[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                       THE NATIONAL INSTITUTE OF 
                   STANDARDS AND TECHNOLOGY'S ROLE IN 
                  SUPPORTING ECONOMIC COMPETITIVENESS 
                          IN THE 21ST CENTURY: 
                  THE FISCAL YEAR 2008 BUDGET REQUEST 
=======================================================================
                                HEARING

                               BEFORE THE

               SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION

                  COMMITTEE ON SCIENCE AND TECHNOLOGY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 15, 2007

                               __________

                            Serial No. 110-6

                               __________

     Printed for the use of the Committee on Science and Technology


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

                                 ______

                     U.S. GOVERNMENT PRINTING OFFICE

33-107 PDF                 WASHINGTON DC:  2007
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                  COMMITTEE ON SCIENCE AND TECHNOLOGY

                 HON. BART GORDON, Tennessee, Chairman
JERRY F. COSTELLO, Illinois          RALPH M. HALL, Texas
EDDIE BERNICE JOHNSON, Texas         F. JAMES SENSENBRENNER JR., 
LYNN C. WOOLSEY, California              Wisconsin
MARK UDALL, Colorado                 LAMAR S. SMITH, Texas
DAVID WU, Oregon                     DANA ROHRABACHER, California
BRIAN BAIRD, Washington              KEN CALVERT, California
BRAD MILLER, North Carolina          ROSCOE G. BARTLETT, Maryland
DANIEL LIPINSKI, Illinois            VERNON J. EHLERS, Michigan
NICK LAMPSON, Texas                  FRANK D. LUCAS, Oklahoma
GABRIELLE GIFFORDS, Arizona          JUDY BIGGERT, Illinois
JERRY MCNERNEY, California           W. TODD AKIN, Missouri
PAUL KANJORSKI, Pennsylvania         JO BONNER, Alabama
DARLENE HOOLEY, Oregon               TOM FEENEY, Florida
STEVEN R. ROTHMAN, New Jersey        RANDY NEUGEBAUER, Texas
MICHAEL M. HONDA, California         BOB INGLIS, South Carolina
JIM MATHESON, Utah                   MICHAEL T. MCCAUL, Texas
MIKE ROSS, Arkansas                  MARIO DIAZ-BALART, Florida
BEN CHANDLER, Kentucky               PHIL GINGREY, Georgia
RUSS CARNAHAN, Missouri              BRIAN P. BILBRAY, California
CHARLIE MELANCON, Louisiana          ADRIAN SMITH, Nebraska
BARON P. HILL, Indiana               VACANCY
HARRY E. MITCHELL, Arizona
CHARLES A. WILSON, Ohio
                                 ------                                

               Subcommittee on Technology and Innovation

                    HON. DAVID WU, Oregon, Chairman
JIM MATHESON, Utah                   PHIL GINGREY, Georgia
HARRY E. MITCHELL, Arizona           VERNON J. EHLERS, Michigan
CHARLIE A. WILSON, Ohio              JUDY BIGGERT, Illinois
BEN CHANDLER, Kentucky               JO BONNER, Alabama
MIKE ROSS, Arizona                   ADRIAN SMITH, Nebraska
MICHAEL M. HONDA, California             
BART GORDON, Tennessee               RALPH M. HALL, Texas
                 MIKE QUEAR Subcommittee Staff Director
      RACHEL JAGODA BRUNETTE Democratic Professional Staff Member
          COLIN MCCORMICK Democratic Professional Staff Member
         TIND SHEPPER RYEN Republican Professional Staff Member
            AMY CARROLL Republican Professional Staff Member
                 MEGHAN HOUSEWRIGHT Research Assistant

















                            C O N T E N T S

                           February 15, 2007

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

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

                           Opening Statements

Statement by Representative David Wu, Chairman, Subcommittee on 
  Technology and Innovation, Committee on Science and Technology, 
  U.S. House of Representatives..................................     8
    Written Statement............................................     9

Statement by Representative Phil Gingrey, Minority Ranking 
  Member, Subcommittee on Technology and Innovation, Committee on 
  Science and Technology, U.S. House of Representatives..........     9
    Written Statement............................................    10

Prepared Statement by Representative Harry E. Mitchell, Member, 
  Subcommittee on Technology and Innovation, Committee on Science 
  and Technology, U.S. House of Representatives..................    11

Prepared Statement by Representative Vernon J. Ehlers, Member, 
  Subcommittee on Technology and Innovation, Committee on Science 
  and Technology, U.S. House of Representatives..................    12

                               Witnesses:

Dr. William Jeffrey, Director, National Institute of Standards 
  and Technology, Technology Administration, U.S. Department of 
  Commerce
    Oral Statement...............................................    13
    Written Statement............................................    14
    Biography....................................................    20

Dr. R. Stanley Williams, Senior HP Fellow in Quantum Science 
  Research, Hewlett-Packard Corporation
    Oral Statement...............................................    21
    Written Statement............................................    23
    Biography....................................................    40

Mr. Michael Borrus, General Partner, X/Seed Capital
    Oral Statement...............................................    40
    Written Statement............................................    42
    Biography....................................................    44

Mr. Peter Murray, Vice President, Welch Allyn, Incorporated
    Oral Statement...............................................    45
    Written Statement............................................    47
    Biography....................................................    58

Mr. Michael J. Ryan, President and CEO, TUG Technologies 
  Corporation
    Oral Statement...............................................    58
    Written Statement............................................    61
    Biography....................................................    75

Discussion
  Manufacturing Extention Partnerships...........................    78
  R&D at NIST....................................................    81
  Advanced Technology Program....................................    82
  Measurement Barriers to Innovation.............................    83
  Manufacturing Extension Partnership; Advanced Technology 
    Program......................................................    85
  Availability of Venture Capital................................    89
  Joint University of Maryland-NIST Institute....................    91

             Appendix 1: Answers to Post-Hearing Questions

Dr. William Jeffrey, Director, National Institute of Standards 
  and Technology, Technology Administration, U.S. Department of 
  Commerce.......................................................    96

Dr. R. Stanley Williams, Senior HP Fellow in Quantum Science 
  Research, Hewlett-Packard Corporation..........................   100

Mr. Michael Borrus, General Partner, X/Seed Capital..............   101

Mr. Peter Murray, Vice President, Welch Allyn, Incorporated......   102

Mr. Michael J. Ryan, President and CEO, TUG Technologies 
  Corporation....................................................   103

             Appendix 2: Additional Material for the Record

Message sent by Dr. William Jeffrey, Director, National Institute 
  of Standards and Technology, to the Hollings MEP Center 
  Directors, dated February 26, 2007.............................   106

Statement by Daryl G. Hatano, Vice President, Public Policy, 
  Semiconductor Industry Association.............................   107


THE NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY'S ROLE IN SUPPORTING 
  ECONOMIC COMPETITIVENESS IN THE 21ST CENTURY: THE FISCAL YEAR 2008 
                             BUDGET REQUEST

                              ----------                              


                      THURSDAY, FEBRUARY 15, 2007

                  House of Representatives,
         Subcommittee on Technology and Innovation,
                       Committee on Science and Technology,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 10:10 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. David Wu 
[Chairman of the Subcommittee] presiding.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                            hearing charter

               SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION

                  COMMITTEE ON SCIENCE AND TECHNOLOGY

                     U.S. HOUSE OF REPRESENTATIVES

                       The National Institute of

                   Standards and Technology's Role in

                  Supporting Economic Competitiveness

                          in the 21st Century:

                  The Fiscal Year 2008 Budget Request

                      thursday, february 15, 2007
                         10:00 a.m.-12:00 p.m.
                   2318 rayburn house office building

1. Purpose

    On Thursday, February 15, 2007, the Technology and Innovation 
Subcommittee of the House Committee on Science and Technology will hold 
a hearing to consider the President's fiscal year 2008 (FY08) budget 
request for the National Institute of Standards and Technology (NIST). 
An Administration witness will review the proposed budget in the 
context of the President's overall priorities for NIST. In addition, 
there will be four witnesses who will comment on the President's FY08 
budget request and the future direction and requirements for NIST.

2. Witnesses

Dr. William Jeffrey, Director, National Institute of Standards and 
Technology

Dr. Stan Williams, Senior HP Fellow in Quantum Science Research, 
Hewlett-Packard Corp, Palo Alto, CA

Mr. Michael Borrus, General Partner, X/Seed Capital, Menlo Park, CA

Mr. Peter Murray, Vice President, Welch Allyn, Inc., Beaverton, OR

Mr. Michael Ryan, President and CEO, TUG Technologies Corporation, 
Marietta, GA

3. NIST Overview

    Founded in 1901, the National Institute of Standards and Technology 
(NIST) has developed and promoted measurement, standards, and 
technology to enhance productivity, facilitate trade, and improve 
quality of life. NIST is a non-regulatory agency of the U.S. Commerce 
Department's Technology Administration.
    NIST operates in two primary locations: Gaithersburg, MD and 
Boulder, CO. It also operates two institutes jointly with other 
organizations: the Center for Advanced Research in Biotechnology in 
Rockville, MD (with the University of Maryland) and JILA in Boulder, CO 
(with the University of Colorado).
    NIST's staff includes approximately 2,700 scientist, engineers, 
technicians, and support personnel. In addition, 1,800 associates 
complement the staff, and NIST partners with about 1,500 manufacturing 
specialists and staff at affiliated centers around the country. Three 
NIST scientists have earned the Nobel Prize in the last 10 years.
    NIST carries out its mission through four cooperative programs:

          NIST laboratories--conduct research supporting U.S. 
        technology infrastructure by developing tools to measure, 
        evaluate and standardize, enabling U.S. companies to innovate 
        and remain competitive. NIST helps U.S. companies, workers, and 
        consumers by ensuring that standards are used to create a level 
        playing field--not a barrier to trade--in the global 
        marketplace.

          Baldridge National Quality Program--promotes 
        excellence among U.S. manufacturers, service companies, 
        educational institutions, and health care providers; conducts 
        outreach programs and manages the annual Malcolm Baldridge 
        National Quality Award recognizing performance excellence and 
        quality.

          Manufacturing Extension Partnership--offers technical 
        and business assistance services to improve the productivity 
        and competitiveness of small manufacturers through a nationwide 
        network of local centers. The centers are funded by a one-third 
        equal match from federal, state, and fees charged for services.

          Advanced Technology Program--accelerates the 
        development of high-risk, innovative technologies that promise 
        broad benefits for the Nation by co-funding R&D partnerships 
        with the private sector, including universities.

    NIST laboratories are comprised of seven labs and a technical 
program, and are funded under the Scientific and Technical Research 
Services (STRS) account.

          Building and Fire Research Laboratory (BFRL)--works 
        to improve quality and productivity in the U.S. construction. 
        The lab also works to reduce human and economic loss due to 
        fires, earthquakes, wind, and other hazards.

          Chemical Science and Technology Laboratory (CSTL)--
        conducts research in measurement science and develops the 
        chemical, biochemical, and chemical engineering measurements, 
        data, models, and reference standards that are required to 
        enhance U.S. industrial competitiveness in the world market and 
        to improve public health, safety and environmental quality.

          Electronics and Electrical Engineering Laboratory 
        (EEEL)--provides the fundamental basis for all electrical 
        measurements in the U.S. and advances standards for the 
        electronics and electrical industries.

          Information Technology Laboratory (ITL)--conducts 
        research and develops test methods and standards for emerging 
        and rapidly changing information technologies. ITL focuses on 
        technologies to improve the usability, reliability, and 
        security of computers and computer networks for work and home.

          Manufacturing Engineering Laboratory (MEL)--develops 
        measurement methods, standards, and technologies to improve 
        U.S. manufacturing capabilities. MEL researchers work with 
        industry to achieve greater efficiency and productivity with 
        improved measurements and standards, both dimensional and 
        mechanical. MEL also maintains the basic units for measuring 
        mass and length in the United States.

          Materials Science and Engineering Laboratory (MSEL)--
        anticipates and responds to industry material-science needs in 
        areas including microelectronics, automobiles, and health care. 
        MSEL houses the Nation's only fully equipped cold neutron 
        research facility.

          Physics Laboratory (PL)--provides measurement 
        services and research for electronic, optical, and radiation 
        technology. Research on atomic clocks at PL has led to the 
        world's most accurate timing devices, critical for the Global 
        Positioning System (GPS), financial markets, and electrical 
        power grid testing. Over the last 10 years, three scientists 
        from PL have won the Nobel Prize.

          Technology Services--provides technology products and 
        services including support for NIST calibrations, Standard 
        Reference Materials, Standard Reference Data, and Weights and 
        Measures; coordination of documentary standards activities; 
        training of foreign standards officials; laboratory 
        accreditations; facilitating partnerships between NIST 
        researchers and U.S. industry; and access to the NIST Research 
        Library.

    In addition, NIST has two national research facilities.

          NIST Center for Neutron Research (NCNR)--provides an 
        intense source of neutrons used to probe the molecular and 
        atomic structure and dynamics of a wide range of materials. 
        This facility is used heavily by industry. In 2006, researchers 
        from over 40 national labs, 140 U.S. universities, and 60 U.S. 
        companies conducted research at the facility in collaboration 
        with NIST scientists.

          Center for Nanoscale Science and Technology (CNST)--
        leverages the unique capabilities of the NIST Advanced 
        Measurement Laboratory complex, providing state-of-the-art 
        facilities for nanomanufacturing and nanometrology where 
        industry, universities and other federal laboratories can 
        collaborate in solving critical measurement and fabrication 
        issues necessary to convert nano-discoveries into products.

    NIST also manages two programs that support small businesses.

          Manufacturing Extension Program (MEP) is a proven 
        public/private partnership in all 50 states and Puerto Rico 
        with the mission of improving the competitiveness of small and 
        medium-sized manufacturers. In FY05, MEP, a network of 59 
        centers, assisted more than 16,000 small manufacturers, 
        providing a ten to one return on federal investment. In a 
        survey of approximately 25 percent of MEP clients, they 
        reported over $1.3 billion in cost savings directly attributed 
        to the program's assistance as well as creating $6.25 billion 
        in new or retained sales. The program also helped create/retain 
        more than 53,000 jobs and increased investment by $2.25 billion 
        returned to the economy.

          The Advanced Technology Program (ATP) was created to 
        foster economic growth through the development of innovative 
        technologies. Through private/public partnerships, ATP's early 
        stage investment is accelerating the development of high-risk, 
        broadly enabling technologies and helping bridge the gap 
        between the laboratory and the market place. Through May 2004, 
        ATP co-funded 736 projects with 1,468 participants. Sixty-six 
        percent of ATP projects are led by small businesses, while more 
        than 160 different colleges and universities have participated 
        in ATP projects. Benefit-cost studies from approximately 40 
        projects indicate an eight to one return on investment.

NIST Budget Summary

    NIST's FY08 budget request is summarized in the table below.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

4. NIST Budget Highlights

NIST's Laboratory Programs
    The FY08 budget requests $492 million for scientific research. The 
request is $68 million (17 percent) above the FY07 level of $417 
million appropriated in the continuing resolution, H.J. Res. 20 (which 
passed the House on January 31, 2007) and is $41 million above the FY06 
request. The request also includes $94 million for construction and 
renovation of NIST's scientific facilities, $35 million (60 percent) 
above the FY07 appropriated level and $80 million (46 percent) below 
the FY06 appropriation.
    The increase in laboratory programs (STRS) for FY08 includes new 
research initiatives plus those requested in FY07 as summarized below.

          Enabling Nanotechnology from Discovery to Manufacture 
        (requested increase of $26 million) aims to improve the basic 
        scientific understanding of artificial materials on the 
        nanoscale as well as aid US industry in developing 
        manufacturing technologies for these materials. (Includes $6 
        million in FY08 request and $20 million from FY07.)

          Measurements and Standards for the Climate Change 
        Science Program (requested increase of $5 million) will expand 
        the NIST component of the multi-agency U.S. Climate Change 
        Science Program (CCSP) to study the impact of aerosols on 
        global warming, and to carry out precise calibration of 
        satellite light sensors to monitor the amount of sunlight 
        striking the Earth.

          Enabling Innovation through Quantum Science 
        (requested increase of $13 million) will pursue the development 
        of devices governed by quantum physics to develop next-
        generation cryptography and computing technologies. (Includes 
        $4 million in FY08 request and $9 million from FY07 ``Quantum 
        Information Science'' initiative.)

          Disaster Resilient Structures and Communities 
        (requested increase of $6 million) will improve the scientific 
        basis for building codes and best practices that make buildings 
        more resistant to damage during natural disasters such as 
        hurricanes, fires, and tsunamis. (Includes $4 million in FY08 
        request and $2 million from FY07 ``Structural Safety in 
        Hurricanes, Fires, and Earthquakes'' initiative.)

          National Earthquake Hazards Reduction Program 
        Initiative (requested increase of $3.25 million) will fund 
        research into technologies for retrofitting or otherwise 
        protecting buildings against earthquake damage. NIST is the 
        lead agency for this interagency initiative. (Combined $3.25M 
        new initiative with $2M increase for similar FY07 initiative.)

          NIST Center for Neutron Research Expansion and 
        Reliability Improvements: A National Need (requested increase 
        of $10 million) will upgrade and expand the NCNR neutron 
        source, which is used for research into superconductors, 
        nanostructured materials, biomaterials, microelectronics, and 
        hydrogen fuel cells. U.S. neutron research facilities are 
        currently oversubscribed.

          Enabling the Hydrogen Economy (requested increase of 
        $10 million) will fund research into fuel-cell design and high-
        volume manufacturing through development of measurement tools, 
        material characterization, theory, and models allowing real-
        time diagnostics of hydrogen fuel cell performance, as well as 
        hydrogen transportation and point-of-sale technical 
        requirements.

          Manufacturing Innovation through Supply Chain 
        Integration (requested increase of $2 million) to advance 
        industry towards seamless global supply chains by developing 
        manufacturing standards, measurements, and testing tools.

          Synchrotron Measurement Science and Technology: 
        Enabling Next Generation Materials Innovation (requested 
        increase of $5 million) will fund the creation of a Center for 
        Synchrotron Measurement Science and Technology to provide 
        state-of-the-art measurement tools for characterizing the 
        chemical and structural state of materials and devices through 
        close collaborations with researchers from industry, academia, 
        and other government agencies.

          International Standards and Innovation: Opening 
        Markets for American Workers and Exporters (requested increase 
        of $2 million) will support NIST assuming a more proactive role 
        as a convener, facilitator, and catalyst in ensuring that the 
        necessary underpinnings for product and process standards are 
        in place to support full U.S. participation in global markets.

          Innovations in Measurement Science (requested 
        increase of $4 million) will be used to advance NIST's 
        capabilities in the core measurement science areas underpinning 
        technology innovation.

          Bioimaging: A 21st-Century Toolbox for Medical 
        Technology (requested increase of $4 million) will fund NIST 
        utilizing its expertise in the physical and information 
        sciences to provide the necessary measurements and standards to 
        pave the way for innovative diagnostics, in partnership with 
        the National Institutes of Health (NIH) and the bioimaging 
        industry.

          Cyber Security: Innovative Technologies for National 
        Security (requested increase of $2 million) will fund NIST 
        collaboration with industry and academia to develop metrics and 
        measurement techniques for characterizing known and unknown 
        vulnerabilities of computer systems.

          Biometrics: Identifying Friend or Foe (requested 
        increase of $2 million) will fund NIST to develop measurements 
        and standards to support testing and evaluation of enhanced 
        biometric systems, in partnership with DHS, the FBI, and the 
        State Department.

    The FY08 construction and renovation (CRF) request includes two 
major new projects:

          Boulder Building 1 Extension (requesting $28 million) 
        will begin construction of a new laboratory building on the 
        Boulder campus with high-performance facilities. Total 
        construction is estimated at $76.2 million with $28.0 budgeted 
        in FY08.

          Center for Neutron Research Expansion and Reliability 
        Improvements (requesting $31 million) will fund expansion and 
        complete new construction at the neutron research facility on 
        the Gaithersburg campus, which is used to probe the atomic and 
        molecular structure of plastics, biological materials, and thin 
        magnetic films. As a national user facility, researchers from 
        academia, industry, and government conduct research at the 
        center. (Includes $19 million in FY08 request and $12 million 
        from FY07 ``NIST Center for Neutron Research Expansion and 
        Reliability Improvements: A National Need.'')

Advanced Technology Program (ATP): The FY08 budget request proposes to 
eliminate ATP (funded at $79 million in FY07).

Manufacturing Extension Partnership (MEP) Program: The FY08 request for 
MEP is $46.3 million, which represents a 58 percent cut from the FY07 
enacted level of $104.6 million.

5. Issues

          Does the FY08 budget request set the appropriate 
        priorities to achieve the stated goals of improving U.S. 
        competitiveness?

          What are the criteria used by the Administration in 
        determining the priorities for NIST funding and activities?

          As a part of the American Competitiveness Initiative 
        (ACI), the Administration proposes doubling NIST's Scientific & 
        Technical Research Services and Construction budgets. What 
        should NIST's mandate and activities include under this 
        proposed funding scenario?

          Can the Manufacturing Extension Partnership (MEP) 
        program function effectively with the Administration's proposed 
        budget request of $46.3 million (56 percent reduction from H.J. 
        Res. 20). What would be the impact of this funding amount on 
        the level of MEP services provided to small manufacturers and 
        what would be the impact on the small- and medium-sized 
        manufacturing community?

