 
which, taken together, have shifted our focus from the 
development and manufacturing of products and technologies to 
the robust application and integration of technology. The shift 
is enabling us to deliver new value to our clients around the 
world as we align around a single business model--innovation. 
Innovation that is collaborative, open, multi-disciplined, and 
global.
    For the information technology industry and for the United 
States of America's economy, a new era of growth is beginning, 
due in large part to the emergence of a new computing 
architecture and the new business models it enables.
    The change is fundamentally driven by the convergence of 
three historic developments. The first is network ubiquity, as 
evidenced by the Internet, which is fast becoming the world's 
operational infrastructure. The second is by open standards, 
widely adopted technical and transactional specifications that 
are spurring the creation of new kinds of products and 
services. And the third, the emergence of the network ubiquity 
and open standards has been enabled by a new business design 
that allows for the enablement of institutions to integrate 
their business operations horizontally, and respond rapidly to 
business challenges, responding in a way that we at IBM call 
on-demand.
    Implementing these fundamental concepts enables businesses, 
governments, and institutions of higher learning to innovate in 
new and entirely different ways, and it is affording new growth 
opportunities in both economic and societal activity. Seizing 
the opportunities demands unique foresights and capability, and 
nations must choose carefully. Investment, talent, and 
infrastructure are increasing everywhere, making the world more 
tightly integrated. For companies in a broad range of 
industries, as well as governments, the choice is either 
innovation or commoditization. Institutions may choose to be 
innovative by investing in managing, leveraging intellectual 
capital, or they can be commodity players, by differentiating 
themselves through low price, economies of scale, and efficient 
distribution of other parties' intellectual capacity and 
capability.
    The choice will impact nations as well as industries. Only 
by understanding, anticipating, and managing the forces of 
innovation and commoditization can we properly address the 
challenges to national economic prosperity. So, how do we, as a 
nation, capitalize on the most important developments in 
technology, infrastructure, and business organization? How do 
we translate those developments into the differentiators and 
distinguishers for American prosperity. In short, how do we 
optimize for innovation?
    Today, innovation is the arbiter of national 
competitiveness. We must recognize innovation as a national 
priority, and adopt innovation as a core strategy for the 21st 
century knowledge-based economy. Reaching higher levels of 
innovation is complex, and since the basic idea is to transform 
ideas and intellectual property into new value, the private 
sector is the primary agent.
    Still, the Federal Government has enormous influence. That 
is because innovation no longer is driven solely by investments 
in research and development. It must be viewed from both the 
supply and demand sides. Policy and infrastructure create a 
national platform that can accelerate or impede the pace and 
quality of innovation. The Council on Competitiveness National 
Innovation Initiative calls for the United States to develop an 
integrated, coherent approach to innovation across a number of 
policy areas. The vitality of the ecosystem will stimulate 
innovation.
    We cannot focus only on the discrete components, but on the 
entire ecosystem. A proper mix of policy measures will make the 
United States a more attractive and fertile environment for 
innovation investment. And I have included in my formal, 
written statement a number of policies I believe will have the 
greatest potential for national innovation success. Allow me 
just to cite a few.
    Our country needs the world's deepest collection of 
business and technological innovators, able to create and apply 
intellectual capital; that is what defines competitive 
advantage. Workforce skills must include both technology and 
strategic expertise. Equally important, our nation's structural 
transition to a services economy needs to be supported by a 
deepened understanding of how services can support and interact 
with manufacturing and other, more traditional activities. The 
services sector today accounts for the bulk of employment in 
the United States, and in other high wage economies. More than 
75 percent of the United States gross domestic product is 
services-based, and with the exception of India and China, at 
least half the workforce in every high wage country is 
concentrated in the services sectors.
    Students also must be prepared to become innovators. 
Education must be transformed and realigned, and reform must 
start with the curriculum. For example, creative and 
integrative instruction can be achieved through the development 
of problem-based learning, which is particularly helpful in the 
development of scientific, mathematical, and technical talent. 
Our nation benefits greatly from a diversity of talent, a 
diversity of culture, and a diversity of thought and insight 
from all over the world. Innovation does not happen in 
isolation. It is a multi-disciplined and multicultural event. 
We need national immigration policies that enable the United 
States to attract and retain the best minds in the world.
    Unlocking innovation demands that we rethink our ideas also 
about intellectual property. While the ownership of 
intellectual property is an essential driver of innovation, 
technology advances are often dependent on shared knowledge, 
open standards, and collaborative innovation. The best 
intellectual property framework balances both proprietary and 
open approaches.
    I will close now with these brief thoughts. Economies 
around the world are replicating the characteristics that have 
given Western nations such an advantage. Many companies in 
rapidly developing nations, such as China, Indian, Brazil, and 
Russia, are leapfrogging to new computing architectures and 
business designs, and those countries are developing very 
specific innovation strategies and higher levels of skill. As 
the United States considers its next steps, I urge that any 
dialogue on innovation be made in a global context.
    The forces of the global economy of integration and 
advances in technology are presenting complex challenges. The 
status quo simply cannot be an option. Government, business, 
academia and labor must work together to create a climate and a 
culture to facilitate cross-border, cross-organizational, and 
cross-disciplinary collaboration. That is the only environment 
for innovation to thrive in.
    America has a long and proud history of recognizing when 
change is required, and seizing upon that opportunity, and 
rising to the challenge. We are at such an inflection point 
today. I am very enthusiastic about our opportunities, and 
about our outlook for prosperity, and I thank you very much for 
listening.
    [The prepared statement of Mr. Donofrio follows:]
               Prepared Statement of Nicholas M. Donofrio
    Good morning, Mr. Chairman and Members of the Committee. Thank you 
for inviting me to join you today. My name is Nicholas Donofrio and I 
am the executive vice president for Innovation and Technology in the 
IBM Corporation. I appreciate the opportunity to offer IBM's views on 
U.S. competitiveness and the innovation challenge. Given the 
fundamental role of innovation in underpinning American economic growth 
and national security, I believe this hearing is more important now 
than ever.
    I also wish to thank Chairman Boehlert for his longstanding support 
of science, technology and innovation. Under his leadership, this 
committee has been an outstanding proponent for the pillars of growth 
in our society--namely, research, technology and skills development.
    I will focus my testimony today on the principal innovation 
challenges we face--both inside IBM and within the information 
technology industry--as we compete in the global economy. You also have 
asked me to provide my views on the role innovation plays in driving 
the competitiveness of the United States.
    With regard to IBM, no longer are we focused exclusively on the 
development, manufacture and delivery of information technology, but 
rather on the application and integration of technology to deliver new 
and lasting value to our clients around the world. We have conducted an 
end-to-end transformation of our business, driven by major new global 
marketplace realities and opportunities. As a company with $96 billion 
in revenue, and which operates in 174 countries, we believe we bring 
unique insight to global trends and a solid base from which to make 
national recommendations. IBM is aligned around a single, focused 
business model--innovation. Innovation that is collaborative, open and 
multi-disciplined.

TRENDS

    History suggests that a sustained period of growth is about to 
begin for the $1.4 trillion information technology industry. At the 
same time, new markets are opening up on its borders. We believe that 
the drivers of growth are very different today and will remain so for 
the foreseeable future; they are propelling information technology and 
business services, and they are affecting not only IBM and the IT 
industry, but also the American economy as a whole. Further, a major 
factor in the accelerated growth of the American economy in the post-
1995 period has been the increase in productivity gained by the 
application of information technology to business processes.
    The rewards of that growth will not be shared equally; they will, 
as in the past, flow to those enterprises and nations that can innovate 
and turn disruptive shifts to their advantage. Such conviction is what 
sharpens our focus on innovation in IBM, for the benefit of our clients 
and the nations where we conduct business.
    Our economy today is moving into a new era, underpinned by cyber-
infrastructure, a new architecture of computing and the new business 
models they enable. The essential ideas about the networked 
organization and global economy are clearly taking hold. Those changes 
are driven by the convergence of three historic developments:

    Network Ubiquity: In less than a decade, the Internet--the most 
visible evidence of an increasingly networked world--has reached some 
800 million people, and is projected by some analysts to reach more 
than a billion people by 2007. The Internet has not only connected 
people and opened up access to the world's information, it is rapidly 
becoming the planet's operational infrastructure. It is linking people, 
businesses and institutions, as well as billions--ultimately 
trillions--of devices. It is facilitating and transforming transactions 
of all kinds--from commerce, government services, education and health 
care, to entertainment, conversation and public discourse.

    Open Standards: Technical and transaction specifications underpin 
all industries. When they become standards--that is, when they are 
widely adopted--they enable growth by spurring the creation of many new 
kinds of products and services. Standards made possible electrical, 
telephone and TV networks, CDs, DVDs, credit and debit cards and global 
financial markets--and by extension, all the other business and public 
services those systems enabled. Today, standards are truly taking hold 
in information technology. They determine how computers operate and 
software applications are developed, how digital content is produced, 
processed, distributed and stored, and how transactions of all types 
are managed. These standards are ``open''--that is, not owned or 
controlled by any one company or entity. (The Internet itself, for 
example, is built on open standards.) This is common in other 
industries, but a radical departure for the information technology 
industry.

    New Business Designs: The simultaneous emergence of the networked 
world and open standards is enabling entirely new business designs, 
giving CEOs and other decision-makers options that were not feasible 
before. Companies can now be far more flexible and responsive to 
changes in the economy, buyer behavior, supply, distribution networks, 
consumer tastes, geopolitical realities--even the weather. That is 
because their business operations can be integrated horizontally, from 
the point of contact with customers through the extended supply chain. 
And because vital information is captured and managed enterprise-wide, 
networked companies can anticipate and respond much faster, or, in 
other words, on demand.
    The fundamental shifts I have described are creating significant 
competitive advantages for institutions around the world, particularly 
in the management and integration of their business processes. 
Companies are innovating in new areas, such as supply chain management, 
engineering design services, human resource management, after-sales 
services and customer care. Governments are transforming their legacy 
agencies to organize around missions rather than departments. Academic 
institutions are delivering their course ware through the Internet in 
addition to the traditional classroom. Institutions are radically 
innovating in their business operations and processes using information 
technology and the services and expertise associated with business 
process transformation. This new organizational structure and 
marketplace are growing dramatically, and American industry is at the 
forefront. We see global opportunity in excess of $500 billion that can 
be addressed by both information technology and non-information 
technology companies.
    Enterprises around the world are innovating through the 
transformation of their businesses because they recognize that new and 
integrated processes result in genuine competitive advantage.

INDUSTRY CHANGE

    Like other major structural shifts before it, the new era--
networked, built on standards and with wholly new business and 
institutional models--is opening up new possibilities for profit and 
growth for business, while also affecting other realms of societal and 
economic activity--from government, to health care, to education.
    Seizing the opportunities presented by that shift, as always, 
requires unique foresight and capabilities. Despite the turmoil in the 
economy in recent years, some nations have managed to increase their 
prosperity, advance the frontiers of science and learning, and build 
multiple kinds of new expertise. For them, the result today is an 
economy poised for sustained growth in traditional markets and robust 
growth in the new markets. But, as I mentioned, the growth will not be 
shared equally. In the years ahead, choosing wisely will prove 
important. Significant rewards will accrue to those who are up to the 
challenge.
    Capabilities, investments and infrastructure are increasing 
everywhere. Global interconnections make it possible for people to work 
from virtually anywhere. The world is indeed becoming more tightly 
integrated. For American companies in a broad range of industries--as 
well as governments--the choice is either innovation or 
commoditization.
    Companies that create new, high-demand technologies and services 
enjoy, for a time, barriers to entry, as well as superior margins and 
pricing power, since there are few other providers of that technology 
or service. However, alternative technologies or capabilities 
inevitably emerge, decreasing the innovator's advantages. In short, 
that segment of the industry ``commoditizes.'' There are still 
attractive opportunities to be pursued, but with much less profit 
potential.
    The global innovation-commoditization cycle has never been more 
pronounced than it is today, and it forces distinct choices. Winners 
can be the innovators--those with the capacity to invest, manage and 
leverage the creation of intellectual capital--or the commodity 
players, who differentiate through low price, economies of scale and 
efficient distribution of other parties' intellectual capital.
    Perhaps the greatest risk is to get squeezed in the middle--being 
attacked by low-price competitors, while lacking the expertise and 
intellectual capital to keep up with the most aggressive innovators.

GLOBAL TRENDS AND OPPORTUNITY

    The dilemma affects nations, as well as industries. Understanding, 
anticipating and managing the forces of innovation and commoditization 
can address many of the challenges to national economic success. Today, 
companies and organizations are coming to a new way of conceptualizing 
and managing business activity. Essentially, they are choosing to move 
to a higher value space in the overall national economic picture. A 
networked, interconnected model enables them to achieve higher levels 
of responsiveness, flexibility and efficiency than legacy, Industrial-
Age business models. This new flexibility offers great potential for 
growth, by increasing productivity and by creating entirely new 
capabilities.
    There are many examples of new capabilities. In health care, for 
instance, we now see personalized medicine on the horizon--as the 
integration of patient histories and genomic data is changing the 
nature of diagnosis and patient care. In insurance, we see products and 
services tailored to the driving habits of individual policyholders.
    So, how do we, as a nation, enable that transformation? How do we 
capitalize on the most important developments in technology, 
infrastructure and business organization in which we currently have 
global leadership? How do we translate those developments into 
differentiators for American prosperity? How do we strategically align 
ourselves to innovate and leverage the networked world, based on a 
combination of expertise, advanced technology, and business insight, 
for productivity gains and economic success? In short, how do we 
optimize for innovation?

MOVING TO THE FUTURE

    Innovation has become the new arbiter of national competitiveness. 
We must recognize innovation as a national priority. For the United 
States to thrive in the hyper-competitive world economy we must, with 
urgency, mobilize business, government, educators and researchers to 
adopt innovation as a core strategy to build the foundation for a 21st 
Century knowledge-based economy.
    Innovation success will be a product of many stakeholders 
collaborating and sharing the risk of change. To facilitate the 
process, our nation's policy architecture must be modernized to address 
the changing nature of innovation, the new opportunities I have 
described and the new global competitors. The redesign of our nation's 
innovation policies must be balanced, consistent and coordinated, and 
focused on crucial challenges.

INNOVATION ECOSYSTEM: A KEY CONCEPT

    Achieving national innovation success is complex. It requires far 
more than the management of ideas, technology transfer and research and 
development. The challenge is not only to generate fresh ideas and 
intellectual property, but to transform ideas and intellectual property 
into new value. As such, they become commercially successful. The 
private sector is the primary agent for innovation. The Federal 
Government, however, has enormous influence over the pace of 
fundamental knowledge advances, the incentive for private enterprises 
to invest in innovation and the conditions under which innovation may 
thrive.
    Innovation is not just R&D driven. It needs to be viewed on both 
the supply and demand side, and in a global perspective. A basic 
prerequisite for the next generation of innovation policies is to move 
toward a thoughtful integration with all the dynamics of the National 
Innovation Ecosystem, as illustrated in the following chart:





    The push and pull of supply and demand do not occur in a vacuum. 
They are strongly influenced by public policy and the overall 
infrastructure for innovation offered by our society.
    Public policies related to education and training, research 
funding, regulation, fiscal and monetary tools, intellectual property 
and market access demonstrably affect our ability to generate 
innovation inputs and respond to innovation demands.
    The same can be said of infrastructure--be it transportation, 
energy, health care, information technology networks or communications. 
Taken together, the policy and infrastructure environments create a 
national platform that can accelerate--or impede--the pace and quality 
of innovation. [Excerpted from: InnovateAmerica, Report of the National 
Innovation Initiative, December 2004]

AN INTEGRATED POLICY APPROACH REQUIRED

    In 2004, IBM Chairman and Chief Executive Officer Sam Palmisano co-
chaired the National Innovation Initiative of the Council on 
Competitiveness. One of the central findings of its report is that the 
United States needs an integrated, coherent approach across a number of 
policy arenas to maintain global economic leadership. The total mix and 
composition of federal policies affect private sector innovation 
behavior.
    Many of the critical choices lie outside the traditional sphere of 
research and development and innovation supply policies. Policies which 
influence the supply of talent, risk capital, the demand for innovative 
goods and services and the robustness of regional innovation networks 
also are important. A higher level of national innovation performance 
will result from an integrated end-to-end (idea to market) approach by 
the Federal Government. The vitality of the ecosystem will stimulate 
innovation. Focusing only on the discrete components--investing in 
schools or sector-specific initiatives--is not enough. We must find 
ways to address the entire ecosystem.
    The National Innovation Initiative report presents recommendations 
under three broad themes: talent, investment and infrastructure. They 
represent a new approach to drive U.S. competitiveness--making clear 
that innovation is not a checkpoint on the economic agenda, but rather 
the organizing principle of the agenda. If the U.S. seeks to remain the 
most attractive and fertile environment for innovation in the world, 
such policy measures must be pursued as a coherent and clearly-
articulated strategy.

COMPONENTS OF A NATIONAL INNOVATION POLICY

    The highest-leverage policy choices for consideration in a national 
innovation policy include:

        1.  Establishing an innovation focal point within the Executive 
        Office of the President to frame, assess and coordinate 
        strategically the future direction of the Nation's innovation 
        policies.

        2.  Creating new metrics for the national innovation ecosystem 
        to drive performance and monitor results. New metrics of the 
        knowledge-based economy should include knowledge indicators, 
        contractual agreements like strategic partnerships, IP 
        licensing, and conditions for innovation, such as economic 
        demand, public policy environment and infrastructure readiness.

        3.  Implementing new tax incentives to provide scholarships for 
        the next generation of scientists, engineers and innovators and 
        changing immigration policies to attract and retain the 
        brightest talent from around the world.

        4.  Accelerating innovation oriented learning environments at 
        the K-12 level, enhancing careers options and the adaptability 
        of workers through portable learning benefits.

        5.  Modifying the long-term Federal R&D investment portfolio by 
        a new priority on the physical and engineering sciences, 
        setting aside an increased proportion of research funding to 
        basic, novel, high-risk and exploratory research, establishing 
        a research program for the services sciences, encouraging 
        multi-disciplinary research, and making permanent a 
        restructured R&D tax credit including university-industry 
        collaborations.

        6.  Coordinating and focusing federal economic development 
        programs on regional innovation hotspots and creating more 
        dynamic innovative industry clusters.

        7.  Implementing a legal and regulatory framework that 
        encourages voluntary and more complete disclosure of business 
        intellectual (``intangible'') assets and longer-term innovation 
        strategies.

        8.  Supporting a new U.S. production capability in emerging 
        technologies through creation of world class Centers for 
        Production Excellence, strengthening DOD's historic role in 
        advanced manufacturing research, reorganizing the Manufacturing 
        Extension System toward innovation services for small to medium 
        sized enterprises and supporting an open systems approach to 
        customer relationship, product design, supply chain, 
        manufacturing and logistics systems.

        9.  Capitalizing on innovation opportunities in hydrogen fuel 
        cells, nanotechnology, new materials, micro-machining, advanced 
        semi-conductor technology, broadband deployment and 
        applications, next generation wireless devices, digital medical 
        records and health care, pervasive computing, modeling and 
        simulation.

EDUCATION, TRAINING AND WORKFORCE

    I will now comment on several areas of education, training and 
workforce development which contribute to our nation's innovation 
system and competitive position.
    Competitive advantage today comes from expertise--and expertise is 
not static. The United States needs the world's deepest, most diverse 
collection of business and technology innovators, supported by advanced 
collaboration systems and a culture that enables continuous learning. 
In the Agricultural Age, land and farm production defined competitive 
advantage. In the Industrial Age, it was raw materials and 
manufacturing capability. Today, it is the ability to create and apply 
intellectual capital based on multi-dimensional expertise.
    Workforce skills must include both technology and strategic 
expertise. An understanding of technology--its current capabilities as 
well as its future potential--is now integral to business decision-
making. Business leaders need innovation partners who are at the 
frontiers of research and deeply steeped in the issues and dynamics of 
specific industries.
    To advance strategic expertise, the Nation's structural transition 
to a services economy needs to be supported by a deepened understanding 
of how services support and interact with manufacturing and other more 
traditional activities. In fact, in today's global economy, the 
services sector provides the bulk of employment in high-wage economies. 
See attached chart:





    A wide community is beginning to discuss the technical and social 
effects of new developments in global connectivity, automation, 
technology integration and Web services and a new scientific discipline 
is being opened. Leading universities are beginning to work with IBM to 
better understand the social and technical issues involved in 
collaborating across global enterprises. For example, the University of 
California at Berkeley is considering the implementation of a Services 
Science curriculum in conjunction with IBM Research--much in the way 
the first Computer Science department was initiated at Columbia 
University. Federal research investment and collaboration could 
significantly accelerate learning in this area.
    To advance technology expertise, I am convinced that education must 
be transformed and realigned to prepare students to become innovators. 
Reform must start with curriculum. Creative and integrative instruction 
can be achieved through the development of Problem-Based Learning 
(PBL)--a methodology that is sure to enhance the development of much-
needed skills--especially in the engineering and technical professions. 
PBL is specifically helpful in the development of scientific, 
mathematical and technical talent. It focuses on ill-structured 
problem-solving, and provides deeper meaning, applicability and 
relevancy to classroom materials and the development of crucial 
analysis skills that are required in the workplace. An education system 
designed to support curriculum focused on acquiring discreet skills and 
memorizing information will not produce the leaders and innovators the 
world needs.
    In my own industry, these needs are particularly acute. The 
information technology sector is experiencing a pronounced shift in 
demand for specialized skills that fuse industry-specific knowledge, 
information technology capability and business process expertise. These 
skills enable the business transformations described earlier. 
Organizations seek more integrated and customized technology and 
services solutions that create competitive advantage and enable 
innovation. New information technology jobs are mushrooming in areas 
like business analysis, security analysis, vendor management, service 
management, system integration, and others. IBM's clients seek business 
acumen, project management and leadership skills along with specific IT 
skills linked to open standards, networking and e-commerce. These 
emerging occupations require higher skills and they are well paid.
    Finally, we must realize that we benefit greatly from a diversity 
of talent, a diversity of culture, a diversity of thought and insight 
from all over the world--intra-national and international. Innovation 
does not happen in isolation. It happens through collaboration across 
the diverse communities required to sustain economic leadership in the 
21st century. We need national immigration policies that enable the 
United States to attract and retain the best minds in the world.
    In an expertise-based, global marketplace, the expansion of 
business into more diverse services is forcing us to rethink the types 
of skills and educational degrees that are needed to drive America 
forward. In fact, the whole services paradigm is enabling us to be more 
innovative in our approach to talent development.
    Applied more broadly, our experience drives me to conclude that 
America needs a culture of learning, skill building and collaboration. 
Specifically, it means that technologists and business experts need to 
work closely together, not simply to share insights, but to create 
entirely new intellectual capital for competitive advantage. We must 
build the capacity to apply new intellectual property to nurture and 
launch new high-value businesses.
    Unlocking innovation also demands that we rethink our ideas about 
intellectual property. Some believe the best way to provide incentives 
for innovation is by fiercely protecting the inventor's proprietary 
interest. Others argue that we should open the doors and give full 
access to intellectual assets. I believe we need a new path forward, an 
approach that offers a balance of those two extremes.
    While IP ownership is an essential driver of innovation, 
technological advances are often dependent on shared knowledge, 
standards, and collaborative innovation. The IP framework must enable 
both. We must protect truly new, novel and useful inventions. And we 
need to recognize that open standards can accelerate the inter-
operability and expansion of the global infrastructure. Because 
collaborative innovation is relatively new, the structure and processes 
to accommodate ownership, openness and access are evolving, and new 
creative models are emerging. This is an area of tremendous promise and 
is currently being addressed in patent legislation in the Judiciary 
Committee.