          Given the current focus on developing programs and 
        policies to support an innovation-based economy, should the 
        Advanced Technology Program (ATP) be eliminated as proposed in 
        the Administration's FY08 budget request?
    Chairman Wu. The Subcommittee now stands in order.
    I want to welcome everybody to the first hearing of the 
Technology and Innovation Subcommittee. It is only fitting that 
with the Subcommittee's focus on technology, competitiveness, 
and innovation that our first hearing is on the National 
Institute of Standards and Technology, NIST. For over 100 
years, NIST has done outstanding work to promote the public 
welfare and support industrial growth: from setting standards 
for uniform pipe threads on fire hydrants to the time 
measurements that make electronic financial transactions and 
the Global Positioning System, or GPS, work, NIST has always 
been responsive to industry's and the public's needs.
    NIST's development of uniform pipe thread standards for 
fire hydrants was one of NIST's first success stories. Three 
years after NIST's creation, a fire in Baltimore largely 
destroyed the city, because when adjacent fire companies within 
a 100-mile radius came to the assistance of Baltimore, they 
found that their hoses and the fire hydrants in Baltimore 
didn't have a uniform standard and didn't work together. NIST 
solved the problem over time.
    However, when I mention NIST to my colleagues, most don't 
recognize that name as a federal agency. Perhaps the 
Manufacturing Extension Program, or MEP, perhaps the Advanced 
Technology Program have a little visibility in the Congress and 
among my constituents. But when I meet with industry 
representatives, while their technical staff may know about 
NIST, frequently, the business executives and line folks do 
not.
    During the next two years, I hope to educate my colleagues 
in Congress and the broader public about the great importance 
of NIST. I know that Dr. Jeffrey shares this goal as well.
    Now, on to the issue at hand: the Administration's fiscal 
year 2008 budget request for NIST. I am glad that the 
Administration has recognized the importance of at least a 
portion of NIST's work as outlined in the American 
Competitiveness Initiative. Congress and the prior 
Administration have long been supportive of the NIST lab 
programs. During the past 15 years, NIST's lab budget has 
increased by 130 percent. When President Clinton took office, 
the NIST lab budget was $163 million. Eight years later, it was 
$313 million. In addition, Congress had also provided more than 
$310 million for the construction of new lab facilities. There 
are few federal agencies that have grown so rapidly over the 
past decade. The Science and Technology Committee has always 
been NIST's strongest supporter.
    I am concerned that this Administration follows a strategy 
of paying for increases in the lab programs and construction by 
cutting funding for the MEP and proposing repeatedly to 
eliminate ATP. Both of these programs are successful public/
private partnerships, which have contributed to American 
innovation and competitiveness. I hope that we can break this 
cycle where every year the Administration proposes either 
eliminating or cutting these two programs and then Congress has 
to restore the funding.
    NIST has not had an authorization for all its programs 
since 1992, and I intend to break this cycle, also. I want to 
move a complete NIST authorization bill through Congress. I am 
hoping that the Administration will work with me on this 
effort. We need to move an authorization bill which sets NIST 
on a path to broadly support innovation and competitiveness in 
the United States and with our friends and competitors around 
the world. We are in a global race for economic competitiveness 
and we can't afford to stand idly by and watch our economy burn 
to the ground as happened to Baltimore 100 years go.
    Now, I would like to recognize the Ranking Member of the 
Subcommittee, the gentleman from Georgia, Dr. Gingrey, for his 
opening remarks.
    [The prepared statement of Chairman Wu follows:]
                Prepared Statement of Chairman David Wu
    I want to welcome everyone to the first hearing of the Technology 
and Innovation Subcommittee. It seems only fitting that with the 
Subcommittee's focus on technology, competitiveness, and innovation our 
first hearing is on the National Institute of Standards and 
Technology--NIST. For over 100 years, NIST has done outstanding work to 
promote the public welfare and support industrial growth: from setting 
standards for uniform pipe threads on fire hydrants to the time 
measurements that make electronic financial transactions and the Global 
Positioning System (GPS) functional. NIST has always been responsive to 
industry's and the public's needs.
    NIST's development of uniform pipe thread standards for fire 
hydrants was one of NIST's first success stories. Three years after 
NIST's creation, a fire in Baltimore largely destroyed the city. Why? 
Because when the fire companies from within a 100 miles radius showed 
up, none of their hoses would fit Baltimore's fire hydrants because 
there was no uniform standard. NIST solved the problem.
    Now, on to the issue at hand--the Administration's FY08 budget 
request for NIST. I am glad that the Administration has recognized the 
importance of at least a portion of NIST work as outlined in the 
American Competitiveness Initiative (ACI). Congress and the prior 
Administration have long been supportive of the NIST lab programs. 
During the past 15 years, NIST's lab budget has increased by 130 
percent. When President Clinton took office the NIST lab budget was 
$163 million; eight years later it was $313 million. In addition, 
Congress had also provided more than $310 million for the construction 
of new lab facilities. There are few federal agencies that have grown 
so rapidly over the past decade. The Science and Technology Committee 
has always been one of NIST's strongest supporters.
    I am concerned that the Bush Administration continues to follow a 
strategy of paying for increases in the lab programs and construction 
by cutting funding for the MEP and eliminating the ATP. Both of these 
programs are successful public/private partnerships which have 
contributed to American innovation and competitiveness. I hope that we 
can break this cycle where every year the Administration proposes 
either eliminating or cutting these two programs and then Congress 
restores the funding.
    NIST has not had an authorization for all its programs since 1992 
and I intend to break this drought. I want to move a complete NIST 
authorization bill through Congress. I'm hoping that the Administration 
will work with me on this effort. We need to move an authorization bill 
which sets NIST on a path to broadly support innovation and 
competitiveness in the United States. We are in a global race for 
economic competitiveness--we can't afford to stand idly by and watch 
our economy burn to the ground as happened in Baltimore, 100 years ago.
    Now, I would like to recognize the Ranking Member of the 
Subcommittee, Dr. Gingrey, for his opening remarks.

    Mr. Gingrey. And I thank you, Mr. Chairman.
    Good morning. I am very excited for our subcommittee's 
first hearing of the 110th Congress, and I want to thank my 
friend from Oregon, Mr. Wu, for organizing this hearing. And I 
look forward to working with him over the next two years on 
technology and innovation, issues that are vital to our 
economic competitiveness.
    It is quite important that this first hearing in the 
Technology and Innovation Subcommittee is about one of our 
nation's scientific stars, the National Institute of Standards 
and Technology, or NIST.
    Almost every federal agency and United States industry 
sector uses the standards, measurements, and certification 
services that NIST laboratories provide. The breadth of NIST's 
applications stretches from guidelines on the accuracy and 
reliability of electronic voting machines to research into the 
causes of building and structural failures and to making health 
care information technology inter-operability a reality in a 
health care delivery system. A must-do, in my opinion, to 
deliver the kind of radical reforms needed to improve the 
quality and lower the cost of delivering health care in this 
country.
    The future of many cutting-edge technologies also depends 
on the research and technical expertise of NIST laboratories. 
Emerging fields, such as nanotechnology and bioengineering, 
will not become mature industries and markets without the 
existence of scientifically-based industrial measurements and 
standards. Beginning last year, the President recognized the 
important role that NIST plays in our nation's economic 
security and started NIST on a path to double its core research 
and facilities budget by 2017. I fully support the President's 
American Competitiveness Initiative and the Office of Science 
at the Department of Energy. I look forward to hearing more 
details today about the role NIST will play in the President's 
American Competitiveness Initiative.
    And I am interested to hear the Administration's rationale 
in requesting only $46 million for the Manufacturing Extension 
Partnership, the MEP program. The MEP program helps small and 
medium-sized United States manufacturers optimize their 
operations and remain competitive in the global economy. And it 
is a critical program that is worthy of taxpayer dollars. It 
deserves the $106 million that Congress had provided in recent 
years, and I intend to work with my colleagues to see that it 
once again receives an adequate appropriation for fiscal year 
2008.
    Chairman Wu, I am pleased to have Mike Ryan, President and 
CEO of TUG Technologies, a company that is located in my 
district, in Marietta, Georgia, with us today to discuss the 
importance of the MEP program. He has vast experience with a 
variety of MEP programs in different states of this great 
country and has some exciting success stories to share with 
this subcommittee.
    I thank all of the witnesses for taking the time to be here 
today. I only wish that I could stay to hear what will be, I 
know, a fruitful and productive debate. However, as you know, a 
good friend and colleague, our own Dr. Charlie Norwood, passed 
away this week, and his funeral is this afternoon in Augusta, 
Georgia. And in order to offer my condolences to his wife and 
family, I will be joining many of my colleagues as we leave 
here in just a few minutes to fly back to his services. So 
please keep his family and friends in your thoughts and 
prayers.
    And, Mr. Chairman, I yield back the balance of my time, and 
I thank you.
    [The prepared statement of Mr. Gingrey follows:]
           Prepared Statement of Representative Phil Gingrey
    Good morning. I am very excited for our subcommittee's first 
hearing of the 110th Congress. I thank my friend from Oregon, Mr. Wu, 
for organizing this hearing and look forward to working with him over 
the next two years on technology and innovation issues that are vital 
to our economic competitiveness.
    It is quite appropriate that the first hearing of the Technology 
and Innovation Subcommittee is about one of our nation's scientific 
stars--the National Institute of Standards and Technology (NIST). 
Almost every federal agency and U.S. industry sector uses the 
standards, measurements, and certification services that NIST labs 
provide. The breadth of NIST's applications stretch from guidelines to 
the accuracy and reliability of electronic voting machines to research 
into the causes of building and structural failures, and to making 
health care information technology inter-operability a reality in our 
health care delivery system. A must do, in my opinion, to deliver the 
kind of radical reforms needed to improve the quality and lower the 
cost of delivering health care in this country.
    The future of many cutting-edge technologies also depends on the 
research and technical expertise of NIST's laboratories. Emerging 
fields such as nanotechnology and bio-engineering will not become 
mature industries and markets without the existence of scientifically-
based industrial measurements and standards.
    Beginning last year, the President recognized the important role 
NIST plays in our nation's economic security and started NIST on a path 
to double its core research and facilities budget by 2017. I fully 
support the President's American Competitiveness Initiative to double 
not only NIST's budget but also those of the National Science 
Foundation and the Office of Science at the Department of Energy. I 
look forward to hearing more details today about the role NIST will 
play in the President's American Competitiveness Initiative.
    I am interested to hear the Administration's rationale in 
requesting only $46 million for the Manufacturing Extension Partnership 
(MEP) program. The MEP program helps small and medium-sized U.S. 
manufacturers optimize their operations and remain competitive in the 
global economy and it is a critical program that is worthy of taxpayer 
dollars. It deserves the $106 million Congress has provided in recent 
years and I intend to work with my colleagues to see that it once again 
receives an adequate appropriation for FY 2008.
    Chairman Wu, I am pleased to have Mike Ryan, President and CEO of 
TUG Technologies, a company that is located in my district in Marietta, 
Georgia, with us today to discuss the importance of the MEP program. He 
has vast experience with a variety of MEP programs in different states 
of this great country and has some exciting success stories to share 
with this subcommittee.
    I thank all the witnesses for taking the time to be here today and 
wish I could stay to hear what I know will be a fruitful and productive 
debate. However, a good friend and colleague, Dr. Charlie Norwood, 
passed away this week and his funeral is this afternoon in Augusta, GA. 
In order to offer my condolences to his wife and family, I need to 
leave to fly back for the services. Please keep his family and friends 
in your thoughts and prayers and I yield back the balance of my time.

    Chairman Wu. Thank you, Dr. Gingrey.
    And it is my understanding that the timeline for meeting 
downstairs for our friend Charlie is in about 12 minutes. And I 
just want to recognize that, while many of us are going, many 
of us would like to be there. Charlie was a gentleman and a 
principled fellow. I enjoyed working with him on the Education 
Committee. And I also went toe-to-toe with him on occasion, and 
he did each of those equally well. And I think, as the 
President would say, he was a good man.
    Mr. Gingrey. Thank you, Mr. Chairman.
    Chairman Wu. Thank you.
    I ask unanimous consent that all additional statements be 
submitted by Committee Members to be included in the record. 
Without objection, so ordered.
    [The prepared statement of Mr. Mitchell follows:]
         Prepared Statement of Representative Harry E. Mitchell
    Thank you, Mr. Chairman.
    To compete in the global economy, America needs technological 
innovation. Innovation is often expensive, however, and not always 
immediately profitable. This can be especially problematic for small 
businesses. For me, the question isn't WHETHER we should help small 
businesses get the technology and training they need, it's HOW we 
should do so.
    Today, we will hear about two such programs: the Manufacturing 
Extension Partnership and Advance Technology Program.
    The President's budget proposes drastic cuts to these programs. I 
am eager to hear from today's witnesses about this. . . not only about 
whether they agree with these cuts, but also what kind of alternative 
ideas they have for assisting small businesses' technological 
innovation and training.
    I yield back the balance of my time.

    [The prepared statement of Mr. Ehlers follows:]
         Prepared Statement of Representative Vernon J. Ehlers
    NIST is extremely important to U.S. competitiveness. With three 
Nobel prizes awarded in less than a decade, I don't think anyone would 
disagree that the research environment fostered at NIST is enviable or 
that NIST's mastery of cultivating innovation is truly remarkable.
    I am glad the witnesses today will highlight some of the outreach 
endeavors NIST is engaged in. I look forward to determining with my 
colleagues how programs like the Manufacturing Extension Partnership 
(MEP) and Advanced Technology Program (ATP) can be strengthened. I 
believe there are opportunities for improvement, though we must make 
sure we resist changes based purely on ideological grounds.
    I am very pleased that the President's requests includes funding 
($28 million) to begin much needed repairs and improvements to the NIST 
facilities in Boulder, CO. I've worked at these facilities and have 
seen first-hand some of their limitations. They were built more than 50 
years ago and cannot provide the stable environment required for 
today's precision's measurements. For example, the scientists must use 
duct tape and plastic sheeting to protect their experiments from the 
unpredictable air flow in the buildings' ventilation systems. I applaud 
Dr. Jeffrey for undertaking a comprehensive review of the needs of the 
lab and assessing the most cost-effective way to upgrade the 
facilities.

    Chairman Wu. We have a very distinguished panel of 
witnesses, and I want to thank them for taking the time to 
travel the distance, whether it is 2,500 miles or a dangerous 
12 miles to Capitol Hill. And in this subcommittee, at least, 
the dangerous part of the journey is over. You will find an 
inquiring, friendly environment.
    Before we begin, I would like to make a short introduction 
of each of the panelists, other than Mr. Ryan, who has already 
been very well introduced by Dr. Gingrey.
    First, Dr. Bill Jeffrey has been the Director of NIST for 
the past year and a half. Before that, he was at the White 
House Office of Science and Technology Policy, the Defense 
Advanced Research Projects Agency, and he started his career at 
the Defense Airborne Reconnaissance Office. Since coming to 
NIST, Dr. Jeffrey has been their strongest advocate within this 
Administration.
    Dr. Stan Williams of the Hewlett-Packard Corporation is a 
senior HP fellow and founding Director of the Quantum Research 
Group. I have never been able to find anything there, and maybe 
you can tell me what I have been missing. Dr. Williams is an 
expert in nanotechnology and quantum computing. He has been 
awarded the Julius Springer Award for Applied Physics, the 
Feynman Prize in Nanotechnology, the Dreyfus Teacher-Scholar 
Award, a Sloan Foundation fellowship, and was named by 
Scientific American as one of the 50 top technology leaders.
    Mr. Michael Borrus is the founding general partner of X/
Seed Capital, a seed-focused, early-stage venture fund. That, 
plus your youth, must be where the ``X'' comes from. He has 
taught at UC-Berkeley and is the author of three books on high-
tech issues.
    Mr. Peter Murray is the Vice President of Welch Allyn, a 
prominent manufacturer of patient-monitoring equipment with a 
footprint across the world but with a location, importantly, in 
Beaverton, Oregon. His company has relied upon the services of 
the Oregon Manufacturing Extension Partnership, or the MEP, 
center in Oregon.
    And Dr. Gingrey has already introduced Mr. Ryan.
    And if I may have the envelope, please. No envelope.
    Gentlemen, I understand that you all have submitted 
substantial materials in writing. We have a five-minute period 
for a statement, and if you could, please, summarize and point 
out the highlights or lowlights, or both, of your written 
testimony.
    Dr. Jeffrey, let us begin with you.

STATEMENT OF DR. WILLIAM JEFFREY, DIRECTOR, NATIONAL INSTITUTE 
 OF STANDARDS AND TECHNOLOGY, TECHNOLOGY ADMINISTRATION, U.S. 
                     DEPARTMENT OF COMMERCE

    Dr. Jeffrey. Thank you.
    Chairman Wu, Ranking Member Gingrey, and Members of the 
Subcommittee, I am pleased to present the President's 2008 
budget request for NIST. This is a strong budget that will 
further enhance our abilities to support the measurements and 
standards needs of U.S. industry and academia.
    NIST has a long history of being at the forefront of new 
innovations through our measurements and standards. In 2003, 
the National Academy of Engineering identified the greatest 
engineering achievements of the 20th century. NIST measurements 
and standards were integral to the successful development and 
adoption of virtually every one.
    Nineteen retrospective studies of economic impact show 
that, on average, NIST labs generated a benefit-to-cost ratio 
of 44:1 to the U.S. economy. The high rate of return results 
from the fact that new measurements or standards benefit entire 
industries or sectors of the economy as opposed to individual 
companies.
    For example, NIST researchers recently developed new 
measurement techniques that cut up to 80 percent of the cost 
and time for industry to develop advanced materials. As one 
industry scientist put it, NIST's scientists are reawakening a 
major element of creativity that analytical science almost 
lost.
    NIST also operates world-class user facilities. Last year, 
approximately 2,000 researchers from 60 different industries 
leveraged the NIST Center for Neutron Research, or the NCNR. A 
National Academy of Science's report describes the NCNR's 
capability to image and operate a fuel cell as ``a considerable 
achievement and one of the most significant analytical advances 
in the membrane fuel cell realized in decades.'' Industry 
scientists have stated that the research performed at the NCNR 
has allowed them to jump five years ahead in fuel cell 
development.
    To prepare for the future, NIST is working with industry to 
identify critical measurement barriers to innovation, 
evaluating its physical infrastructure, forming new and 
strengthening existing partnerships, and updating ways to 
stimulate the knowledge transfer from its labs to industry and 
academia.
    The increased funding provided through the budget request 
will directly support innovative advances in broad sectors of 
the economy as well as improve the safety and quality of life 
for our citizens. For example, the research initiatives will 
speed the development and foster the adoption of nanotechnology 
products and provide the physical measurements to ensure their 
safety, accelerate the revolutionary economic potential in 
exploiting the unique properties of the quantum world, provide 
confidence and reduce uncertainty in measurements supporting 
global climate change models, reduce the risk to communities as 
they encroach on hurricane-prone coasts and fire-prone wildland 
urban interface regions, and enhance the safety of new and 
existing structures from the catastrophic impact of 
earthquakes.
    To meet the demands for measurements at ever-smaller 
scales, at faster rates, and with more accuracy, it requires 
excellent laboratory and user facilities. The budget request, 
therefore, includes capacity and capability improvements at 
both our Boulder campus and the NCNR.
    The budget request for MEP is identical to last year's 
request and is a reduction of $58.3 million from the fiscal 
year 2006 enacted.
    I recognize the difference in priority between the 
Administration and Congress regarding the federal funding level 
for the MEP program. One thing that you can be certain of, 
regardless of the final appropriations: NIST will execute the 
program in the most effective manner possible to support the 
Nation's small manufacturers.
    No funds for ATP are requested in the President's 2008 
budget. The 2006 enacted budget was consistent with the phase-
out of the program. The 2007 Joint Resolution, however, 
included funding for ATP. And I understand it was approved by 
the Senate last night, and assuming it is signed by the 
President, NIST will initiate a new competition in 2007.
    In summary, recent NIST measurements and standards research 
have enabled innovations now embedded in the iPod, body armor, 
saving the lives of domestic law enforcement officers and our 
service men and women overseas, and diagnostic screening 
devices for cancer patients making their treatment more 
targeted and accurate. The results of NIST research can be 
found in virtually every manufacturing and service industry.
    For more than a century, NIST research has been critical to 
our nation's competitiveness. The increased funding requested 
for NIST will directly support innovations in broad sectors of 
the economy that will, quite literally, define the 21st 
century.
    Thank you, and I would be happy to answer any questions.
    [The prepared statement of Dr. Jeffrey follows:]
                 Prepared Statement of William Jeffrey
    Chairman Wu, Ranking Member Gingrey and Members of the 
Subcommittee, I am pleased to appear before you today to present the 
President's FY 2008 Budget request for the National Institute of 
Standards and Technology (NIST). This is a strong budget for NIST and 
it will further enhance NIST's ability to support the measurement and 
standards needs of U.S. industry and universities. The FY 2008 request 
of $640.7 million includes $594.4 million for NIST's core (encompassing 
NIST's research and facilities) and $46.3 million for the Hollings 
Manufacturing Extension Partnership. The budget for the NIST core 
represents an 11 percent increase over the President's FY 2007 request 
and a 21 percent increase over the proposed FY 2007 joint resolution 
(H.J. Res. 20) recently passed by the House and sent to the Senate. 
This funding supports NIST's mission to promote U.S. innovation and 
industrial competitiveness by advancing measurement science, standards 
and technology in ways that enhance economic security and improve our 
quality of life.

NIST's Impact on Innovation and the Economy

    NIST has a long history of being at the forefront of new 
innovations through our high-impact measurements and standards. In 
2003, the National Academy of Engineering identified 20 of the greatest 
engineering achievements of the 20th century--including automobiles, 
aircraft, lasers, computers, and the Internet. NIST measurements and 
standards were integral to the successful development and adoption of 
virtually every one. Now NIST is paving the way for the greatest 
achievements of the 21st century which are still yet to be imagined.
    NIST's measurement science and standards form part of the 
foundation upon which innovation is built. Just as the Nation's 
physical infrastructure (e.g., roads or power grid) define the Nation's 
capacity to build and transport goods--the Nation has an innovation 
infrastructure which defines the Nation's capacity to innovate. And 
investment in long-term basic research like that done at NIST is an 
integral component of the innovation infrastructure. As stated in the 
National Academy of Sciences' Rising Above the Gathering Storm, ``The 
power of research is demonstrated not only by single innovations but by 
the ability to create entire new industries.''
    NIST researchers are world leaders in their fields. They frequently 
arrive at the ``cutting edge'' of science before anyone else. And once 
there, they partner with industry and academia to identify and overcome 
barriers that can slow or even halt the progress of new innovations. 
With the proposed FY 2008 budget, NIST will continue developing the 
measurement and standards tools that enable U.S. industry to maintain 
and enhance our global economic competitiveness.
    NIST continues to meet the Nation's highest priorities by focusing 
on high impact research and investing in the capacity and capability of 
our user facilities and labs. This emphasis is validated by the high 
rate of return to the Nation that the NIST labs already have 
demonstrated. Nineteen retrospective studies of economic impact show 
that, on average, NIST labs generated a benefit-to-cost ratio of 44:1 
to the U.S. economy. The high rate of return results from the fact that 
new measurements or standards benefit entire industries or sectors of 
the economy--as opposed to individual companies.
    NIST supports U.S. innovation and economic competitiveness 
primarily through its measurements, standards, and national user 
facilities. Recent NIST successes highlight the importance of each of 
these critical components and illustrate how NIST's labs are able to 
return such a large benefit to the Nation:

         Measurements--NIST researchers recently developed new 
        measurement techniques that allow for rapid and cost-effective 
        assessments of advanced materials that are used in a range of 
        products from new detergents to improved adhesives for next-
        generation electronics. Previously, it could cost industry $20 
        million to develop and understand the characteristics of one 
        new material. With this NIST measurement advance, the cost and 
        time are estimated to have been cut by 80 percent. To 
        facilitate the transfer of this technique to industry, NIST 
        organized an open consortium now consisting of 23 members that 
        are learning to use and adapt these new measurement techniques. 
        As a scientist from Honeywell International put it, ``. . .NIST 
        offers an invaluable resource to show what can be done, and how 
        to go about it. NIST Combinatorial Methods Center scientists 
        are reawakening a major element of creativity that analytical 
        science almost lost.''

         Standards--Nanotechnology has the potential to revolutionize 
        manufacturing. And one of the most promising nanomaterials is 
        the carbon nanotube. Carbon nanotubes have unique electronic 
        and mechanical properties that lend themselves to a variety of 
        applications, ranging from the development of stronger and 
        lighter materials to nanowires and transistors for miniature 
        electronics. Regardless of the potential application, the 
        quality of the materials is paramount. Unfortunately, current 
        production techniques for carbon nanotubes result in products 
        with high levels of uncertainty in their quality and 
        uniformity. To address this concern, NIST is currently 
        developing a carbon nanotube reference material. This reference 
        material, when deployed, can be used by any nanotube 
        manufacturer to validate their product's quality, purity, and 
        consistency and accelerate the adoption of carbon nanotubes 
        into more sophisticated devices.

         National User Facilities--NIST operates world-class user 
        facilities that benefit the entire U.S. research community. 
        Last year, approximately 2000 researchers from 60 different 
        industries across the country leveraged the NIST Center for 
        Neutron Research (NCNR). One recently developed application of 
        the NCNR was to image the interior of operating fuel cells to 
        help improve the efficiency and durability of these devices. 
        Large and small companies involved in the manufacture or use of 
        hydrogen fuel cells, including General Motors, Daimler-
        Chrysler, Dupont, and PlugPower, have benefited from this new 
        capability. The NCNR is the premier facility in the world 
        providing this capability. A National Academy of Sciences 
        report describes the NIST efforts in regards to fuel cell 
        technologies as ``. . .a considerable achievement and one of 
        the most significant analytical advances in the membrane fuel 
        cell realized in decades. The NIST facility offers the entire 
        fuel cell community unique research opportunities that 
        previously eluded them.'' Industry scientists have stated that 
        the research performed at the NCNR has allowed them to jump 
        five years ahead in terms of fuel cell development.

    The President recognized NIST's critical role for the Nation as 
part of the American Competitiveness Initiative (ACI). The ACI 
describes NIST as: ``. . .a high-leverage federal research agency that 
performs high-impact basic research and supports the successful 
technical translation and everyday use of economically significant 
innovations. . .'' Under the ACI, overall funding for NIST's core, the 
National Science Foundation, and the Department of Energy's Office of 
Science is together slated to double by 2016.

Preparing for the Future

    The 21st century will be defined by technology innovations that 
fundamentally change the products and services available, the way they 
are manufactured and provided, and the impact on our quality of life. 
These advances will arise from basic research now beginning in, for 
example, nanotechnology, quantum science, and alternative energies--all 
areas in which NIST has a strong and increasing focus with its 
investments.
    The goal of increasing physical sciences research at NIST (along 
with that supported by the National Science Foundation and the 
Department of Energy's Office of Science) provides a unique opportunity 
to strategically establish the programs, plans, and infrastructure that 
will more than double the impact that NIST has on the economy. To 
prepare for the future, NIST is working with industry to identify 
critical measurement barriers to innovation, evaluating the capacity 
and capability of NIST's physical infrastructure, forming new and 
strengthening existing partnerships, and updating the ways it 
stimulates the knowledge transfer from its labs to industry and 
academia.
    For example, over the past year, NIST worked with over 1,000 
experts from industry and universities to identify measurement barriers 
to innovation in a number of critical industry sectors. Over 700 
technical barriers were identified, analyzed, and documented in a 
report. NIST is now in the process of working with industry, 
universities, and other government agencies to address many of these 
identified barriers over the coming years.
    In terms of facilities, NIST has conducted a rigorous evaluation of 
its laboratory capacity and capabilities on its Boulder, Colorado, 
campus. This review found facilities' shortfalls in our ability to meet 
both current and projected industry and university needs in a number of 
important areas. Examples include the high-speed and high-frequency 
measurements required for electronics, defense, and homeland security; 
measurements and tests at the single atom level; and improved methods 
for measuring time, an area expected to vastly improve navigation and 
positioning systems. Each technical area was evaluated in terms of 
necessary laboratory conditions (to include stability of temperature, 
vibration, and humidity, as well as air cleanliness). As a result of 
this assessment, new laboratory space to meet the Nation's needs well 
into the 21st century is proposed in the FY 2008 budget (Boulder 
Building 1 Extension).
    NIST also serves industry and academia by being a steward of world-
class user facilities. As part of the ACI, NIST identified two 
important opportunities first called out in the FY 2007 budget and 
enhanced in the FY 2008 budget--increased capacity and capability of 
the NIST Center for Neutron Research and creation of the NIST Center 
for Nanoscale Science and Technology. Both of these facilities are 
designed to stimulate progress in support of our nation's economic 
competitiveness.
    The ACI provides NIST the opportunity to further promote U.S. 
innovation and industrial competitiveness. With focused, world-class 
research and facilities, NIST will have a greater impact on the 21st 
century economy than it did even over the past century.

FY 2008 President's Budget

    The increased funding provided through the FY 2008 request will 
directly support innovative advances in broad sectors of the economy as 
well as improve the safety and quality of life for our citizens. The 
following table summarizes the proposed FY 2008 budget. In this table 
we show both the FY 2007 President's budget and the FY 2007 joint 
resolution (H.J. Res. 20) for comparisons as different baselines.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The FY 2008 budget was formulated with the FY 2007 President's 
request as the baseline. Since H.J. Res. 20 provides a smaller budget 
for the NIST core (STRS and CRF) than the FY 2007 President's request 
by $43.6 million, some proposed initiatives in FY 2007 that will not 
receive full funding are implicitly contained within the President's FY 
2008 request. New initiatives are described in more detail below:

Scientific and Technical Research Services (STRS)

Enabling Nanotechnology from Discovery to Manufacture (+$6 million)
    The potential market for products containing nanomaterials is 
estimated at over $1 trillion by 2015. Because of their small size--a 
thousand times thinner than a human hair--nanoscale products require 
entirely novel ways to characterize their physical properties and fully 
exploit their unique characteristics in the manufacture of new 
products.
    In FY 2007, NIST began a major initiative to address the 
measurement barriers hindering rapid development of nanotechnologies. A 
new NIST Center for Nanoscale Science and Technology (CNST) has been 
established that combines both research and a state-of-the-art 
nanofabrication and nanometrology user facility.
    The research initiatives proposed in FY 2008 will build on recent 
NIST advances by:

          Developing ways to measure strength, stress, strain, 
        optical, and electronic properties of nanostructures to improve 
        processes and understanding of failure mechanisms;

          Creating three-dimensional, high-resolution imaging 
        methods that reveal details of structure, chemical composition, 
        and manufacturing defects and allow researchers to view 
        nanostructures as they interact with their environment;

          Simulating nanoscale phenomena with computer models 
        to allow economical development of production methods for 
        complex nanodevices; and

          Producing the measurement techniques required to 
        address the interagency efforts to characterize nanotechnology 
        impacts to our health, safety, and environment.

Measurements and Standards for the Climate Change Science Program (+$5 
        million)
    The climate is changing. Determining how fast it is changing, and 
understanding the complex relationships between all the environmental 
variables is a critical objective of the U.S. Climate Change Science 
Program. Many different climate monitoring systems in space, in the 
air, and on the ground are currently monitoring solar output as well as 
trapped and reflected heat by the Earth's atmosphere. These systems are 
operated by many countries and research groups. Establishment of 
absolute calibration and standard references will allow accurate inter-
comparisons of these systems, will help identify small environmental 
changes occurring over many years, and will reduce uncertainties in the 
data input to global climate change models.
    With the proposed FY 2008 funding, NIST will, working in 
coordination with other agencies, develop:

          An international irradiance measurement scale to be 
        used in rigorously calibrating satellite light intensity 
        instruments prior to launch to ensure sufficient accuracy to 
        allow valid comparisons among results from different 
        instruments or from data sets taken over different periods of 
        time;

          New instrument design strategies and quality 
        assurance programs to optimize accuracy and stability of 
        satellite-based irradiance measurement systems;

          Techniques for generating specific types of aerosols 
        in the laboratory, measuring aerosol optical and physical 
        properties, and for simulating aerosol properties that cannot 
        yet be measured in the laboratory; and

          A database of critically evaluated data on aerosol 
        properties collected at NIST and elsewhere.

Enabling Innovation Through Quantum Science (+$4 million)
    Unlike the laws of physics that govern our ``every day'' world, the 
laws of physics that govern the quantum world of atoms, electrons, and 
light particles are fundamentally different. These quantum particles 
are able to interact in ways that according to human experience would 
seem impossible. For example, a quantum particle can actually be in two 
different places simultaneously.
    Conceptualizing these phenomena is difficult to say the least, but 
developing ways to exploit them for the development of technologically 
significant innovations is even more challenging. NIST, however, has 
world-class scientists who are leaders in the emerging field of quantum 
information science. Three NIST scientists have won Nobel Prizes in the 
last 10 years based on their work in this field. Many of the best minds 
in physics today believe that applications of quantum science will 
transform the 21st century just as integrated circuits and classical 
electronics revolutionized the 20th century.
    The proposed FY 2008 initiative will build upon NIST's significant 
expertise in this area, and leverage the collaborations established in 
the recently created Joint Quantum Institute between the University of 
Maryland, NIST, and the National Security Agency. NIST proposes to 
accelerate the potential of the quantum world for enhancing our 
nation's competitiveness through research into:

          Quantum ``wires'' that use ``teleportation'' 
        techniques to reliably transport information between the 
        components of a simple quantum computer;

          Quantum memory analogous to the random access memory 
        of today's computers to allow more complex logic operations;

          Quantum conversion processes that transfer 
        information from one form of quantum information to another 
        (for example, ways to transfer information about the quantum 
        characteristics of an atom to a photon); and

          Quantum based measurement tools such as optical 
        clocks and single electron counters.

Disaster Resilient Structures and Communities (+$4 million)
    The past few years have reminded us that both natural hazards--
including extreme winds, storm surge, wildland fires, earthquakes, and 
tsunamis--as well as terrorist actions, are a continuing and 
significant threat to U.S. communities. The disaster resilience of our 
physical infrastructure and communities today is determined in large 
measure by the building codes, standards, and practices used when they 
were built. Many of these legacy codes, standards, and practices--which 
have evolved over several decades--are oversimplified and inconsistent 
with current risk assessments. As construction and rebuilding costs 
continue to rise, there is increasing recognition of the need to move 
from response and recovery to proactively identifying and mitigating 
hazards that pose the greatest threats.
    The proposed FY 2008 initiative will, working in coordination with 
other agencies, develop:

          Standard methods to predict losses, evaluate disaster 
        resilience, and estimate cost-to-benefit of risk management 
        strategies at the community and regional scales that local 
        officials can use to evaluate and mitigate risks via land-use 
        planning and practices;

          Decision support tools to modernize codes, standards, 
        and practices consistent with the risk;

          A validated ``computational wind tunnel'' for 
        predicting extreme wind effects on structures; and

          Risk-based storm surge maps for the design of 
        structures in coastal regions.

National Earthquake Hazards Reduction (+$3.25 million)
    Many earthquakes strike without warning. Within the U.S., more than 
75 million people are located in urban areas considered to be of 
moderate to high risk of earthquakes. Just the economic value of the 
physical structures within these regions--not including the potential 
loss of life and economic disruption--is valued at close to $8.6 
trillion. To address this threat Congress (and this committee in 
particular) has provided longstanding support for the National 
Earthquake Hazards Reduction Program which NIST coordinates across the 
Federal Government.
    This initiative will enhance the safety of:

          New structures by establishing and promoting 
        performance-based standards for entire building designs and by 
        accelerating the adoption of basic research into the model 
        building codes, standards, and practices; and

          Existing structures through research on actual 
        building performance in earthquakes; developing structural 
        performance models and tools; and establishing cost-effective 
        retrofit techniques for existing buildings.

Construction of Research Facilities (CRF)

Building 1 Extension (B1E)--Enabling Sustained Scientific Advancement 
        and Innovation (+$28 million)
    When President Eisenhower dedicated the NIST facilities in Colorado 
in 1954, no one imagined that half a century later scientists would be 
manipulating matter atom-by-atom. Such technological advances require 
increasingly complex and difficult measurements--to be able to observe, 
characterize, and create structures at ever smaller spatial scales. As 
the structures shrink in size, small fluctuations in temperature, 
humidity, air quality, and vibration begin to distort the results. We 
are now at the point where laboratory conditions are inhibiting further 
advances in some of the most promising areas of research for the 21st 
century.
    The $28 million proposed in the FY 2008 budget will leverage 
previously proposed funds ($10.1 million) in the FY 2007 budget to 
construct state-of-the-art laboratory space that will meet the 
stringent environmental conditions required for 21st century scientific 
advances. An additional $38.1 million will be needed in FY 2009 to 
complete the project. With a total cost of $76.2 million, the Building 
1 Extension is the most cost-effective approach to enabling world-class 
measurement science in support of some of the country's most important 
economic sectors.

NIST Center for Neutron Research (NCNR) Expansion and Reliability 
        Improvements (+$19 million)
    The NCNR is widely regarded as the most scientifically-productive 
and cost-effective neutron facility in the U.S., and serves more 
scientists and engineers than all other U.S. facilities combined. 
Neutron scattering techniques, in which beams of neutrons are used as 
probes to see the structure and movements of materials at the smallest 
scales are critical in a wide range of applications that will define 
the 21st century including nanotechnology, alternative energies, and 
understanding the structure of biological molecules. Because of the 
unique properties of neutrons for probing materials and their 
applications to some of the most advanced technologies, a significant 
shortage of neutron beam capacity and capability exists in the U.S. to 
satisfy the demands of industry and academia.
    This initiative begun in FY 2007 is the second-year of a planned 
five-year program to expand significantly the capacity and capabilities 
of the NCNR. The program includes the development of a new neutron cold 
source together with a new hall to house the guide tube, modernization 
of the control system, and five new world-class neutron instruments. 
The specific FY 2008 funding will complete construction of the new 
guide hall.

Industrial Technology Services

Hollings Manufacturing Extension Partnership (MEP) ($46.3 million--no 
        change from FY 2007 President's request; -$58.3 million from 
        H.J. Res. 20)
    The MEP program is a partnership between the Federal Government and 
local officials to provide assistance to small and medium-sized 
manufacturers around the country. Surveys taken of companies one year 
after receiving MEP assistance indicate a significant financial benefit 
accrued to the individual company.
    The Federal Government is an important partner in the MEP program. 
Specifically, the Federal Government:

          Develops new services and programs in response to the 
        evolving manufacturing environment and propagates them 
        throughout the network;

          Evaluates and ensures high-quality performance of 
        every member of the network; and

          Ensures that small manufacturers remain the focus of 
        the effort.

    The above federal role can be accomplished within the requested 
budget. The reduction of federal funds to the local centers may have to 
be compensated through a combination of increased fees derived from the 
benefits accrued by individual companies and cost-savings in the 
operations of the centers.

Advanced Technology Program (ATP) ($0--no change from FY 2007 
        President's request)
    No funds for ATP are requested in the President's FY 2008 budget. 
The FY 2006 enacted budget and the 109th Congress' House mark and 
Senate Appropriations Committee mark were consistent with the phase-out 
of the ATP program. The last new awards were made in 2004 and 
sufficient funds were available in the carryover to complete all awards 
and provide government oversight.
    The FY 2007 Joint Resolution (H.J. Res. 20) recently passed by the 
House included funding for the ATP program. If enacted, NIST will work 
with Congress to ensure the funds are executed in the most effective 
manner to promote U.S. industry's competitiveness.

Summary

    Measurements and standards are the bedrock upon which any economy 
stands. Our founding fathers recognized this. The Constitution assigns 
the Federal Government responsibility to both issue money and to ``fix 
the standards of weights and measures.'' The two are actually more 
similar than they might seem at first glance.
    All economic transactions rest fundamentally on trust--trust 
between two parties that a given amount of something is worth a given 
amount of something else. Helping to create that trust for innovative 
new technologies is the common theme that runs through all of NIST's 
proposed FY 2008 research initiatives. Each helps build a missing or 
inadequate measurement base--a rigorous, accepted way of quantitatively 
describing something--that improves confidence in scientific results or 
improves the quality, reliability or safety of innovative products. 
Recent NIST measurements and standards research have enabled 
innovations now embedded in the iPod, body armor currently saving the 
lives of domestic law enforcement officers and our service men and 
women overseas, and in diagnostic screening devices for cancer patients 
making their treatment more targeted and accurate. The results of NIST 
research can be found in virtually every manufacturing and service 
industry.
    For nearly 106 years, NIST research has been critical to our 
nation's current and future competitiveness. The increased funding in 
the President's FY 2008 budget for the NIST core will directly support 
technological advances in broad sectors of the economy that will quite 
literally define the 21st century--as well as improve the safety and 
quality of life for all our citizens.

                     Biography for William Jeffrey
    Dr. William Jeffrey is the 13th Director of the National Institute 
of Standards and Technology (NIST), sworn into the office on July 26, 
2005. He was nominated by President Bush on May 25, 2005, and confirmed 
by the U.S. Senate on July 22, 2005.
    As Director of NIST, Dr. Jeffrey oversees an array of programs that 
promote U.S. innovation and industrial competitiveness by advancing 
measurement science, standards, and technology in ways that enhance 
economic security and improve quality of life. Operating in fiscal year 
2006 on a budget of about $930 million, NIST is headquartered in 
Gaithersburg, Md., and has additional laboratories in Boulder, Colo. 
NIST also jointly operates research organizations in four locations, 
which support world-class physics, cutting-edge biotechnology, and 
environmental research. NIST employs about 2,800 scientists, engineers, 
technicians, and support personnel and has extensive cooperative 
research programs with industry, academia, and other government 
agencies. Its staff is augmented by about 2,500 associates and visiting 
researchers from industry and universities.
    Dr. Jeffrey has been involved in federal science and technology 
programs and policy since 1988. Previous to his appointment to NIST he 
served as Senior Director for Homeland and National Security and the 
Assistant Director for Space and Aeronautics at the Office of Science 
and Technology Policy (OSTP) within the Executive Office of the 
President. Earlier, he was the Deputy Director for the Advanced 
Technology Office and Chief Scientist for the Tactical Technology 
Office with the Defense Advanced Research Projects Agency (DARPA). 
While at DARPA, Dr. Jeffrey advanced research programs in 
communications, computer network security, novel sensor development, 
and space operations.
    Prior to joining DARPA, Dr. Jeffrey was the Assistant Deputy for 
Technology at the Defense Airborne Reconnaissance Office, where he 
supervised sensor development for the Predator and Global Hawk Unmanned 
Aerial Vehicles and the development of common standards that allow for 
cross-service and cross-agency transfer of imagery and intelligence 
products. He also spent several years working at the Institute for 
Defense Analyses performing technical analyses in support of the 
Department of Defense.
    Dr. Jeffrey received his Ph.D. in astronomy from Harvard University 
and his B.Sc. in physics from the Massachusetts Institute of 
Technology.

    Chairman Wu. Thank you, Dr. Jeffrey.
    Dr. Williams.

   STATEMENT OF DR. R. STANLEY WILLIAMS, SENIOR HP FELLOW IN 
     QUANTUM SCIENCE RESEARCH, HEWLETT-PACKARD CORPORATION

    Dr. Williams. Chairman Wu and Representative Gingrey, I 
thank you for this opportunity to testify before you today on 
behalf of ASTRA, the Alliance for Science and Technology 
Research in America.
    Benjamin Franklin, often called the ``first American,'' was 
also the first American scientist. He understood that science 
was not just a pastime to demonstrate wealth or satisfy 
curiosity, but rather a force that could generate wealth and be 
utilized for the public good. Franklin performed careful 
experiments to characterize electrical phenomena. He was the 
first to understand the nature of electrical conduction and he 
utilized his knowledge to invent the lightning rod, which was 
one of the most important technical advances of his day. Thus, 
Franklin created the distinctly American paradigm for 
technological innovation: If you measure something that has 
never been quantified before, you can discover something that 
has never been known before, which enables you to invent 
something, which has never existed before. He said, ``An 
investment in knowledge always pays the best interest.''
    Over a period of nearly two centuries, American 
technological innovation has been the primary source of our 
wealth in this country. ASTRA was founded in 2000 to work on 
behalf of and provide a more effective voice for industry, 
academia, and professional associations involved in the 
technology enterprise. Our members represent an underlying 
constituency of more than 2.4 million scientists and engineers 
in the United States who work every day to build a stronger 
America.
    The focus of today's testimony is NIST. And I gratefully 
acknowledge the extensive collaborations that Hewlett-Packard, 
in general, and my research group, in particular, have enjoyed 
with NIST scientists. ASTRA strongly endorses the doubling of 
the NIST budget because of its unique role and strategic 
importance to our country's research ecosystem.
    The mission of NIST is to promote U.S. innovation and 
industrial competitiveness by advancing metrology, standards, 
and technology to enhance economic security and improve our 
quality of life. As a government agency, it does so objectively 
without favor or advantage to any preferred technology or 
enterprise. Unfortunately, the essential role NIST plays in 
enabling the competitiveness of American industry has often 
been under-recognized.
    Among other activities, NIST develops and improves 
measurement technologies, supplies critical reference standards 
used across industries to calibrate their products and 
services, and from my point, most importantly, provides 
verified and reliable technical data to the scientific 
community. NIST scientists act as a critical check on the often 
conflicting and confusing claims coming out of various research 
labs. I consider these activities to be the core of the NIST 
mission and the keystone for technological innovation. Before 
we can discover and invent today, we must measure with 
extraordinary precision and trust the results.
    I compliment NIST on the extent of its efforts to 
understand and respond to the needs of industry and on the 
quality of its oversight programs. However, it is my 
observation that the scientific staff at NIST are now 
overwhelmed by their responsibilities. The number of new 
program areas that have been added to the NIST portfolio has 
really exceeded their funding increases. This mission creep has 
stretched the staff and slowed their ability to respond. In 
some cases, it has taken several years to complete key 
measurements, which can make them less valuable in an era of 
rapid technological change.
    In order to respond to new opportunities, NIST scientists 
often have to compete for grant funding from other federal 
agencies. While such activities can meet important governmental 
needs, the need for such activities should be an exception.
    ASTRA strongly recommends that all current NIST missions 
and programs, including the newly-created NIST Center for 
Nanoscale Science and Technology, the ATP and the MEP should be 
adequately funded and supported by Congress and the 
Administration under the doubling initiative. These programs 
are sound investments with high potential returns for American 
taxpayers. We should resist the temptation of adding new 
responsibilities, especially unfunded ones in 2008 and the 
future until we can be certain that the current missions will 
be adequately served. An important issue to realize here is 
that during the next five years, the amount of scientific 
information that we will accumulate will double. In other 
words, we will learn as much about science over the next five 
years as we have over all of human history. So we somehow need 
to keep up with this information glut and make it something 
that we can internalize and understand and utilize.
    NIST must attract and hire a continuous stream of world-
class researchers in order to carry out its mission. The three 
Nobel Prizes awarded to NIST staff in the past years 
demonstrate the quality of the current staff and have brought 
overdue recognition to NIST. However, in my view, the current 
climate at NIST is strained with the technical staff having to 
work harder and longer to accomplish less. The budget doubling 
should be accomplished in a manner that the research, support, 
and infrastructure is improved to make the current staff more 
flexible and productive, which will, in turn, attract new 
scientific stars to the NIST staff.
    In summary, ASTRA believes that NIST must maintain its 
world leadership in metrology and understanding the 
infrastructure of emerging technologies in order for the United 
States to remain technologically and economically competitive. 
Nanotechnology, I think, is an ideal area of focus because of 
the tremendous potential of economic rewards and the acute 
demand it places on metrology.
    NIST holds the key to American technological innovation and 
competitiveness. Today, more than ever, exquisite measurement 
is necessary for discovery and invention.
    I thank you for this opportunity to speak to you today on 
these important issues.
    [The prepared statement of Dr. Williams follows:]
               Prepared Statement of R. Stanley Williams
    Chairman Wu, Representative Gingrey and distinguished Members of 
the House Subcommittee on Technology and Innovation; I thank you for 
this opportunity to testify before you today on behalf of ASTRA, the 
Alliance for Science and Technology Research in America. My name is 
Stan Williams, and I am a Hewlett-Packard Senior Fellow and the 
founding Director of H-P's Quantum Science Research Group in Palo Alto, 
California. Our laboratory was created in 1995 at the behest of David 
Packard to prepare HP for the major challenges and opportunities ahead 
in electronic device technology as feature sizes continue to shrink to 
the nanometer scale, where quantum mechanics dominates the behavior of 
matter.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


I. Background

    Benjamin Franklin has been called by many people the ``first 
American.'' He was also the first American scientist of world renown. 
Franklin understood that science was not just a pastime to demonstrate 
wealth or satisfy curiosity, but rather a force that could generate 
wealth and be utilized for the public good. He performed careful 
experiments to characterize electrical phenomena: he was the first to 
understand the nature of electrical conduction and he utilized his 
knowledge to invent the lightning rod. Thus, Franklin created the 
distinctly American paradigm for technological innovation: If you 
measure something that has never been quantified before, you can 
discover something that has never been known before, which enables you 
to invent something that has never existed before. He was also 
prescient about the funding of research when he said ``An investment in 
knowledge always pays the best interest.''