SUMMARY

    Economies around the world are replicating the characteristics that 
have given Western nations such an advantage--open markets, R&D 
investment and highly-trained workers. Many companies in rapidly 
developing nations such as China, India, Brazil and Russia are 
leapfrogging to new computing architectures and business designs. 
Emerging nations with limited legacy infrastructures are developing 
specific innovation strategies. They plan to drive economic growth by 
leapfrogging in infrastructure development. These approaches are 
creating a highly competitive global economy.
    As the United States considers its next steps, I urge that any 
dialogue on innovation must be made in the global context. The forces 
of global economic integration--and advances in technology--are 
presenting complex challenges that can only be addressed by embracing 
opportunities for change and future prosperity. The status quo simply 
cannot be an option.
    Governments, business, academia and labor must work together to 
create a climate and a culture that facilitates cross-border, cross-
organizational and cross-disciplinary collaboration. That is the only 
environment in which innovation will thrive.
    America has a long and proud track record of recognizing when 
change is required, and then rising to the challenge. We are at such an 
inflection point today. I am very enthusiastic about seizing the 
opportunities before us and prospering in the decades ahead.
    Thank you for the opportunity to be with you today.
                   Biography for Nicholas M. Donofrio
    Nick Donofrio is the leader of IBM's technology strategy and a 
champion for innovation across IBM and its global ecosystem. His 
responsibilities include IBM Research, Governmental Programs Quality, 
Environmental Health and Product Safety, and Mr. Donofrio is Vice 
Chairman of the IBM International Foundation. Also reporting to Mr. 
Donofrio are the senior executives responsible for IBM's enterprise on 
demand transformation internal information-technology organization and 
IBM's initiatives for open industry standards and intellectual 
property. He is a member of IBM's Executive Technology and Strategy 
teams. In addition to his strategic business mission, Mr. Donofrio 
leads the development and retention of IBM's technical population and 
strives to enrich that community with a diversity of culture and 
thought.
    Mr. Donofrio joined IBM in 1967 and spent the early part of his 
career in integrated circuit and chip development as a designer of 
logic and memory chips. He held numerous technical management positions 
and, later, executive positions in several of IBM's product divisions. 
He has led many of IBM's major development and manufacturing teams--
from semiconductor and storage technologies, to microprocessors and 
personal computers, to IBM's entire family of servers.
    He earned a Bachelor of Science degree in Electrical Engineering 
from Rensselaer Polytechnic Institute in 1967 and a Master of Science 
in the same discipline from Syracuse University in 1971. In 1999 he was 
awarded an honorary doctorate in Engineering from Polytechnic 
University, in 2002 he received an honorary doctorate in Sciences from 
the University of Warwick in the United Kingdom, and in 2005 he was 
awarded an honorary doctorate in Technology from Marist College.
    Mr. Donofrio is a strong advocate of education and vigorously 
promotes mathematics and science as the keys to economic 
competitiveness. He is particularly focused on advancing education, 
employment and career opportunities for under-represented minorities 
and women. He served for many years on the Board of Directors for the 
National Action Council for Minorities in Engineering (NACME) and was 
NACME's Board Chair from 1997 through 2002. He also serves on the 
national Board of Directors for INROADS, a non-profit organization that 
trains and develops talented minority youth for professional careers in 
business and industry.
    He is the holder of seven technology patents and is a member of 
numerous technical and science honor societies. He is a Fellow of the 
Institute for Electrical and Electronics Engineers, a Fellow of the 
U.K.-based Royal Academy of Engineering, a member of the U.S.-based 
National Academy of Engineering, a member of the Board of Directors for 
the Bank of New York, and he serves on the Board of Trustees at 
Rensselaer Polytechnic Institute.
    In 2002, Mr. Donofrio was recognized by Europe's Institution of 
Electrical Engineers with the Mensforth International Gold Medal for 
outstanding contributions to the advancement of manufacturing 
engineering. In 2003 he was named Industry Week magazine's Technology 
Leader of the Year, the University of Arizona's Technical Executive of 
the Year, and was presented with the Rodney D. Chipp Memorial Award by 
the Society of Women Engineers for his outstanding contributions to the 
advancement of women in the engineering field. In 2005, Mr. Donofrio 
was elected a member of the American Academy of Arts and Sciences and 
was presented with Syracuse University's highest alumni honor--the 
George Arents Pioneer Medal.




    Chairman Boehlert. And thank you for that very positive 
close. Mr. Morgridge.

 STATEMENT OF JOHN P. MORGRIDGE, CHAIRMAN OF THE BOARD, CISCO 
                         SYSTEMS, INC.

    Mr. Morgridge. Good morning. I am John Morgridge, Chairman 
of Cisco Systems, the worldwide leader in networking for the 
Internet. This year, Cisco celebrates its twentieth 
anniversary. I am honored to offer this testimony before this 
committee.
    Today's hearing comes at an important and challenging time 
in our country. It is clear that the United States can no 
longer take for granted our place as the global economic 
technology and innovation leader. There is much that 
government, education, and industry can do to address the 
challenge, but we cannot be complacent in our response. We must 
recognize the challenge, and take it head on, if we hope to be 
successful.
    Like my colleagues, I will briefly focus on three areas 
today: education, the appropriate physical infrastructure, and 
the proper legal and policy framework. First, and most 
important, is a sound primary and secondary education system, 
with a focus on math and science. Education is the foundation. 
All innovation comes from it, and it is the engine for economic 
growth. We have the finest post-secondary education 
institutions in the world, bar none, but we are not producing 
anywhere near enough ready high school graduates to capitalize 
on this national asset, and particularly in math, science, and 
engineering.
    There are no easy answers, but technology may help. Ten 
years ago, our industry faced a shortage of well-trained, 
network savvy technical personnel, people who understood the 
fundamentals of networking and could design, install, and 
maintain networks. To address the challenge, we launched the 
Cisco Networking Academy Program. High schools, community--
technical and community colleges, universities, provided the 
teachers, students, and classrooms. Cisco provides the online 
curriculum, currently 16 semesters worth, a distribution 
network, a teacher training and support system, and in some 
cases, equipment. Some eight years later, this partnership of 
some 10,000 institutions, in over 160 countries, has provided 
basic networking training to 1.2 million individuals. 
Currently, almost a half million students are involved in the 
programs. If any of you would like to visit an academy, I would 
be delighted to join you. There is at least one institution in 
each Congressional district who is our partner in this program. 
More recently, based on our academy experience, Cisco has 
joined others in developing a pilot program in the Kingdom of 
Jordan to deliver K-12 math curriculum in this blended 
classroom Internet model. If successful, a science curriculum 
will follow. We hope to capitalize on this pilot here in the 
United States and in other countries as well.
    We clearly want to have U.S. students studying and 
excelling at the masters and Ph.D. level in math, science, and 
engineering, but we must also continue to attract the best and 
brightest from around the world to our universities, and 
encourage them to stay after their studies. The positive impact 
that foreign-born students have had on our innovation economy 
cannot be underestimated. Upwards of one third of Cisco's 
technical personnel are foreign-born.
    Lastly, in the area of education, we must continue to fund 
basic research projects in our universities. They are the major 
innovation factories. Cisco, like many other countries, was 
born and incubated at a great research university. NSF and 
other government agency funding is critical to maintaining this 
unique U.S. asset.
    The second area is having appropriate and proper legal 
and--I am sorry. The second area is having the appropriate 
physical infrastructure necessary to support the innovation 
ecosystem, namely and most specifically, having real, 
ubiquitous broadband available to all Americans, either a wire 
line or a wireless. I applaud President Bush's stated goal of 
having universal broadband connectivity in the United States by 
2007, and we are looking forward to the FCC's leadership in 
making this goal a reality.
    Lastly, we must foster innovation by having proper legal 
and policy framework, particularly in the area of intellectual 
property and in the patent systems. Patents ensure that 
inventors have the incentive to invest in further innovation, 
while at the same time, promoting public access to new 
inventions. The threat of patent litigation, however, is 
becoming a drag on innovation, while the current patent system 
is creating incentives for frivolous lawsuits. Legislation is 
necessary to reduce the disruptions caused by litigation, and 
improve the quality of our patents.
    At Cisco, our most important asset walks out the door every 
night. We understand the vital importance of intellectual 
property to business development, and strong intellectual 
property protection is necessary. The most effective role of 
government is to ensure adherence to existing laws, and enforce 
penalties against transgressors.
    In summary, there is a lot that business, government, and 
education can do to focus on innovation and our national 
overall competitiveness. In order to innovate and remain 
competitive in the increasingly global marketplace, we must 
have the national trained workforce necessary to produce the 
products and services that the global markets require.
    A national focus on science, math, and engineering training 
is vital for the U.S. to continue leading the innovation 
economy. We must have the appropriate physical infrastructure, 
in the form of a ubiquitous true broadband. We must have a date 
certain for the transition to digital television to free up the 
spectrum for public safety uses, as well as rural broadband. 
Finally, we must have a legal framework that incents innovation 
and a patent system that protects the inventors, while not 
creating a system that is overly litigious. Patent legislation 
before the Congress should be passed this session.
    Thank you. I will be happy to take any questions.
    [The prepared statement of Mr. Morgridge follows:]
                Prepared Statement of John P. Morgridge
    I am John Morgridge, Chairman of the Board of Cisco Systems, the 
worldwide leader in networking for the Internet. This year, Cisco 
celebrates 20 years of commitment to technology innovation, industry 
leadership and corporate social responsibility and I am honored to 
offer this testimony on innovation and U.S. competitiveness before this 
committee.
    Today's hearing comes at an important and challenging time for our 
country. It is becoming very clear that the United States can no longer 
take for granted our place as the global economic, technology, and 
innovation leader. There is much that government and industry can do to 
address this challenge, but we cannot be complacent in our response. We 
must recognize the challenge and take it head on if we hope to be 
successful.
    I will focus on three areas today. The first area, and in my mind, 
the most important to ensure global competitiveness and continued 
innovation is a sound education system, including sufficient basic 
research and development funding as well as a focus on science and 
math. The second area is having the appropriate physical infrastructure 
necessary to support the innovation ecosystem, namely, and most 
specifically, having real, ubiquitous broadband available to all 
Americans--whether wireline or wireless. Last, we must foster 
innovation by having a proper legal and policy framework, particularly 
in intellectual property, security and in the patent system.

I.  IMPORTANCE OF EDUCATION TO INNOVATION AND U.S. COMPETITIVENESS

    Education is the foundation to all innovation and the engine to 
economic growth. We must advocate policies that will create an educated 
workforce to match America's future employment needs, specifically an 
educated workforce trained in math and science which is critical to the 
innovation economy. In order for America's high tech industry to stay 
competitive throughout the 21st Century and beyond, we need to invest 
in our workforce of tomorrow by giving them the tools necessary to 
compete for post-secondary education programs or careers in science, 
math or engineering. We need to make America's educational system the 
best in the world by making math and science teaching a priority for 
our children and support efforts on the State and federal levels to 
accomplish this objective. I applaud what this committee has done to 
recognize the finest math and science teachers in this country--their 
work is vital to our future competitiveness.
    A domestic workforce educated in science, math or engineering will 
ensure that the American high tech industry continues to lead the world 
in terms of innovation and entrepreneurship. Moreover, an educated 
workforce will enable Cisco and other job producing innovative 
companies to meet our human resource needs by attracting domestic 
talent, unencumbered by immigration restrictions.
    Unfortunately, America's children are not receiving the necessary 
training in math and science to compete for high-paying technology jobs 
of the future. For example, only 24 states require secondary students 
to take at least three years of math, and only 21 states require 
students to take at least three years of science.
    Because math and science education is lacking, young Americans will 
miss out on job opportunities, or will lack the necessary skills for 
post-secondary study. Nationally, out of 100 ninth-graders, only 67 
will graduate from high school on time, only 38 will directly enter 
college, only 26 are still enrolled their sophomore year, and only 18 
will end up graduating from college. U.S. 12th graders performed among 
the lowest of the 21 countries assessed in both math and science on the 
Third International Mathematics and Science Study.
    Improving education worldwide is a top goal of Cisco Systems, Inc. 
Since 1997, the Cisco Networking Academy Program has leveraged the 
Internet to improve education around the world. The Cisco Networking 
Academy Program has enabled Cisco to facilitate public and private 
partnerships for education and become a leading innovator in e-
learning. Since its inception, over 1.6 million students have enrolled 
at more than 10,000 Academies located in high schools, technical 
schools, colleges, universities, and community-based organizations in 
over 150 countries. For more information on this program, please visit: 
www.cisco.com/go/netacad.
    We have to be innovative in our approach to education. We are in 
the 21st century and must use the tools and methods of today to train 
our future workforce. With an e-learning model such as the Cisco 
Network Academy Program we have learned that curriculum can be altered 
based on how well students are performing on the tests based on that 
curriculum. We have also found that students in East Palo Alto, 
California, an underprivileged area, perform as well as the richest 
school districts in America. Given the opportunity and the tools, 
students can perform and become excited about technology. Students in 
the Chairman's district are currently becoming certified as Cisco 
Network Associates at SUNY Institute of Technology and Mohawk Valley 
Community College, as well as at Broome-Tioga Board of Cooperative 
Educational Services, serving 15 school districts in Broome and Tioga 
counties.
    Additionally, Cisco has helped develop a pilot program in the 
Hashemite Kingdom of Jordan to deliver math and science curriculum via 
the Internet. Partnering with the government of Jordan, the World 
Economic Forum, U.S. Agency for International Development (USAID), and 
many other corporate partners, the Jordan Education Initiative (JEI) is 
using the Internet to deliver curriculum of math, Information and 
Communication Technology (ICT), Arabic and Science (January 2005). 
Taking the knowledge from this pilot program, we hope to expand to 
other nations and bring this method of curriculum delivery to the 
United States as well.
    Cisco supports increasing innovation in public schools, 
establishing high standards, promoting the use of education technology 
in the classroom and ensuring accountability of schools, teachers, 
districts and programs. We also support efforts to ensure that all 
children--and all Americans--share in the information age through 
access to technology and its benefits. However, we also need to put a 
renewed focus on math and science in the schools, much like in the 
1960's, so that it is the United States producing the innovative 
technologies and the job centers of tomorrow, rather then our 
counterparts in Europe or Asia.
    The positive impact that foreign-born students have had on our 
innovation economy cannot be discounted. We clearly want to have U.S. 
students studying and excelling at the masters and Ph.D. levels in 
math, science and engineering, but we also must continue to attract the 
best and the brightest from around the world to our universities and 
encourage them to stay in the U.S. after their studies. Foreign-born 
math, science and engineering students have been and continue to be a 
boon to our economy and we should support their continued success in 
academia and industry in this nation.
    Recognizing the technology industry's responsibility to contribute 
to an improved education system, TechNet has established an Education 
Task Force to develop a new private-sector initiative to increase 
America's math, science and engineering talent. TechNet is a technology 
policy trade association of CEO's of which Cisco is a founder and 
active member. The Task Force will examine science and math 
preparedness in primary and secondary education as well as barriers to 
science and engineering degree attainment in post-secondary and 
graduate education. One of the goals of the Task Force is to impact the 
goal of doubling the number of STEM (Science, Technology, Engineering 
and Math) majors by 2015. I serve on this Task Force and we will be 
offering our full report this fall.
    Last, but certainly not least, in order to stimulate high-tech 
research and give companies certainty, the R&D tax credit should be 
updated and expanded to maximize its impact in incentivizing companies 
to conduct R&D in the United States. Additionally, funding should be 
increased for basic R&D at government, university and private labs. It 
pleases me to no end that Chairman Boehlert is a self-professed 
``unabashed cheerleader'' for the National Science Foundation (NSF) and 
hope that the increased funding for the NSF he and his colleagues were 
able to get this year will be built upon.
    The House Science Committee, with its deep understanding of the 
importance of math and science to our overall standing in the world, 
should continue to use its leadership role, with hearings such as this 
one, to bring attention to this vital area for U.S. competitiveness and 
innovation and press for increased funding for math and science 
education, basic R&D and the National Science Foundation.

II.  APPROPRIATE PHYSICAL INFRASTRUCTURE FOR INNOVATION

Broadband Deployment
    The Internet, as we know it, was developed with government funds 
under the direction of the U.S. Advanced Research Projects Agency and, 
in 1969, became a reality with the interconnection of four university 
computers. From those humble beginnings, the Internet has now become 
the basis for efficiencies and productivity never thought possible.
    Broadband is always-on, high-speed connectivity to the Internet and 
it is the foundation of all future information connectivity. Its import 
to innovation, collaboration and a nation's overall competitiveness 
cannot be understated. The deployment of broadband infrastructure is a 
key measure of success for a country and is crucial to the future 
growth of the innovation economy. I applaud President Bush's stated 
goal of having universal broadband connectivity in the United States by 
2007 and we are looking forward to the FCC's leadership to making this 
goal a reality.
    Although a few countries such as Korea and Japan have achieved 
significant broadband penetration, most countries lag far behind. The 
United States has fallen from fourth to 16th in broadband penetration 
and stands to fall even further. Moreover, with few exceptions, most of 
the broadband infrastructure available today consists of relative slow 
connections in the 500kpbs to 3Mbps range, not in the 10Mbps to 100Mbps 
that will needed to support the development of future innovative 
applications.
    Because telecommunications is one of the most intensely regulated 
industries and has a legacy of decades of government involvement, 
regulatory policy significantly affects broadband infrastructure 
investment. Regulators and government can affect investment in myriad 
ways, some negative and some positive: through the application of 
legacy regulation to new technologies, through attempts to artificially 
create competition, through spectrum allocation, through subsidy 
systems, and through direct government investment and tax incentives.
    Cisco believes that deployment of next generation broadband 
infrastructure should take priority over most competing interests when 
deciding regulatory policy. In Cisco's opinion, any national broadband 
plan should include policies to:

          Incent private sector investment in broadband infrastructure

          Promote market-driven deployment of new technologies and 
        applications

          Encourage innovation and entrepreneurship through clear, 
        concise, minimally intrusive rules that create as much market 
        certainty as is possible

          Make spectrum available for wireless broadband services

    Key regulatory policies to implement these goals include removing 
regulatory requirements to unbundle new networks and new infrastructure 
investment; keeping onerous telecommunications regulation from being 
imposed on competitive broadband providers such as cable, wireless, and 
powerline; avoiding legacy regulation being imposed on new technologies 
and applications such as VoIP, IP video, and other Internet 
applications; ensuring sufficient spectrum for high speed broadband 
access applications; and migrating programs to support infrastructure 
investment in low density rural areas from a traditional circuit 
switched voice focus to broadband connectivity.
Digital Television Transition
    In order for additional wireless spectrum to be made available for 
public safety uses, as well as to bring broadband to rural and under-
served areas in the Nation, Cisco has advocated a ``date certain'' to 
end analog television broadcasting in the 700 MHz band in the U.S.
    Current federal law provides that analog television broadcasting 
will cease by the end of 2006 or when 85 percent of households can 
receive digital TV signals. It is clear that the 2006 date will not be 
met, given projected market conditions. Key officials at the FCC, and 
in the U.S. House of Representatives, have indicated an interest in 
selecting a date certain of no later than January 1, 2009, and Cisco, 
along with other high technology companies, including consumer 
electronics companies, rural interests, and the public safety 
community, are urging policy-makers to adopt a hard date. Once the 
transition is complete, 24 MHz of spectrum will be turned over to 
public safety licensees, and the lion's share would be devoted to 
commercial wireless service, including broadband access, as the 
directed by Congress.
    Cisco has no ``technology religion'' with respect to licensed 
wireless broadband technology. Cisco is a member of the WiMax inter-
operability forum, and has also closely followed developments around 
the 802.20 standard, but we believe it is the market that will best 
decide what technologies will flourish. As fits our overall philosophy, 
we do not believe that the government should pick technology winners or 
losers.
    The basic benefits that will be available to the American public as 
soon as broadcasters give back their second channel will be numerous. 
According to the Information Technology Industry Council (ITI), of 
which Cisco is an active member, benefits will include:

        1.  Public Safety--On 9/11 and every day across the country, 
        first responders from police and fire departments cannot speak 
        to each other because their radios operate on different 
        frequencies. The 9/11 Commission Report recommended in 2004 
        that Congress approve legislation to clear these channels for 
        public safety. Congress was aware of this problem in 1997 and 
        designated more spectrum for use by first responders, but it 
        can't take effect until broadcasters release their currently 
        held spectrum.