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Over a period of two centuries, technological innovation became the 
goose that laid the golden eggs for American society. Inventions such 
as the telephone, light bulb, radio, phonograph, vacuum tube, 
transistor, laser, and integrated circuit, among many others, have 
created huge industries that employ our citizens, improve our lives, 
and supply a large fraction of the tax dollars collected by the U.S. 
Government.
    However, toward the end of the last century, we started to become 
complacent and neglectful. Our wonderful goose was slowly being 
starved, and the consequences of that were alarming indeed. This 
situation brought scientists like me to Washington in a new role--
rather than trying to obtain a research grant, we had to learn to 
represent the entire scientific enterprise in the annual budgetary 
process so familiar to you but foreign to us.
    ASTRA was founded in 2000 to work on behalf of, and provide a more 
effective voice for, industry, academe, and professional and trade 
associations involved in the technology enterprise. Our members, in 
turn, represent an underlying constituency of more than 2.4 million 
scientists and engineers in the United States. We have had the pleasure 
of working with many of you on bipartisan efforts over the years, and 
together we have accomplished a great deal. But as you know, this work 
is never done, and there have been a significant number of emergencies 
and distractions that have prevented us from reaching our goals.
    We must succeed in revitalizing the math, physical science and 
engineering infrastructure of the United States. The cost of failure is 
too grim to contemplate. One necessary component of this revitalization 
is the doubling of the budgets of the National Science Foundation, the 
Department of Energy's Office of Basic Energy Sciences, Department of 
Defense 6.1 research and the National Institute of Standards and 
Technology, preferably on a five-year time frame. We must do this 
before we lose an entire generation of American scientists and 
engineers and become completely reliant on other countries for our 
technology. I have appended several graphs to my presentation to 
illustrate the situation we face today, especially in the context of 
global competition.
    The primary focus of today's testimony is NIST. I gratefully 
acknowledge the extensive collaborations that HP in general, and my 
research group in particular, have enjoyed with NIST scientists over 
the years, and the crucial contributions they have made to American 
industry. ASTRA has paid special attention to NIST because of its 
unique role and strategic importance to our country's research 
``ecosystem.''

II. NIST in Context

    The mission of NIST is ``To promote U.S. innovation and industrial 
competitiveness by advancing measurement science (or metrology), 
standards, and technology in ways that enhance economic security and 
improve our quality of life.'' As a government agency, it does so 
objectively, without favor or advantage to any preferred technology or 
enterprise. NIST has been described before this committee--by 
representatives of both Republican and Democratic Administrations--as 
the ``crown jewel of the federal laboratories,'' since it is recognized 
as the broadest and strongest national metrology institution in the 
world. Unfortunately, the essential role NIST plays in enabling the 
competitiveness of American industry has often been under-
recognized.[1]
    Among other activities, NIST develops and improves measurement 
technologies, supplies critical reference standards used across 
industries to calibrate their products and services, and provides 
verified and reliable technical data to the scientific community. NIST 
scientists act as a critical check on the often conflicting claims 
coming out of various research labs on the discovery of new phenomena. 
In our group at HP, we consider it to be the ultimate validation of our 
claims when NIST scientists reproduce our experimental results. We are 
eager to collaborate with NIST to ensure our measurements are as good 
as they can be. These activities are the keystone for technological 
innovation--before we can discover and invent today, we must measure 
with extraordinary precision and trust the results.
    Metrology is also an essential enabler of standards, especially 
those standards that describe the properties and performance of 
products. A customer can make wise choices among competing products 
only when the specifications of those products are determined 
accurately, using the same or consistent methods.[2]

III. The Need for Additional Resources and Avoiding Mission Creep

    I would like, first of all, to compliment NIST on the extent of its 
efforts to understand and respond to the needs of its industrial 
constituency and on the quality of its oversight programs. These 
efforts start at the highest levels of NIST management, with the 
statutory (15 U.S.C. 278) NIST Visiting Committee on Advanced 
Technology (VCAT). VCAT members are high level executives and managers, 
two-thirds of whom must, by law, represent U.S. industry. They advise 
the NIST Director on broad policy issues and report their views to the 
Secretary of Commerce and Congress.
    For more detailed advice, NIST contracts with the National Research 
Council (NRC) to review, annually and in depth, the technical direction 
of its individual scientific programs. The results of this review are 
reported to NIST staff at all levels, and are publicly available 
through the NRC. And as in many large organizations, each 
organizational unit of NIST develops its own strategic and tactical 
plans.
    Recently there has been a noteworthy effort at NIST to structure 
its knowledge of industrial measurement needs. The first result was a 
special report issued last year called ``An Assessment of the United 
States Measurement System: Addressing Measurement Barriers to 
Accelerate Innovation.'' NIST should be commended for this proactive 
effort to understand measurement needs and to promote greater dialog 
with industry.
    All this said, it is my observation that the scientific staff at 
NIST are now overwhelmed by the volume of work that they face. In the 
past, the number of new programs and responsibilities that have been 
added to the NIST portfolio has dramatically over-reached their funding 
increases. This mission creep has stretched the staff very thin, and 
has made their response time quite long.[3]
    In some cases, it has taken several years to complete key 
measurements, which can make them ineffectual in an era in which a new 
technology can become obsolete in a single year. Some projects have 
taken so long they have not survived reorganizations or staff 
reassignments. In order to respond to new opportunities, NIST 
scientists often have to compete for grant funding from other 
government agencies, which creates even more demands on their time.
    According to the NIST web site, in FY 2006, roughly 25 percent of 
the approximately $520 million NIST expended for Scientific and 
Technical Research and Services was from such contracts. While these 
activities can meet important governmental needs, they diminish the 
Institute's flexibility in responding to the industrial priorities it 
identifies. Dependence on such short-term funding also diminishes the 
opportunity to plan long term programs of broader benefit.
    Thus, ASTRA strongly recommends that all current NIST missions and 
programs, including the newly created NIST Center for Nanoscale Science 
and Technology, the Advanced Technology Program and the Hollings 
Manufacturing Extension Partnership (MEP) Program, should be adequately 
funded and supported by Congress and the Administration under the 
``doubling'' initiative. These programs are sound investments with high 
potential returns for American taxpayers, and should be seen in the 
context of managing a vital portfolio of assets and talents for the 
country's economic and security needs. We must resist the temptation of 
adding any new programs in 2008 to justify the increase in funding 
until we know that current missions are adequately served.

IV. Construction and Facilities

    I am pleased to note that $94 million of the NIST budget proposal 
for FY 2008 is devoted to ``Construction and Research Facilities,'' 
roughly half for maintenance and repairs and the remainder for new 
construction. Most of the facilities on the NIST Gaithersburg campus 
date from the 1960's and all of the facilities on the Boulder campus 
date from the 1950's.
    All too often, maintenance and repairs are deferred year after year 
in difficult budget times, leading to buildings and facilities that are 
obsolete. When most of the current buildings were dedicated, nobody 
anticipated the manipulation of matter atom-by-atom or metering of 
light photon-by-photon. Such research requires facilities with extreme 
mechanical and thermal stability. The proposed state-of-the-art 
facilities will enable NIST to meet these and other emerging industrial 
needs.

V. NIST Involvement with Industry Must be Maintained and Expanded

    Something that makes NIST exceptional among federal laboratories is 
the extent of involvement by NIST staff in industry activities and 
industrial researchers in NIST. Historically, NIST management has 
encouraged staff at all levels to participate in technical conferences 
and the activities of professional societies and trade associations, 
and through these activities to become well informed about industrial 
trends and measurement needs. Even more importantly, it empowers staff 
to act on what they learn, providing channels through which any 
professional staff member can propose and advocate new projects. This 
culture of gathering information and acting on it is effective, and it 
is essential that it be maintained.
    An example of NIST collaboration with industry is its participation 
in the International Technology Roadmap for Semiconductors. The roadmap 
process brings together over 800 experts from around the world to 
identify technical barriers that would prevent continued advances in 
semiconductor technology. Almost three quarters of the roadmap 
participants are from industry, with the remainder from universities, 
research institutes and consortia, and from government. NIST co-chairs 
and has four scientists on the Metrology technical working group, and 
also has experts on the Emerging Research Devices and Materials, 
Assembly and Packaging, Factory Integration, and RF for Wireless 
working groups. Through this interaction, NIST is very familiar with 
the industry's needs and can direct internal NIST metrology research to 
address these challenges. NIST should continue to host user facilities 
for both academic researchers and industry. Areas like the neutron 
facility for materials testing and the new nano metrology laboratory 
should be user friendly without a lot of bureaucratic interference.

VI. Future NIST Staffing and Workforce Development

    NIST must attract and hire a continuous stream of world-class 
researchers in order to carry out its mission and to maintain its 
position as the premier metrology institute in the world. The three 
Nobel prizes awarded to NIST staff in the past ten years demonstrate 
the quality of the current staff, and have brought overdue recognition 
to NIST. However, the current climate at NIST is strained, with the 
technical staff having to work harder and longer to accomplish less. 
The budget doubling should be accomplished in a manner that the 
research support and infrastructure is improved to make the staff more 
flexible and productive, rather than erecting barriers and increasing 
red tape.

VII. Conclusion

    In summary, ASTRA would like to see NIST maintain its world 
leadership in researching and understanding the infrastructure of 
emerging technologies. Increased funding and proper planning executed 
now will give our country vital resources that it will need to remain a 
major competitive force in the world economy.
    The range of activities at NIST is quite broad and it should remain 
so. The example of nanotechnology is an ideal area to focus on because 
of the tremendous potential it has for the U.S. to be very competitive 
in a new field and the extreme demands it places on metrology. However, 
we have to ensure that NIST can perform its current responsibilities 
before tacking on any more.
    Finally, there will always be debate in the science and engineering 
community over the details of how NIST should best use additional 
resource. In any case, ASTRA recognizes the need for increased support 
at NIST and is pleased that Congress and the Administration have 
recognized the importance of metrology. And we fervently hope that 
Congress will be able to provide NIST with the funds requested as we 
embark upon this exciting journey.
    NIST holds the key to American technological innovation and 
competitiveness--measurement is necessary discovery and invention.
    I thank you for the opportunity to speak to you today on these 
important issues.

Footnotes

1.  Example of How Advances in Metrology Boost U.S. Competitiveness

    As conventional integrated electronics continue to shrink, our 
ability to continue to increase the performance of the circuits on each 
chip is on a collision course with the laws of physics. A good example 
of the importance of advances in the science of metrology is offered by 
the recent HP announcement of research that could lead to integrated 
circuits with eight times the logic density of current chips without 
having to shrink the transistors on the circuit. In a paper that I 
published with Greg Snider in the January 24 issue of Nanotechnology, a 
publication of the British Institute of Physics, we documented how a 
nanoscale crossbar switch structure could be layered on top of a 
conventional layer of transistors to create significantly more capable 
field programmable gate arrays (FPGAs). A FPGA is a type of 
semiconductor chip that can be adapted by end-users for specific 
applications, and is used in a wide range of industries, including 
communications, automotive and consumer electronics.
    To actually produce this chip in the lab, and then to introduce it 
into the commercial marketplace requires numerous measurements, 
including the width and alignment of the crossbars, the electrical 
characteristics of the connection between the crossbar and the 
conventional semiconductor device, and the presence of defects in the 
crossbar and substrate material. In our paper, we presented a chip 
model using 15-nanometer-wide crossbar wires which could be 
technologically viable by 2010, and a model based on 4.5-nanometer-wide 
crossbar wires, which could be ready by 2020. To shrink the crossbars 
and connect them to the semiconductor devices will require improvements 
in the accuracy of all of the required measurements. NIST metrology 
research is absolutely essential if we are to continue to improve our 
electronic circuits at the traditional rates that have made America the 
leader in this technology.

2.  Semiconductor Industry of Association Written Testimony for this 
Hearing

    Written testimony submitted to this hearing by the Semiconductor 
Industry Association, an ASTRA Founding Member, discusses other 
measurements needed to continue to increase the circuit density on each 
semiconductor chip, the productivity and competitiveness effects 
resulting from these advances, the industry-university-government 
collaboration through the Nanoelectronics Research Initiative to find a 
new technology to replace our current semiconductor logic switch, and 
NIST's role in keeping U.S. leadership in this area.

3.  Concern About NIST Workforce Preparedness and New Missions

    In my capacity representing ASTRA (and not H-P), I would like to 
express concern about NIST moving into fields in which they have no 
history or prior expertise (e.g., climate science and geophysics), and 
which are arguably outside of NIST's mission in support of American 
industry. The fact that current NIST staff are stretched too thin might 
exacerbate the problem. NIST reliance on contract workers and guest 
researchers can be a two-edged sword. Such reliance may enable 
``scalability'' for project needs, but also create an impermanence and 
ad hoc nature to NIST as an institution. Currently, contract worker and 
guest researcher numbers are almost as large as the permanent S&T 
staff.
    According to public reports, NIST currently has a staff of about 
2,800--roughly half of whom are professionals in science and 
technology. In addition, about 1,200 guest researchers and contractors 
work at NIST. Though the guests and contractors are professionals who 
bring creativity and energy to the Institute, they are unable to 
participate in inherently governmental functions, such as measurement 
services performed for the public.
    Neither can they participate in research under Cooperative R&D 
Agreements (CRADAs) with private sector collaborators, an important 
vehicle by which NIST research is transferred to industry.
    In terms of our concern about ``mission creep,'' all of which are 
laudable goals, ASTRA cites the agency's own Web Site which identifies 
five new initiatives which have been added to the Fiscal Year 2008 
Budget Request as well as 12 Initiatives described in the FY 2007 
Budget. They are:

Major components of the '08 budget request include five new initiatives 
in the following areas:

         Enabling Nanotechnology from Discovery to Manufacture (+$6 
        million)

         Measurements and Standards for the Climate Change Science 
        Program (+$5 million)

         Enabling Innovation Through Quantum Science (+$4 million)

         Disaster Resilient Structures and Communities (+$4 million)

         National Earthquake Hazards Reduction Program (+$3.25 million)


Plus continuation of 12 initiatives previously described in the FY 2007 
budget:

         Enabling Nanotechnology from Discovery to Manufacture

         NIST Center for Neutron Research Expansion and Reliability 
        Improvements: A National Need

         Enabling the Hydrogen Economy

         Manufacturing Innovation through Supply Chain Integration

         Quantum Information Science: Infrastructure for 21st-Century 
        Innovation

         Structural Safety in Hurricanes, Fires, and Earthquakes

         Synchrotron Measurement Science and Technology: Enabling Next 
        Generation Materials Innovation

         International Standards and Innovation: Opening Markets for 
        American Workers and Exporters

         Innovations in Measurement Science

         Bioimaging: A 21st-Century Toolbox for Medical Technology

         Cyber Security: Innovative Technologies for National Security

         Biometrics: Identifying Friend or Foe

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
                   Biography for R. Stanley Williams
    R. Stanley Williams is an HP Senior Fellow at Hewlett-Packard 
Laboratories and founding Director (since 1995) of the HP Quantum 
Science Research (QSR) group, which currently has over 50 scientists 
and engineers working in areas of fundamental physical sciences. There 
are five active HP Senior Fellows out of a total technical staff of 
40,000 at Hewlett-Packard. The QSR was established to prepare HP for 
the major challenges and opportunities ahead in electronic, photonic 
and mechanical device technology as features continue to shrink to the 
nanometer size scale, where quantum mechanics becomes important.
    He received a B.A. degree in Chemical Physics in 1974 from Rice 
University and his Ph.D. in Physical Chemistry from U. C. Berkeley in 
1978. He was a Member of Technical Staff at AT&T Bell Labs from 1978-80 
and a faculty member (Assistant, Associate and Full Professor) of the 
Chemistry Department at UCLA from 1980-1995. His primary scientific 
research during the past thirty years has been in the areas of solid-
state chemistry and physics, and their applications to technology. This 
has evolved into the areas of nanostructures and chemically-assembled 
materials, with an emphasis on the thermodynamics of size and shape.
    Most recently, he has examined the fundamental limits of 
information and computing, which has led to his current research in 
nano-electronics and nano-photonics. He has received awards for 
business, scientific and academic achievement, including the 2004 Joel 
Birnbaum Prize (the highest internal HP award for research), the 2003 
Herman Bloch Medal for Industrial Research, the 2000 Julius Springer 
Award for Applied Physics, the 2000 Feynman Prize in Nanotechnology, 
the Dreyfus Teacher-Scholar Award and the Sloan Foundation Fellowship.
    He was named to the inaugural Scientific American 50 Top Technology 
leaders in 2002 and then again in 2005 (the first to be so named 
twice), and the molecular electronics program he leads was named the 
Technology of the Year for 2002 by Industry Week magazine.
    In 2005, the U.S. patent collection that he has assembled at HP was 
named the world's top nanotechnology intellectual property portfolio by 
Small Times magazine, and the Chinese Academy of Science voted the 
crossbar latch as the number three scientific breakthrough of the year 
(behind the Cassini and Deep Impact space missions). He was a co-
organizer and co-editor of the workshop and book ``Vision for 
Nanotechnology in the 21st Century,'' respectively, that led to the 
establishment of the U.S. National Nanotechnology Initiative in 2000.
    He has been awarded fifty-two U.S. patents with more than forty 
more pending, he has published over 280 papers in reviewed scientific 
journals, and he has written several general articles for technical, 
business and general interest publications (including an article in the 
Nov. 2005 issue of Scientific American). One of his patents was named 
as one of five that will ``transform business and technology'' by MIT's 
Technology Review in 2000.
    Williams has presented hundreds of invited plenary, keynote and 
named lectures at international scientific, technical and business 
events, including the 2003 Joseph Franklin Lecture at Rice University, 
the 2004 Debye Lectures at Cornell University, the 2004 Herman Bloch 
Lecture at the University of Chicago, and the 2005 Carreker Engineering 
Lecture at Georgia Tech.

    Chairman Wu. Thank you, Dr. Williams.
    Mr. Borrus.

   STATEMENT OF MR. MICHAEL BORRUS, GENERAL PARTNER, X/SEED 
                            CAPITAL

    Mr. Borrus. Mr. Chairman, distinguished Members of the 
Congress, and staff members, for reasons I will describe in a 
moment, I created X/Seed to focus on a sorely-neglected part of 
early-stage capital markets, the so-called seed stage, which is 
typically the first money raised by entrepreneurs to start a 
new business to begin to transition an idea, a rudimentary 
technology, out of the laboratory toward the commercial 
marketplace. My typical investment involves two entrepreneurs 
and ten PowerPoint slides, and not much else.
    I also want to call the Committee's attention to several 
other parts of my background, because they are relevant to my 
testimony today.
    Prior to entering the venture capital industry, I spent a 
little over half a decade as a start-up entrepreneur. And for 
over a decade before that, I was at UC-Berkeley on the 
engineering faculty where my work focused on emerging new 
technologies, the commercialization of innovation, and related 
policy.
    My testimony is based on my experience in all of those 
domains: studying, doing, and now investing in high-risk, early 
technological innovation.
    As I have been asked to comment on the ATP program, I would 
also call the Committee's attention to the fact that I 
currently serve on the external industry Advisory Committee to 
ATP, and I previously served on the National Academy's Steering 
Committee on Government and Industry Partnerships, which issued 
two very detailed analysis reports on the ATP program in 1999 
and then again in 2001.
    I have three simple points to make. I will make them 
briefly, and they all lead to one conclusion.
    First, significant changes over the last 15 years in early-
stage capital markets in the United States create, in my view, 
an urgent need for the ATP to be continued and for it to be 
substantially funded so that it can run new competitions.
    The most significant change in those markets is this: as 
the venture capital has grown and matured, the bulk of that 
industry has moved away from seed-stage investing to invest 
later in the life cycle of a start-up. When large amounts of 
capital can be efficiently deployed to permit companies to 
expand later on, at the point in which companies already have 
products developed typically may actually have initial sales. 
That drift-away from early-stage funding has created a paradox. 
There is plenty of capital available to expand company 
operations, but there is too little capital available at the 
riskiest moment in a start-up's life, at the very beginning 
when only an idea, a concept, or a rudimentary technology 
exists and needs to be transitioned out of the lab, across the 
so-called ``valley of death,'' and toward the commercial 
marketplace. Very few organized financing mechanisms of 
sufficient scale exist to address that problem. That, frankly, 
is why X/Seed Capital exists. And that, frankly, is also ATP's 
historical sweet spot, and there is plenty of room for both of 
us.
    That leads to my next point: why ATP?
    ATP is, quite likely, the most intensively studied, 
rigorously scrutinized, and carefully assessed U.S. technology 
program of the last 50 years at least. As the National 
Academy's reviews concluded, ``ATP is an extremely well-run 
program that works and works well.'' Several of its program 
features, notably its rigorous peer-reviewed, pork-free, merit-
based competitions, its emphasis on cost sharing, its rigorous 
self-assessment, and its measured return on investment set the 
standard to which other federal technology programs ought to 
aspire, which leads to my third point.
    As the Committee knows, as a nation, we face a series of 
major challenges to which continued innovation is the best 
response. These include the need to move to carbon-neutral 
alternative energy technologies to maintain energy security for 
this country; escalating health care costs driven by an aging 
population, one increasingly prone to chronic long-term 
illnesses, like diabetes; the competitive rise as technological 
challengers of China, India, and other advanced economies; and 
not least, the concomitant erosion of U.S. technological 
leadership in a number of significant areas. In addressing 
these challenges why reinvent the wheel? Leverage a program 
that historically has helped to produce significant innovation 
and that works and works well. Use ATP.
    That leads to my conclusion.
    As a result of those arguments, I recommend that Congress 
should reauthorize the ATP program, provide sufficient funding 
for ATP to run several competitions, both general and specific 
competitions focused in areas of acute need, like the search 
for carbon-neutral alternative energy technologies, and picking 
up on your opening remarks, Mr. Chairman, I believe the 
Committee should consider ways that ATP might be stably and 
predictably funded over a long enough timeframe, perhaps a 
decade, to have a significant impact over time.
    Thank you very much.
    [The prepared statement of Mr. Borrus follows:]
                  Prepared Statement of Michael Borrus
Distinguished Members of Congress:

    I am Michael Borrus, founding General Partner of X/Seed Capital, a 
seed-focused early stage venture fund based in California's Silicon 
Valley. I have been asked to give my views on the Advanced Technology 
Program (ATP) at NIST, a program that, since its inception, I have 
studied closely--first as a UC-Berkeley faculty member focused on 
emerging technologies, technology markets and policy, then as an 
entrepreneur at an innovative start-up, and now as a very early-stage 
(so-called ``seed-stage'') venture capital investor focused on 
breakthrough innovation. Those experiences provide an informed 
perspective on ATP and color this testimony. You should also note that 
I currently serve on the external industry Advisory Committee to ATP 
and that I previously served on the National Academies' steering 
Committee on Government-Industry Partnerships, chaired by Intel founder 
Gordon Moore, which issued two detailed evaluations of the ATP program 
in 1999 and 2001.\1\
---------------------------------------------------------------------------
    \1\ National Research Council, Committee on Government-Industry 
Partnerships Review of ATP, Washington, D.C.: National Academy Press, 
2001. In addition to the papers and proceedings in that volume, the 
Committee issued National Research Council, The Advanced Technology 
Program: Challenges and Opportunities, Washington, D.C.: National 
Academy Press, 1999.
---------------------------------------------------------------------------

Summary Conclusions

          Significant changes over the last 15 years in early 
        stage capital markets in the U.S.--in particular, an 
        institutional drift away from very risky, seed stage funding by 
        private venture capital investors--create an urgent need for 
        the ATP to be continued, for substantial funding to be restored 
        so that ATP can run new competitions, and for it to be stably 
        funded for the foreseeable future.

          The ATP is quite likely the most intensively studied, 
        rigorously scrutinized and carefully assessed U.S. technology 
        program of the past 50 years. The overwhelming consensus of 
        such painstaking analysis, as of the prior NRC reviews, is 
        easily summarized: ATP is an extremely well run program that 
        works and works very well.\2\ Indeed, ATP boosts several unique 
        features that permit it to set the standard among federal 
        technology programs. It is, for example, the only federal 
        technology program that actually measures its economic return 
        to the Nation.\3\
---------------------------------------------------------------------------
    \2\ In addition to the NRC studies, Ibid., see the numerous 
evaluations referenced therein.
    \3\ See the discussion at http://www.atp.nist.gov/factsheets/1-a-
1.htm and the source cited there, suggesting at least $18 billion in 
present value social benefits from 40 ATP projects (over 8X ATP's total 
investment over the full life of the program).

          As an especially well-run federal technology program 
        targeted at areas of market failure and long-term national 
        needs, a restored ATP has a vital role to play and can be an 
        essential element in the broader American response to global 
        changes in technology markets, in climate, in energy security, 
        and in the U.S. competitive position in the global economy. 
        Indeed, given the stakes, a restored ATP with increased, stable 
        funding is in fact the most prudent, cautious and conservative 
        approach for it risks the least: By contrast, failing to fund 
        ATP risks sacrificing American opportunities for technical 
        advance and the long-term economic growth and productivity 
---------------------------------------------------------------------------
        gains it produces.

          For all of these reasons, I believe that Congress 
        should re-authorize the ATP program, provide sufficient funding 
        for ATP to run several competitions focused around areas of 
        acute need or promise in such areas as carbon-neutral 
        alternative energies and energy storage, and consider ways that 
        ATP might be stably and predictably funded over the next 
        several years to maximize its contribution to the Nation.

    Let me now touch on key aspects of these summary points.

Seed financing

    There is a paradox in today's venture capital markets: There is 
simultaneously too much venture capital and too little. There is too 
much venture capital available once early stage risk has been reduced 
and start-ups seek capital for expansion. However, there is too little 
venture capital available for the riskiest, de novo start-up phase of a 
new venture's life. That `seed' stage--when an entrepreneur may have a 
good idea, some scientific validation and at best only a rudimentary 
technology--is typically when potential innovations are transitioned 
out of the lab and toward the commercial marketplace. It is when they 
must navigate the gap in seed-stage funding dubbed by many analysts as 
the `valley of death'--a classic market failure in early stage 
innovation.\4\
---------------------------------------------------------------------------
    \4\ See, e.g., NIST head and IBM chief scientist, now Harvard 
Professor, Lewis M. Branscomb and Philip E. Auerswald, ``Valleys of 
Death and Darwinian Seas: Financing the Invention to Innovation 
Transition in the United States,'' The Journal of Technology Transfer, 
Volume 28, Numbers 3-4/August, 2003, and sources cited there.
---------------------------------------------------------------------------
    The two parts of this paradox are actually halves of a single 
explanation: In the last 15 years, as the venture capital industry has 
grown in size, venture firms have put more capital under management. 
Managing more capital typically requires deploying more capital in each 
investment, that is, in far larger increments than can be consumed at 
the seed stage by start-ups. The bulk of the venture capital industry 
has consequently drifted away from seed and very early stage financing 
to invest later in more mature stages of a start-up's life when more 
capital is required to expand operations. Data compiled for the 
National Venture Capital Association confirm all of these trends.\5\
---------------------------------------------------------------------------
    \5\ See the last five years of the annual PricewaterhouseCoopers/
National Venture Capital Association MoneyTreeTM Report; in addition, 
the testimony by Jonathan Cohen, founder and CEO of 20/20 GeneSystems, 
at the House Science Committee Hearing on ``Small Business Innovation 
Research: What is the Optimal Role of Venture Capital,'' July 28, 2005; 
Generally, the last 10 years has seen a decline in the percentage of 
venture investments going to seed and early stage and a concomitant 
shift away from higher-risk early-stage funding. See the discussion in 
the introduction in National Research Council, SBIR and the Phase III 
Commercialization Challenge, Charles W. Wessner, Ed., Washington, D.C.: 
The National Academies Press, 2007.
---------------------------------------------------------------------------
    The consequence of these trends is a need for additional sources of 
capital at the seed stage. That is why my fund exists. And that is one 
of the reasons there is a greater need than ever before for ATP, which 
has always focused on filling the seed-stage gap, helping to cross the 
`valley of death.' The need is sufficiently large that there is plenty 
of room for both government and private money--crowding out is just not 
an issue.

Unique ATP features

    One of the reasons ATP works well is that it boosts several unique 
features that ought to be more widely adopted across the broad 
ecosystem of federal technology programs. ATP competitions are peer-
reviewed, pork-free and merit based. The program's public-private cost-
sharing, its demonstrated ability to run multiple competitions, both 
general and focused in areas of acute need, and to run them fast and on 
budget, its detailed, economically sound self-assessment, its measured 
return on investment, its explicit mission to enhance U.S. 
competitiveness through innovation--all set it quite apart from almost 
every other federal technology program.
    So effective are these attributes, that at the same time the Bush 
Administration has sought to kill ATP, it has been widely taken as an 
ideal model and copied by foreign governments from Asia to Eastern 
Europe. These same attributes are one of the reasons the program has so 
effectively played a key role in providing early capital to the 
companies like Affymetrix and SunPower responsible for a wealth of 
valuable new innovation from gene chips, rapid DNA sequencers and cheap 
digital mammography to fuel cells, high-efficiency solar photovoltaic 
cells and novel engineered materials.\6\
---------------------------------------------------------------------------
    \6\ For more detail see the descriptions on the ATP web site at 
http://www.atp.nist.gov/gems/listgems.htm
---------------------------------------------------------------------------
    ATP is sometimes labeled with the profoundly misleading and 
profoundly misinformed characterization of `picking winners and 
losers': That is, frankly, flat wrong. No investor, private or public, 
picks winners and losers in technology innovation. Rather, it is the 
market (customers) that does the picking. By contrast, with ATP and 
other federal technology programs, the government is really helping to 
plant long-term technology seeds in areas of private market failure or 
acute public need. Some of those technology seeds will sprout, others 
will not. But the planting, the activity as a whole, must go forward if 
long-term economic gains are to be effectively harvested.

Global challenges and U.S. innovation

    The U.S. faces numerous competitive challenges globally--among 
then, the rapid technological rise of China, India, and parts of 
Eastern Europe and Latin America, the need to respond to global climate 
change and the concomitant shift to carbon neutral energy sources, 
declining competitive position in certain technologically intensive 
industries.\7\ The only enduring answer to all of these challenges that 
can sustain U.S. leadership and a growing standard of living for future 
Americans, is increased long-term innovation leading to wholly new 
industries and to the transformation of existing industries.\8\ In 
turn, substantial domestic U.S. investment in research and 
development--both public and private--is the prerequisite for that kind 
of innovation.\9\
---------------------------------------------------------------------------
    \7\ On some of these and other challenges see, the National 
Research Council, Rising Above the Gathering Storm, Washington DC: 
National Academies Press, 2006.
    \8\ See Michael Borrus and Jay Stowsky, ``Technology Policy and 
Economic Growth,'' in Lewis Branscomb and James Keller, Editors, 
Investing in Innovation: Creating a Research and Innovation Policy, 
Cambridge, MA: MIT Press, 1998. The contribution of technology to 
economic growth is now well recognized. See P. Romer, ``Endogenous 
Technological Change,'' Journal of Political Economy, 98(5):71-102, 
1990. See also G. Grossman and E. Helpman, Innovation and Growth in the 
Global Economy, Cambridge, MA: MIT Press, 1993.
    \9\ P. Romer, ``Endogenous Technological Change,'' op. cit.; Borrus 
and Stowsky, ``Technology Policy and Economic Growth,'' op. cit. See 
also National Research Council, Allocating Federal Funds for Science 
and Technology, Washington, D.C.: National Academy Press, 1995. The 
report notes that federal investments in R&D have produced enormous 
benefits for the Nation's economy, national defense, health, and social 
well-being. Ibid, p. 3.
---------------------------------------------------------------------------
    For a variety of reasons--enormous uncertainty, the impossibility 
of accurate risk assessment, extreme volatility, appropriability 
problems, among others, very early stage technology capital markets are 
especially prone to numerous market imperfections including herd 
behavior, strategic gaming, information asymmetries, institutional 
structures focused on early liquidity, and the exercise of market 
power. These problems are especially severe for especially risky new 
technical approaches, when intensive collaboration across multiple 
technical disciplines may be essential for technical progress 
(therefore requiring the coordination of disparate technical and market 
actors), and wherever a clear, reasonably short-term path is lacking 
for private market actors to reap sufficient returns from their private 
investment. In those cases, federal technology funding mechanisms have 
historically played an essential role in fostering technical innovation 
to the point where private capital markets can then sustain 
development.
    That is the sweet spot that ATP very effectively addresses. Indeed, 
for reasons described earlier, ATP is uniquely positioned to respond to 
the competitive challenges identified above. It is my strong 
recommendation that Congress re-authorize the ATP program and provide 
sufficient funding for ATP to run several competitions, both general 
competitions and focused competitions in areas of acute need or promise 
such as carbon-neutral alternative energies and energy storage. Given 
the importance of funding stability and predictability to technological 
progress, Congress should also seriously consider ways that ATP might 
be stably and predictably funded over the next decade to maximize its 
contribution to the Nation.

                      Biography for Michael Borrus
    Michael Borrus is the founding general partner of X/Seed Capital, a 
seed-focused early stage venture fund focused on breakthrough 
innovation. Prior to founding X/Seed, he was an Executive in Residence 
(EIR) at Mohr Davidow Ventures (MDV) in Silicon Valley.
    Michael left his faculty position at UC-Berkeley in 1999 to do a 
financial services start-up for the five years prior to joining MDV. He 
was Managing Director of the start-up, The Petkevich Group (TPG), a 
merchant bank providing financial advisory services and investment 
capital to growth companies in life sciences and technology. He led the 
technology banking group at Petkevich & Partners, TPG's broker-dealer 
subsidiary, executing a variety of financial transactions from M&A and 
capital raising to spinouts and bankruptcy reorganization.
    Before TPG, Michael was Adjunct Professor in UC-Berkeley's College 
of Engineering, Co-founder and Co-Director of the Berkeley Roundtable 
on the International Economy (BRIE) at the University of California, 
Berkeley, and a partner in Industry and Trade Strategies, a business 
consultancy. Much of his academic and consulting work has focused on 
how business models need to adjust to successfully commercialize new 
technologies, to exploit new market opportunities or to adapt to new 
competitors.
    He is the author of three books and over 70 chapters, articles and 
monographs on a variety of topics including management of technology, 
high technology competition, international trade and investment, and 
financial strategies for technology companies. He is a frequent speaker 
before corporate and public audiences, and has appeared in numerous 
media outlets from CNN and NPR to Business Week and the New York Times.

Industry Associations: Michael serves on the Advisory Committee to the 
U.S. Government's Advanced Technology Program (ATP), several National 
Academy of Science/National Research Council Steering Committees, the 
Board of Trustees of the National Center for Women and Information 
Technology, and is a Director of HMicro Inc. and Geniisis Agents 
(privately held companies).

Education: Michael is an honors graduate of Harvard Law School, the 
University of California, Berkeley and Princeton University. He is a 
member of the California State Bar.

    Chairman Wu. Thank you very much, Mr. Borrus.
    And I would like to thank all of the panelists to this 
point for both your excellent testimony and for your 
timeliness.
    I would like to announce just a little bit in advance that, 
as is typical of this institution, we are not quite as 
entertaining as a three-ring circus, but we keep at least three 
rings going at any given time, so we do have Floor action going 
on. I have another committee in which, I understand, there will 
be a vote sometime in the next five or ten minutes, so if you 
notice a little shuffling up here, it is not out of disrespect 
for you, but out of a concern for adequately discharging our 
different duties.
    And with that, Mr. Murray.

  STATEMENT OF MR. PETER MURRAY, VICE PRESIDENT, WELCH ALLYN, 
                          INCORPORATED

    Mr. Murray. Thank you, Mr. Chairman.
    I want to thank, also, the Committee Members and staff for 
inviting me here to testify on behalf of MEP. I can see my 
presentation is up, so we are off to a good start.
    [Slide.]
    What I want to talk to you about is the success we have had 
with our local MEP in Oregon, and I will use the term OMEP, 
because that is the acronym, and then briefly go through some 
of the details of the implementation, the success story, a very 
good success story, and then conclude with some observations of 
the funding and what I think it will do to our local chapter 
and project and what I think it will do nationally.
    Again, that is my agenda.
    [Slide.]
    We don't need to see that.
    [Slide.]
    We started with OMEP in 2004. The company was facing some 
serious competitive pressures, and we knew we needed to make 
some changes, and we began casting about to select a partner. 
And we clearly found OMEP to be the group that met our needs. 
And I will speak a little bit more about that later, but 
briefly, that is the timeline.
    [Slide.]
    What I would like to show you now in a few minutes is just 
examples of the engagement work. It is a lot of detail. I just 
want to give you an example of the quality of the work that the 
organization provides. Again, these consultants are very 
tactical and also very strategic. They gave us a lot of 
customized solutions, and I am just going to roll through 
these.
    [Slide.]
    There is a lot of generalized training that is shared among 
all of the clients of OMEP. They develop customized tools. I am 
just going to kind of flip through these a little bit. There 
are examples that are also in the written testimony.
    [Slide.]
    Again, the examples here really are to convey the point 
that they were teaching us how to fish as opposed to giving us 
the fish. These tools are broadly adopted now within our site 
in Oregon as well as spreading into some of our other sites in 
the company.
    [Slide.]
    Again, they gave us tools so that folks in the production 
area or anyone in the company that were using these 
productivity enhancements could use them.
    [Slide.]
    Finally, some of the results that we achieved, as you can 
see up here, these details may not mean much, but they were 
extremely significant to our company. That represents about 
half of the company being trained in two years. Again, part of 
what OMEP brought to us was the ability to develop people with 
ongoing skills and raise their capabilities so that we could 
continue to make these improvements long after our engagement 
with OMEP was completed.
    [Slide.]
    Some of the results that we experienced, as you can see up 
here, a significant labor savings, plenty of reductions, and 
these are very typical results you will see from an MEP 
engagement. Additionally, the company was facing some pressures 
to consolidate a wide variety of sites, and we ended up 
choosing Oregon as one of the sites to consolidate into as a 
result of these competitive improvements that the site had 
made. So not only are we more competitive externally, but we 
are competitive internally.
    I want to make a couple of closing comments.
    When I say, ``Why choose an OMEP?'', why did we decide to 
select an organization such as OMEP, one of the key differences 
between OMEP and some other providers that would give us 
similar kinds of services, I think, are the way the MEPs are 
measured on the clients' results gives them a focus that is 
very much in the interest of the client. I don't know how else 
to say that any more simply.
    Again, this is what is summarized in my testimony: they are 
both hands-on. They are both strategic.
    Finally, let me just wrap up with where I think the funding 
proposal would go. I am also on the board of our OMEP 
affiliate. And I can tell you from personal experience if they 
were faced with this funding reduction that is in the proposal 
from the Administration, it would lead to a drastic reduction 
in services. I think it would reduce the ability to market to 
new clients. It will have a direct impact on the industry. Any 
company facing a significant loss of revenue that this would 
represent would take similar action. And I firmly believe that 
the funding levels should be restored, and hopefully, with 
reason, expanded.
    Thank you very much. I will take any questions.
    [The prepared statement of Mr. Murray follows:]
                   Prepared Statement of Peter Murray

Who we are

    Welch Allyn Monitoring, a division of Welch Allyn, Inc., is located 
in Beaverton, Oregon. The site currently employs approximately 420 
people, up from 270 two years ago. Welch Allyn designs, manufactures, 
and markets mission critical flexible monitoring solutions that improve 
patient care and lower health care operating costs. Welch Allyn is a 
key player in the biomedical device industry in Oregon, nationally, and 
worldwide.
    Our company faces increased and ongoing pressures from domestic and 
foreign competition. Our company was confronted with a critical need to 
increase profitability, quality, and shorten delivery lead times. The 
company also wanted to incorporate additional manufacturing capacity 
from another manufacturing location

How OMEP assisted our company

    Welch Allyn felt they needed outside expertise to achieve these 
objectives and conducted a search of local firms. Welch Allyn decided 
to work with the Oregon Manufacturing Extension Partnership (OMEP), a 
NIST MEP network affiliate, to help us achieve a major operational goal 
of continued improvement of manufacturing processes, systems and 
capacity building. The company views this goal as essential to long-
term financial growth and success. As a corporation, Welch Allyn was 
faced with difficult decisions regarding consolidation of manufacturing 
operations from four different U.S. sites. The Beaverton operation, 
while operating at a high level of quality and capability, sought to 
strengthen the likelihood of not only maintaining but increasing the 
amount of manufacturing at their facility. Welch Allyn needed 
assistance to transforming its entire operation to a culture of 
continuous improvement.
    The overall goal was to create a culture of continuous improvement. 
This was done by starting with Lean manufacturing to obtain a larger 
and more immediate payback. The training and implementation was 
initially focused at the operator level and then expanded throughout 
the organization. OMEP was selected to work closely with Welch Allyn to 
provide classroom training, implementation and support, and guidance to 
help them transform into a Lean enterprise.
    Because of Welch Allyn's size and numerous needs, several processes 
were created to implement their vision of becoming a Lean enterprise.

        1.  A steering committee was created to evaluate opportunities, 
        select Lean projects and Kaizen events, assign resources, and 
        ensure continued focus, and direction. Business needs are 
        clearly established and used to prioritize Lean activities.

        2.  OMEP provided numerous classes to teach the Lean principles 
        and concepts. Principles of Lean, 5S, and Value Stream Mapping 
        were taught as foundation classes. More advanced Lean and 
        leadership classes have helped support the ongoing 
        transformation.

        3.  Specific Lean projects and Kaizen events used Value Stream 
        Mapping to implement ``Future States'' with less waste, 
        increased visibility, better flow, less Work in Process (WIP), 
        higher quality, and increased productivity. Team leaders stayed 
        on track by reporting progress at a weekly accountability 
        meeting where they also obtained help in overcoming roadblocks. 
        OMEP helped Team Leaders learn valuable skills as they prepared 
        and presented their results to company and corporate executives 
        at celebratory ``close-out'' meetings.

        4.  OMEP worked closely with Welch Allyn to establish 
        standards, audits, and a significant metrics program to sustain 
        the gains and to create a continuous improvement environment.

        5.  Throughout the entire process OMEP has been key in 
        developing people within Welch Allyn who can internally drive 
        and support Lean. OMEP has provided significant coaching and 
        mentoring in one-on-one situations. Together, they have 
        developed custom training materials and have shared in 
        providing Lean training.

Results

          Corporate has moved a significant manufacturing 
        operation to Beaverton resulting over 50 new jobs plus an 
        additional 50 jobs from organic growth created in Oregon.

          Operations have expanded into a new facility to 
        accommodate the increased growth. There has been over $600,000 
        invested in the new facilities.

          Welch Allyn has saved nearly $1 million in direct 
        expenses as a result of implementing Lean.

          Inventory has been reduced by more than $500,000.

          Sales of over $120 mil/year have been retained at the 
        Beaverton location.

          Over 250 employees have received Lean training in a 
        total of 750 training occurrences (most completed numerous 
        classes).

          More than 20 Lean projects and 10 Kaizen events have 
        successfully been completed.

          10 to 15 Lean ``Stars'' have emerged and are driving 
        daily continuous improvement activities.

          Lean methods have been shared and implementation has 
        expanded and is being used throughout the corporate 
        organization.

          Employee morale and daily improvement involvement has 
        significantly increased.

          Workforce training and skills investment: Over 
        $300,000.

Why we support MEP

    We have had experience with purely private consulting firms and we 
are convinced that, based on our experience with OMEP, there are key 
differences between MEP (a public/private partnership) and private 
providers;

          What distinguishes OMEP from similar groups who claim 
        to provide the same services is OMEP's unique focus on their 
        client's success and less so on selling future services.

          They provided core training and implementation 
        experience to get us started and were able then to adjust their 
        approach as we progressed through our Lean journey.

          Their consultants are both hands on and strategic.

          OMEP has been key to our success in making our Lean 
        transformation.

          We are continuing to expand our Lean Enterprise and 
        we look forward to continuing to work with OMEP.

The Administration's reduced funding of the program

    I understand that the Administration wants to cut by 56 percent the 
funding for the MEP program to $46.332 million for FY08. I am on the 
Board of OMEP and from a purely local perspective the impact to the 
Oregon affiliate would be disastrous. If the board were faced with such 
a funding cut we would likely be forced to dramatically reduce costs 
(primarily staff) and thereby services. I would expect many of the 
clients could not afford to make up the difference and OMEP's ability 
to market to new clients would also be reduced. The loss to the local 
economy from a withdrawal of OMEP would lead, in my opinion, to a loss 
of growth for many of the small companies in the area.
    I view the federal funding as an efficient use of federal dollars. 
From my perspective as a board member for OMEP, I view the 
administration of the organization as a model. I have served on the 
boards of several profit and non-profit organizations and I view OMEP 
as one of the best run organizations.

Appendix: Copy of Oral Presentation

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                       Biography for Peter Murray
    Peter Murray worked in the semiconductor and disk drive industries 
prior to spending the last 12 years in the medical device industry. He 
has worked at Welch Allyn in Engineering and Manufacturing roles.
    He holds a M.S. and M.B.A. from Boston University and a B.S. from 
the University of California.

    Chairman Wu. Thank you very much, Mr. Murray.
    Mr. Ryan.