        2.  Rural Broadband--Rural areas are one of the major parts of 
        the country that still lack high-speed broadband Internet 
        access. Using the additional spectrum, companies would be able 
        to offer wireless broadband to areas that are not served by 
        current broadband technologies.

        3.  Economic Growth--A definitive digital TV transition date 
        would give high-tech companies enough certainty to invest R&D 
        into innovative wireless broadband networks for use in the 
        newly available spectrum. That would in turn spark growth in 
        the U.S. high-tech sector, provide new high-quality jobs for 
        American workers, and add to the global competitiveness of U.S. 
        technology.

        4.  Telecom Competition--Today, consumers receive most of their 
        telecommunications services--phone, television, and Internet 
        service--through either their phone line or their cable line. 
        Because spectrum in the 700 megahertz band is of high quality 
        and capable of advanced uses, it could one day become a ``third 
        pipe'' into consumers' homes that could provide phone, 
        television and Internet services, which would have the effect 
        of increasing competition and reducing prices for consumers.

III.  PROPER LEGAL AND POLICY FRAMEWORK FOR INNOVATION

Patent Reform
    Patents ensure that inventors have the incentive to invest in 
further innovation, while at the same time promoting public access to 
new inventions. The threat of patent litigation, however, is becoming a 
drag on innovation while the current patent system is creating 
incentives for frivolous litigation. Legislation is necessary to reduce 
the disruptions caused by litigation and improve the quality of 
patents.
    Certain factors in the current patent system have resulted in 
disruptions for Cisco and other leading innovation companies. First, 
the playing field in the patent legal system has become increasingly 
tilted towards plaintiffs, making even weak claims problematic for 
litigation targets. Second, the U.S. Patent and Trademark Office (PTO) 
is currently overburdened and lacks procedures necessary to avoid 
issuing poor quality patents on which plaintiffs can stake a claim. 
Third, some opportunistic trial lawyers and investment funds are buying 
up patents to use as offensive litigation tools. These so-called 
``patent trolls'' accumulate patent portfolios not to further 
innovation and development of new products, but to compel others to 
license technologies from them under threat of litigation. In many 
instances, these patents are used for strictly tactical purposes, never 
intended for commercialization of inventions.
    Cisco supports efforts to pass common sense patent reform 
legislation to reduce the disruptions caused by litigation and improve 
the quality of patents. We are working with other companies and 
industry groups to craft legislative recommendations to address this 
issue.
Intellectual Property
    At Cisco, we believe our most important assets walk out the door 
every night. However, as we produce and own intellectual property and 
understand the vital importance of intellectual property to business 
development, strong intellectual property protection is necessary. 
Mandatory or legislated standards are not the answer, however. 
Technical standards developed and mandated by the government would 
freeze technological innovation and hurt development of digital 
technologies. This concept is true for digital rights management, 
security and other issues where some have asked government to step in 
and mandate a solution. If history and Moore's Law are any indicators, 
by the time a technology industry standard is developed and adopted, 
there is usually one in the pipeline that is better and in the 
marketplace eighteen months later.
    The most effective role of government is to ensure adherence to 
existing laws and enforce penalties against transgressors.
Security
    We all recognize how important security is to our economy, national 
security, and national competitiveness. Over the years, this committee 
has been a leader in promoting cyber security research and development, 
including it's authorship of the 2002 Cyber Security Research and 
Development Act (P.L. 107-305), which brought an important focus to the 
benefits from additional basic cyber security research at the NSF and 
the ongoing security work at the National Institute of Standards and 
Technology. The proper policy framework is also vitally important for 
continued advances in security.
    Innovation sits at the heart of the security challenge. There is 
tremendous innovation in security technologies. Information security 
systems are moving from passive to active, and from point products to 
self-defending networks using an adaptive, and interconnected, 
architecture-based approach. We will enhance security through 
innovation and effective law enforcement. As the nature of security 
continues to change, public policy has to continue recognize the 
centrality of innovation, and continue to avoid technology mandates or 
regulation, which at the end of the day will always trail innovation, 
and make us less, not more, secure.

CONCLUSION

    In summary, there is a lot that the government can be doing to 
focus on innovation and our national overall competitiveness.
    In order to innovate and remain competitive in the increasingly 
global marketplace we must have the national, trained workforce 
necessary to produce the products and services that the global market 
requires. If we do not produce them, they will be produced elsewhere. A 
national, laser focus on science, math and engineering training is 
vital for the U.S. to continue leading the innovation economy. Further, 
we must also have the tools to incent the future workforce to go into 
science, math and engineering. The Financial Accounting Standards Board 
(FASB), overseen by the Securities and Exchange Commission (SEC), has 
issued a final rule to require companies to expense stock options--a 
vital component of what helped build Cisco Systems and other innovative 
companies around the Nation. Without the appropriate tools to build 
companies in the U.S., it becomes increasingly difficult to compete.
    We also must have the appropriate physical infrastructure in the 
form of ubiquitous, true broadband. We must have a date certain for the 
transition to digital television to free up the spectrum for public 
safety uses as well as for rural broadband.
    Finally, we must have a legal framework that incents innovation and 
a patent system that protects the work of inventors while not creating 
a system that is so overly litigious to the point of being fruitless to 
innovation. Patent legislation before the Congress should be passed 
this session.
    Thank you.
                    Biography for John P. Morgridge
    John P. Morgridge joined Cisco Systems in 1988 as President and 
CEO, and grew the company from $5 million to more than $1 billion in 
sales, and from 34 to more than 2,250 employees. In 1990 he took Cisco 
public, and in 1995 was appointed Chairman. During his tenure, Cisco 
has become the leading supplier of high-performance inter-networking 
products, with more than $20 billion in revenues, and some 34,000 
employees in 65 countries.
    As Chairman, Morgridge continues to champion a range of education, 
philanthropy, and corporate citizenship initiatives, and is a guiding 
force behind the company's long-term commitment to focusing on basic 
human needs, responsible citizenship, and access to education.
    Morgridge speaks frequently to audiences worldwide about 
productivity, strategic management, entrepreneurialism, and how 
education and technology can fuel economic development in developing 
nations. He teaches management at Stanford University's Graduate School 
of Business, and serves on its School of Business Advisory Council. In 
1996, he received Stanford's Arbuckle Award for excellence in 
management leadership.
    Prior to Cisco, Morgridge was President and CEO of GRiD Systems, 
and before that held senior positions with Stratus Computer and 
Honeywell Information Systems. He earned a BBA from the University of 
Wisconsin and an MBA from Stanford.
    Morgridge and his wife, Tashia, actively support a range of 
education, conservation, and human services initiatives, and he serves 
on the boards of CARE, the Nature Conservancy, Business Executives for 
National Security, the Wisconsin Alumni Research Foundation, the Cisco 
Foundation, and the Cisco Learning Institute. Morgridge is also a 
Trustee of Stanford University.




    Chairman Boehlert. I suspected something before I came to 
today's hearing, because I knew of the witnesses, and Mr. 
Donofrio and Mr. Morgridge, and I suspect and know Dr. Brody 
will confirm, this is going to be a love-in. This is people who 
agree with each other.
    The challenge before us is to get other people to pay 
attention when they are dealing with issues of the moment in 
other committees, and on the other side of the Capitol, got to 
deal with this right now, because the moment is here.
    Dr. Brody.

STATEMENT OF DR. WILLIAM R. BRODY, PRESIDENT, THE JOHNS HOPKINS 
                           UNIVERSITY

    Dr. Brody. Thank you, Mr. Chairman, and Members of the 
Committee. It is a both an honor and a pleasure to be here 
today.
    Johns Hopkins University, the university of which I am 
President, was founded in 1876 as the first research university 
in America. Today, Johns Hopkins is the largest university 
recipient of research funding from agencies of the Federal 
Government, and for 25 years in a row, has been the country's 
leading academic institution, in terms of expenditures in 
science, medical, and engineering research.
    But I am also here today as a member of the Council on 
Competitiveness, and now, co-chair of the Committee's National 
Innovation Initiative, or NII, which I believe you are all 
familiar. The Council, of course, brings together labor, 
business, government, and academic leaders to address issues of 
importance at this time, of course, being the focus on 
innovation.
    Since you, Mr. Chairman, said this was a learning 
experience, I am going to teach you introductory calculus, and 
the calculus is what I call the calculus of innovation, which I 
have learned from my role on the NII. And it is very simple, 
this is no homework required. Knowledge drives innovation; 
innovation drives productivity; productivity drives economic 
growth. It couldn't be simpler. It is what made America what it 
is today. And in order to do that, as you have heard, we need 
talent, we need investment in basic research, and we need 
infrastructure in order to enable that to happen. And knowledge 
is key.
    What I would like to do is to tell a little story, an 
example. In the 1960s, I was a graduate student at Stanford 
University, studying both medicine and electrical engineering. 
And I had the opportunity to work on a computer system--
actually, the computers were made by IBM--on a project to tie 
computers together. These computers were--it wasn't clear what 
you would do tying computers together, but the Defense 
Department, through the Defense Advanced Research Project 
Agency, DARPA, funded this project, and it was called the 
DARPANet, and my colleague, John Morgridge, knows about this 
very well. And of course, in the '60s, we were playing around 
with this, doing all sorts of things, none of them particularly 
useful at the beginning. It wasn't clear where it ended. Fast 
forward 15 years, a graduate student working at Stanford on the 
DARPANet makes some small computers that he calls workstations, 
and forms a company called Sun Microsystems. Sun, if you don't 
know it, stands for Stanford University Network, and is a 
multi-billion dollar company today.
    Another pair of students, I believe a husband and a wife 
team, made little devices that move traffic around on this 
network, and that became the foundation for Cisco Systems, and 
of course, the DARPANet became the Internet, and not only do we 
have Cisco and Sun today, but we have got Yahoo! and Google and 
thousands of other companies, hundreds of thousands of jobs, 
and tens of billions of dollars.
    I use this as an example for two reasons. One, it talks 
about the investment in sort of blue sky research that has no 
short-term or foreseeable value, but ends up being 
extraordinarily valuable. Secondly, it provides a vehicle in 
which young, talented students can come to a university and 
learn a new field, in the process of undertaking the research. 
And also, it illustrates the importance of taking risks, and I 
think as a nation, we have become extraordinarily risk averse.
    You have heard things about education, and certainly, 
access to talent is critical. And although we have had the best 
and the brightest coming to the United States, as you know, 
that is no longer happening in our universities, and we need, I 
think, very quickly to address what has become a global talent 
search. In 2002, the House passed the NSF Tech Talent bill, 
which created incentives for universities to increase the 
fraction of students receiving degrees in science and 
engineering majors, but these NSF programs were not funded as 
authorized. Scholarship money is a critical choice of majors 
for students, and providing incentives, I think, is a way to 
fund, to get students, more students into science and 
engineering by funding scholarships.
    We should also augment programs to reach out to 
underserved, especially under-represented populations, women 
and minorities, because we are excluding a large potential 
fraction of the labor pool to access homegrown talent. And 
universities should be encouraged to bolster science and math 
teacher training. After all, we have lots of people who are 
expert in science and math. We should find ways to leverage our 
expertise into the school system.
    We have two urgent priorities before us, I think. The first 
is to greatly increase government and private funding in basic 
research, as opposed to applied research, and emphasize the far 
out research, like the DARPANet that was going on. I use DARPA 
as an example, because I had a conversation with one of my 
computer science faculty who recently was telling me that DARPA 
was becoming very short-term focused. I had, then, a 
conversation with a president of a major research university, 
who told me that the DARPA research now was so short-term 
focused that they were no longer accepting DARPA grants in 
certain fields, because with a short-term focus, they couldn't 
put a graduate student on the project for fear that the project 
funding would end before the graduate student completed the 
dissertation. This is a huge issue, I think, to turn around, 
but take a long-term focus.
    And we need to fulfill our commitment to double the 
National Science Foundation budget in the next five years, 
significantly increasing our basic research efforts in the 
physical sciences and mathematics and information sciences, as 
we have through the doubling of the NIH budget. The NSF budget 
costs $18 per person, scarcely more than a couple of six packs 
of your favorite brew or cola, and I think we can't afford not 
to make this kind of commitment.
    I would just like to close by saying that since World War 
II, America has led the world in science and technology 
innovations, largely because it was willing to make 
considerable investments in both its education systems and its 
research and development infrastructure, that has enabled 
natural creative genius of the American people to flourish. But 
today, as at no time in the recent past, we are challenged by 
other nations equally determined to succeed. As Americans, we 
wish them every success, except the kind that would come at our 
own expense. The race belongs to the swiftest, and we must keep 
running.
    Thank you very much for the opportunity to speak today.
    [The prepared statement of Dr. Brody follows:]
                 Prepared Statement of William R. Brody

Introduction

    Mr. Chairman and Members of the Committee, it is a pleasure and an 
honor for me to testify before you today regarding U.S. competitiveness 
and the innovation challenge we face at home and from abroad. My name 
is Bill Brody and I am President of The Johns Hopkins University in 
Baltimore, Maryland.
    Johns Hopkins was founded in 1876 as the first research university 
in America. For more than 125 years the university has committed its 
resources and energies to scientific discovery and innovation. Among 
the discoveries to come from Johns Hopkins are saccharine and 
Mercurochrome, transit satellites and cardiopulmonary resuscitation, 
gene splicing and parallel processor technology. Today, Johns Hopkins 
is the largest university recipient of research funding from agencies 
of the Federal Government, and for 25 years in a row has been the 
country's leading academic institution in expenditures in science, 
medical and engineering research.
    I am also appearing today as a member of the Council on 
Competitiveness, and Co-chair of the Committee's National Innovation 
Initiative. Members of the Committee are no doubt familiar with the 
role the Council plays in shaping the national discourse on business 
and economic competitiveness by assembling data, developing 
recommendations, and implementing follow-up strategies in every region 
of the country.

The Need to Innovate

    In my work with the Council on Competitiveness I have been 
introduced to a novel concept: the calculus of innovation.
    When we talk about competitiveness, what we mean is the capacity to 
increase the real income of all Americans by producing high-value 
products and services that meet the test of the world markets. It 
sounds easy, but of course as we all know, it's not. Competition can be 
brutal. The need to be competitive with all comers is not an 
abstraction. It's not some future worry we have time to ignore in the 
present. American economic competitiveness is a real issue, right now, 
one that's tremendously important to us all. In recent years, 
productivity gains have accounted for about two-thirds of the annual 
growth of our gross domestic product. Much of this gain has come from 
innovation in the application of technology to business.
    And this is where the calculus of innovation comes in.
    The calculus of innovation is really quite simple:

         Knowledge drives innovation;

         Innovation drives productivity;

         Productivity drives our economic growth.

    That's all there is to it. In the roaring 1990s, our knowledge 
enabled us to innovate, and our innovations increased American 
productivity, and hence, American economic growth.
    But there is no guarantee that these productivity gains will 
continue. And based upon studies I have seen at the Council on 
Competitiveness, it looks as though the innovation pipeline is slowly 
being squeezed dry. If current trends continue, many of us on the 
Council believe there is a good chance that U.S. competitiveness in 
vitally important high-tech areas will fall behind that of China, 
India, and even a resurgent Western Europe. Here's why:

    First, we are losing the skills race. About one-third of all jobs 
in the United States require science or technology competency, but 
currently only 17 percent of Americans graduate with science or 
technology majors. By contrast, the National Science Foundation 2004 
Science and Engineering Indicators report shows that the world average 
is 27 percent, Korea's average is twice ours, and in China, fully 52 
percent of college degrees awarded are in science and technology.
    By way of example, when Harvard polled its entering class recently, 
it discovered only one percent of their students expressed interest in 
studying computer science, yet information technology lies at the heart 
of many of our productivity gains.
    Today, foreign graduate students studying science and technology in 
our universities outnumber their American counterparts. They're 
terrific students, but historically about 40 percent have left the 
United States after receiving their degrees. Policy changes since 2001 
have made it more difficult to come to the United States, and more 
difficult to stay. But consider the talent we may be sending away: 35 
percent of the doctoral degrees we award in the physical sciences go to 
foreign-born students, as do fully 58 percent of the engineering 
Ph.D.s.
    Europe now produces more than twice the number of scientists and 
engineers as the U.S.; and Asia about three times the number. Again 
relying on National Science Foundation data, the U.S. share of world 
Bachelor's engineering degrees granted dropped in half during the 
1990s: from about 12 percent in 1991 to six percent in 2000.
    Second, and just as worrisome as losing the skills race, we are 
beginning to lose our preeminence in discovery as well. Historically, 
innovation in science and technology has been the direct result of 
investments in basic research and development. America's longstanding 
commitment to generously fund R&D has been a major driver of our 
economic competitiveness.
    However, as a percentage of our overall gross domestic product, 
U.S. federal research and development spending peaked forty years ago--
in 1965, at just under two percent of GDP. Today, it is now down by 
more than half, to about 0.8 percent of GDP. And while government 
spending for medical research has increased, overall R&D spending, 
especially in basic sciences, continues to decline.
    As you would expect, these numbers have very real consequences. 
Science and technology articles published in Western Europe already 
exceed those in the U.S. By 2010, it is anticipated that the emerging 
economies of Asia will produce more patents and spend more on R&D than 
the United States.
    The Washington Post reported last week on the world's most 
competitive economy: Finland. It wasn't until Nokia surpassed Motorola 
and Japanese competitors to become the leading cell phone maker that 
many of us paid much attention to Finland. But we all know now that 
Finland is a world-class competitor. Two factors in particular seem to 
support their achievements: first, they have what is largely 
acknowledged to be the best educational system in Europe. Finnish 
students, when tested, are the world's best readers, and among the best 
in science and math. The second factor is that the Finns have an 
extraordinary commitment to research and development. The Post reports 
that through government and private industry, the Finns devote 3.5 
percent of their gross domestic product to research and development, 
almost a full percentage point more than the total U.S. private and 
public research investment (which is 2.6 percent of GDP) and nearly 
double the average for Europe as a whole.
    The lesson of Finland is the same lesson the United States taught 
the rest of the world in the past 50 years: investment in education 
combined with investment in research and discovery pay enormous 
returns. I believe--and Council of Competitiveness studies show--that 
investment in education and R&D is probably the single best way we can 
address some of our most persistent and difficult challenges.
    For instance, we are all aware that our country has a huge trade 
deficit. We have lived with this imbalance for years, driven in part by 
our thirst for imported oil. But here too the recent numbers are 
worrisome. Since the end of World War II we have always maintained a 
positive balance of trade in high-tech exports. It has always been a 
source of strength. In 1980, for instance, the U.S. produced 31 percent 
of global high-tech exports; Japan produced 15 percent, and emerging 
Asia seven percent. But by 2001, those numbers had turned around. Now 
the U.S. was producing only 18 percent, Japan 10 percent, and the 
emerging nations of Asia fully 25 percent of high-tech exports. Our 
once-positive balance of trade for high-tech items is now in deficit, 
and continuing to fall rapidly.
    Declining leadership in innovation suggests our standard of living 
will decline as a result. Some say that has already happened. In fact, 
research by the Council of Competitiveness shows that the real income 
of many Americans did not improve even during the economic booms of the 
1980s and 1990s.

Fueling Innovation

    Knowledge drives innovation; innovation drives productivity; 
productivity drives our economic growth.
    In order to master the calculus of innovation, promote economic 
growth, and support the genius for innovation and discovery that has 
been the hallmark of American prosperity for two centuries, we must 
reaffirm our national belief in the transformative power of knowledge. 
To do so, we should rededicate ourselves to both transmitting existing 
knowledge to the next generation through the world's best educational 
system, and continuing to lead the world in the discovery of new 
knowledge by aggressively funding research and development in all areas 
of science and technology.
    In the remainder of my testimony I am going to draw extensively 
(and borrow outright) from the Council on Competitiveness National 
Innovation Initiative Report, Innovate America: Thriving in a World of 
Challenge and Change, which is one of the most succinct and 
prescriptive analyses I have seen of the challenges we face and the 
actions that we can take to ensure our future technological leadership 
and economic prosperity.
    Talent is our nation's most important innovation asset, and so it 
is vital that we build the base of scientists and engineers working in 
this country at the frontiers of new discovery. Innovation capacity in 
a modern technological society depends almost entirely on a broad class 
of scientists and engineers who can imagine, and then implement, bold 
new ideas. But unless the United States takes action swiftly, the 
demand for science and engineering talent will soon outstrip supply. 
The number of jobs requiring technical training is growing at five 
times the rate of other occupations, yet the average age of our science 
and engineering workforce is rising, the number of new entrants into 
fields other than the biological and social sciences is static or 
falling, and the all-important perception of these jobs as being 
remunerative, important and exciting career options is declining.
    Many of America's working scientists and engineers are products of 
the National Defense Education Act (NDEA) of 1958, passed in the wake 
of Sputnik. The NDEA sparked a half-century of remarkable innovation 
and wealth creation--and it may help explain why approximately 60 
percent of the CEOs of the Fortune 100 have science or engineering 
degrees. In the knowledge economy, the ability to understand 
technology, and anticipate the technological foundations of growth, is 
becoming increasingly critical to every career path.
    The trouble is, enrollments are moving in precisely the wrong 
direction. A quarter of the current science and engineering workforce 
in America is more than 50 years old, and many will retire by the end 
of this decade. New entrants into science and engineering fields are 
not replacing these retirees in sufficient numbers.
    It is clear that the science and engineering problem begins early 
in the K-12 educational pipeline. We are losing our future scientists 
and engineers around the junior high school level. In the 4th grade, 
U.S. students score above the international average in math and near 
first in science. At 8th grade, they score below average in math, and 
only slightly above average in science. By 12th grade, U.S. students 
are near the bottom of a 49-country survey in both math and science, 
outscoring only Cyprus and South Africa. Less than 15 percent of U.S. 
students have the prerequisites even to pursue scientific or technical 
degrees in college. And most have little interest in pursuing 
scientific fields. Only 5.5 percent of the 1.1 million high school 
seniors who took college entrance exams in 2002 planned to pursue an 
engineering degree.
    This brings me to the first of two urgent priorities facing our 
nation at the start of the 21st century: We need access to the best 
tech talent in the world. And to assure that access, we must take 
immediate and deliberate steps to expand the pool of technical talent 
available in the U.S. This priority has two components.
    First, we must nurture, encourage, and greatly expand our home 
grown pool of talent. The science and engineering pilot program offered 
by Mr. Gordon of Tennessee is an imaginative and innovative approach to 
this problem that would establish a regional pilot program to improve 
scientific and technological skills of elementary and secondary school 
teachers, and to encourage those teachers to directly participate in 
ongoing research projects at national laboratories and research 
universities. I applaud this effort to bring the excitement and 
challenge of scientific research into our elementary and high school 
classrooms, to help stimulate a new generation of future scientists and 
engineers.
    At the undergraduate level, financial incentives matter a great 
deal, especially given escalating tuition costs. The Tech Talent Bill, 
passed in 2002 by the House and largely incorporated into the 2002 
National Science Foundation Authorization Act, addressed this issue by 
creating a class of incentives for universities to increase the 
fraction of students receiving undergraduate degrees in science and 
engineering. However, these NSF-directed programs have not been funded 
as authorized, so their potential impact remains unrealized.
    The availability of scholarship money is a critical factor in the 
choice of majors. Recognizing this, the National Innovation Initiative 
proposes the creation of an ``Investing for the Future Fund'' which 
would be a national Science and Engineering scholarship fund created 
from private sector donations. The fund would create tax incentives for 
corporate and individual donors who support the next generation of 
innovators. The goal would be to provide a scholarship to any qualified 
student majoring in math or science at a four-year college who has an 
economic need and who maintains a high level of academic achievement.
    Finally, in terms of home grown talent, it is increasingly 
important that we reach out to under served and under-represented 
students. By 2020, more than 40 percent of college-age students will be 
of African, Hispanic, Asian, or other non-European descent. Currently, 
African Americans, Hispanics, and other ethnic and racial minorities 
account for only six percent of the science and engineering workforce--
a figure far below their demographic presence. Women, who make up 
nearly half the total workforce, represent only a quarter of the 
science and engineering professions. If America is to strengthen its 
base of science and engineering talent, it must perforce rely on these, 
the fastest-growing segments of the workforce, to provide significant 
numbers of new scientists and engineers.
    The second component of this need to access the world's best tech 
talent for our science and technology industries concerns foreign-born 
students studying in the United States. Two weeks ago I was in 
Singapore, meeting with the Nation's senior economic development 
leader. In the course of our conversation we touched upon the role of 
foreign-born students in Singapore's universities and I was amazed when 
this senior official walked over to a blackboard and without notes 
wrote out a detailed summary of the numbers and nationalities of 
foreign-born students in his country. Singapore actively recruits the 
best and brightest students from many countries to attend its world-
class universities. In exchange, they require the students to remain 
and work in Singapore for a specified number of years, and encourage 
these high-tech workers to stay permanently and contribute to 
Singapore's high-tech future.
    It is important to recognize that, like Singapore, we are in a 
global competition for high-tech talent. Until only recently, there was 
very little competition. America didn't need a global recruitment 
strategy, because America didn't have to compete for the world's best 
and brightest talent. If you wanted to play in the game, you had to 
come to America. But today, this is no longer the case. Tens of 
thousands of bright students who used to come to America to study 
science and engineering now have many other options. In the case of 
China, in particular, the Chinese government has been investing heavily 
in their research infrastructure within their universities, making it 
much more attractive for Chinese nationals to stay home and study.
    At Johns Hopkins, for instance, the number of graduate students 
enrolled from China has declined from 328 in 2001 to 178 in 2004. 
Meanwhile, the number of foreign undergraduate students of all 
nationalities has dropped from 381 in 2001 to 257 in 2004.
    Consider for a moment how critically important foreign nationals 
are to our high-tech industries. Foreign students account for nearly 
half of all graduate enrollments in engineering and computer science at 
American universities. Foreign scientists comprise more than 35 percent 
of engineering and computer science university faculties, and nearly a 
third of our entire science and engineering workforce.
    There are indications, however, that post 9/11 American visa 
policies are reversing decades of openness to foreign scientific 
excellence. Delays and difficulties in obtaining visas to the United 
States are contributing to a declining in-flow of scientific talent. 
Meanwhile, competitor countries are quite naturally taking advantage of 
our increasingly cumbersome visa process to lure top talent away. And 
with the strengthening of foreign science, there are many attractive 
scientific opportunities abroad to substitute for U.S. conferences, 
degrees and visiting scholar positions. The number of foreign students 
on American campuses declined in 2003-2004 by 2.4 percent, the first 
drop in foreign enrollments since the 1971-1972 academic year. This 
appears to be a trend. A survey of major graduate institutions 
conducted by the Council of Graduate Schools found a six percent 
decline in new foreign graduate enrollments in 2004, the third year in 
a row with a substantial drop. As one official of the International 
Association of Educators remarked: ``The word is out on the street in 
China: You can't get a visa to study in the United States.''
    In the past two decades American retailers have pursued a policy of 
importing the best high-quality products from China and other countries 
to the benefit of American consumers. There is something to be learned 
in this model. We should have an explicit national focus on importing 
the brightest students from China and from countries around the world, 
and keeping them here afterwards as part of our high tech workforce. 
Make sure it's easy for the best and brightest to come here, to stay 
here, and then to find legal residency to work here when their studies 
are complete. It is worth remembering that there is not a university in 
America that charges tuition at the full cost of educating its 
students. Even students paying full fare are heavily subsidized by 
endowments from grateful alumni, and from subsidies in many different 
forms from the State and Federal governments. It is only fair in return 
to ask foreign national students to repay these generous supplements by 
asking them to remain and work here in the United States for a set 
period of time and contribute to our national economy.
    This brings me to the second of the two urgent priorities before 
us. We should greatly increase both government and private funding in 
research, with a particular emphasis on ``far out'' frontier research 
that has the potential of creating new industries and transforming how 
we work and live. It's just like Dale Earnhardt Jr. would tell you--
when the race gets tough, step on the gas.
    Let me be explicit. I believe we need to fulfill our commitment to 
double the National Science Foundation budget to approximately $10 
billion by FY 2007, as was previously passed by the House. We must 
significantly increase our basic research efforts in the physical 
sciences, in mathematics, and in the information sciences. And we 
should do this without robbing Peter to pay Paul by reassigning funds 
already designated for the life sciences through the National 
Institutes of Health and other agencies.
    The doubling of the NIH budget has been a tremendous boon to 
biomedical research, and tremendous benefits will be seen in our 
lifetimes. We should not allow America's real and substantial lead in 
these fields begin to erode by slowly whittling away at these gains. In 
order to assure our continuing leadership we need to continue to 
increase our medical research expenditures at the rate of biomedical 
inflation, currently about 3.5 percent a year. Anything less than that 
is, effectively, a cut.
    At the same time, we need to find ways to encourage private 
industry to be more accepting of risks in the form of transformative 
business practices and technologies, while removing all incentives to 
engage in the short-term, bottom line thinking that has unfortunately 
become a hallmark of too many American corporations.
    In an innovation economy, intellectual capital is the engine that 
drives economic growth and prosperity. Investment risks and rewards are 
increasingly built around ideas. It is for this reason in particular 
that we need to revitalize frontier and multi-disciplinary research, 
the two areas that are most likely to bring about important new 
scientific discoveries and technological innovations.
    Investment in frontier research has always been the bedrock of 
American innovation. Many of the country's most innovative industries 
were built on decades of research that had no discernible applications. 
The highly theoretical world of quantum mechanics spawned the 
semiconductor industry and the IT revolution. Department of Defense 
research engineers working on file-sharing techniques invented the 
Internet. Scientists researching atomic motion helped create global 
positioning devices. But serious flaws have begun to appear in our 
current efforts to support American research.
    Perhaps most worrisome is the gradual shift that has been occurring 
away from bold, transformational discovery to incremental advances and 
improvements in current technology. For more than 50 years the United 
States has been at the frontiers of discovery, creativity and research 
breakthroughs. This kind of research has always been a governmental 
function, owing to the long time-frames, inherent risks and the 
difficulty of capturing returns on investment. But publicly funded 
research has been steadily moving away from the frontiers of knowledge, 
heading instead in the direction of application and development. The 
federal research commitment has grown conservative--increasingly driven 
by precedent, consensus, and incremental thinking. This is especially 
true at the Defense Advanced Research Projects Administration, or 
DARPA, which during the Cold War contributed research that brought 
about or significantly advanced microelectronics, weather and 
communications satellites, global positioning systems, passenger jets, 
supercomputing, the Internet, robotics, sensor technologies, composite 
materials and magnetic resonance imaging, among other advances.
    To this end, the National Innovation Initiative supports the goal 
set in the 2001 Quadrennial Defense Review and by the Defense Science 
Board that at least three percent of the total Department of Defense 
budget by allocated for defense science and technology. Within this 
amount, the Department of Defense's historic commitment to fundamental 
knowledge creation should be restored by directing at least 20 percent 
of the total Department of Defense science and technology budget to 
long-term, basic research performed at the Nation's universities and 
national laboratories.
    In the 21st century, scientific advancement has blurred the lines 
between scientific disciplines, so that advancement in one area is 
furthered by development in others. For example, future products in 
life sciences are very likely to result from a combination of modern 
biology, nanotechnology, information sciences and the physical sciences 
and engineering. Over the past half century the United States has 
invested considerable sums in life sciences research and development, 
with remarkable results. But the rate of increase in R&D in other 
sciences has not been as robust. Although federal funding for the life 
sciences has increased four-fold since the 1980s, growth in the 
physical sciences, engineering and mathematics has been stagnant.
    It is important we increase research and development investment 
across disciplines, because scientific advancement today is 
interdependent and collaborative. Research and development funding 
should not be a zero-sum game that simply shifts investment from one 
area to another as public fashion dictates. Rather, we need a 
comprehensive philosophy that brings investment in other disciplines up 
to the level at which the life sciences have thrived.
    Federal spending on scientific and technological research is 
profoundly important. It is the bedrock upon which the structure of 
American innovation rests. But it is not the only component of our past 
and future achievements. Private industry too has a crucial role to 
play, and perhaps at no other time has the need for American business 
leadership and vision been more acute. But here too there are trends at 
work that should concern us deeply.
    Norm Augustine, now retired CEO of defense giant Lockheed Martin, 
told me that when he was the CEO of Martin Marietta, the precursor to 
Lockheed Martin, he one day called in the analysts to announce a series 
of investments in research that he felt would propel the company way 
ahead of its competition. Much to his surprise, as soon as he had 
finished his presentation, the analysts ran out of the room, sold the 
stock and the price plummeted--and continued to drop over the next 18 
months. Puzzled about the negative reaction to this news, Norm asked 
one of the mutual fund analysts why the stock had dropped. He was told: 
``Everyone knows it takes eight to 10 years for research to pay off. 
But our shareholders only hold stock less than one year. Our fund 
doesn't invest in companies like yours that have this kind of 
management.''
    The drum beat of quarterly results are driving business decisions 
and drowning out long-term management, investment and innovation 
strategies. Today, investor patience is in short supply, and the 
traditional ``buy and hold'' approach to equity investments is being 
abandoned by the professionals. U.S. mutual funds are holding stocks 
for an average of just ten months, a record low, and annual turnover 
rates are 118 percent, a record high. As Norm Augustine discovered, 
these short investment horizons pressure CEOs to focus on near-term 
results. Not long ago, a survey of chief executives by Burson 
Marstellar found that their number one business priority was 
shareholder return. The category ``Most Innovative'' ranked eighth on 
the CEO's list, and was a priority for only 23 percent of the 
respondents. Another survey of financial executives found that fully 78 
percent would give up long-term value creation in the company in 
exchange for smooth earnings. More than half--55 percent--said they 
would avoid long-term investments that might result in falling short of 
the current quarterly targets.
    Admittedly, it will be difficult to change Wall Street's attitudes 
and habits. But it is terribly important to this country that we begin 
to try to do so. We can use the tax code to reward the behavior of 
companies that make significant research investments and take 
significant risks, just as we can find disincentives to short-term, 
bottom-line-only thinking. In doing so, we will make holding stock of 
innovative companies over the long-term a more desirable investment, 
and our national economy more competitive.

Conclusion

    The legacy America bequeaths to its children will depend on the 
creativity and commitment of our nation to build a new era of 
prosperity at home and abroad. The generation of new knowledge through 
research, and the transmission of existing knowledge in a world-leading 
educational system are the two essential elements of a productive and 
innovative society. Since World War II America has led the world in 
science and technology innovations largely because it was willing to 
make the considerable investments in both its educational systems and 
its research and development infrastructure that have enabled the 
natural creative genius of the American people (and visitors to our 
shores from all over the world) to flourish. If imitation is the 
sincerest form of flattery, we should be very, very flattered that so 
many other nations seek to emulate the methods of our success. But we 
also must be aware that today, as in no other time in our recent past, 
we are challenged by other nations equally determined to succeed. As 
Americans, we wish them ever success--except the kind that would come 
at our own expense. The race belongs to the swiftest. We must keep 
running. Thank you for giving me this opportunity to appear before you.

                     Biography for William R. Brody
    William R. Brody became the 13th President of The Johns Hopkins 
University on September 1, 1996. Immediately prior to assuming the 
position, Dr. Brody was the Provost of the Academic Health Center at 
the University of Minnesota. From 1987 to 1994, he was the Martin 
Donner Professor and Director of the Department of Radiology, Professor 
of Electrical and Computer Engineering, and Professor of Biomedical 
Engineering at Johns Hopkins, and Radiologist-in-Chief of The Johns 
Hopkins Hospital.
    A native of Stockton, California, Dr. Brody received his B.S. and 
M.S. degrees in electrical engineering from the Massachusetts Institute 
of Technology, and his M.D. and Ph.D., also in electrical engineering, 
from Stanford University. Following postgraduate training in 
cardiovascular surgery and radiology at Stanford, the National 
Institutes of Health and the University of California, San Francisco, 
Dr. Brody was professor of radiology and electrical engineering at 
Stanford University (1977-1986). He has been a co-founder of three 
medical device companies, and served as the President and Chief 
Executive Officer of Resonex, Inc. from 1984 to 1987. He has over 100 
publications and one U.S. patent in the field of medical imaging and 
has made contributions in medical acoustics, computed tomography, 
digital radiography and magnetic resonance imaging.
    Dr. Brody serves as a trustee of The Commonwealth Fund and of the 
Baltimore Community Foundation, and sits on the governing committee of 
the Whitaker Foundation. He serves on the Board of Directors of the 
following public companies: Medtronic Inc. and Mercantile Bankshares. 
He is a member of the executive committee of the Council on 
Competitiveness; the International Academic Advisory Committee, 
Singapore; and the selection committee of the Goldseker Foundation. He 
formerly served on the President's Foreign Intelligence Advisory Board, 
on the Board of the Minnesota Orchestra Association, and on the 
Corporation of the Massachusetts Institute of Technology. Dr. Brody is 
a member of the Institute of Medicine, and a fellow of the Institute of 
Electrical and Electronic Engineers, the American College of Radiology, 
the American College of Cardiology, the American Heart Association, the 
International Society of Magnetic Resonance in Medicine, the American 
Institute of Biomedical Engineering, and the American Academy of Arts 
and Sciences.
    Dr. Brody and his wife, Wendy, have two grown children and reside 
at Nichols House on the Johns Hopkins Homewood campus.