   STATEMENT OF MR. MICHAEL J. RYAN, PRESIDENT AND CEO, TUG 
                    TECHNOLOGIES CORPORATION

    Mr. Ryan. It is, indeed, a pleasure to have the opportunity 
to address the House Science Subcommittee.
    [Slide.]
    Relative to my comments I will share with you, I am going 
to focus on the MEP and the role it plays in helping American 
companies to describe and to deploy lean methods.
    [Slide.]
    I am currently the CEO and President of TUG Technologies in 
Marietta, Georgia, as Dr. Gingrey mentioned. TUG, as such, 
manufactures ground support equipment for domestic and 
international airlines as well as the U.S. armed forces. If you 
look out the window the next time your plane stops at the gate, 
you will likely see a TUG baggage tractor, and you will 
certainly see belt loaders that are also manufactured by TUG 
Technologies.
    I have had the unique opportunity over the last several 
years to work with five of the state MEPs, inclusive, of 
course, of the State of Georgia. But after spending 38 years in 
automotive and industrial companies, I would say to you I have 
learned how to learn. It is about people, and it is about 
learning. So today, my thoughts to share with you specifically 
focus on the last 13 years, and as an American, I believe that 
we, in this country, can be globally competitive by deploying 
lean methods to our manufacturing base. The MEP has played an 
important supporting role to enhance American productivity, now 
on record for 18 years.
    [Slide.]
    Back in 1982, I presented at a conference in Brazil as a 
member of TRW's senior management team. At that time, I used 
the flag to designate and talk to the point that order comes 
before progress. The written words on the flag in Brazil 
actually say ``Ordem e progresso.'' And I think that it is 
significant to understand what that means as the associated 
task of the MEP continues to ramp up.
    [Slide.]
    In 1991, the result of a U.S. Government-supported 
productivity study of Japan was done, and the book that came 
from that was called ``The Machine that Changed the World.'' 
The machine is the Toyota Production System in this designation 
in the book written by Womack and Jones, and it captures the 
Japanese work on productivity in the automotive industry 
primarily.
    [Slide.]
    I had the opportunity to work with Jim Womack during the 
time I worked for United Technologies, and he, subsequently, in 
1996, published a book, ``Lean Thinking.'' And in his book, he 
talks about a five-step process, which I show you on the 
slides.
    [Slide.]
    Define the value of what you do, align it into a value 
screen, create flow from balancing process steps, create a pull 
process where the customers' needs are defined, associate it to 
your demand support, and ultimately perfection can happen. And 
perfection is the perfect balance of the value, value stream, 
flow, pull, and perfection.
    [Slide.]
    They do, however, list some actions that are important to 
consider, and what I have done here is try to align those 
actions from that book in line with the steps they have 
identified, as shown on this slide. And I show you the MEP 
interface that is appropriate to helping companies convert 
themselves through lean policy deployment processes.
    [Slide.]
    Though significantly, the MEP has a role in these process 
steps to success in any company. The basis of learning from 
Womack and some additional actions. The basic learning from 
Womack and Jones, when they looked at the Toyota Production 
System, is that we understood man, material, and machine, but 
we, in America, didn't have the entire puzzle put together. And 
this is a depiction of the Toyota Production System in one 
slide, one picture. And what they have done here is identify 
puzzle pieces that, frankly, I believe, we hadn't yet put 
together in this country.
    [Slide.]
    So how did we take the learning from this to deploy change 
in this country? There is an important quote from the ultimate 
scientist, in my mind, Albert Einstein. I have been referring 
to this for many years. And the questions I ask from this quote 
are: Can we learn to change our minds? Can we understand the 
differences we face? Can we be globally competitive? Can we 
stay at the same level of thinking we were at when we created 
the significant problems we are trying to fix? And it is said 
that the definition of a fool is one who expects different 
results while doing the same things. So, indeed, the challenge 
of lean and the challenge of the MEP profile is to make people 
understand and learn.
    [Slide.]
    In order to deploy lean, we have an implementation standard 
that optimizes the efforts of independent companies and is 
supported by an education process that understands the 
fundamental tools.
    [Slide.]
    What I am showing you here is the depiction of the profile 
of implementation for any lean activities. And the support of 
MEP is critical here as well. The depiction is an umbrella with 
leadership. And I would submit to you that the national MEP is 
that leadership profile that allows us to succeed. But more 
importantly, the umbrella is this Congress as well. The Members 
of the U.S. Congress represent the support needed by the MEP to 
truly lead the transformation process to change.
    [Slide.]
    On the next slides, I have just identified some of my 
experiences relative to those five different state MEPs. And in 
fact, I started my understanding of the MEP from having played 
a part on the board of the Michigan MEP, notably the MMTC, 
Michigan Manufacturers' Technical Center. The North Dakota MEP 
was engaged in our transformation when I worked as President 
and CEO of Bobcat Company.
    [Slide.]
    The teachers in Japan we call senseis. If you look back at 
the study that was originally done by Womack and Jones, the 
opportunity to coordinate and learn is a two-part process, if 
you would. The opportunity to create success has a significant 
amount of benefits, as I show on this slide. But truly, the MEP 
plays a role of support that would not have a high enough level 
of understanding to deploy the change processes required by 
that six-step picture with the umbrella supporting it.
    [Slide.]
    But what are the benefits? Here are some of the benefits 
achieved from doing a lean transformation supported by MEP 
consultants. Significant improvements in revenue at one company 
of 86 percent while operating income increased 128 percent. 
Again, a North American company competing globally. Improving 
inventory significantly. And improving the operational income 
of the companies by 400, 500, and 550 basis points of improved 
operational income. They reduced customer lead times and 
developed flawless launches, as well.
    [Slide.]
    So now, I ask you to think about a process. Consider that 
it has three versions, at least: what you think it is; 
secondly, what it actually is; and then third here is what it 
should be, proper value stream, mapping, and understand. And 
you can imagine the efficiency improvements from that step one, 
two, and three.
    [Slide.]
    Consider a moment that Henry Ford, at the Rouge Complex in 
Detroit, delivered a car to each customer in a four-day cycle 
from raw material to finished vehicle. And he did that in 1914. 
Most people don't know that he wrote a book called ``Today and 
Tomorrow'' in 1936 that described his lean process from some 22 
years earlier. Taiichi Ohno developed the Toyota Production 
System from his studies of Henry Ford's methods.
    Another important point, Toyota never had to change their 
bad habits since after the war they could start from the basics 
in 1947.
    The challenge in America, still today, is that we have to 
change people from their habits of the past to the global 
changes and challenges we will need to have in the future. 
People do make the difference. In Japan, they call it, this 
body, the JUSE, the union of Japanese scientists and engineers. 
So they talk about people. We talk about, basically, the focus 
of NIST as science and technology, as subject matter very 
importantly.
    [Slide.]
    And here, a quote from Jack Welch of General Electric, who 
challenges us all to go for the quantum leap. Can we do it by 
reducing MEP funding? I don't think so.
    [Slide.]
    We pause to look at this picture. The worker is on the left 
talking to the engineer. We need to help the worker here so he 
can understand and also be empowered. Today, he is not.
    [Slide.]
    The salesmen in this picture are on the left. The two 
employees on the right are wearing safety glasses, so 
obviously, they must be production workers. They need, though, 
a different set of tools, not just better pails, but the right 
tools so they can avoid the dilemma they are in in the first 
place.
    [Slide.]
    In summary, MEP has been a strong contributor to the need 
in this country to stimulate change. They have been and need to 
continue as a catalyst for that change. They provide a 
countrywide network. Our government must continue to support 
enterprise. Small and medium-sized businesses need this kind of 
help even more. We must remember that the market is global, and 
other countries are getting better, too. MEP provides 
education, not just training. And not all good ideas originate 
in America.
    Our Congress has a responsibility to provide solutions, not 
just observe. I have found the MEP five times in five states. 
They are the solution. We should expand, not retract, our 
support of the MEP. MEP is that synergy. If the 2007 budget is 
reduced from $109 million to $49 million, not only are past 
efforts of the MEP compromised, but it would show that the 
leadership umbrella I showed you, referring to it earlier, has 
been closed by our own Congress. Your constituents need your 
support. Your challenges as our representatives to this 
Congress, are to find synergies that allow Americans to prosper 
in an ongoing, expanding global market. I submit that MEP is 
that synergy.
    Thank you.
    [The prepared statement of Mr. Ryan follows:]
                 Prepared Statement of Michael J. Ryan
    [Slide #1]
    It is, indeed, a pleasure and an honor to have the opportunity to 
address the House Science Committee's Subcommittee for Science and 
Innovation. My comments today will focus on Lean Policy Deployment and 
the very necessary role that the NIST Manufacturing Extension 
Partnership plays in helping American companies deploy lean methods.
    [Slide #2]
    I am here at the invitation of Representative Phil Gingrey of 
Georgia. I am Michael John Ryan, currently the President and CEO of TUG 
Technologies based in Marietta, Georgia. TUG manufactures ground 
support equipment for domestic and international airlines and the 
United States Armed Forces. If you look out the window the next time 
your plane stops at the gate, you'll likely see a TUG baggage tractor 
and belt loader. I have had the pleasure of working with NIST MEP's in 
five states across our country. After spending 38 years in Automotive 
and Industrial product companies, I have learned how to learn. Today, 
as a witness to the Subcommittee, I will share my thoughts from those 
experiences, specifically over the past 13 years. I am an American who 
believes that we can be globally competitive by deploying lean methods 
to our manufacturing base in this country. MEP has played an important 
supporting role to enhance American Productivity now for 18 years.
    [Slide #3]
    Back in 1982 when I was Director of Quality for TRW, I spoke at a 
global conference in Brazil about the need to establish structure 
before improvements can be expected in any change process. After 
spending 11 years working for Ford Motor Company, I had learned that 
Henry Ford's successes were built on very structured methods.
    [Slide #4]
    Since I was in Brazil at a global conference, I used the flag of 
Brazil to make my point. Their flag says ``order and progress.'' Our 
approach to change too requires order before progress is possible.
    [Slide #5]
    In 1991, the results of a U.S. Government-sponsored study on the 
productivity of Japan was published by Womack, Jones, and Roos in their 
book entitled ``The Machine That Changed the World.'' Here is where 
they first described their findings at Toyota as ``Lean 
Manufacturing.'' In this book they captured the reasons that Japanese 
productivity in the automotive industry was improving faster than in 
the USA. I had the opportunity to meet Jim Womack in 1995 at United 
Technologies, just before their next book, Lean Thinking, was 
published. In this new book they provided case studies showing how 
several American and European companies were deploying lean methods.
    [Slide #6]
    They describe five steps in a transformation as you see here 
(value, value stream, flow, pull, and perfection). But no where is it 
written; how to implement the ``lean process.''
    [Slide #7]
    They do, however, list some actions that are important to consider. 
Here, I show you their action steps and also identify, from my 
experience, the responsibility for each action. Here is where the MEP 
is extremely important to the process of change.
    [Slide #8]
    Here they continue to identify the steps. (pause) Here again I have 
identified the critical role MEP plays in these process steps.
    [Slide #9]
    The basis of learning that Womack and Jones discovered is best 
depicted by the Toyota Production System as described here. We already 
understood the alignment of Man, Material, and Machine, but they helped 
us fit the other pieces of the puzzle together as shown here as a 
``Global Production System.'' How did we use this learning to deploy 
change?
    [Slide #10]
    Here is an important quote from Albert Einstein that I have been 
referring to for many years. (pause) Can we learn to change our minds? 
Can we understand the differences we face? Can we be globally 
competitive? Can we stay at the same level of thinking we were at when 
we created significant problems? It is said that the definition of a 
fool is one who expect different results while doing the same things.
    [Slide #11]
    In order to deploy a Lean Policy we have to have an implementation 
standard that optimizes the efforts of independent companies and is 
supported by an education process that understands the fundamental 
tools of a lean system. Back in 1994 I was Vice President Quality and 
Continuous Improvement at UT Automotive. I had the opportunity to work 
with United Technologies' other companies like Pratt and Whitney, Otis, 
Carrier, Hamilton Standard and Sikorsky. I have used this depiction of 
the deployment process ever since. The Leadership umbrella represents 
the role of company leaders to support and protect a six-step 
sequential process to transform a company as it accepts the changes 
needed to become ``world class.'' It is these six steps of 
transformation that need the supporting structure of the National MEP. 
We have tried to empower our employees through Quality Circles. We have 
taught SPC statistics to address TQM. But neither has worked. Why not? 
Because we must create product cells first, and then the sequence can 
follow. The MEP knows this! Most consultants do not.
    [Slide #12]
    Here I am sharing my own experiences with the application of MEP 
capabilities. I've listed the companies I have worked for over the past 
13 years and then I am showing the five different state-supported MEP 
organizations where I have had an affiliation. Back in 2000, I was a 
board member of MMTC, a Michigan MEP. In 2003, I was President and CEO 
for the Bobcat Company, a division of Ingersoll Rand. The North Dakota 
MEP was engaged in our transformation there. In 2005, Bobcat Company 
joined a WMEP consortium with Harley Davidson, Oshkosh Truck and Trane 
to develop a supplier assessment tool. This coordination between OEM's 
and their supply base can be uniquely filled by the MEP. To the right I 
am showing the times I have also used the expertise of Shingijutsu. 
This is a teaching organization, based in Japan, that is made up of 
former students of Taichi Ohno. Ohno san is the ``father'' of the 
Toyota Production System. These teachers, called Sensei in Japanese, 
provide the ultimate level of expertise to refine the application of a 
lean system. In fact, this week we are conducting kaizen at TUG's 
Marietta and Kennesaw facilities in Georgia, supported by Shingijutsu. 
Without the support of MEP, we would not have a high enough level of 
understanding to deploy the change processes required.
    [Slide #13]
    So, what are the benefits from these activities. I have listed 
several for you here from my own experiences. Significant improvement 
in revenue growth of 86 percent and operating income of 128 percent are 
examples. Large reductions in warranty expenses and improved customer 
satisfaction. Improved inventory turns; from five to 25 and from two to 
16 in two examples. Operating income improvements of 400, 500, and 550 
basis points over a two-year period at three different companies.
    [Slide #14]
    Reduced customer lead times. Flawless product launches, continuous 
kaizen, and an expanded use of employee intellectual capital were 
achieved. Through the Georgia Tech MEP in the past four months we have 
trained 79 staff associates in VSM, Office kaizen, and Lean methods at 
TUG Technologies.
    [Slide #15]
    So, now, think of a process. Consider that it has at least three 
versions. First; what you think it is.
    [Slide #16]
    Second; what it actually is.
    [Slide #17]
    And then third; what it should be.
    [Slide #18]
    Consider a moment that Henry Ford at the Rouge Complex near Detroit 
delivered a car to a customer in just four days from raw material to 
finished car. That was in 1914. Most people don't know that he wrote a 
book, ``Today and Tomorrow,'' in 1936 that describes his lean process 
from some 22 years earlier. Taichi Ohno, indeed, developed the Toyota 
Production System from his studies of Henry Ford. One other important 
point; Toyota never had to change ``bad habits'' since, after the war 
they could start from the basics in 1947. The challenge in America 
still today is that we have to change people from their habits of the 
past to the global challenges in our future.
    [Slide #19]
    People do make the difference! In Japan they have the JUSE body 
focused on people. It may be subtle, but they talk about scientists and 
engineers while we look at science and technology. Sometimes we seem 
too focused on issues and material things. MEP provides NIST with an 
opportunity to focus on the people. We must get more globally 
competitive.
    [Slide #20]
    A quote from Jack Welch of General Electric, who challenges us all 
to go for the Quantum Leap. Do we accept his challenge? Can we do it by 
reducing MEP funding? I don't think so!
    [Slide #21]
    (pause) The worker on the left is talking to the engineer. We need 
to help the worker here, so he can understand and also be empowered. 
Today he is not.
    [Slide #22]
    (pause) The salesmen are on the left. The two employees on the 
right are wearing safety glasses, so they must be production workers. 
They need a different set of tools, not just better pails, but the 
right tools so they can avoid their dilemma in the first place.
    [Slide #23]
    In summary, MEP has been a strong contributor to the need in our 
country to stimulate change. They have been, and need to continue as a 
catalyst for change. They provide a country wide network. Our 
government must continue to support enterprise. Small and medium-sized 
companies need this kind of help; even more. We must remember that the 
market is global and other countries are getting better too. MEP 
provides education; not training. Not all good ideas originate in 
America.
    Our Congress has a responsibility to provide solutions, not just 
observe. I have found the MEP five times, in five states. They are the 
solution. We should expand, not retract our support for the MEP budget 
needs. MEP is that synergy. If the 2007 budget is reduced from $109M to 
$47M, not only are past efforts of the MEP compromised, but it would 
show that the leadership umbrella I referred to earlier has been closed 
by our own Congress. Your constituents need your support. Your 
challenges as our Representatives to this Congress are to find 
synergies that allow Americans to prosper in a global market.
    MEP is synergy!!!!!!!!

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
        
                     Biography for Michael J. Ryan

Summary of Experience

    An industrial professional with unique and exemplary global lean 
business process experience as a General Manager and Operations 
executive. A diversified corporate background with proven leadership 
and P&L success in both favorable and challenging economic conditions. 
Areas of expertise include: Lean Policy Deployment, Global Consulting/
Sourcing, Operations Management, Operating System Design, New Product 
Development, Financial Reporting, Lean Manufacturing/6 Sigma, Strategic 
Planning, Productivity/Process Improvement, Business Development, 
Kaizen/Shingijutsu Projects, Talent Assessment and Team Building, 
Sales/Marketing Strategy, Competitive Analyses, Budget Development/
Management.

2006 to 2007: JACOBSON PARTNERS, New York, New York (Private). A mid-
        cap private equity fund specializing in corporate divestitures 
        and other middle market companies in the early stages of 
        turnaround.

2006 to 2007: Managing General Partner--Operations; President and CEO, 
        TUG Technologies Corporation

    A market leader providing ground support equipment to the global 
airline industry.

          Leading major business turnaround

          Utilizing Lean Policy deployment

          Reorganized structures to bring efficiencies

          Developing and implementing pricing strategies with 
        suppliers

          Coordinating customer market needs and pricing

2003 to present: INGERSOLL RAND COMPANY, Montvale, New Jersey (NYSE). 
        An $11 billion diversified industrial company with 44,000 
        associates, 90 plants, and 150 service and distribution 
        centers. Brand Name Products include: Thermo-King, Hussman, 
        Bobcat, Club Car, Schlage, LCN, Von Duprin, ABG, Blau Knox, and 
        Ingersoll Rand (IR).

2005 to present: Corporate Vice President, Global Operations. Promoted 
        into a new corporate role directing a staff of 200 in the 
        operation/management of Ingersoll Rand BOS, Quality, Global 
        Sourcing, Global Consulting, Supply Chain/Logistics, and the IR 
        India Engineering Center.

          Led the development of Operational Excellence thru a 
        common Business Operating System.

          Aligned cross-sector projects in India, China, and 
        Eastern Europe.

          Achieved continual quarter over quarter improvement 
        for key operating metrics.

          Oversight of Sector Operations Executives to 
        coordinate synergies and drive Lean Policy Deployment through 
        Hoshin Planning, Application Modules, and Lean Conversion.

          Developed Lean and 6 Sigma education through the 
        Ingersoll Rand University.

          Served as a Corporate Officer and an active member of 
        the Enterprise Leadership Team.

2003 to 2005: President/CEO, Bobcat Company. Responsible for leading 
        all corporate functions of the largest Ingersoll Rand Division.

          Moved revenues from $1.1 billion in 2002 to $2.1 
        billion in 2005 while launching 40 new products into strong 
        channels in North American and Europe.

          Reduced warranty from 3.3 percent of sales to 1.2 
        percent saving $35,000,000 annually.

          Introduced Lean systems, taught Lean Policy 
        Deployment and 6 Sigma tools to top 400 managers and supplier 
        executives.

          Improved operating income by 400 basis points.

          Developed dealer network to expand product offerings 
        in channel.

          Developed new leadership team and added employees at 
        1/3 ratio to baseline labor standards.

          Improved inventory turns while improving field 
        inventories for dealers.

          Developed the Bobcat Production System.

2000 to 2002: INTERMET CORPORATION, Troy, Michigan (NASDAQ). A $1 
        billion publicly traded, casting supplier.

         Executive Vice President, Operations. Responsible for 
        operations oversight of 23 iron, aluminum and magnesium casting 
        facilities and 8,400 employees.

                  Aligned acquisitions by deploying lean 
                manufacturing principles and a common Business 
                Operating System.

                  Reduced break-even by $200,000,000 and 
                working capital to meet debt covenants.

1998 to 2000: TRW, Cleveland, Ohio (NYSE). One of the world's largest 
        and most diversified suppliers of automotive safety systems, 
        modules and components to global vehicle manufacturers and 
        their related aftermarket. $17 billion in sales with $11 
        billion in sales to the automotive sector.

TRW AUTOMOTIVE, Livonia, Michigan.

         1999 to 2000: Vice-President, Chassis Systems, North America. 
        Responsible for the combined North America Braking, Steering, 
        and Chassis Operations of the combined TRW and Lucas Varity 
        generating $2.7 billion sales annually.

                  Led 7,500 associates in 27 plants organized 
                into five business units.

                  Installed lean manufacturing principles that 
                reduced both cost and PPM.

                  Implemented a Business Operating System that 
                significantly improved product delivery, quality, and 
                warranty claims costs.

         1998 to 1999: Vice-President, Braking Systems, North America. 
        (Formerly Lucas Varity Automotive with $7 billion in sales 
        including $1.7 billion N.A. Braking Systems.) Responsible for 
        all Operations, Manufacturing Engineering, Service, Quality, 
        Finance, Information Technology and Human Resources in 14 
        plants with 4,000 associates.

                  Implemented lean manufacturing methods 
                including 40 weeks of Shingijutsu projects.

                  Improved quality and delivery by over 25 
                percent.

                  Increased OI by 550 basis points for Braking 
                Systems.

                  Improved cash flow by $150,000,000 and 
                exceeded all balanced scorecard metrics for 1999.

1994 to 1998: UNITED TECHNOLOGIES CORPORATION, Hartford, Connecticut 
        (NYSE). Global company providing technology products to the 
        aerospace, automotive and building industries.

UNITED TECHNOLOGIES AUTOMOTIVE, Dearborn, Michigan. $18 billion sales 
        including $3 billion in wiring, motors, switches, and 
        interiors.

         1996 to 1998: Vice-President, Interior Operations. Responsible 
        for $650 million in sales from 16 plant locations with 3,000 
        associates. Products included door panels, instrument panels, 
        headliners, etc.

                  Implemented Lean methods including 90 weeks 
                of Shingijutsu projects.

                  Rationalized product lines, optimized APQP 
                and greatly improve ROS by 500 basis points.

         1994 to 1996: Vice-President, Quality and Continuous 
        Improvement. Responsible for Quality and Business Process Re-
        engineering (BPR) for interior trim, electrical, and electronic 
        automotive products.

                  Implemented BPR plan revising Financial 
                Reporting and New Product Development.

                  Initiated QS-9000 and introduced lean 
                manufacturing methods.

                  Moved U.T.A. from ``worst'' commodity 
                supplier at Ford in 1994 to ``best-in-class'' in 1996.

1993 to 1994: HOLMAN ENTERPRISES, Pennsauken, New Jersey (Private). A 
        $1.5 billion automotive corporation of retail, service, and 
        lease businesses.

         President, RMP. Responsible for all aspects of this re-
        manufacturing company generating $80 million in sales at three 
        plants and five distribution centers providing engines, 
        transmissions, and subsystems to 900 Ford Dealers.

                  Implemented cost control, revised core 
                values, regained Q1 for Ford, and returned to profit.

1991 to 1993: MASCOTECH, Detroit, Michigan (NASDAQ). A $1.5 billion 
        automotive supplier operating 20 plants.

         Vice-President, Operations, Braun Engineering. Managed 
        operations of two Braun forging and machining plants with $70 
        million in sales annually. Initiated self-directed work teams 
        and placed QCD focus through kaizen methods. Reorganized by 
        flow and TPM focus to improve throughput.

1981 to 1991: TRW AUTOMOTIVE, Solon, Ohio (NYSE).

         1988 to 1991: General Manager, APR. Generated $20 million 
        sales with 450 associates and four reman plants. Consolidated 
        operations with PIP into Maquiladora with headquarters in South 
        Texas.

         1984 to 1988: Director, TRW Electronic Controleld Steering. 
        Directed product and process development of ``ECS'' managing an 
        $11 million annual budget with 110 associates over five 
        divisions. Applied Aerospace Technologies to Automotive 
        steering systems.

         1981 to 1984: Director, Quality, TRW Automotive Worldwide. 
        Managed a worldwide Quality initiative across 96 plants in 16 
        countries. Chaired U.S. and Europe Councils and taught Quality 
        College. Directed European class 8 heavy truck steering move 
        from England to Spain.

1970 to 1981: FORD MOTOR COMPANY, Dearborn, Michigan (NYSE); FORD 
        TRACTOR OPERATIONS, Troy, Michigan.

         Inspection Superintendent

         Staff Quality Auditor

         Staff Quality Engineer

         Production Analyst

         Cooperative Education Trainee

EDUCATION:

MBA, Wayne State University, Detroit, Michigan

BS, Automotive Engineering, Western Michigan University, Kalamazoo, 
        Michigan

ADDITIONAL TRAINING:

Lean Manufacturing Institute--1996

Columbia University Executive Management Program--1986 and 1987

Deming Seminar, Ford Motor Company--1985

Manufacturing Excellence, University of Michigan--1983

PROFESSIONAL MEMBERSHIPS:

SAE, 1982 to present

ASQ, Senior Member, 1978 to present

BOARD MEMBERSHIPS:

Manufacturer's Alliance/MAPI, Quality Council Director--2005

Board Member, Michigan Manufacturer's Technical Center--2001

Director, Lucas-Sumitomo Joint Venture Board of Directors--1998

Board Member, American Suppliers Institute (ASI)--1994

INSTRUCTOR/FACILITATOR:

Taught Lean Policy Deployment to 400 Bobcat employees and suppliers--
        2003

Taught Lean Policy Deployment to Lucas Varity N.A.--1998

Taught Statistical Process Control, Ford Motor Company--1979

PRESENTATIONS:

Lead Speaker, Lean System Training, University of Kentucky--2006

Lead Speaker, Ingersoll Rand Annual Worldwide Leadership Conference--
        2005

Panel Speaker, Virtus International Symposium, Montreal Quebec--2005

Speaker, ESGR Fargo Air Museum Recognition Ceremony--2004

Featured Speaker at ASAE ceremony honoring Bobcat's Keller brothers--
        2004

Lead Speaker at ceremony for U.S. Army Bobcat's Delivery for Use in 
        Iraq.

Featured Speaker: U.S. Senator Byron Dorgan, Chair of Armed Services 
        Committee--2003

RECOGNITION & AWARDS:

North Dakota MEP Award for Lean Training--2005

Recognized at North Dakota Governor's State of the State Address--2005

Elected to Fargo Chamber of Commerce--2004

                               Discussion

    Chairman Wu. Well, thank you, Mr. Ryan.
    And now we will have some discussion here.
    I recognize the Chair for five minutes.

                  Manufacturing Extention Partnerships

    Dr. Jeffrey, we have had eloquent, effective testimony 
about the need for MEP. Let us just declare the 50-some-odd-
percent cut in MEP dead on arrival for now, and we will set 
that issue aside, and we will move on to some other things and 
maybe circle back to that.
    I understand that NIST intends to re-compete all the MEP 
centers this spring, because you anticipate some reduction in 
funding from Congress. I would like to understand as best as 
possible, how much this re-competition will cost NIST and the 
MEP centers. I, quite frankly, think that Congress is more 
likely to relatively fully fund MEP again this year. And I am a 
little bit concerned about a waste of not only money but, you 
know, when you wave an axe in front of a whole flock of 
turkeys, it gets everybody upset, and nobody gets back to 
feeding and growing more turkey for a while.
    So I would really like to understand why you are doing 
this, what the estimated cost is, and get a sense for how much 
this is going to upset the whole flock of very hardworking 
folks.
    Dr. Jeffrey. Well, the intent is certainly not to upset the 
flock.
    In terms of the actual costs, I will have to take that for 
the record. I don't have the numbers in front of me, and so I 
would be happy to answer in writing to you on the costs.
    In terms of the rationale as to why do this at this point, 
to do an effective re-competition, it would take about five to 
six months. If the budget reduction did occur, and we were to 
start that after the final appropriations, by the time we 
completed that competition, we would be out of money if we had 
all of the centers at the same spend rate. So what the re-
competition allows, one, is a more efficient way of trying to 
get through to try to extract where there may be some savings 
in the program, where there may be slightly different business 
models to attract additional fee extraction, and where there 
may be efficiencies in consolidation that would allow for the 
maximum amount of service.
    If the budget cut did occur and we waited until the end to 
then try to address that, we would actually have to be in a 
position of just cutting every single center by the same 
percentage, which would probably create much more of a 
disruption, and a----
    Chairman Wu. Well----
    Dr. Jeffrey.--weaker system at that point.
    Chairman Wu. Thank you, Dr. Jeffrey. But given that 
Congress is opposed to the MEP re-competition and, in fact, in 
fiscal year 2005, NIST was specifically prohibited from doing 
the re-competition, I think there is some room to inquire as to 
why this path is being pursued, because if we need to, I 
suspect that we might put that prohibition back in the 
appropriations bill.
    And I would like to get a sense from Mr. Murray and Mr. 
Ryan about what you think the effect of a re-competition across 
the country would have on MEP centers.
    Mr. Murray. Can we reply?
    Chairman Wu. Yes, I am asking both of you about----
    Mr. Murray. I will go first.
    Chairman Wu.--your take on the effect of a re-competition.
    Mr. Murray. Okay. I think it would be disastrous, to use a 
word. Again, I am speaking as a board member of the affiliate 
in Oregon. The organization, as it is now, is extremely lean. I 
have been to their offices. They camp out in a--kind of a--it 
is anything but plush. The staff is incredibly efficient and 
very lean. I really don't know where they would find additional 
savings. I think it would be a distraction for that business, 
take away already limited resources, to look for new business 
or to market to other clients. I really think it would be a 
disaster. I can't say it strongly enough.
    Chairman Wu. Thank you, Mr. Murray.
    Mr. Ryan, do you have anything to add?
    Mr. Ryan. As I mentioned earlier in my talk that the MEP 
represents synergy. One of the things that I don't believe we 
do well enough in our country in the manufacturing sector is 
identify the cost relationship between the supply chain steps. 
The OEM manufacturer of a finished product, the supplier of 
subsystems, the supplier of parts to the subsystems, et cetera, 
is the supply chain. Knotting that together, as well as by 
state representation, allows for some common methodology across 
the country to accept the challenge to be cost-reducing our 
products and to accept the opportunity to be more competitive 
globally.
    Chairman Wu. Thank you, Mr. Ryan.
    I see that my time is actually 24 seconds over.
    You know, if I do not have an opportunity to return to this 
particular topic, I would like the witnesses, especially you, 
Dr. Jeffrey and Mr. Murray and Mr. Ryan, to comment upon what 
Dr. Jeffrey alluded to earlier, which is to compensate for the 
Administration's proposed cuts, which, in my view, are, one 
hopes, unlikely at this point by having them be absorbed by 
increasing charges to small and medium-sized manufacturers and 
what the effect of this would be on services and uptake of 
services from the current client base, or customer base, if you 
will. So the makeup of government funds through additional 
charges in fees.
    First of all, it was a shame to lose Dr. Gingrey for a very 
necessary trip for our friend, Mr. Norwood, and Dr. Gingrey is 
the Ranking Member of the Subcommittee. I would like to welcome 
Mr. Hall, the Ranking Member of the Full Science and Technology 
Committee. Thank you, Mr. Hall, for being here. I wanted to 
welcome Mr. Hall, but my understanding is that Mr. Smith had 
some time constraints.
    Mr. Hall, a southern gentleman from morning to night.
    Mr. Smith, you are recognized for five minutes.
    Mr. Smith. Thank you. I, obviously, am not a Ranking 
Member, but I appreciate the opportunity to be here.
    Mr. Ryan, I believe you talked about empowering workers and 
affording workers the tools. Do you feel that our existing 
channels of empowering workers are sufficient? What suggestions 
might you have for, perhaps, a change in paradigm, or whatever 
the case might be, to empower workers?
    Mr. Ryan. In my testimony, I make comments about 20 years 
ago when the country was focused on quality circles on SBC. 
Statistics, if you would, Dr. Deming methodologies. That is 
some 20-plus years ago. What I showed in my presentation is an 
umbrella chart, as I call it, with six significant steps in 
sequence. And the second step in that sequence is empowerment 
of the people. But the first step is product sales structure. 
You have to be in an appropriate structural physical manner in 
a manufacturing facility in order for people to be empowered. 
Otherwise, management just pushes the problem at the employee 
and frustrates them even more.
    So my point is that the discipline for that six-step 
sequence, starting with the product sales structure to the six-
step standardization, the distinction of that is the people get 
empowered once you create the structure that they can be and 
add, what I call, ``intellectual capital'' to the process. It 
is a huge opportunity that comes from a lean transformation. 
And again, the opportunity for productivity in this country 
amongst the people in small- and medium-sized business is what 
will make us better as production management of large 
subsystems and vehicles and products for the associated markets 
served.
    So the people empowerment needs that first step, and the 
MEP understands that sequence. And frankly, if you just go hire 
a consultant in the local state and not the MEP support, what 
you will find is unique opinions of what the proper process is. 
And again, as I said earlier that Jim Womack, who is the expert 
in lean concepts from back in 1991 on this survey work back at 
MIT, the learning is there, but the absolute application of 
that learning is still missing, and the linkage of the MEP--and 
my experience with five states, not all 50 yet, maybe I will 
live long enough to do that, but in those five states, that 
linkage is common. And so I am sharing with you that it isn't 
just the consulting activity at MEP. It is a common linkage of 
how things are done and the philosophy will get us there. If we 
take it down a notch or two or three or in half, as the 
proposal says, we lose what we have built up over 18 years, 
unfortunately. And that would be a travesty. And I do believe 
that Congress needs to support the people, and the people need 
to understand the profile of lean.
    Thank you.
    Mr. Smith. Thank you.

                              R&D at NIST

    And also, Dr. Jeffrey, how does NIST evaluate new projects 
and novel fields of research, and are potential economic 
benefits explicitly considered when determining research 
priorities? And do you perform a formal needs assessment with 
involvement from the external community?
    Dr. Jeffrey. Thank you, sir.
    Our mission statement is to support the economic security 
and quality of life of Americans, and so every new initiative 
we put forward goes through a rigorous internal process that 
includes inputs, generally, from industry. It includes looking 
at what the kinds of impacts will be. Prospective studies have 
large errors to them, so often use best technical judgments 
involved.
    Nanotechnology is a great example of where there have been 
a number of studies that have indicated that nanotechnology in 
the next 10 years may be anywhere from a $1 to $2.5 trillion 
global enterprise. And a lot of the issues there have to do 
with the measurements characterizations which Dr. Williams very 
eloquently described in his testimony.
    In addition, we reach out to the private sector, probably 
more than any other part of the federal S&T enterprise to 
really try to get an idea of what the potential measurement 
barriers to innovation are. And in fact, we just completed our 
first assessment of what we call the U.S. measurement system, 
which actually looked at over 160 industry technical roadmaps, 
had over 1,000 people from the private sector participating 
with the NIST scientists to try to identify where there are 
current measurement barriers to innovation. And so we just 
catalogued that, just literally, released a report, and now 
using that as part of our strategic planning to identify and 
prioritize our investments.
    Mr. Smith. Thank you.
    I yield back.
    Chairman Wu. Thank you.
    The gentleman from Kentucky, Mr. Chandler.

                      Advanced Technology Program

    Mr. Chandler. Thank you, Chairman Wu.
    And I thank all of the witnesses for coming today. I 
appreciate you shedding some light on some of these topics.
    I would like to, Dr. Jeffrey, ask you a little bit about 
the Advanced Technology Program, if I may. I understand, from 
Mr. Borrus, that he feels that that is an important program, 
and I understand that the Administration feels otherwise, that 
the Administration sees no need for it. Is there a particular 
need now, as Mr. Borrus claims, for seed stage investing? 
Please illuminate that a little bit for me.
    Dr. Jeffrey. Thank you, sir.
    The Administration recognizes the benefits that the ATP 
program has generated. It is an effectively-run program, and 
actually, I would have to say, I am actually very proud, as 
NIST's Director, to be hearing about success stories from all 
of the programs, because we do execute and run the programs as 
efficiently and effectively as possible.
    Mr. Chandler. And therefore, we need to get rid of----
    Dr. Jeffrey. Well, the issue isn't whether the program is 
effectively managed. The issue is, in the Administration's 
viewpoint, whether or not it is the appropriate role for the 
Federal Government to be playing. And it gets down to whether 
there are other policy mechanisms that may be able to help turn 
the tide that Mr. Borrus described of the private-sector 
investing in the early seed or whether a direct federal 
investment is necessary, and that basically gets down to a 
philosophical issue. But there really isn't so much an issue as 
to the effectiveness.
    Mr. Chandler. Well, my understanding of what you are saying 
is if it is not broken, break it? I mean, you are saying that 
the program is working well, but now you are saying that 
somehow it is not the role of government to be a part of a 
program that is working well?
    Dr. Jeffrey. Yes. There are a lot of effective programs 
that have different levels of priority for the Federal 
Government. And clearly, we are in a position where there are 
tight federal budgets. And, we have to prioritize what our 
investments are going to be based upon not just merit but also 
where we can make the biggest difference as the Federal 
Government. And that is what gets folded into the calculus.
    Mr. Chandler. Well, let me give Mr. Borrus a chance, if you 
would like to add something.
    Mr. Borrus. I would only say that not only is it an 
appropriate role for the Federal Government, it is a 
historically-consistent, well-established role for the Federal 
Government over at least the last century and a half, if not 
longer, since the Morrill Act creation of land-grant colleges 
and the Agricultural Extension Service, which similarly, for 
the technologies of its time, sought to move innovation out of 
the colleges and out of the research institutes into 
agriculture. You know, it is not a departure for the U.S. 
Government. It is not something new. This is a historically-
consistent and well-received tradition. And it ought to be 
continued.
    Mr. Chandler. Thank you.
    I yield back, Mr. Chairman.
    Chairman Wu. Thank you very much.
    The gentleman from Texas, Mr. Hall.

                   Measurement Barriers to Innovation

    Mr. Hall. Thank you, Mr. Chairman.
    I want to try to get two questions in.
    But first--and I would like a fairly direct and maybe a yes 
or no answer to one of the questions.
    Dr. Jeffrey and Dr. Williams, both of you referred to the 
NIST report that identifies over 700 measurement barriers to 
innovation in critical industries. Give me not 700 but a few of 
the concrete examples of some of these barriers, first, and 
then just tell me whether or not there is a consensus on which 
barriers ought to be a priority for NIST to address. That last 
one, you can say yes or no and--without naming them. But give 
me just some examples, so we will have it in the record.
    Dr. Williams, do you want to start?
    Dr. Williams. Yes, thank you.
    Specifically, in this area of nanotechnology, we are now 
getting into the realm of where electronic devices on circuits 
are just a few atoms thick, and they are starting to get tens 
of atoms wide. And in the not-too-distant future, literally, a 
single electronic device will be made up of a handful of atoms. 
The metrology requirements for, first of all, measuring the 
size of the device and then identifying which atoms are in the 
device and where they are within the device are absolutely 
daunting, and yet they are absolutely crucial for being able to 
understand the operation and being able to design future types 
of devices.
    So it is this issue of literally counting and identifying 
individual atoms in a three-dimensional structure: when we can 
get to that point, the amount of progress that we are going to 
be able to make will really be stunning. So I would say that 
that, for me, is a key and critical issue.
    Also, another one is literally metering light particles, 
photons, one at a time. We are now at the stage where we are 
generating and detecting single photons, and we are using those 
single photons to carry important information. And that is 
another issue, which is key and critical to the issue of 
metrology.
    Mr. Hall. Dr. Jeffrey, do you want to----
    Dr. Jeffrey. Actually, Dr. Williams did an excellent job. 
And thank you for allowing a plug. And here is a copy of the 
report that I will leave for you----
    Mr. Hall. Okay.
    Dr. Jeffrey.--afterwards. I will just add that----
    Mr. Hall. Does that have all 700 of them in there?
    Dr. Jeffrey. Actually, it does. There is a CD in the back 
with all of the data.
    Mr. Hall. All right.
    Dr. Jeffrey. Believe me. It is a fascinating read.
    Mr. Hall. With pictures or----
    Dr. Jeffrey. Not too many pictures, sorry. But one of the 
things I will just add is that what we concentrated on was 11 
different industry sectors in this as a beginning, and so it 
runs the gamut from several of the measurements that Dr. 
Williams described down to some of the near-term needs of 
today's auto industry, information technology, and others. And 
I will leave a copy behind for you, sir.
    Mr. Hall. All right. I thank you for it.
    You should have given me one the other day, and I would 
have been studying it, and I could have taken a test on it or 
something.
    Dr. Jeffrey. We just released it on Monday, sir.
    Mr. Hall. And I was going to ask you if there is a 
consensus on which barriers should be a priority for NIST to 
address, but they are prioritized in your article there, are 
they not?
    Dr. Jeffrey. Well, one of the things that we are doing, 
sir, is that we are taking these, and we are now doing what I 
will call a ``deep dive'', trying to identify whether or not 
there are some systemic issues, as opposed to 723 separate 
ones, that would be the ones to really focus on.
    And one of the unique aspects of what this study did was it 
identified measurement barriers to innovation that may not fall 
just within the NIST purview, and so we are reaching out to 
industry, to universities, and to other government agencies so 
that we can get a more comprehensive attack on these issues. 
But we are at the point now where we are starting to look at 
the systemic issues, to see if there are systemic issues, which 
would then lead to that prioritization.
    Mr. Hall. I lost a bet. I bet that I could get a yes or no. 
And----
    Dr. Jeffrey. Yes.
    Mr. Hall. There was a President who didn't speak very much, 
and a young journalist said, ``Mr. President, I have a bet that 
I can get you to say at least three words.'' His answer was, 
``You lose.''
    Thank you for that.
    But Dr. Jeffrey, while I am talking to you. Over the past 
several years, this committee, we have been active in promoting 
the nationwide transition to electronic health records that we 
think hold a great promise for reducing medical errors and 
lowering the cost of medical care. Can you summarize the 
efforts that NIST has made to help the Department of Health and 
Human Services promote EHR and the adoption of information 
technology solutions generally within the health care industry?
    Dr. Jeffrey. Yes, thank you, sir.
    NIST has been working very closely as a partner, supporting 
HHS, which has the lead on this. And we are working in several 
different areas. One is working with the private sector and 
standards development organizations to try to get some 
coherence and compatibility on some of the standards for 
interoperability of systems. We are also working and supporting 
some of the contracts that HHS has out, providing technical 
underpinning to them, and also looking at some of the 
validation mechanisms that will come into play. So we sort of 
tied in with HHS throughout the full end-to-end gamut.
    Mr. Hall. I thank you. My time is out, and I understand we 
can write letters, make inquiries, and they will answer them.
    I have a follow-up to that, but my time is up, and I yield 
back.
    Thank you, sir.
    Chairman Wu. Thank you, Mr. Hall. And you are absolutely 
correct, as always.
    Mr. Hall. About what?
    Chairman Wu. That time was up and you can make written 
inquiry.
    Mr. Hall. All right.
    Chairman Wu. All right. Mr. Matheson, the gentleman from 
Utah.

       Manufacturing Extension Partnership; Advanced Technology 
                                Program