                               Discussion

    Chairman Boehlert. I liked the statement in your testimony 
when you refer to a great American, Dale Earnhardt, Jr.
    Dr. Brody. Yeah.
    Chairman Boehlert.--and you say his quote, ``When the race 
gets tough, you step on the gas.''
    Dr. Brody. Yes.
    Chairman Boehlert. So, we have got to step on the gas. 
Speaking about stepping on the gas, a guy that has already got 
his foot on the pedal, we are pleased to invite him, and to 
participate in today's deliberations, our distinguished 
colleague, Mr. Culberson, from Texas, who is a member of the 
Appropriations Committee, and I want more people to have the 
same insight that he has, who are appropriators.
    Mr. Culberson, I ask unanimous consent that you be 
permitted to participate in today's proceedings, and welcome. 
And thank you for your interest. You are sitting, on your 
right, next to two very distinguished scientists in their own 
right, Dr. Ehlers, Vern Ehlers, and Dr. Bartlett, Roscoe 
Bartlett, two very distinguished scientists.
    Let me tell you something. Once again, it is music to our 
ears what you are telling us. Our challenge is how do we get 
the other Members of Congress to focus more on this, and how do 
we get people to say you know, that is right. We should invest 
more in the National Science Foundation, and you know, it is 
just--they have more money in the coffee fund over at the 
Pentagon across the river----
    Dr. Brody. Yeah.
    Chairman Boehlert.--than we have in the annual budget for 
the National Science Foundation, and it is----
    Dr. Brody. Yeah.
    Chairman Boehlert.--so vitally important, not just to our 
present, to our future. And you are so right when you mention 
DARPA, and we have had Tony Tether over here before us, and say 
hey, look, you are getting too short-term in your thinking. You 
have got to think about the immediate problems, but you can't 
abandon the long range thinking.
    But one of the things I say to all the captains of 
industry, when they come before us, you have got to step up the 
lobbying effort. When a budget comes out, I don't care if it is 
this Administration or the previous Administration, and you see 
the figures for the National Science Foundation or the Office 
of Science in the Department of Energy, or the National 
Institute of Standards and Technology, and you shake your head 
and say, gee, that is not adequate, but your lobbyists don't 
come up and beat on the doors of all the Congresspeople, and 
say that is not adequate, and for Cisco and for IBM, you have 
got to invest more, and that is a message from IBM and Cisco, 
you have got to invest more in this, because your lobbyists 
come up, and talk to us about the most current tweaking of 
trade policy, or the necessity for adjusting tax policy to 
encourage innovation, and there is nothing wrong with that, but 
they never get to the rest of the story, and the rest of the 
story deals with adequate funding for science on the part of 
the Federal Government.
    And we wouldn't have the Internet today if it weren't for 
DARPA and NSF, and the Internet has changed the world. And so 
people who say, but too many people expect from us, you know, 
when we invest in research, they expect guaranteed results. You 
don't have guaranteed results with research. You are going to 
have more failures than successes, and you hope and pray that 
you get one out of a hundred ideas that you can follow through 
to a logical conclusion. But if we don't do a better job of 
building the foundation to the structure, and Mr. Morgridge, 
you are so right, and I praise Cisco for what you are doing 
with the academies and the thousands of people you are 
introducing to the new technology. But if we don't do a better 
job of K-12 science and math education, that is a national 
security issue. That is not just a bunch of people who agree 
that we all want better education for our kids and grandkids. 
It is a national security issue, and we are failing.
    In international comparisons, with youngsters around the 
world, our kids in K-12 don't measure up. By the fourth grade, 
they are about on par. By the eighth grade, they are slightly 
behind, and by the twelfth grade, they are way behind. Boy, 
that doesn't guarantee us anything in the future but more 
agita. You know, I get all exercised about this, but I just 
hope that other companies in corporate America will follow the 
lead of your two great institutions, and I am not just, you 
know, currying favor with you because you are here. But I know 
the IBM record. I know the Cisco record. But I would like every 
company to replicate that.
    I have got a company in my district, a small company, 
called Dolphin Technology. They have got 100 employees. You 
know what the president of that company, a guy named Mike 
Miravalle, who I wish I could clone. I don't believe in human 
cloning, but I wish I could clone this guy. If I--he takes 
promising high school sophomores and juniors. He goes to the 
schools and gets the recommendation of their teachers, and then 
he employs them in the summer at his company, pays them 10 
bucks an hour. Can you imagine a 15-year-old kid getting 10 
bucks an hour? And assigns them to a mentor, and the mentor 
works with that kid, and they are only there for 10 or 12 
weeks, and they get a few bucks in their pocket. They get some 
discipline in the job market, and they get excited about the 
promise of their future, and he called me up one day this 
spring, and he was so proud. One of the kids that participated 
in this mentoring program was from the inner city. He happened 
to be a star athlete, a great quarterback, and he called me up, 
and he said hey, remember the kid I told you about? He just got 
a full scholarship, full scholarship, to a very distinguished 
university. Guess what? It was an academic scholarship, not a 
sports scholarship. He had a lot of offers, so when I speak to 
the NAM or the Chamber of Commerce, and all the businesspeople 
start complaining to me, you know, these high school graduates, 
we have to retrain them. We can't even employ them right away. 
We have got to retrain them. I listen to them. I say quit 
moaning and groaning and start doing something about it. Go 
back and survey your company, and then come back and report to 
me, how many of your employees have run for school board. 
Everybody says education should operate like a business. How 
many businesspeople do we have on boards of education? Oh, I 
can't get involved. I am too busy in my business. You better 
damn well get involved, because there is a lot at stake.
    So, excuse this monologue, but in the form of thanking for 
you for what you are doing, it reminds me of my parish priest. 
Once a year, I am convinced from on high the bishop sends down 
an order, and he says I want you to give your homily this week 
on a sense of reverence and church attendance, and boy, he is 
good at it. And he gets wound up, and about halfway through, I 
feel like saying time out, but Father, we are here. So, you are 
here, and just thank you so much for what you are doing. And I 
want, and I know I can expect a renewed commitment for you to 
continue that.
    I have got some very specific questions, but the red light 
is on for me, so I will go to Mr. Costello, and I will be at 
the end. Mr. Costello.
    Mr. Costello. Mr. Chairman, thank you, and I would like to 
associate myself with your remarks concerning the innovations 
that both IBM and Cisco have made, and contributions that they 
have made not only to the economy here in the United States, 
but the global economy as well. Also with your remarks to 
encourage those who are here today and others in the private 
sector to become engaged and do a better job of lobbying on 
behalf of research and development, and lobbying both the White 
House and the Congress. We need your help. You are kind of 
singing to the choir here. We are all in this together, and we 
understand the importance of R&D and investment, unfortunately, 
as the Chairman pointed out, there are others, other 
challenges, and because of budget deficits, but we need you to 
help us convince our colleagues, and those in the 
Administration that we need to make those investments.
    I think we can all agree, as the Chairman pointed out, and 
I think the three of you pointed out, the importance of 
education, in particular K-12 in math and science. I think we 
can all agree that we have a responsibility, and that we should 
aggressively be investing more in research and development.
    My concern, frankly, and the reason that we held the 
roundtable discussion, and the reason that I have brought up 
the issue several times in various hearings of this committee, 
is the issue of outsourcing. I think, Dr. Brody, in particular, 
in your testimony, you point out the discrepancy between the 
percentage of U.S. college graduates obtaining degrees in 
science and engineering, and in comparison to the world 
average, and especially, relative to the percentages in Korea 
and China. And you point out that the quality of the graduates, 
essentially is equivalent to us here in the United States in 
U.S. institutions. In fact, many of our institutions are 
affiliating with educational institutions in China, Asia, and 
other parts of the world. You point out that high speed 
communications now link us together, where you are based is 
really not an issue any longer, and as a result, many of the 
U.S. companies are outsourcing, and we are competing with low 
wages.
    So, I guess my question to you is, in particular, is the--
if we simply just increase the number of U.S. science and 
engineering graduates, how does that address the problem of 
outsourcing, number one. Number two, what do we tell young 
people today that are in K-12, that we need more engineers, we 
need more scientists, but the prospects of you entering these 
careers, if you in fact become graduates, and you become a 
scientist or an engineer, that the wages that you are looking 
at today have not increased in several years in the United 
States, and number two, that many U.S. companies are now, 
because of the low wages, and the quality of education, as you 
point out in your testimony, is equivalent to U.S. graduates. 
How does that all shake out?
    Dr. Brody. Congressman Costello, you ask a question that 
probably exceeds my capability to answer in components. I would 
like just to address one issue. One critical factor that nobody 
seems to be talking about, one reason that the United States 
needs to train more scientists and engineers, is we have a 
large number of jobs in the defense and security infrastructure 
that require security clearances. And for example, we at the 
Applied Physics Lab, it is in Congressman Bartlett's district, 
2000 scientists and engineers. They need clearance. If we bring 
students from other parts of the world in, it is very hard to 
get clearance. And we have a large number on that workforce 
that is going to be retiring, and we do not have the people 
coming up to replace them. So, this is a critical security 
issue, irrespective of anything else that we have talked about. 
I will leave the outsourcing question to my colleagues. I think 
they are more expert. But I suspect that one of the things that 
is happening is the wages may come down a little bit in the 
U.S., but my prediction is that the wages for scientists and 
engineers in other countries are going to rise much more 
rapidly and equilibrate, that you know, there are still only a 
number of really exceedingly bright people, and they are going 
to command a premium in the workforce.
    And the other thing that we need to do that we haven't 
done, and I think this is a university responsibility, is to 
sell why careers in science and engineering are useful. A 
technical background, even if you go off and become a manager, 
you move into other fields, a technical background is really 
important, and I think we need to sell those careers, not just 
an issue of well, if I go to work for IBM as an engineer, I am 
going to make, you know, less than if I go to Wall Street and 
work for Goldman Sachs.
    Mr. Costello. Mr. Morgridge.
    Mr. Morgridge. Over the past year, Cisco has added about 
3,000 positions. Currently, about two-thirds of our employees, 
and we have about 37,000, 38,000, are in the United States. The 
positions that we have added have been principally in 
engineering and sales, and sales support. From an engineering 
standpoint, the vast majority of those jobs are here, either in 
San Jose, California, which is our headquarters, or in one of 
our three other campuses. The sales jobs, as you might expect, 
are all over the globe, because only 45 percent of our total 
revenue is generated here in the U.S., so a large portion of 
our business is outside the United States, and the technical 
support for that business, and the sales, of course, are 
located in country.
    So, as long as we are able to get the best and the 
brightest, our real preference is to hire at these campuses. We 
have invested a lot of money in developing them. That is, the 
Internet is a powerful collaboration tool, but it is not the 
same, it is not the same as being geographically and physically 
related. There is magic to that that you don't quite get in the 
Internet.
    Mr. Costello. When you mention that as long as we can get 
the best and the brightest, our preference, and of course, we 
understand that, but you have a responsibility to stockholders, 
you have a responsibility to others, as far as from a 
competitiveness standpoint. And if you have an equivalent 
elsewhere, an engineer or scientist that is making one third of 
the wages of someone in the United States that can perform the 
job, don't you have a responsibility to take a look at that, 
and isn't that what is going on in manufacturing today in other 
sectors, because there is an equivalent, where the only call is 
money? Many of the jobs are being outsourced.
    Mr. Morgridge. Well, it actually goes beyond money. You 
know, it is yet to be demonstrated conclusively that creativity 
is going to be as transferable geographically as some would 
think. And certainly, our experience to date is that the best 
work, the most creative work, is to get the best and the 
brightest, and situate them in our environment here in the 
United States, and certainly, I see that continuing. The only 
exception to that rule is that all markets don't develop at the 
same pace, and some of them differentiate themselves, and to be 
successful in those markets, you have to have on the ground 
contact to understand, and I think we are seeing some of that. 
That is not a zero sum game. That is, we would hope that there 
is actual considerable upside, and I would cite just the use of 
the cell phone as a kind of a broad base platform. That is 
different around the world. And it is important to be in those 
countries where they have used it differently, and understand 
why and how, so that we can develop those solutions.
    Mr. Costello. Briefly, Mr. Donofrio.
    Mr. Donofrio. Thank you. Thank you, Congressman. It is a 
complex problem. It is a complex situation. I will try to 
simply my views on this, IBM's views on this.
    Everything is changing, and we are naive to think that it 
is not. It is not just technology. It is the entire business 
environment. Value is migrating. That is the fundamental issue. 
Value that creates real wealth. Everything will flow from that. 
For us, we had a near death experience in order to appreciate 
and understand that value had migrated. In our business, there 
are systems, there is software, and there is services. And they 
always existed, it is interesting, for 100 years more or less 
that we have been around as the wonderful IBM company, but what 
customers want, what clients want, and what they are willing to 
pay you for changes. It changes because of market forces. This 
is where we need to look. This is where we need to start, as we 
have these discussions and these debates, about what innovation 
is like in the 21st century. What is the role of science, 
engineering, technology, and mathematics?
    It is critically important, but it is not the necessary and 
sufficient condition. It is critically important that we build 
on the bona fides that we have established here in the United 
States, and that we continue to worry about why we are not 
producing more science, scientists, technologists, engineers, 
and mathematicians. And what is wrong with the K-12 education 
system, and why have we left behind an incredible percentage of 
the population, the Hispanic population. I mean, if you really 
want to worry, look at the number of Hispanics in terms of how 
many of them are entering the STEM disciplines. They are the 
fundamental reason this country is growing. They will be 25 if 
not 30 percent of the population in the next foreseeable 
future.
    That aside, will not get us to where we want to be, a 
leader in the world economy. We will not be the leader by sheer 
numbers. That is probably a preordained and destined fact in 
the next 10 or 15 years, but that does not mean that the United 
States of America cannot lead the world from an economic 
perspective. It needs to lead it from an innovation 
perspective. We have always thought better than anyone else in 
the world. We have always found value. That is how John created 
Cisco, that value. All of the examples that Bill talked about. 
They are all innovative examples that found real business value 
or societal value, based on technology.
    This is the fundamental issue. We need to educate 
ourselves, and we need to make this a national platform. We 
need to find a way to rally around this, not just government, 
but we need you leading us too. Us, the academic institutions, 
labor, this is the only way that real leadership is going to be 
found on this topic.
    So, you worry about the whole issue of outsourcing and 
globalization. We are in 174 countries around the world. It is 
a simple thought for us. The right task, with the right skills, 
in the right place. That is what determines where things get 
moved. But in the end, we have more employment in the United 
States for the last year, for the year before, and for this 
year, than we have had before.
    So, our employment is not going down. It is the kind of 
people that we are employing. It is the thought process that we 
are employing. It is this whole idea of services that we keep 
forgetting about. We have 195,000, 195,000 engineers, 
scientists, technologists, and mathematicians in the IBM 
company, Congressman, around the world. Half of them are in 
services. Half of them are applying all of that incredible 
educational capability at this whole issue of what is the 
business issue, what is the societal issue, and how do I put 
technology to work to solve that problem faster.
    That is the key for our success.
    Chairman Boehlert. The gentleman's time has expired. Dr. 
Bartlett.
    Mr. Bartlett. Thank you, Doctor. I feel very comfortable at 
this hearing, having spent 24 years in a former life teaching, 
five years working for Johns Hopkins University Applied Physics 
Lab and eight years working for IBM. Gentlemen, thank you very 
much.
    Chairman Boehlert. Is that a commercial?
    Mr. Bartlett. Yeah, I have a longer view of life than most 
Members of Congress, having been born in 1926. Mr. Donofrio, 
you mentioned that 90--I am sorry, that 75 percent of our 
economy was service-based. Now, if you push this service-based 
economy to an absurdity, if all we do is cut each other's hair 
and take in each other's laundry, that is clearly not a very 
good prescription for prosperity, is it? Do you think this may 
have something to do with the fact that we had last year, about 
a $700 billion trade deficit?
    Mr. Donofrio. Well, Congressman, that is part of the 
problem, is we actually don't understand what the metrics are 
that should lead us in the 21st century. We continue to apply, 
in all due respect, Industrial Age views to the evolving 
economies of the 21st century. Services, for instance, that 
category, it includes all of the things you just said, and it 
includes about 90,000 of our wonderful engineers and scientists 
from around the world working in our services sector as well. 
We need a better understanding of what the real value driver is 
in services, instead of just homogenizing everything.
    I would argue that yes, our services-based people and 
others, you know, others in the industry, the communications 
industry and the IT industry, they are generating real value. 
They are generating real wealth. They are generating real jobs, 
but most importantly, they are creating real business and 
societal value. We need to start to understand, how do we 
educate people to do that? So, let us take services apart into 
its various categories and constituencies, let us start 
treating at least services in information technology and 
communications technology, let us start treating it with a 
different thought process. Let us treat it as a science, as an 
engineering discipline.
    You do remember, it wasn't so long ago, you could not get a 
computer science degree. In fact, when I went to school, 41 
years ago, when I graduated from school, I had to hide away in 
the EE department, take as many computer courses as I could, 
and then came out to go to work for a computer company. It is 
only 25 or 30 years that we have reformed our view of yeah, 
these computers will be around for a while. They are not going 
to go away. I think we are at a very similar tipping point on 
this whole issue of services. It is a science. It is a 
discipline. It may be where the real value is, and it is not 
just cutting your hair, polishing your shoes, and changing your 
oil.
    Mr. Bartlett. Mr. Donofrio, don't you think that maybe this 
information technology is to the world of economy, 
manufacturing, mining, and agriculture, like mathematics is to 
science and engineering? If all you trained were 
mathematicians, and they never applied their skills to 
manufacturing and science and so forth, you know, I think we 
are kind of obsessed with moving these little electrons around 
and storing them and coughing them up and doing it faster and 
faster.
    Mr. Morgridge, you mentioned that we needed to attract the 
best and the brightest from around the world. Don't you think 
this is a cop-out, because we aren't able to turn out good 
graduates from our secondary schools?
    Mr. Morgridge. In a global, competitive world, I don't 
think so.
    Mr. Bartlett. But you know, if we are going to do this, and 
if every country is going to do that, you know, why should we 
have to drain brains from other countries? Don't you think we 
have enough in our country, if we shaped up our secondary 
education system, so that we were turning out adequate numbers 
of prepared young people to enter our graduate schools?
    Mr. Morgridge. I think that is an awfully broad assumption, 
but I still think that----
    Mr. Bartlett. Do you think that the students from other 
parts of the world are inherently brighter than ours, that we 
have to go there?
    Mr. Morgridge. No.
    Mr. Bartlett. I don't for a minute think that. I think you 
are going there because we are failing at K-12. Mr. Donofrio 
mentioned that our graduate schools were the envy of the world. 
But they are having some pretty darn good ones other places in 
the world, and we are now having trouble attracting the 
brightest and the best in the world. But that is only a very 
recent phenomenon.
    Mr. Morgridge. Right.
    Mr. Bartlett. And I just don't think we need to go outside 
our country, if we had adequate K-12 education. I think that is 
where the challenge is. Mr. Chairman, if you would indulge me 
just one quick question to Dr. Brody.
    Dr. Brody, I think that our intense focus on this 
information technology is a bit like gilding the lily. It is 
already pretty darn good, thank you. And I wonder if we 
shouldn't now be using the skills that we have developed there 
to apply to some real world challenges, like maybe energy.
    Dr. Brody. Well, I am not an expert. Clearly, energy is 
going to be the looming issue for all of us, and if we don't 
get on that, as a critical number one priority for our country, 
we are all going to be reading with the lights out, and that is 
probably not a good way to read. It might be good for the 
Hopkins Ophthalmology Clinic, but otherwise--I will go back, 
just if I might, the other--we are in a global competition for 
talent, and I use the analogy of the NBA. You know, for many 
years, the NBA had only American players. Now, you look at the 
NBA roster, it is worldwide, including Yao Ming from China. It 
is a global search for talent, and wherever the best and 
brightest are, if there is a large talent pool, you know, 
companies and universities are going to want to get the very 
best and brightest.
    That does not forgive us for failing at K-12, which is 
failing, and we need to do something about that, as a major 
priority as well.
    Mr. Bartlett. Thank you for recognizing that. Thank you, 
Mr. Chairman.
    Chairman Boehlert. The gentleman's time has expired. But 
what I am hearing the panel say is that we don't have to just 
serve as a magnet to attract the brightest minds from all 
around the world. We have got to do both. We have got to 
produce them here, but we have got to attract them from 
wherever we can attract them. In other words, we need a good 
mix. That is the greatness of America.
    Mr. Lipinski.
    Mr. Lipinski. Thank you, Mr. Chairman. I can't really top 
Dr. Bartlett there, or we also--with his background, but I do 
have a unique background, in that I am an engineer. I have a 
background in engineering, and one of only 11 Members of the 
House and Senate, I am told, that does. But then again, you 
could say that I got a couple degrees in engineering, then I 
went and got a Ph.D. in political science, so I am not sure 
what that says, and I am not sure. I was sitting here thinking 
about how do we encourage people to go in for these higher 
degrees in engineering, and I think well, what happened to me. 
But I also, you know, share something with Mr. Morgridge and 
Brody, that I have a degree from Stanford also. So, I do have 
that going.
    I look at this from many different angles, as someone who 
taught political science at a university, someone with an 
engineering background. But it really, to me, comes down to how 
do we do the best job we can here in Washington, so that we can 
employ more Americans? And that is where I am coming at this 
from, and I realize that if you are running a company, though, 
you need to take care of the stockholders, and--that is an 
inherent tension there that I think we don't deal with, we 
don't talk about enough, but I think we need to work together 
as the government, companies, to help try and employ more 
Americans. So, we talk about a lot of different things here, 
and I sort of wonder, I know they are all important, but I want 
to know, what do you think is most important? We see these 
other countries producing more Ph.D.s in science and 
engineering. We see students doing better, say, at eighth grade 
level, or the eighth grade level here, students are doing 
better in science and math in other countries.
    We also talk about the problem with short-term, too much 
short-term emphasis on research and development. What is most 
important? Is it most important that we bring all our students 
up, or is it more important that we have a select few that are 
really interested in going for advanced degrees, science, 
engineering, other fields where we can innovate, and then, that 
will create the jobs? Or is it the focus of our companies in 
being too short-term, or having too much of a short-term focus? 
Well, that doesn't seem to make a difference there. Why are 
other countries doing better than we are doing?
    So, what is the one step each of you would say that we 
should take here in Washington to help have a brighter future 
to employ more Americans? Nice easy question, right?
    Dr. Brody. I don't want to disagree with you, but I don't 
think there is one step. I think a better way to think about it 
is there are some things you can do over the short-term that 
will have a short-term impact. There are some things over the 
intermediate-term, and there are longer-term things. The short-
term, we can increase funding for basic research in math and 
physical sciences, through the NSF budget, as we have with the 
NIH. Clearly, I think, in time, DARPA, hopefully, will get back 
to their original longer focus mission.
    I think K-12, our educational system, didn't get into the 
state it is in overnight, and it is not going to get out of the 
state it is overnight. So, although we can do individual things 
to help individual students, turning around the system has to 
be viewed as an important priority, but one that will take 
probably many, many years to turn around.
    Mr. Lipinski. Do you think, is it in the system, or is it 
in society?
    Dr. Brody. It is both. It is both. Turn on the television 
and see what we value. That is part of it. But also, then, 
you--and the way we manifest that is the way we invest in our 
local school boards. It is about nobody taking the time to join 
the school boards. It is, it is society's values, and we will 
have to turn that around over time. But there are things that 
we can do. Incentives always work, if you get the right 
incentives in there, if we could incent some students into 
science and engineering careers, one way or another, through 
scholarships and the like, it will have an impact over the 
short-term.
    Mr. Lipinski. Well, what do you think those incentives, 
good incentives would be from the government?
    Dr. Brody. Well, I think scholarships, forgiving loans, for 
example, for students who go on to college and major in science 
and engineering. Loans are a huge burden for college students, 
and that would be a big incentive for students, to think about 
it. The fact that you went on to get a Ph.D. in another field 
is not a bad thing. I think these cross-disciplinary people who 
become leaders in whatever field, including Congress, who have 
the broad disciplines, including a scientific training or 
engineering, is a good thing. So, the fact that we lose people 
is not bad, but getting more people trained. You go to other 
countries in Asia, and most of the senior government officials 
all have technical training at their undergraduate level. Some 
of them then have Ph.D.s. Some of them go to business school or 
law school. But it is amazing how many of the leaders of those 
countries have engineering or science training.
    Chairman Boehlert. The gentleman's time has expired, and we 
go to a Ph.D., a very distinguished one in his own right, Dr. 
Vern Ehlers.
    Mr. Ehlers. Thank you, Mr. Chairman, and thank you for the 
monologue you gave. I am going to do something, and not just 
because you did, but I will copy you in one respect. That is 
quoting a racing figure. I am reminded of Mario Andretti's 
comment that if you are in control, you are going too slow. 
That, in a sense, describes the creative process as well. I 
believe that the most important phrase in science is not 
``Eureka, I found it,'' but ``that is funny, I never saw that 
before. I wonder what is causing it?''
    The creative process is hard to--for us to control, but we 
have to plough the ground and provide the fertilizer for it to 
take place, and we are not doing that. I think--I believe this 
is the most important hearing on the Hill this week, maybe this 
year. And that may seem like an outrageous statement, in view 
of the lack of extensive media coverage and so forth, but just 
think back 30, 35 years. This committee was talking about the 
DARPANet, and look what happened. What happened, what came out 
of that, has affected the world much more than anything that 
happened in the Defense Committee or other major committees. 
When Alan Greenspan comes and testifies, all the media are 
there. What we are talking about here today is going to have a 
greater effect on the economy of this nation than anything that 
the Fed decides this week, and we have to get that word out. We 
have to emphasize how important it is for the future of this 
country that the ideas you are presenting are the basis for our 
next 30 to 40 years of success as a nation. And that is our 
job, but it is also your job, as the chairman said. We have to 
get the scientific and engineering community out there helping 
us and lobbying. We have to improve our educational system.
    Just one bright spot you can go home with. Today, I am on 
the Education and Workforce Committee. Right now, we are 
marking up the Higher Education Bill, and Congressman McKeon 
and I are offering a scholarship amendment to offer 1,000 
scholarships each year to the 1,000 brightest students we 
identify, to go forward and study in the sciences, engineering, 
mathematics, and so forth. And the problem is going to be 
getting funding for it. I think we will get it passed. I 
suspect the House will pass it, and you can help us get the 
Senate to pass it, but then, where is the money coming from? 
And that is where you and your colleagues are going to have to 
lobby every year to get sufficient funds to keep that program 
going.
    Also, there is a cultural attitude that I am very concerned 
about, a cultural attitude that says women are no good at 
science and math. It is unique to this nation. I believe we 
have to reverse that. It is happening, but we have to work more 
diligently at that. I give many speeches in the schools, and I 
always tell the students in high schools. I said when you get 
out of this place, you are either going to be a nerd or be 
working for a nerd, and the choices you make now in high school 
are going to determine which. And I also assure them that I am 
a nerd, and they never believe it until I show them my plastic 
pocket protector. That is my badge of my identity.
    A few questions. First of all, Mr. Donofrio, I appreciate 
your comments about intellectual property protection. I have 
been pushing that really hard with--especially with respect to 
China, and just yesterday, talked to both our trade 
representative and our Secretary of Treasury on that issue, and 
encouraged them, once again, to pursue it. But you made an 
interesting comment, Mr. Donofrio, not in your spoken 
testimony, but in your written testimony. You called for new 
performance metrics to measure innovation. I think that is very 
important, but I wonder if you could expand on that, as to just 
how you would do that. We are planning, by the way, an 
important conference in October on innovation and creativity. I 
see Deborah Wince-Smith in the audience. She is part of the 
planning group as well. And I think that is one issue we have 
to work on, and how we can apply this to manufacturing. So, I 
am interested in your detailed thoughts on that.
    Mr. Donofrio. It would be good, by the way, I thank you for 
the comments and for the question, maybe that conference that 
you are going to hold in October, maybe we can do more on this 
whole issue of the right performance metrics for innovation in 
the 21st century.
    I think most of you recognize that the current system we 
have, the current view we have of innovation, is fundamentally 
determined by the Industrial Revolution, and I mean, I am not 
saying there is anything wrong with that, but it is 20th, at 
best, 20th century thought. We are in a 21st century 
environment, and again, I will sound a little repetitive here, 
things are moving. Value is moving one more time. And if you 
are not watching value, you end up, as we did, in an almost 
near death experience.
    So, the way you look at innovation in the 21st century, and 
these metrics that you are looking for, it is a very complex 
set of issues. You can measure piece parts. You can measure 
things that will contribute, and we have described an 
environment, for instance, in the NII report, that we think 
make sense, to support an innovative economy and an innovative 
growth opportunity for the United States of America. And look, 
we are all Americans here, so I mean, we would like the United 
States of America to continue to succeed and lead, but to your 
point, if we don't, someone else will. You know, it is a very 
interesting world that we live in, and by the way, the United 
States isn't the only country that doesn't do so well with 
women in STEM disciplines. Almost every other country, with the 
notable exception of China. China does incredibly well with 
women in the STEM disciplines. Just another reason to worry 
about whether or not we can continue to lead here if we leave 
half the population behind, more or less.
    So, to your point, specifically, we could do a better job 
of looking at how research and development is funded. The 
reports suggest we should be doing a better job of more 
complete research and development funding, not piece by piece, 
not a piece of a solution, but the totality of a solution. 
President Brody has already indicated we should be doing a 
better job of funding the physical sciences. I mean, this is on 
the government side. Not take away from the life sciences, but 
I mean, have you seen the budgets for physical sciences over 
the last 25 years? They are flatlined. They are flatlined. I 
mean, we are, thank God, they are at least flat, but that is 
not the way you get ahead in the physical sciences. We could do 
a lot more on education. We agree with you, curriculum reform 
at the higher education level, as well as a more concentrated 
set of thoughts on K-12. Outcomes and the value migration is a 
very complex issue that we do need to find a set of metrics to 
work on. We are committed to do that, by the way, with the 
National Innovation Initiative and the follow-on work. We would 
welcome the opportunity to either participate in your 
conference in October, or perhaps we should have another 
hearing on this very topic, because I will tell you, no one 
else in the world has figured this out either. So, we are not--
it is not like we are being way left behind here. If we can get 
it right, if we can find the measurements, and then from the 
measurements, we can therefore find the right things to incent, 
to get the right behavior, to be the leader in innovation in 
the 21st century. It is in front of us, to be able to see, to 
understand, and to grab.
    I hope that helps you a bit.
    Mr. Ehlers. Thank you. And Mr. Chairman, if I may have just 
15 seconds, I want to compliment Mr. Morgridge on his statement 
that creativity is not necessarily geographically transferable, 
and I criticized American culture vis a vis science and math 
education, but I will compliment American culture on the 
creativity that is intrinsic to the thinking of this nation, 
and that is one of our biggest aces in the hole to overcome the 
advantage other countries have in wages.
    Thank you.
    Chairman Boehlert. Thank you, Dr. Ehlers. Mr. Carnahan.
    Mr. Carnahan. Thank you, Mr. Chairman, and I want to say, 
in particular, to you that I agree with you, that K-12 
education is a national security issue. I also want to thank 
the panel, and also, specifically, mention to Mr. Morgridge, 
your comment about education being the foundation for 
innovation, absolutely is true. I agree wholeheartedly. The 
quandary that I think I see here is that we have seen education 
policy, at the Federal Government level, and then many states, 
has really been one of devolution of education funding. At the 
Federal Government level, we have seen, you know, arguments 
over whether we can fully fund No Child Left Behind. Many state 
governments, from elementary and secondary and higher 
education, they have been cutting those budgets, where most of 
our state education funding comes from. In particular, higher 
education. We have seen those costs passed on to students in 
higher tuition. Students are racking up higher debt than ever 
before.
    When I was in the state legislature and served on our 
Education Appropriations Committee, the one thing that struck 
me is we didn't have business leaders showing up at our 
hearings, and none of them were weighing in on the questions of 
how important the funding of education was. That is why I am so 
heartened to see you here today engaged in that discussion. We 
have also seen, at the local level, the burden land on these 
local school boards with regard to how to properly fund their 
schools.
    We can't pass everything down, and pass everything off to 
the local school boards. I guess you can tell from the nature 
of my comments that I would like to know what you think about 
that--our overall education policy in the country, and what you 
are doing, or can do, to really weigh in on that debate as we 
have it here, and as we have it at the state level. And--well, 
I would ask that of the panel.
    Mr. Morgridge. Well, certainly in California, and 
particularly in Silicon Valley, there have been kind of 
continuous efforts focused on primary and secondary education. 
Currently, TechNet, which is a collaboration of high tech 
companies in Silicon Valley, is putting forth a proposal on 
education, primary and secondary education, and on post-
secondary education. So, there is not only an increased 
awareness, but also, increased activity, in terms of carrying 
that forward.
    You know, one of the things we forget, we do have excellent 
elementary and secondary schools. I am very proud of the high 
school that I went to. I have gone back and visited it numerous 
times. I would love to go back there and go to school. And I am 
sure in your districts, there are outstanding primary and 
secondary schools. The key is, we don't have enough of them. 
And more critically, we have a third of them that are almost 
total failures, and that third is addressing a very important 
piece of our future population and of our national asset. And 
we can't afford to have two thirds of them not participate and 
develop. And you know, to your question, we have got to solve 
that problem if, indeed, we want some level of independence, 
relative to the source of key technical and engineering 
personnel.
    So, I think there certainly has been an ongoing interest on 
the part of business. I think it has heightened--I think there 
is greater recognition, as there is in this body, of the 
criticality of it, and so, I think that business is prepared to 
work collaboratively, and to push State governments and local 
governments on the issue of education funding.
    Mr. Carnahan. Thank you.
    Mr. Donofrio. Could I add something to that, if there is 
time.
    Mr. Boehlert. By all means, yes, please.
    Mr. Donofrio. So, I agree with everything John said. I 
would just simply add, the real issue here that I think you are 
trying to talk about and deal with is math and science, and why 
are we forsaking ourselves here. You realize this problem that 
we are talking about starts in the third, the fourth, and the 
fifth grade. This problem is too late by the time we get to 
high school, let alone college.
    There is enough research done on this matter that suggests 
that the problem lies with the fact that we don't have 
adequately capable teachers. It is true that in the fourth and 
the fifth grade, young women get deprogrammed from math and 
science. They get frustrated. Under-represented minorities get 
frustrated, and they become channeled to go do other things. 
So, if you were really looking for one thing to do, from my 
perspective, having spent 20 years trying to figure out this 
problem, it is teachers. We need better math and science 
teachers. That is how we will get more and more people through 
the system into our college programs, because the other 
countries that we are all worried about, it is what they do. It 
is how they major in this stuff.
    Chairman Boehlert. The gentleman's time has expired. To 
follow through on that, just let me point out--the reality of 
something. About half of the kids in K-12 in America are taking 
science and math courses from teachers who didn't major in a 
science or math discipline. That doesn't mean they are not 
dedicated educators, but quite frankly, I don't want a French 
major teaching my grandkids calculus, because they will end up 
with the same result, where their grandfather still doesn't 
understand it, but that is part of the problem.
    And then secondly, they will say, well, why don't we get 
the best and the brightest in science and math majors to go 
into teaching? Because we are stupid about the way we do it. 
Here is what happens. You got people in undergraduate work 
majoring in science and math, excelling, and they say, you know 
what? I would love to teach. What a rewarding profession that 
is. But then they graduate, and it is gee, I got $28,000 in 
student loans to pay back, and Johnny and Susie want to get 
married, and begin to start their family, and they say, boy, 
IBM and Cisco, they have got this offer to me for double what 
the local high school or grade school is offering, and I really 
want to teach, but I can't afford to teach. I will do it later, 
and later never comes about. So they make a practical decision.
    So, one of the things this committee has done is start out 
the Science and Math Scholarship Program. And it took us five 
years after we got it authorized to get a buck for it, and we 
give stipends, $10,000, to juniors and seniors in college, 
science, math, or engineering majors, who will agree, for each 
year of the stipend, to teach two years in public education, 
help solve their problem of income, and it helps solve our 
problem of getting them in the classroom. But I don't want 
anyone to go from this hearing to think that America's schools, 
even the ones that are failing, aren't peopled by dedicated 
educators. There is a lot to be lacking in the administrators, 
quite frankly, and the fact of the matter is, the most 
dedicated French major or history major is probably not going 
to be the best calculus teacher or chemistry teacher, 
understandably, but they have to take their assignment. So, we 
are getting on with the job, but help us lobbying for more 
money for the scholarship programs.
    And I want to welcome, to show you the interest we have, 
another appropriator--we like to curry favor with 
appropriators, you know--Todd Tiahrt. He is an individual who 
is vitally interested in innovation and what we are discussing 
here today. And in his busy schedule, he is not on this 
committee, but he wants to be here. So, without objection, I 
ask unanimous consent that he be allowed to sit in on the 
proceedings, and we welcome you, Mr. Tiahrt.
    Mr. Tiahrt. Thank you, Mr. Chairman, and let me thank you 
for having this hearing. This is a real challenge that we are 
facing. How do we prepare for the future economy? What do we 
need to do in our government to assist that, and I think your 
vision with the scholarship program and with this hearing is 
commendable, and I am glad you are going down that path. I have 
a statement I would like to include in the record of this 
hearing.
    Chairman Boehlert. Without objection, so ordered.
    [The prepared statement of Mr. Tiahrt follows:]
            Prepared Statement of Representative Todd Tiahrt
    First, I thank Chairman Boehlert for inviting me to this hearing. I 
commend the Chairman for his hard work on this committee and especially 
his foresight in focusing the Committee's work not only on the 
immediate needs of our nation but also on long-term goals and finding 
the steps to reach those goals. I am especially interested in the topic 
of today's hearing ``U.S. Competitiveness: The Innovation Challenge.'' 
The innovation challenge is one of the most important ones for us to 
meet in order to ensure America's economic competitiveness--however it 
is also one of the hardest to define. I am pleased that Chairman 
Boehlert has assembled these witnesses from various backgrounds to help 
Congress better define the innovation challenge and propose solutions.
    As you may know, for the last two years I have been working with my 
colleagues to address the issue of economic competitiveness. The United 
States has the #1 economy in the world. For almost two centuries, we 
have been the envy of the world--a dynamic economy, a hardworking, 
motivated workforce, truly the land of opportunity where innovation has 
thrived. That status is changing, however. We are running a $670 
billion annual trade deficit, that is contributing to our budget 
deficit and slowed economy over the past few years.
    This development is not a temporary blip on the radar screen. It is 
the culmination of a generation of increased regulation, unsound tax 
policies, languishing emphasis on math and science education, unchecked 
health care costs, rampant lawsuit abuse, unfocused research and 
development funds, and weak trade policy enforcement. In short, our 
government has made it difficult and undesirable to do business in the 
United States. We have put up roadblocks to keeping and creating jobs 
in the America. And we have done this to ourselves. If these current 
trends continue, our economy will continue to lag and we will no longer 
remain the most dynamic economy in the world.
    Meanwhile, China, India and other nations are preparing for the 
future. They are educating their students in math, science and 
technology and pumping out record numbers of engineers. They are 
reducing tax rates and other economic barriers to entice investment in 
their nation. They are pursuing aggressive trade policies to reduce 
America's dominance in world trade.
    Without attention to these matters, the United States is headed 
towards a third rate economy.
    That is why we need to take this issue seriously. Last year we 
began the competitiveness legislative agenda on the Floor and over a 
period of eight weeks discussed and voted on issues relating to keeping 
and creating jobs in America. Beginning last week the Jobs Action Team 
is again bringing legislation to the floor to combat this problem. But 
we need to take a longer-term vision. For this reason, I have 
established the House Economic Competitiveness Caucus. The Caucus will 
carefully examine the issues facing our ability to compete economically 
in the coming years. We will work to focus Congressional efforts on 
removing the barriers to American economic competitiveness, and develop 
economic goals for the future and find the paths to get there.
    I am most interested in hearing the testimony of the witnesses. I 
am especially interested in the first two questions they will address:

          What role does innovation play in bolstering U.S. 
        competitiveness?

          What principal innovation challenges do your company 
        and its industry sector face in terms of competing in the 
        global economy?

    Americans are known for their ingenuity, a trait fostered by our 
society since the Pilgrims found a way to survive the harsh New England 
winter and develop into a thriving community that eventually became a 
great nation. Knowledge and ideas are our most important raw materials.
    The American economy has led the world because our system rewards 
innovation. From Benjamin Franklin through Eli Whitney, Thomas Edison, 
George Washington Carver, the Wright Brothers, Henry Ford, Jonas Salk, 
and Spaceship One promoter Burt Rutan, our entrepreneurs, scientists 
and skilled workers create and apply the technologies that have changed 
and will continue to change our world.
    Our leaders have realized that while they shouldn't tell people 
what to think or how to do things, there is a vital national interest 
in helping the best ideas come forward. America's strength has been in 
encouraging thought and exploration, and providing the resources to 
bringing those dreams to life.
    The Republican Congress has made great strides in funding research 
and development. We have met and exceeded our goal of doubling the 
National Institutes of Health (NIH) medical research funding, we have 
made necessary reforms to streamline the Patent and Trademark Office 
and FDA processes, and we have promoted nanotechnology, broadband 
dissemination, and a myriad of other important high tech investment. 
Similarly President Bush has focused on evaluating the scale, quality, 
and effectiveness of the federal effort in science and technology.
    Research and development investments are still the keys to our 
nation's future competitiveness, and thus we must increase our efforts 
to spur innovation. I look forward to working with my colleagues to 
find ways to guarantee a vibrant, internationally competitive American 
economy now, five, 10, 15, and 20 years down the road.

    Chairman Boehlert. Just let me tell you, this has been a 
love-in so far, because we are on the same wavelength. What we 
are trying to do is overcome the obstacles out there, and try 
to figure out how we can, you know, serve as collective 
missionaries, and convince other people in this Congress not to 
be just concerned with CAFTA or who our Supreme Court nominee 
is going to be, and all of that. Those are all important, but 
be concerned with this, too. This is very important.
    And speaking about something very important, it is very 
important that I recognize Mr. Rohrabacher.
    Mr. Rohrabacher. Thank you, Mr. Chairman. I certainly agree 
with the idea of providing scholarships for our young people.
    Chairman Boehlert. And you have been a leader in that 
regard, and we have the Scholarship for Service program. Give 
scholarships, and for a scholarship, you serve.
    Mr. Rohrabacher. Okay. I--let me note also, perhaps, just 
taking care of the college funds for students might not be 
enough. Maybe we need to pay, if we are going to get the best, 
or at least some very adequate teachers in science and 
mathematics, because of the competition with the private 
sector, maybe we need to pay those teachers more money, as 
compared to teachers who teach poetry or more of the other 
things that, perhaps, aren't involved with competitiveness but 
involved with happiness. And so, I think that is a major 
problem, that all teachers in high school have to be paid the 
same amount of money. We don't differentiate that, and I think 
that differentiation is needed if we are going to remain 
competitive.
    However, I have another line of questioning, that I would 
like to go into, and very quickly, I would like to ask each 
member of the panel, in just one or two words, literally, one 
or two words, how much credit would you give to the federal 
spending on long-term research to the success of America's high 
tech industries? What would you say, a lot, medium, or not very 
much credit?
    Dr. Brody. A lot.
    Mr. Morgridge. The same.
    Mr. Donofrio. A lot.
    Mr. Rohrabacher. Okay. And I take it from our industrial 
leaders that that means that in their own companies, they have 
taken advantage of this long-term research, the product of 
long-term research. Now, I want to ask something a little bit 
more aggressively, and that is what should we expect from 
American companies, if they are the recipients of such 
largesse? IBM, for example, just sold off, I don't know, I 
think that the deal was consummated, selling off a major 
division to America's greatest economic adversary. Should we 
expect that America's long-term research that we invest so much 
money in should be going to help you create companies like your 
companies, set up manufacturing units in China, to put our 
people out of work? Where does the benefit of the American 
people who pay for those tax dollars play a role in the 
decision-making of American industrialists like yourself?
    Mr. Donofrio. Well, Congressman, in order for IBM to be the 
asset you would like it to be here in the United States and the 
world, of course, it needs to be competitive. The government 
does, indeed, help us with certain research, but I would remind 
you that we probably have the world's largest and singularly 
distinguished private research laboratory in the world. Our 
research division, headquartered in the T.J. Watson Research 
Center. We have over 3,000 researchers, 2,000 of them here in 
the United States, and 1,000 of them spread across the globe. 
That research organization is what is the spark plug for IBM's 
growth. So, nobody invests more in science and technology----
    Mr. Rohrabacher. Right.
    Mr. Donofrio.--on their own than the IBM company does.
    Mr. Rohrabacher. Right. But you just gave a lot of credit 
to the American taxpayer for your success.
    Mr. Donofrio. Doesn't necessarily mean--no, I--you said 
overall success when you asked that question.
    Mr. Rohrabacher. Of America's high tech industries.
    Mr. Donofrio. Right. That may not be----
    Mr. Rohrabacher. IBM is different than that, I think.
    Mr. Donofrio. Well, a little bit----
    Mr. Rohrabacher. You have done it on your own.
    Mr. Donofrio. Not completely on our own, and we participate 
now in these programs much more aggressively, and we have also 
provided a considerable amount of technological prowess and 
capability to the United States of America, and we continue to 
do that, in the defense industry, as well as in the 
intelligence community.
    Mr. Rohrabacher. And that is an excuse for going overseas 
to America's greatest potential enemy and investing in their 
country?
    Mr. Donofrio. That is not an excuse for doing anything of 
that matter at all. This is all about being globally 
competitive.
    Mr. Rohrabacher. That is right. It is not all about 
globally competitive. It is about what this gentleman down here 
said, it is about the benefit and the wellness of the American 
people.
    Mr. Donofrio. How can we----
    Mr. Rohrabacher. You can divorce yourself about what the 
benefit to the American people are all you want, but the fact 
is, we represent the people of this country. We don't represent 
a global interest, especially if that global interest puts our 
people out of work.
    Mr. Donofrio. A healthy IBM helps us become healthy in the 
United States. It is what has allowed us to continue to 
increase our employment in this country for the last three to 
four years. Without that, you are faced with the near death 
experience that IBM went through at the end of the '80s and the 
beginning of the '90s. So, the consequences are severe, and 
they are important to the United States of America, for us to 
be globally competitive.
    Mr. Rohrabacher. I guess, does Cisco go along with this? Is 
that----
    Mr. Morgridge. Cisco does 55 percent of its business 
outside the United States. We employ over two-thirds of our 
people in the United States. We spend a billion, over a billion 
dollars a year on research. The vast majority of that is done 
here. This past year, we increased our employment from about 
35,000----
    Mr. Rohrabacher. If the Chairman would indulge me just one 
more minute to follow up, because I know this is----
    Chairman Boehlert. Is this going to be poetry or prose?
    Mr. Rohrabacher. It is not part of the love fest, anyway, 
let me put it that way. Is Cisco----
    Mr. Morgridge. So, I think we are----
    Mr. Rohrabacher. Have you----
    Mr. Morgridge. We are returning----
    Mr. Rohrabacher. Have you invested--yeah, certainly you are 
returning jobs to the United States, but have you also invested 
dramatically in China?
    Mr. Morgridge. We have not invested----
    Mr. Rohrabacher. Okay.
    Mr. Morgridge. Most of our investment----
    Mr. Rohrabacher. So----
    Mr. Morgridge.--in China has been in sales and marketing, 
in order----
    Mr. Rohrabacher. Okay. Right, but----
    Mr. Morgridge.--to get share of that market.
    Mr. Rohrabacher.--not in manufacturing. But not in 
manufacturing.
    Mr. Morgridge. We are not an integrated----
    Mr. Rohrabacher. And not----
    Mr. Morgridge.--manufacturer.
    Mr. Rohrabacher.--in transferring technology that was 
developed here over to our greatest potential enemy.
    Mr. Morgridge. If you mean from a research standpoint, no.
    Mr. Rohrabacher. Right. So, you are competitiveness in your 
company wasn't dependent on that, but the IBM company was, huh?
    Mr. Morgridge. I can't----
    Mr. Rohrabacher. Totally confuse----
    Mr. Morgridge. I can't answer for the IBM company.
    Chairman Boehlert. In all fairness, let us have----
    Mr. Rohrabacher. All right.
    Chairman Boehlert.--the witness from IBM, Mr. Donofrio, 
respond to that.
    Mr. Rohrabacher. Sure.
    Mr. Donofrio. The technology that you are referring to and 
I didn't know this was going to be this type of a hearing, but 
that is fine, you know, that PC technology, have you been 
studying it? I mean, do you understand how much value there is 
in that technology? There are no secrets there. There is 
nothing at risk in being able to transfer this around the 
world. And by the way, do you realize that 90 percent of most 
of the insides of all of those computers come from somewhere 
else other than the United States already today, and that the 
real value is in the way you apply these things? This is the 
whole----
    Mr. Rohrabacher. Do you differentiate----
    Mr. Donofrio.--issue that we have been talking about.
    Mr. Rohrabacher. Do you differentiate in something--other 
than the United States versus some country like Red China, that 
might be an enemy of the United States----
    Mr. Donofrio. We comply with every rule, law, and 
enforcement in the United States of America----
    Mr. Rohrabacher. But your company also participates in 
helping us create that law, create those regulations. I am 
sorry, Mr. Chairman, if I have to be the skunk at the lawn 
party, but I find the globalist view of big business not to be 
comforting to someone who is basically looking out for the 
interests of the American people, and not some global concept 
of the future.
    If IBM isn't healthy, we are talking about U.S. 
competitiveness here. We are not talking about, you know, IBM's 
health, if it not basically an American company.
    Mr. Donofrio. Mr. Rohrabacher, we co-chaired this report. 
That is how much we care about the competitiveness of the 
United States of America.
    Chairman Boehlert. Thank you very much. The gentleman's 
time has expired, and thank you for that report.
    Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, if I may, 
I would like to thank you for the wonderful sermon that you 
gave us earlier. I think those of us who did not have religion 
acquired it, and quite frankly, we were ready to pass the 
collection plate. Thank you so much.
    I would like to talk just a little bit, if I may, friends, 
about the problem. There is an indication that the problem 
starts in the fourth grade, thereabout. I think there is some 
truth to this. However, I contend that it really starts in the 
home. I really do think that we do have some cultural attitudes 
that we have to adjust. I have actually witnessed persons pay 
good money to go and sit in the rain and watch a football game, 
while missing an opportunity to attend a PTA or PTO meeting 
that was free.
    It has been my experience that we seem to be placing 
athletics above and beyond academics, and that attitude has got 
to change, because as long as we are willing to pay athletes 
millions to play, and have millions of teachers underpaid, we 
have a problem. I think that teachers are the molders and 
sculptors of humankind, and that they mold and shape the human 
mind. They take the essence of mental clay, and they mold it 
and shape it into the quintessential manifestation of 
intellectual cloisonne.
    We have got to have the best and brightest teachers, and 
one of the ways that you get the best and brightest teachers is 
to pay them more. Teachers are underpaid. We pay athletes 
hundreds of millions in their profession, and teachers are 
making thousands in their professions. Friends, and some don't 
make thousands, one of my colleagues has commented. So, I am 
appealing to us to understand that if we truly want to leave no 
child behind, we ought to leave no teacher behind, and we ought 
to pay them more.
    Having said this, how do you propose that we deal with this 
vote that is coming up, and continue this hearing.
    But we do have, we do have this problem of adjusting our 
attitudes about academics versus athletics, and I would just 
like to, given that you have studied so many things, get some 
of your comments about how we will make this cultural change. I 
heard on the news this morning there is some game out, Mr. 
Chairman, called Grand Theft Auto, has some sort of sexually 
explicit scene in it. There is a cultural problem here that is 
deeply rooted that we have got to deal with, and I am 
interested in your comments on how do we deal with the culture 
that promulgates a lot of what we are seeing at the fourth 
grade, fifth grade, sixth grade levels and above, and I also 
would, as I close, Mr. Chairman, like to thank my good 
colleague and friend, Mr. Culberson from Texas. I would like to 
extend a personal welcome to you to our committee.
    Thank you so much, my good friend. And I welcome your 
comments.
    Dr. Brody. I do, Mr. Chairman, I don't have an answer, 
Congressman Green. I do believe that this is--there are 
manifest problems, obviously, and money drives a lot of what is 
going on in our society, but nonetheless, universities of the 
margin can make a difference through outreach to schools, and 
providing role models, and I think of my distinguished faculty 
member, a famous neurosurgeon, world famous neurosurgeon, Ben 
Carson, who grew up in the projects and became a world famous 
neurosurgeon. He volunteers his time, has created a foundation 
to mentor young kids in the inner cities, and to teach them 
about role models----
    Mr. Green. Would you yield for just a moment? We don't ask 
the CEOs of, oh, well, shouldn't use Enron, of IBM, major 
corporations, to volunteer their time, to run these 
corporations. They do it for money, and they do a good job. Why 
do we tend to assume that if you are an educator, you do it 
simply because you love it? I think they do. They do. They love 
it, but you can do what you love, and still be properly 
compensated. That is my point.
    Dr. Brody. You certainly have no objection from me on that 
topic.
    Mr. Donofrio. No, so I would agree with that, Congressman. 
And I think you are right. We do need to find a way to pay 
teachers more, because that is what will get the better and the 
brighter teachers to show up, and that will help this whole 
issue of math and science, which we spoke about earlier. And 
your comments are also very well made about the home and the 
environment and the culture that our young are exposed to. And 
it is complementary. I mean, you can get both of these things 
to synergistically work together. There have been many 
attempts, and we need to continue to work on improving our 
education system's efficiency, to deliver more taxpayer 
dollars, you know, to the classroom, to the teacher, to allow 
what you are talking about to occur, because it is always hard 
to generate new funds to be able to do this.
    And on top of that, I do think that Dr. Brody has a good 
idea. We do volunteerism, more outreach, a mixture of that 
could help take off some of the burden of the cost of the 
education system. There are many wonderful efforts that go on 
around the calendar year. One that I know of, that I 
participate in, is this National Engineers Week effort that 
many of us are all founders, if not sponsors of, where 
thousands and thousands and thousands of engineers and 
scientists show up in the fourth or fifth or sixth grades, so 
that hundreds of thousands, if not millions of children 
actually get to understand what an engineer or scientist or a 
mathematician or a technologist do. They don't know what they 
do. They have never even heard of it, because of their 
background, their home life, their at-risk, you know, 
environment. And it is just powerful to see their eyes lighten 
up, and to see their whole thought process start to change 
about what could be possible.
    Chairman Boehlert. Here is the problem. You see, we have 
got bells. We are going to have a series of two votes. That 
means about a half-hour. So, Mr. Reichert next, and we are not 
going to ask you to hang around here, while we go over and play 
Congresspeople.
    So, Mr. Reichert.
    Mr. Reichert. Yes, sir. Thank you, Mr. Chairman. I am one 
of the few Members that don't have a doctorate, and/or an 
engineering degree. I come from a law enforcement background. I 
was the sheriff in Seattle, and as we sit here and talk about 
technology and science, I think back to my days as a homicide 
detective, and I made a list of, you know, innovative 
technology that has come along. DNA, when I was a homicide 
detective, archaeology, anthropology, entomology, all of those 
things come together in the world that I worked in. We need 
scientists in those areas, too. So, I also am a member of the 
Jobs Action Team. It is a team here put together, in Congress, 
to focus on jobs, and so, I kind of want to follow up on some 
questioning that came earlier, and a little bit, as was 
described, a hostile way, but coming from a jobs point of view.
    Just one question. What factors do IBM and Cisco consider 
when locating a major manufacturing facility in another 
country? What are the major factors that you consider?
    Mr. Morgridge. We have a virtual manufacturing model, which 
means that we really don't have a large number of factories. We 
have a large number of factories that support our products, but 
we don't choose those locations. They are chosen by our 
suppliers. The factories, the few factories that we do have are 
in San Jose, California, and we use them principally to do 
early prototype and first run, before we have someone else 
actually build the product.
    What I would say is that all of our major research 
facilities, which is really the value add of our company, are 
located here in the United States, with the exception of one in 
Canada and one in Israel.
    Mr. Donofrio. So, Congressman, the way we do it is quite 
straightforward. Number one, of course, we have a history, 
given we have been around for almost 100 years, but we have an 
integrated supply chain, meaning everything that deals with the 
whole issue of building something is handled by the same group, 
whether we are building it ourselves, or whether we are taking 
parts from other people, and adding value to them, and putting 
them together. But for the pieces where we actually have 
factories, and we have many of them around the world, I would 
have to simply say it is the right tasks, the right skills, and 
the right places, and we let that determine in the bottom line, 
in the final analysis, you know, where we have to put a 
factory, or where a manufacturing facility should be, as part 
of the whole global, you know, integrated supply chain network 
that we build.
    Mr. Reichert. Thank you, Mr. Chairman. I yield the balance 
of my time, and request that my other questions be submitted.
    Chairman Boehlert. They will be, as will others, be 
submitted to the witnesses, and we would ask for a response in 
a timely fashion.
    Here is what we are going to do. Ms. Eddie Bernice Johnson, 
who has been so faithful, for a minute, and then Mr. Davis for 
a minute, and then we have got to run over to the floor, and 
get your running shoes on.
    Ms. Johnson.
    Ms. Johnson. Thank you, Mr. Chairman, and our Ranking 
Member. I won't, hopefully, take the whole minute. I just want 
to say that this is my 13th year on this committee, and this 
has been my great passion, of trying to get information out, so 
that young people can become more interested. And we are having 
a little headway in Dallas, Texas, because we are in the midst 
of TI and EDS, but I want to involve Cisco and IBM as well, so 
I will be in touch with you. I am chair of the science and tech 
brain trust for the Congressional Black Caucus, and we have a 
meeting coming up in September. Thank you.
    Chairman Boehlert. Thank you. Mr. Davis.
    Mr. Davis. I will be very brief as well, and I will also 
have a copy that I leave for the record. I want to make a 
pretty brief comment. Number one, some of the Members here are 
saying in K-12, we have a failed educational system, and then 
others are saying we can't get good math teachers or science 
teachers. Let us make a comparison as to what we spend on 
education and national defense.
    National defense is extremely important, and we should 
spend what we are spending there. But yes, in reality, you are 
looking at about $500 billion for national defense, and about 
$50 billion for education, one out of ten dollars. So, if 
someone goes to work for a defense contractor for $150,000, 
either a scientist or a mathematician, why in the heck would 
they go to work teaching school for $45,000 a year? Until we 
get our head screwed on right, education is just as important 
of a defense mechanism for our nation as what we are spending 
in many other areas. That is part of our national defense, and 
for some reason, we can't get that through the heads of a lot 
of folks who serve in Congress. We are failing at that as well, 
but I do have a deep and abiding concern that when a company is 
bought by a Chinese company, like Murray, Inc., and they take 
bankruptcy after giving all the research and technology, all 
the patents that they own, that Murray, Inc. has, and then they 
shut the plants down, and take that technology to China, and 
then start shipping them back over here under some other name.
    We have got to also take a serious look at corporate 
America. A lot of it is driven by greed and profit, and the 
patriotism of the American corporate structure is not like it 
used to be. If they were as patriotic as our troops, who are 
offering their lives up for sacrifice in Iraq and in 
Afghanistan, if corporate America was that patriotic, we would 
be a whole lot better shape in our jobs in this country.
    Chairman Boehlert. Thank you very much, and Mr. Donofrio, 
Mr. Morgridge, Dr. Brody, thank you. I think we have had a 
spirited and intriguing exchange of views and ideas. We have 
covered poetry and prose. Thank you for being facilitators, and 
we will continue this, and keep up the good work. I just wish 
we could have more act responsibly like your institutions are, 
Johns Hopkins, what a wonderful, great place that is, and 
Cisco, and IBM.
    Thank you very much. This hearing is adjourned.
    [Whereupon, at 12:00 p.m., the Committee was adjourned.]
                              Appendix 1:

                              ----------                              


                   Answers to Post-Hearing Questions




                   Answers to Post-Hearing Questions
Responses by Nicholas M. Donofrio, Executive Vice President for 
        Innovation and Technology, IBM Corporation

Questions submitted by Representative Lincoln Davis

Q1.  What is the most important point in the education system for 
children to be encouraged in math and science? If the Federal 
Government was to strengthen its education investments in math and 
science, at what age should the focus be?

A1. Although it's important to focus on the quality of math and science 
programs at the college and university level, this will impact the 
near-term preparedness for innovation within the current scope of 
opportunity. We also need substantial increases in the number and 
proportion of students in colleges and universities who are well-
grounded in math and science and are prepared to enter science, 
technology, engineering and mathematics (STEM) careers.
    In fact, we must expand the pipeline for STEM careers and ensure 
that young people are well-equipped to participate in a society that is 
increasingly characterized by math, science and technology. In this 
regard, grades 4-8 are critical, as students prepare to move from basic 
computation and simple scientific concepts to master higher level math 
and science concepts. Students who complete the middle school years 
with a solid grounding in math and science will be successful in high 
school. Mastery encourages interest and commitment.
    A focus on grades 4-8 requires well prepared teachers. The Federal 
Government can offer new incentives to attract college students to 
teaching and encourage second-career teachers in math and science. 
Succeeding in grades 4-8 also requires an ongoing review of standards, 
assessments and curriculum to ensure that all students will be exposed 
to math and science and the curriculum will be of the highest quality. 
This means an emphasis on hands-on learning, problem-solving and best 
practices. The new requirement for a science assessment is a good first 
step. Federal investment in curriculum development and evaluation in 
these areas is also important. The recent loan forgiveness program for 
math and science teachers is another good beginning that needs to be 
evaluated for effectiveness and, if appropriate, expanded.

Q2.  How can rural areas uniquely cope with the loss of U.S. 
competitiveness?

A2. First it should be noted that the U.S. remains competitive by many 
measures. But America cannot be complacent as many nations become more 
competitive by opening their economies, educating their citizens, and 
investing in modern infrastructures.
    In today's global economy, a region's capacity to innovate will 
determine whether it competes in commoditized, low-margin markets or 
whether it will participate in the high-margin, rapid growth markets 
driven by innovative goods and services.
    Rural areas in the U.S. should evaluate how well they are preparing 
their citizens to compete by examining the policies and resources 
offered to support innovation. Many U.S. locales are pursuing 
strategies that include components such as:

          Cyber infrastructure--including high-speed Internet 
        availability and networks to enable collaboration, such as 
        computer ``grids'' that also expand processing capacity for 
        advanced tasks.

          Education reform--including business-academia 
        partnerships to: establish new curriculums and research across 
        traditional scientific disciplines; teach students 
        entrepreneurship and how to commercialize new ideas; and train 
        students in the rapidly growing field of business services.

          Risk Capital--including incentives for early stage 
        investors in qualified start-ups and regional networks to 
        increase awareness of investment opportunities.

    Regional innovation strategies also rely on collaboration between 
business, government, and academic institutions. Each plays a role in 
the innovation ecosystem that determines how attractive and productive 
a region will be for innovators.

Q3.  How can U.S. industry partner with schools and universities more 
to help encourage technology competitiveness? Can government help 
facilitate that partnership, and how?

A3. U.S. industry can partner with state education departments and 
school districts to improve technology competitiveness. Businesses 
input and consultation is essential to a regular review of academic 
standards to ensure that elementary and secondary schools are 
encouraging innovation and supporting students in their efforts to 
master math and science. This should be built into the process for 
developing all state standards.
    Industry can be a co-sponsor in programs to provide high quality 
math and science instructional content (like IBM's TryScience 
initiative), provide mentors to individual students--even e-mentors--
and provide opportunities for young people to learn about math, science 
and engineering first-hand (as they do in IBM's EXITS camps each 
summer). Each year, more than 3000 IBMers visit schools in the United 
States and encourage young people to explore math, science and 
engineering with hands on activities and personal mentoring during 
National Engineers Week (recently renamed EWeek). Businesses throughout 
the Nation can join, support and help EWeek grow until we can reach 
every middle and high school student.
    Businesses also can share their experience using data for decision-
making and other business approaches that can help education leaders 
improve school operations and outcomes (e.g., IBM's Change Toolkit). 
The Federal Government can work with business and education leaders to 
launch a major national campaign to raise the status of math, science 
and engineering careers and provide young people with information to 
make good career choices.
                   Answers to Post-Hearing Questions
Responses by John P. Morgridge, Chairman of the Board, Cisco Systems, 
        Inc.

Questions submitted by Representative Lincoln Davis

Q1.  What is the most important point in the education system for 
children to be encouraged in math and science? If the Federal 
Government were to strengthen its education investments in math and 
science, at what age should the focus be?

A1. I'm not an education expert and have not studied this issue 
extensively, but anecdotal evidence seems to point to early education 
as when students are most susceptible to gaining an aptitude for math 
and science. Early encouragement in any discipline, as you know, can 
have an enormous impact on a child. If math and science were more 
squarely focused on in K-5, I think it would have an enormous impact in 
later educational years, especially if math and science were made to be 
as ``matter-of-fact'' as spelling and reading, i.e., nothing to fear 
and in the normal course of business. Math and science can have a 
stigma attached to them as too hard or not easily grasped and that 
``culture'' also needs to be changed.

Q2.  How can rural areas uniquely cope with the loss of U.S. 
competitiveness?

A2. Broadband can have an enormous impact on rural areas to help with 
competitiveness. If you think of broadband as the always-on, high-speed 
connection to the world, then location becomes more and more 
irrelevant. With energy costs rising and telecommuting more acceptable 
in the private and public sectors, rural areas have the decided 
advantage of being more cost effective places for people to locate, 
live, work, learn and play. An affordable cost of living while being 
connected to the world through broadband, can be an actual advantage of 
being located in a rural area for a knowledge worker.

Q3.  How can U.S. industry partner with schools and universities more 
to help encourage technology competitiveness? Can government help 
facilitate that partnership, and how?

A3. Industry can help colleges and universities identify the jobs of 
the future by placing bets on where technology is going. Clearly, basic 
training in math and the sciences is a good start, but, as we know, it 
is the engineering specialists and technology programmers who will help 
determine the next innovative new technologies. We need to work hand in 
glove with universities to determine where some of the new technologies 
will be coming from and help shape the curriculum and training in these 
areas. This includes offering internships, job offers to new college 
grads, endowing professorships in advanced technologies and helping 
fund the research and development at universities. I would like to note 
that Stanford University was the genesis of Sun Microsystems, Cisco 
Systems, and Google to name a few success stories out of university/
industry cooperation. (As of this writing, these companies employ 
72,434 people.)
                   Answers to Post-Hearing Questions
Responses by William R. Brody, President, The Johns Hopkins University

Questions submitted by Representative Lincoln Davis

Q1.  What is the most important point in the education system for 
children to be encouraged in math and science? If the Federal 
Government were to strengthen its education investments in math and 
science, at what age should the focus be?

A1. While it is never too early to encourage children to excel in math 
and science, I would say we ought to be increasing our focus on the 
middle school years. Increasing the emphasis on middle school prepares 
students to succeed at higher-level math courses in high school arid 
encourages them by strengthening their skills in the fundamentals. The 
2004 NAEPP ``Nation's Report Card'' for mathematics education indicates 
some improvement in scores since 1999, however, we still see evidence 
that indicators such as poverty level and parents' educational 
attainment have a significant negative impact on achievement.
    International rankings of achievement in schools offer another 
indicator of declining U.S. scholastic standing and competitiveness. 
Among 15-year-olds, U.S., students declined to 28th place, behind 
China, Japan, Korea, Finland, Canada, France and the Czech Republic, 
among others, according to the Program for International Student 
Assessment (PISA, 2003).
    The U.S. educational system is falling behind that of other 
advanced countries just as the Nation's scientific and technical 
workforce is about to experience a high rate of retirement. One quarter 
of current workers in science and engineering are older than 50 years. 
At the same time, the U.S. Department of Labor projects that new jobs 
requiring science, engineering, and technical training will increase at 
a rate four times higher than the average national job growth.
    The relatively poor achievement of U.S. school children in math and 
science--particularly in secondary school--is well-documented. The 
problem begins early in the K-12 pipeline. Survey results indicate that 
the United States is losing its potential science and engineering 
majors around the middle school level, In the 2000 NAEP Science test 
(the most recent one available), there was virtually no change in 
performance between 4th and 8th grade. But the significant decline for 
12th grade indicates that we are losing the battle by high school.
    To me, this raises other questions: Are today's school teachers 
qualified to teach math and science? What are we doing to provide math 
and science teachers in mile schools and high schools with the proper 
training, support, and curricula to reach their students? How do we 
recruit to the teaching profession those college students with an 
interest in math and science, especially when the job market for people 
with technical skills is so competitive and pays so much better? These 
questions are a critical part of the solution.
    Teaching jobs still are not well-compensated, especially in 
comparison to technical jobs in the private sector. Then factor in 
these impediments: Teaching adolescents is especially challenging 
today. Teachers are overburdened with classroom management. New 
teachers often do not receive support from their more experienced 
colleagues.
    One solution already exists, but awaits full funding by Congress. 
To ensure that every student is able to learn from a teacher who is 
fully qualified in math and science, Congress created the Robert Noyce 
Scholarship Program. It offers incentives for talented college students 
in science, math, engineering, and technology to enter the teaching 
profession. Each Noyce Scholar is eligible to receive a $10,000 
scholarship in exchange for a two-year commitment to teach math or 
science in elementary or secondary school. While this program has the 
potential to provide our schools with desperately needed teachers who 
are highly qualified in these fields, finding has hovered only around 
the $8 million mark. This program should be expanded to $20 trillion, 
the level authorized by Congress.
    U.S. universities and colleges need to do more to partner with 
their local K-12 institutions to train teachers, revamp science and 
math curriculum, and mentor students. These are just a few programs 
underway at Johns Hopkins and many of its sister institutions. We do 
much to advance that state of K-12 education, but we can clearly must 
and should do more.
    We also need to do a better job of tailoring science and math 
education to attract minorities and women into middle and upper-level 
classes. For example, many women avoid computer and science classes 
because of social views of the field as limiting and unwelcoming. But 
that impression may be more based on how we present the goals and 
requirements of science education. These stereotypes then are 
reinforced by the limited pool of students who self-select to go into 
these fields.
    If we are to make science, math, and technology education more 
inclusive, we need to recognize that girls and boys may go into a field 
for different reasons, If educators are not able to communicate how 
scientists and innovators contribute to the greater good, to the social 
good, we will not be able to break that stereotype.

Q2.  How can rural areas uniquely cope with the loss of U.S. 
competitiveness?

A2. The most obvious solution is to attract more business by upgrading 
our country's electronic infrastructure. By giving rural locations 
better access to broadband and satellite communications, workers in 
remote areas can easily access jobs that might otherwise be outsourced 
overseas. American companies should look first to America's rural labor 
force, where everyone speaks English, educational went for at least the 
high school level can be certified, and states want and need jobs to 
revitalize their communities. In fact, this is how the U.S. call center 
business first expanded during the dot-com boom, when these facilities 
sprouting in small Midwestern towns to support businesses around the 
country.
    A federal investment to expand broadband and satellite 
communications to under-served communities--both in rural areas and in 
inner cities--would provide a boost comparable to the Rural 
Electrification Act of 1936. This expansion would also give companies 
additional opportunities to invest.
    To build the capacity to handle technology jobs, the Nation's 
investment in rural communities would require job training and support, 
retraining, and continuous learning opportunities, especially in 
computer skills. With the expansion of distance learning and satellite 
hookups, college classes can be delivered anywhere, anytime. At the 
same time, expanding the investment in community colleges would enable 
these locally based schools to reach more people in rural areas. In 
both cases, scholarships and financial aid, as well as company-funded 
training, could expand the opportunities.

Q3.  How can U.S. industry partner with schools and universities more 
to help encourage technology competitiveness? Can government facilitate 
that partnership, and how?

A3. Corporate partners could make it easier for their scientific and 
technical employees to lend their skills and time to further technology 
training and teaching. A number of companies offer technology programs 
and support to schools nationwide; among them are Intel, Hewlett-
Packard, Microsoft, IBM, and Apple. Some companies, including 3M, IBM, 
DuPont, and General Electric, already encourage their employees to 
volunteer in science and math classrooms, as well as in other K-12 
classes in their communities. The MCI Foundation, through its 
innovative Marco Polo Web portal, sponsors teacher support and 
curriculum enhancement in science, math, and economics education; this 
is a partnership with government and non-profit organizations.
    The social investment in education being made by these companies is 
both altruistic and mission critical. These companies, while serving 
their communities and employees, recognize that their future success 
depends upon a large talent pool to recruit for the next generations of 
employees. Without the trained technical and scientific workforce of 
tomorrow, their businesses would not be able to continue to innovate 
and compete successfully in an increasingly competitive global arena.
    Company leaders also act as role models. They could reach out to 
schools and youth groups through community forums, through the media 
(including new media such as Web, podcasting, instant messaging, and 
blogs), through sponsoring sports teams and after-school clubs, and 
through internships and exchange programs to excite youth about the 
opportunities for careers in math and science. This corporate 
commitment might include special outreach efforts to minority 
communities and women.
    In addition, there are other very active national and regional 
initiatives that involve business leaders in addressing education 
issues. These include the Council on Competitiveness, the Business 
Roundtable, the Business-Higher Education Forum, Chambers of Commerce. 
the Maryland Business Roundtable on Education, and local business 
groups. These groups do not work in a vacuum; they include educators 
and education organizations as partners and advocates for their 
experience and expertise in the classroom.
    Leaders in higher education also play an important role in 
improving the level of math, science and technical teaching, as well as 
offering pre-college programs for children, often as young as those at 
the elementary school level.
    We, at Johns Hopkins University, take our own commitment to 
providing opportunities for K-12 learning in math, science and 
technology very seriously. Just recently, I addressed the members of 
the Johns Hopkins K-12 Council, a collaborative coalition drawn from 
the University, Baltimore City and the Maryland K-12 community. The 
Council's goal is to catalyze research-driven collaborations between 
Johns Hopkins and schools throughout Maryland. Though it has no five-
standing school of education, Hopkins is considered a path breaker in 
education research and reform among national and local education 
policy-makers.
    Johns Hopkins effort through the Council are geared towards sharing 
what we know as educators and scientists or mathematicians and 
engineers, what school teachers and administrators have learned, and 
what we think children need to know to succeed beyond high school. 
While the Council's efforts are geared to improving our schools, 
generally, and to students overall, it pays particular attention to 
providing opportunities for under-represented students to advance their 
knowledge in math and science.
    To mention just a few examples, in the sciences, the Johns Hopkins 
University Applied Physics Laboratory (JHU/APL) has a wide range of 
programs for young explorers. Our Education and Public Outreach (E/PO) 
office strives to excite and inspire the next generation of explorers 
by creating hands-on, interactive learning experiences for students. 
educators and the general public. Our civilian space education and 
public outreach office provides unique opportunities for students, 
educators, museums, science centers and the general public to share in 
the excitement of APL's current endeavors--from landing on an asteroid 
to looking for water on Mars.
    The Maryland Mathematics, Engineering, Science Achievement Program 
(MESA) is a statewide pre-college program sponsored by JHU/APL. Morgan 
State University, The University of Maryland, Towson University, local 
school systems, and businesses throughout Maryland. Maryland MESA works 
directly with schools and educators to support and develop the 
interests, skills, and abilities of K-12 students in science, 
technology, engineering, and mathematics. The program also serves as a 
driving force in encouraging and assisting minorities and females in 
achieving academic and professional success in these fields.
    In an effort to boost middle school math achievement, Johns Hopkins 
University researchers are spending a great deal of time in a magical, 
pixilated place called Descartes' CoVE. This innovative CD-ROM learning 
environment helps youngsters develop higher-level math skills including 
geometry, logic, and number theory. It is a collaborative virtual 
space, accessible via the Web and CD-ROM, where students can explore 
the farthest reaches of their mathematical reasoning by solving real-
world puzzles and problems. Development of Descartes' CoVE is funded by 
corporate grants from AT&T and the Toyota USA Foundation.
    In cooperation with the Johns Hopkins Center for Talented Youth, 
the Materials Research Science and Engineering Center (MRSEC) at The 
Johns Hopkins University offers paid summer internships in JHU 
materials research laboratories to six qualified and under-represented 
high school students from the greater metropolitan Baltimore area and 
surrounding counties. In addition, seven teachers, nominated by their 
schools and selected by MRSEC and CTY, participate in a four-day 
program designed to introduce them to the research and the scientists 
of MRSEC.
                              Appendix 2:

                              ----------                              


                   Additional Material for the Record




  Statement of The Institute of Electrical and Electronics Engineers--
                  United States of America (IEEE-USA)
    IEEE-USA appreciates the opportunity to submit comments for 
inclusion in the record of House Science Committee hearings on the 
innovation challenges facing the United States. These comments address 
the question posed by the Committee on what the Federal Government 
should be doing to strengthen the Nation's innovation system, with 
special emphasis on federal programs of support for research and 
technical workforce development.
    IEEE-USA was established in 1973 to advance the public good and 
promote the professional careers and public policy interests of the 
more than 220,000 electrical, electronics and computer engineers who 
are U.S. members of the Institute of Electrical and Electronics 
Engineers (IEEE), one of the world's largest technical-professional 
societies. Our members have been present at the creation of electro-
technological innovations that have fueled more than a century of 
remarkable growth in American industry sectors, ranging from aerospace 
and defense, computers and telecommunications, electrical power 
generation and robotics to new and emerging fields including biomedical 
devices and nanotechnology.
    At the dawn of the 21st Century, America desperately needs a new 
national competitiveness strategy. After a decade of economic 
prosperity in the 1990's, the Nation was buffeted by recession in 2001 
and by a prolonged jobless recovery marked by unprecedented levels of 
unemployment in high technology fields. Today we face a new, more rough 
and tumble form of global economic competition, especially in science, 
engineering and technology-based sectors that have fueled U.S. 
prosperity since World War II.
    China's emergence as a manufacturing superpower, India's strength 
as a leading provider of business process out-sourcing services and the 
collapse of the former Soviet Union have added at least 2.5 billion 
people to world labor markets already awash in talented, highly 
motivated people. Continuing advances in digital technologies and the 
inexorable spread of the Internet have added a whole new dimension to 
America's competitiveness challenge. Any task that can be digitized--
from chip design to financial analysis to sophisticated pharmaceutical 
research--can now be performed in many less developed countries at 
prices developed countries just can't match.

Key Elements of a National Competitiveness Strategy

    Twenty years ago, U.S. policy-makers faced a different 
competitiveness challenge driven by the aggressive expansion of the 
Japanese and European economies. In response to pressure from business, 
educational, labor and professional leaders, Congress enacted and 
federal agencies implemented fiscal and monetary initiatives that 
helped to stimulate public and private investments. To an existing 
commitment to basic research, they added a new emphasis on applied 
research and technology transfer to accelerate commercialization of new 
ideas and inventions. Public sector investments in education and 
training were expanded to include a new focus on lifelong learning to 
help incumbent workers acquire knowledge and skills needed to master 
newly emerging and rapidly changing technologies. And trade policy 
initiatives were expanded to include a greater emphasis on export 
promotion and open access to overseas markets. As a result, the United 
States was able to maintain its global economic, military and 
technological preeminence and continue to provide its residents with 
individual opportunities and living standards unmatched anywhere else 
in the world.
    To help maintain America's economic, military and homeland security 
in increasingly interdependent, technology-driven global markets, 
public and private policy-makers must work together to forge a new 
National Competitiveness Strategy for the 21st Century. Key policy 
objectives ought to be:

          To improve the Nation's education system from pre-
        school to graduate school and beyond, with special emphasis on 
        improving math, science and communications skills in grades K-
        12;

          To increase systemic incentives for individuals to 
        pursue education and careers in Science, Math, Engineering and 
        Technical fields and promote more effective utilization of SMET 
        personnel by public and private sector employers; and

          To strengthen the Federal Government's commitment to 
        basic research and enhance its ability to encourage public and 
        private sector investments leading to the development and 
        application of innovative processes, products and services.

Implications for the SMET Workforce--Labor Market Supply and Demand 
                    Considerations

    Innovation is ultimately about people, their knowledge and their 
creativity. The S&T workforce challenge, therefore, is to create and 
sustain an environment that will attract the best and brightest minds 
and enable them to innovate. A workplace in which creative people at 
all levels share in the rewards--as well as the risks--associated with 
innovative behavior is essential to meet changing labor market needs.
    Much of the advice directed at Congress on S&T workforce issues is 
predicated upon looming shortages of scientists and engineers. Such 
speculative claims were used in the 1980's and '90's to justify 
immigration policy interventions that worsened rather than eased 
prevailing labor market imbalances. This year, proponents of ``Increase 
the Supply'' policies are using the coming retirement of the baby-boom 
generation, the Nation's growing dependence on foreign-born graduate 
students and researchers and statistics comparing science and 
engineering degree production in China, India and the United States to 
justify similar policy interventions. Business groups are calling on 
Congress to fill America's S&T educational pipeline with a younger, 
more diverse--and less expensive--crop of future S&T workers.
    The Business Roundtable's recent call for a doubling of U.S. 
science and engineering degree awards by 2015 is an example of just 
such an appeal.
    IEEE-USA believes that policy-makers should distinguish between the 
important societal need to increase the technological literacy of all 
Americans from narrowly focused calls to increase the supply (and 
reduce the cost) of science and engineering graduates. Effective 
solutions to the broader societal problem will help to ensure the ready 
availability of people with the knowledge and skills needed to meet 
constantly changing labor market demands.
    A policy of pushing or pulling more Americans into science and 
engineering educational pipelines--in the absence of reasonable 
assurances of rewarding job and career prospects--is unlikely to 
succeed. Students don't major in difficult fields just to get 
scholarships or help employers meet hiring targets. They major in 
difficult fields to get jobs--preferably professionally challenging and 
financially rewarding jobs.
    As history has shown, Congressional decisions to address 
anticipated labor market imbalances by raising temporary H-1B work visa 
ceilings created serious over-supplies of scientists and engineers in 
the 1990's, led to prolonged periods of unemployment for substantial 
numbers of U.S. and foreign workers and probably helped to dissuade 
many of the best and brightest U.S. students from pursuing technical 
careers.

Improving SMET Labor Market Incentives and Rewards

    As Harvard labor economist Richard Freeman has observed, the 
marketplace reality is that U.S. scientists and engineers rank low in 
terms of wages compared with income earned by other highly skilled 
professionals and lag significantly behind doctors, lawyers and 
business executives in terms of income earned over the course of their 
careers. When coupled with the length of time it takes to earn post-
graduate degrees--two to four years in engineering and up to eight 
additional years in some scientific fields--and the challenge of 
maintaining technical proficiency over a 30- to 40-year career, it 
should come as no surprise that many Americans perceive science and 
engineering as an unattractive career choice. The growing reliance of 
U.S. employers on temporary foreign workers and their ability to 
transfer high tech jobs to lower cost overseas locations are making 
such choices even more difficult for many of America's best and 
brightest young students.
    The challenge for policy-makers, then, is to find policies that 
improve opportunities for America's best and brightest students to 
pursue educations and careers in science and engineering fields. Trying 
to attract more students into the education pipeline without improving 
attendant incentives and rewards won't solve America's high tech 
workforce challenge. Such an approach will only increase hardships and 
disappointment when newly minted scientists and engineers find limited 
job opportunities, lagging financial rewards, job insecurity and 
uncertain career prospects when they receive their degrees.

Workforce Policy Objectives

    As part of a comprehensive national innovation strategy, IEEE-USA 
believes that workforce-related policies and investments should be 
directed at the following objectives:

          Strengthen the Nation's education system from pre-
        school to graduate school and beyond, with special emphasis on 
        improving math, science and communications capabilities in 
        grades K-12 and promoting greater flexibility in undergraduate 
        and graduate degree programs in science and engineering.

          Improve incentives for individuals to pursue 
        education and careers in science, math, engineering and 
        technical fields and promote more effective utilization of 
        graduates by public and private sector employers. This 
        objective can best be accomplished by establishing federal 
        scholarships for service incentive programs in technology 
        intensive agencies; enacting additional tax incentives for 
        continuing education and training (lifelong learning); and 
        expanding eligibility for Trade Adjustment Assistance to 
        dislocated service sector workers.

          Promote balanced reforms in America's permanent, 
        employment-based immigration system and reduce the Nation's 
        growing dependence on temporary visa programs.

Critical Importance of Federal Investments in Research and Development

    Substantial and sustained public and private investments in 
research over the past 50 years have spawned an abundance of 
technological breakthroughs, transformed American society and helped 
the United States to become the world's preeminent economy. Some 
economists estimate that as much as half of all recorded growth in 
Gross Domestic Product (GDP) over this period is attributable to 
technological advances.
    While the U.S. continues to lead the world in its capacity to 
innovate--to convert ideas and inventions to useful and affordable 
products, services and processes--overall federal spending on research 
and development as a percentage of GDP has declined significantly since 
1965. The focus of federally-funded R&D has also changed. It has 
shifted away from long-term investments in basic research--the kind of 
research that has done the most to spur innovation and economic 
growth--into much shorter-term investments in applied research and 
development.
    Increases in spending on weapons-related research and development 
at the Department of Defense have accounted for 70 percent of all 
federally funded R&D increases in recent years. Of the remainder, 75 
percent has gone to the National Institutes of Health (NIH) and the 
Department of Homeland Security (DHS). At $71 billion and $29 billion 
respectively, the R&D budgets at DOD and NIH now account for over 75 
percent of all federal spending on research and development. Federal 
funding for R&D in the physical sciences and engineering, on the other 
hand, has been flat or declining for over 30 years. To be optimally 
successful, the Nation's investments in research must be balanced 
across science and engineering disciplines and between short-term needs 
for practical applications of state-of-the-art technologies and the 
longer-term search for promising technologies of the future.
    The Federal Government has long played a critical role in helping 
to strengthen the Nation's innovation system by sponsoring basic and 
applied research at universities, government laboratories, and not-for-
profit research laboratories. The Federal Government invests $132.3 
billion in R&D, about one-third of the Nation's total investment. It 
funds long-term basic research, whereas industry-sponsored R&D 
investments are much more narrowly focused on near-term product and 
process improvements. Thus, federal support continues to be crucial to 
the discovery and early stage development of basic knowledge that the 
U.S. needs to maintain its position of preeminence in technological 
innovation.
    Sustained national investment in research and development will be 
necessary, but is not going to be sufficient to ensure continuing 
economic and technological preeminence. We must also be able to capture 
and commercialize the outcomes of such research in ways that will allow 
us to continue to produce goods and services that meet the test of 
international markets while simultaneously improving the living 
standards of our citizens. While the Federal Government's funding 
priority should be basic research--where industry under-invests--there 
needs to be a renewed focus on bridging the ``valley of death'' between 
basic research and the commercialization of technology, as well as 
funding the applied research that leads to generic and enabling 
technologies that can be commercialized by private industry.
    Policy-makers must also understand that research and development is 
only one component of the ``commercialization'' challenge. An even 
bigger obstacle to technology innovation than limited federal R&D 
dollars may be the Wall Street business imperative to return short-term 
profits each quarter, which discourages long-term, high-risk 
investments in innovation and technology commercialization. Other key 
components of a new National Competitiveness Strategy--impacting tax, 
trade, intellectual property and immigration policy--are beyond the 
scope of this particular statement.

R&D Policy Objectives

    IEEE-USA believes that federal research and development policies 
and investments should be redirected as recommended by the Council on 
Competitiveness in its Innovate America report in order to:

          Stimulate high-risk research through ``Innovation 
        Acceleration'' grants that re-allocate three percent of agency 
        R&D budgets,

          Restore DOD's historic commitment to basic research 
        by redirecting 20 percent of the S&T budget to long-term 
        research,

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

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

    In addition, we endorse related Council on Competitiveness 
recommendations, including:

          Stimulate greater workforce skills enhancement 
        through the creation of tax-favored, life-long learning 
        accounts,

          Enhance workforce flexibility and facilitate mobility 
        by increasing the portability of health care and pension 
        benefits,

          Expand programs of assistance to service sector and 
        other workers who are dislocated by technology and trade,

          Build 10 Innovation Hot Spots over the next five 
        years to capitalize on regional assets and leverage public and 
        private sector investments.

    In closing, we would also recommend the timely enactment of 
legislation to:

          Increase National Science Foundation funding in line 
        with the previous Congressional authorization in Public Law 
        107-368 that its budget be doubled,

          Fully fund the FY 2002 commitment to expand 
        incentives for NSF's science and engineering education 
        initiatives,

          Maintain the long-term basic research focus in other 
        science and technology programs, including those administered 
        by the Defense Advanced Research Projects Administration 
        (DARPA) and the Department of Homeland Security (DHS), and

          Increase high performance supercomputing research and 
        development funding, revitalize manufacturing technology in the 
        United States by enacting the Manufacturing Technology 
        Competitiveness Act (H.R. 250) and support funding for the 
        National Nanotechnology Initiative at levels recommended in the 
        21st Century Nanotechnology Act (Public Law 108-153).

Conclusion

    This statement focuses on two important components of a national 
innovation strategy, and therefore presents only a partial picture of 
what needs to be done to ensure the ability of the United States to 
maintain its technological competitiveness in the global economy.
    IEEE-USA appreciate the enormity of the many interrelated tasks 
facing Congress and the Administration and remains committed to working 
with all interested parties to help identify and implement policy 
options that will help sustain the prosperity, security and quality of 
life that we associate with a strong and competitive America.
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