    Mr. Matheson. Well, thank you, Mr. Chairman.
    I apologize. I had another meeting and didn't get to be 
here to hear all of the testimony, and I want to cover 
something that, I think, has been discussed a little bit 
before.
    But Dr. Jeffrey, I wanted to ask you a couple questions, 
again, related to the MEP program.
    This is a program, as we all know, that is a state/federal 
partnership. And I am curious, since there has been this 
continued annual process where the Administration has advocated 
reductions in the MEP budget, if the Administration has ever 
consulted with the states and their funding agencies about your 
intent and how the program would operate under the budget cut. 
It is my understanding that, at least in my State of Utah, the 
MEP center has not been consulted on this budget proposal. And 
I think that many state agencies would likely simply reduce 
their share of matching funds if the federal share is cut. But 
do you have an understanding of how states would react to these 
proposed cuts?
    Dr. Jeffrey. In terms of the outreach, obviously, one of 
the issues is discussing the budget before it is actually 
submitted. Since the budget proposal has come up to the Hill, I 
know that the Director of the MEP program has been talking with 
the centers, having them understand what the implications would 
be, and having them start thinking about what the right 
approach would be to be moving forward. But as you point out, 
this, I believe, is the fifth year of this see-saw, and so I 
wouldn't say that it is a complete shock to the centers, but we 
are working with them now and before any kind of re-competition 
would occur to make sure that everybody understands what the 
ground rules are, what we are looking for, and how to maintain 
the most effective process for the small manufacturers that are 
out there.
    Mr. Matheson. Let me ask. As I understand it, one of the 
justifications from OMB for the budget cut in the MEP program 
is that almost 20 percent of the MEP clients are manufacturing 
firms that have more than 250 employees and that these firms 
would be able to make up the funding difference due to their 
size. Is this an indication that the Administration now 
considers manufacturers with more than 250 employees as outside 
the traditional federal definition of a ``small business,'' the 
point being that the SBA defines small businesses as having 
less than 500 employees?
    Dr. Jeffrey. I am not sure about the specific OMB reference 
that you are making, but we adopted the SBA definition for what 
a ``small manufacturer'' is, so that we are consistent with 
that. So it would be 500 people under the MEP program.
    Mr. Matheson. Okay. Well, then we do have a disagreement 
here, and we will follow-up in written form and show you the 
OMB document that shows that they define it as if you are over 
250, you don't need MEP anymore. And I would be happy to share 
that with you, because I am curious what evidence the 
Administration is using to say that clients with more than 250 
employees suddenly don't need MEP. I think that would be a 
helpful exchange to have, because, quite frankly, I think you 
know this, the average manufacturing size in this country is 
about 33 employees.
    One more question on MEP.
    Is there a sense, under the proposed budget, how NIST is 
going to decide which centers will remain operational, assuming 
there would be a smaller system overall?
    Dr. Jeffrey. Yes, sir. One of the things that we discussed 
was that there would be a re-competition that would basically 
have the centers come back with the plan for how they would be 
able to keep their effective services with the lower federal 
budget. And that could fall under a number of things from cost 
savings within the centers to consolidation to future action to 
whatever business model they want to have.
    One of the things that I think is very important to 
maintain is that there is an important role for the Federal 
Government in the MEP program. And, I think it is very 
important that we understand that. There are really three 
absolutely critical core missions that the Federal Government 
needs to maintain. One is there has to be a driver for 
producing the new kinds of products and services that can then 
get propagated throughout the network, things like lean 
manufacturing and some of the other concepts that were talked 
about by two witnesses.
    Second, it has to maintain the quality of each of the 
centers. There needs to be, essentially, that umbrella 
organization to ensure that an absolute standard of quality is 
maintained.
    And third, it basically has to have enough skin in the game 
so that the focus does stay on the small manufacturers and 
doesn't just go to those customers that might be--what centers 
might gravitate to without the federal pressure.
    And those are the three really critical pieces that we need 
to be able to maintain within NIST, and I think we can do that 
within that budget.
    Mr. Matheson. Well, Dr. Jeffrey, I don't think anyone is 
going to disagree with those three factors as to what needs to 
be maintained, but it seems like the proposed budget cut runs 
completely counter to the desire to pursue these three factors, 
and I suspect there is a bipartisan group on this committee 
which disagrees with this proposed budget cut.
    Mr. Chairman, I yield back the balance of my time.
    Chairman Wu. Thank you very much.
    Dr. Ehlers.
    Mr. Ehlers. Thank you, Mr. Chairman. And I apologize to you 
and to the witnesses for being late, but in fact, I was giving 
a speech to a German American group very worried about 
technology transfer.
    Chairman Wu. Dr. Ehlers, you are forgiven as the only 
Member of Congress to have ever been late.
    Mr. Ehlers. Yes, but I try to be on time.
    But it is ironic to come from that conference where a 
foreign country is very eagerly trying to determine how we do 
technology transfer and knowledge transfer, as they said, and 
learning about America and come here to this discussion.
    First of all, Dr. Jeffrey, I am very pleased that you are 
heading NIST. It is an institution I have had a soft spot for, 
for many years. I have used their services as a scientist. I 
served on the review panel for NBS, as it was called back then 
where I really got to know the inner workings. And I am pleased 
with what you are doing.
    The fact that it is in NIST instead of NBS indicates a 
definite change of function. Not in any way cutting back the 
traditional, but adding to it things such as MEP, ATP. In other 
words, ways to directly assist the manufacturing in this 
country.
    I know you mentioned earlier that the Administration has 
some disagreements about the functions of the MEP, and 
particularly ATP. Let me assure you that they are wrong. And I 
have been fighting a battle with them for some years. And I 
have always been trying to find out who the little man in the 
basement of the White House is that holds that view, and I have 
yet to locate him, but yet the attitude there is of that 
nature.
    I first worked with MEP, incidentally, when I was in the 
state legislature as well. It is a good program. I am not 
saying it can't be improved, and I am certainly willing to see 
a review and willing to look at new ideas, but I don't want the 
objective of that review to be--to change MEP for ideological 
reasons rather than pragmatic reasons. And I am very concerned 
about any attempts to change it, and that is why the Congress 
has always fought this.
    ATP is a different matter. I think ATP does have to be 
restructured. I think it should be resurrected in a 
restructured form. And that could also be extremely useful. I 
will not defend the way it operated originally, even though it 
was not that bad, but I think it could be improved.
    MEP can be improved as well, but it has to have the right 
motivation.
    I am not here castigating you, or anyone, and particularly 
in the Administration, but I am very concerned about those 
ideologues, who simply think it is improper for the Federal 
Government to be working with industry in the way it does. And 
that I object to strongly, because other countries are trying 
to find out how we do it, because we do it so well. So it is 
actually idiotic to, on ideological grounds, try to kill a 
program that is helping industry, helping our nation, helping 
our economy. And I appreciate especially the report of--pardon 
me, the quotation from Dr. Williams, quoting Benjamin Franklin, 
who should be the patron saint of all industry and political 
leaders in this country, in which he said, ``An investment in 
knowledge always pays the best interest.''
    Just yesterday, I testified before the House Budget 
Committee, along with Congressman Rush Holt, my fellow 
physicist. And he made the point, too, about investments--that 
there is no expenditure of money that we make in the federal 
budget that has a greater return than investment in science and 
technology. There is no question about it. So we have to 
continue in that. And I say if you want to review MEP and 
modify it just on the basis of making a good program better, 
God bless you, and we would be happy to work with you and help 
you.
    But I would resist any impetus to do it on the basis of the 
beliefs of some people in the Administration that somehow this 
is something the government should not be doing and that we 
have to restructure it because of some ideological beliefs.
    I am not negative on the Administration. I appreciate what 
they have done. I appreciate the President. He is a good man. I 
have had good conversations with him about these issues. And 
frankly, he is in tune with what I am trying to do. So whoever 
is saying that the Administration ``has problems,'' I don't 
think is speaking for the President.
    Having said that diatribe, I would be happy to hear 
comments from anyone on the panel who wishes to comment on my 
diatribe.
    Dr. Jeffrey.
    Dr. Jeffrey. If I could add just a word.
    Thank you very much, sir. And obviously, I have one point 
that I want to make sure does not get lost on this, and that, 
you know, obviously we stand by--and I personally stand by to 
work with you and anyone else on this committee, to try to 
improve any program, and I look forward to that. So thank you.
    Mr. Ehlers. Well, since you got three Nobel Prizes in 10 
years, I don't think we have to worry about improving their 
research program, at this point. But ATP definitely needs 
improvement. MEP needs some tinkering, and I think that is the 
best approach to take.
    I am sorry. My time has expired.
    I yield back.
    Chairman Wu. I thank the gentleman.
    Well, while I am going to be nicer to the little fellow in 
(and I am not referring to anyone in particular). The gentleman 
from Michigan referred to a little fellow in the White House--
--
    Mr. Ehlers. The basement of the White House.
    Chairman Wu.--that he has been looking for--and Mr. Borrus, 
we are going to get to you eventually, but I am going to get 
this off my chest, first.
    And Dr. Jeffrey, I love you like a brother. You have been 
terrific. This is not directed at you. Let us consider you a 
conduit from this end of Pennsylvania Avenue to what Dr. Ehlers 
has referred to as the fellow in the basement that he hasn't 
been able to find. What you have referred to as an ideology, 
but let us consider this a conversation with the philosopher in 
the White House who has repeatedly cut back on MEP, has 
repeatedly zeroed-out ATP, and I would like to ask that 
philosopher--I mean, Dr. Jeffrey, you must be embarrassed to be 
here, because you are a scientist, and you just told us that 
ATP is a fine program and is doing great things. Now, back 150 
years, would that philosopher in the White House be opposed to 
public libraries and we would be counting on Andre Carnegie? If 
we were back in the time of Abraham Lincoln and there were 
debates when he was in the state legislature in Illinois, 
should the public be involved in building roads and canals or 
should that be a private enterprise? Merely 100 years ago, is 
it a legitimate role for the Federal Government to ban child 
labor or to begin to work toward a 40-hour work week? There 
were nine old men across the street who felt it was not an 
appropriate role, and it wasn't until a while later, I am 
mixing my history a little bit, but it shook those nine old men 
up enough that they started letting some of that legislation 
live rather than stomping it out over at the Supreme Court.
    Now moving it to a more relevant period, space exploration. 
There is a very legitimate role for the private sector in low-
orbit space exploration. But there are some folks who are 
thinking that NASA could be replaced in deep space exploration, 
and quite frankly, I just don't think the numbers crunch.
    Now that philosopher down at the other end of Pennsylvania 
Avenue at OMB or somewhere else within a deep basement; you 
know, I have always said this Administration would privatize 
everything except for the Marine Corps. Then I went to Iraq. 
They are privatizing the Marine Corps! They are called 
contractors, and I don't know how many of them there are, 
because I don't know that anybody has ever done a count, but we 
are reducing our troop numbers, and we are outsourcing the 
Marine Corps. At some point, philosophy hits the hard wall of 
reality.
    And I apologize to you for laying your ears back a little 
bit about this, but it is not directed at you, Dr. Jeffrey, 
because you are in a very uncomfortable spot of being a 
scientist representing a bunch of philosophers down at the 
other end of the street.
    So just carry that message back, and tell me what they say 
over a beer some time.

                    Availability of Venture Capital

    Mr. Borrus, the Administration asserts that there is plenty 
of venture capital funds. And you say there isn't. Could you 
expand a little bit further on your comments about where 
venture capital has gone and why they are investing, shall we 
say, in more mature technologies and not, perhaps, in seed 
round and bridging the ``valley of death''?
    Mr. Borrus. Venture investors will only commit large 
amounts of capital that they have at their disposal when they 
can assess, with some degree of specificity, at least three 
kinds of risks that venture investors look at. Technology risk, 
you know, is this something that is at all possible from a 
scientific standpoint? Can it be achieved at an appropriate 
price performance points to have an impact? Market risk, is 
there a growing market into which this new technological 
innovation has some hope of being sold by an innovative start-
up, not a large established business that already has well-
established distribution counts? Is the market large enough to 
generate the kind of return that venture capitalists look for? 
And execution risk, is this a team that can be built to execute 
on this business idea?
    In a certain sense, you can define the seed stage of a de 
novo start-up's life as that point in time in which it is 
really not possible yet to assess those kinds of risks. It is 
really the point of time when you need to have a leap of faith 
and believe that if you do a little work and begin to 
transition an idea, a fledgling technology, a rudimentary bit 
of science, out of the lab and toward the commercial 
marketplace, that you can begin to get your hands around 
technology risks, sales risks or market risks, and execution 
risks sufficiently to then convince yourselves it is worth 
committing a large amount of capital, say $5 to $7 million in 
an early stage, around an investment and that you can earn the 
kind of return by committing that capital that you need to earn 
to satisfy, as a venture investor, the investors who give you 
the money that you use to invest (your limited partners).
    And so the bulk of the industry has gotten so large that it 
has moved away from being willing to take those kinds of leaps 
of faith. They have a lot of capital they need to commit. They 
can't commit it into small increments necessary to take the 
first few steps----
    Chairman Wu. Mr. Borrus, in some respects, the problem is 
that it takes the same amount of due diligence to invest a 
million dollars as it takes to invest $80 million?
    Mr. Borrus. Well, in some cases more. Yes.
    Chairman Wu. In some cases more due----
    Mr. Borrus. Thank you for----
    Chairman Wu.--diligence?
    Mr. Borrus. Thank you for making that point for me.
    So----
    Chairman Wu. No, I didn't want to interrupt your----
    Mr. Borrus. No. No. I mean, at the end of the day, if you 
look at the data that the National Venture Capital Association 
collects, it is just very clear that the bulk of the industry 
is no longer doing very early stage, seed-stage investing. 
There are still some venture funds at the early stage 
investing, but the vast bulk of the money that is spent 
actually goes to much later stages in the start-up's life. It 
is not available for the riskiest----
    Chairman Wu. With my remaining minute and a half, two 
minutes, apparently, there is a philosophical disagreement at 
the other end of the street, and there is a concern about 
picking winners and losers. How would you try to address the 
picking of winners and losers, which some believe should be 
left to the private sector?
    Mr. Borrus. I think picking winners and losers is a 
profoundly misleading metaphor. In a certain sense, it is to 
substitute sloganeering for a thorough understanding of how 
risky early stage technology innovation actually works. No 
investor, neither public nor private investor, picks winners 
and losers. Ultimately, as the gentlemen to my left and right, 
I think, will testify, it is the market that picks winners and 
losers, by which I mean, of course, your competitors on the one 
hand and your customers on the other.
    So investors don't pick winners and losers. What they do is 
they plant seeds. In this particular area of high-risk 
innovation, they plant technology seeds. And in the planting of 
seeds, there is a well-defined, historically-traditional role 
that the Federal Government can and should play of planting 
technology seeds in the areas of either private market failure 
or acute national need. And that is what ATP has done. That is 
what the Federal Government does in other programs, and it is 
an essential role.
    Chairman Wu. Mr. Borrus, let me interrupt you just with my 
last 30 seconds.
    There are some concerns that ATP may benefit only a single 
company. Others say that the benefit is broader than that, it 
casts a broader shadow. What is your view of that particular 
discussion?
    Mr. Borrus. I think that view is completely, flatly wrong.
    Look, all government development programs, to distinguish 
it from basic research funding, have to work through individual 
companies in a market economy, such as ours.
    In ATP's case, all right, the measured social returns of 
the program far outstrip the total program dollars spent over 
the life of the program, as a whole, and of course, 
consequently, dwarf the amount of dollars going to any 
individual company. The resulting social benefits, in the form 
of jobs, in the form of seeding new technology industries that 
come into being, in the form of consumer benefits are 
exceptional, substantial. I mean, I suggest the critics who 
take that view ask those who have been diagnosed with breast 
cancer through ATP-funded digital mammography innovation and 
subsequently treated, because of the early detection that ATP-
funded innovation enabled, ask them whether they think the 
benefits of the program only went to a company or two.
    Chairman Wu. Thank you, Mr. Borrus. I wanted to give you a 
chance to finish answering the question.
    And Dr. Jeffrey, I just want to return, for a moment. 
Again, I still love you, but returning to that philosopher in 
the basement of OMB, you know, every person has a right to be a 
Luddite, but at least you should be a consistent Luddite. Now 
we provide plenty of funding at Department of Energy and other 
agencies that invest in private-sector technology. An example 
would be the Hydrogen Initiative, the Clean Coal Initiative, 
over at the CIA, the In-Q-Tel project that has been doing 
pretty much what ATP does. And Dr. Jeffrey, if I were you, I 
would be really angry that they are letting the CIA, in the 
investment realm, do things that they want to take away from 
you.
    And with that, I would like to turn to the gentleman from 
Michigan, Dr. Ehlers.

              Joint University of Maryland-NIST Institute

    Mr. Ehlers. Well, I have already given my diatribe, so I 
won't add to yours.
    But I do want to have one specific question, Dr. Jeffrey, 
that I am asking on behalf of the Committee.
    You highlighted the recently-created joint institute with 
the University of Maryland. There is some concern. Was Maryland 
selected through a peer-reviewed, competitive process or what--
if not, what--why--how did this come about without peer review, 
if there was no peer review?
    Dr. Jeffrey. The review was done internally by looking at, 
basically, the statistics that the National Science Foundation 
and National Academy of Science have in terms of ranking 
different institutions, in terms of physics, and in this case, 
since it is a physics-based institution, that looked at metrics 
by their ranking in terms of their publications, the grad 
students, the ability to expand into the quantum era. And one 
of the other attributes was the synergy in terms of the 
expertise. Maryland, actually, came out very well. The 
University of Maryland came out very well in all of those. And 
one very important point is that Maryland is one of the best 
institutions in terms of condensed matter physics. And NIST is, 
essentially, one of the best institutions in the purely quantum 
phenomena.
    What we end up with is that some of the work that we have 
been doing in the quantum realm, creating new forms of matter, 
Bose-Einstein condensates and Fermion condensates, we are 
basically at the point where we have got the quantum physicists 
that have been trained as quantum physicists creating these 
forms of matter that are essentially acting sort of like 
quantum liquids. And we have another entire branch of physics, 
condensed matter physics, where the University of Maryland 
excels, that actually has a lot of theory and nomenclature in 
that area. And by combining these two institutions together, we 
actually believe that we can cross physics disciplines and 
accelerate the field.
    So we looked very hard at all of the various metrics that 
are kept by the Academy and kept by the Science Foundation and 
made a determination. We then did put out a Federal Register 
Notice to explain our intent, and we only had one university, 
other than the University of Maryland, that came back and, in 
further analysis and discussions with them, they agreed they 
were not the right institution.
    Mr. Ehlers. Now if you are going to be working on the Bose-
Einstein condensate, are you taking that work away from the 
scientists at Boulder and--or is this supplementary or----
    Dr. Jeffrey. Yes, this is definitely supplementary. This is 
not removing the Nobel Prize winning work out in Colorado at 
all. It is really extending beyond that.
    Mr. Ehlers. I see. All right. Thank you very much, and I 
must say I am intrigued by the Chairman's words about the 
philosopher. I had never thought of this person as being a 
philosopher, but since I haven't met that person, I don't know.
    With that comment, I would yield back.
    Chairman Wu. Dr. Ehlers, it is the task of this committee 
to elevate all discussions.
    Mr. Borrus, the Federal Government has invested, to date, 
perhaps a little bit over $7 billion in the National 
Nanotechnology Initiative over a multi-year period, and the 
Administration is requesting approximately another billion and 
a half investment in the National Nanotechnology Initiative for 
fiscal year 2008. Their justification has been that it will 
bring about the development of a whole new industrial sector, 
but the challenge is that current federal funding is very much 
focused on basic research in nanotechnology. We have heard from 
the nanotech industry about the gap in funding between research 
and having proof of concept getting to the point where it will 
attract venture funding.
    In your view, should the ATP program be one component of 
the federal Nanotechnology Initiative?
    Mr. Borrus. To echo Mr. Hall, one word, yes.
    Chairman Wu. Thank you.
    Now we do live in a world of budgetary constraints. Now 
there is a general agreement, and we hear this from both ends 
of Pennsylvania Avenue about the need for a strong innovation 
agenda, which includes significant funding increases for 
research and development, and on my part, I hope for education, 
both K-12 and higher education.
    Now the Administration has, thus far, focused primarily on 
basic research in the Competitiveness Initiative. Should the 
ATP program be a significant component of the federal 
innovation agenda? And if it is a one-word answer yes, why?
    Mr. Borrus. Yes.
    Why? You only unleash the social impacts that benefit the 
Nation when you transition something out of the lab and into 
the commercial marketplace. As I have tried to indicate, there 
are some major gaps in financing for that precise part of the 
problem. And you have to bridge that. I am trying to fill it, 
but I obviously, by myself, am not going to be able to fill 
very much of it. There is clearly a role for other federal 
funding mechanisms, and in particular for ATP, there as well.
    And maybe I should elaborate on my nanotech piece. It is 
beginning to trickle out a little. Many of the things I look at 
and consider investing in these days have a nanoscale-
engineering component to it. I think, by the way, that it is 
probably wrong to think about nanotechnology as a new, emerging 
industry. It is a technology that will be very widely applied 
across a very big number of industries. It is already beginning 
to transform chemistry, transform material science, ultimately 
will have very significant impacts in the manufacturing 
industries as well.
    Facilitating that transition holds out one of the best 
hopes for generating the kind of innovation and revival and 
continued leadership by American industry as a whole, that can 
sustain a growing standard of living in this country in light 
of the challenges that we face.
    Chairman Wu. Are there any other questions from the members 
present?
    If not, I would just like to say that we all strongly 
support NIST, and especially the NIST laboratories. They have 
done well in terms of federal financial support, and they have 
done even better in terms of their success. Three Nobel Prizes 
is just the tip of the iceberg. What we want is a balance 
between the laboratory enterprise and the other very important 
things that NIST does. And we would like, we will insist upon a 
sensible, fact-based set of policies in science and in 
economics for our economy's sake. As much as we may have 
interesting discussions with philosophers, when we get down to 
science and running our economy, I think that it is wise to pay 
heed to fact-based, numbers-based constraints.
    And Dr. Jeffrey, I would look forward to working with you 
to develop that. I believe that you want to do that.
    And I want to thank the panelists, all of you who made this 
journey to this wonderful frosted town today to make 
significant contributions to this very, very important 
discussion.
    I thank you all very much.
    I want to thank all of you for coming. The witnesses are 
excused, and this hearing is now adjourned.
    [Whereupon, at 11:50 a.m., the Subcommittee was adjourned.]
                              Appendix 1:

                              ----------                              


                   Answers to Post-Hearing Questions




                   Answers to Post-Hearing Questions
Responses by William Jeffrey, Director, National Institute of Standards 
        and Technology, Technology Administration, U.S. Department of 
        Commerce

Questions submitted by Chairman David Wu

MEP

Q1.  The Administration indicates that it believes its proposed cut to 
MEP can be absorbed by increased charges to small manufacturers, 
increases in efficiency, cost-reduction at MEP Centers, and 
consolidation of Centers. Please provide the Committee with the NIST 
analysis that justifies these claims.

A1. The annual reported benefits by manufacturing clients of the MEP 
Centers conducted through an independent survey demonstrates a 
significant level of cost savings and efficiency improvements for the 
MEP clients. For example, the latest MEP client survey results 
(released January 2007 and reflecting FY 2005 benefits) demonstrate 
that MEP helped 16,448 clients create and retain 53 thousand jobs; 
increase and retain sales of nearly $6.3 billion; and generated cost 
savings of just over $1.3 billion (both recurring and non-recurring). 
These impacts resulting in reduced costs and potentially increased 
profits for the client could be used to support increased fees for 
future services. With increased revenues streams from client fees, MEP 
centers may offset, in whole or in part, the reduction in federal 
funds. The FY 2008 Budget request would also encourage these Centers to 
be more efficient by reducing their overhead costs, including marketing 
costs.

Q2.  How many MEP Centers could be operated effectively under the 
proposed budget of only $46 million? What analysis has NIST performed 
to arrive at this conclusion?

A2. MEP is required by statute to use a merit-based process for 
awarding funds. The specifics of how many centers and where they might 
be located is unknown at this time. The MEP Director will work with the 
Centers to develop options that consider each center's customer base, 
constraints, and opportunities. Actions taken by any center or group of 
centers will be assessed against their ability to maintain support to 
the small manufacturers. If the requested budget is enacted, we will 
work with the centers to examine alternatives and optimize the best 
plan for operating at the $46.3 million level that ensures the maximum 
benefit to small manufacturers.

Q3.  What specific discussions has NIST held with MEP Centers and their 
state funding agencies about the proposed 56 percent funding reduction?

A3. MEP meets quarterly with MEP Center Directors and uses these 
quarterly meetings to discuss information such as the Administration's 
federal budget priorities and proposed MEP program operations under a 
reduced budget.
    Additionally, we had discussed an MEP re-competition, but based 
upon inputs from the MEP Center Directors, Congressional Members and 
Staff, and others it became clear that the process of the re-
competition would be disruptive to current Center operations. We 
therefore decided not to hold this re-competition.

VCAT

Q4.  How did you incorporate recommendations from the Visiting 
Committee on Advanced Technology (VCAT) into the new initiatives in the 
FY08 budget, including those carried over from the FY07 request? What 
recommendations did the VCAT make that were not included in the new 
initiatives?

A4. The Visiting Committee on Advanced Technology (VCAT) is a source of 
external input that is often focused around the expertise of the 
individual VCAT members. NIST takes into consideration VCAT input when 
developing new programs or evaluating the course of current programs.
    The VCAT is only one of many sources of recommendations that NIST 
considers while developing new programs and initiatives. NIST also 
takes into account Congressional, Administration, and Agency 
priorities, and the requirements and needs of industry, business, and 
academic communities as well as the broad trends we see in science and 
technology.
    Shortly after arriving at NIST as the Director, Dr. Jeffrey tasked 
senior management to develop a strategic vision for biosciences and 
health. NIST is working with industry, academia, and the National 
Institutes of Health (NIH) to develop this vision, of which the FY07 
bio-imaging initiative was the first component. This is an ongoing 
planning process, for example, NIST is developing a prospective 
economic study in the area of biopharmaceuticals that will be available 
this fiscal year.
    The VCAT is very much involved in this process, and for this year's 
VCAT meetings, decided to have breakout sessions in the broad areas of 
bioscience, nanotechnology, and information technology to discuss 
strategies and industry needs and opportunities with NIST staff.

National Research Council Review Process

Q5.  You have made two major changes in the National Research Council 
(NRC) review process: in December 2006 you directed the NRC to switch 
from a full-agency review of NIST to reviewing only half of the labs at 
a time, and you omitted all mention of assessing cross-cutting and 
multi-disciplinary programs in your formal charge to NRC. Why shouldn't 
the NRC review all of NIST's programs in the same cycle, and why should 
it not provide an analysis of cross-cutting work? What external review 
will be done of cross-cutting programs?

A5. Under the past system with annual reviews, the NRC report would 
often come out in about January while the next review would be 
scheduled to start in approximately March. This left very little time 
to implement recommendations from the NRC report and properly measure 
the effectiveness of these changes.
    The new biennial review process is consistent with the 
recommendations of the National Academies regarding the evaluation of 
R&D programs. Specifically, the National Academy's Committee on 
Science, Engineering, and Public Policy report titled Evaluating 
Federal Research Programs: Research and the Government Performance and 
Results Act states that the useful outcomes of basic research cannot be 
measured directly on an annual basis but instead highlights the need 
for assessment that evaluates the quality and relevance of the research 
as well as the leadership of that research, all of which are seen as 
good predictors of eventual usefulness. The biennial review process 
directly addresses these metrics.
    The NRC report was by and large a compilation of individual 
laboratory reports. Cross-cutting and multi-disciplinary program 
reviews were only tangentially addressed. NIST's new contract with NRC 
includes an explicit option for special studies that may include cross-
cutting issues involving not only the NIST Laboratories but also from 
areas such as the Hollings Manufacturing Extension Partnership program.
    In addition to the cross-cutting and multi-disciplinary program 
review that can be done under the NRC contract, NIST's Visiting 
Committee on Advanced Technology also looks at NIST-wide programs.

VCAT and NIST Budget Initiatives

Q6.  In its most recent report (FY05) the VCAT noted that biomedical 
technology created ``a unique opportunity and challenge for NIST.'' The 
FY04-05 NRC assessment of NIST recommended that NIST undertake 
``comprehensive, cross-laboratory planning efforts in both the 
biosciences and health.'' However, only one of the fourteen combined 
FY07 and FY08 budget initiatives is in the field of biotechnology (Bio-
imaging). How did NIST determine that these recommendations were of low 
priority, and what is NIST's plan for work in the fields of biosciences 
and health in FY08 and future years?

A6. NIST considers the input from many stakeholders and draws on many 
information sources when developing new programs and initiatives and 
when evaluating the course of current programs. NIST's stakeholders 
include Congress and the Administration, as well as industry, the 
business community and academia. The methods used to obtain stakeholder 
input range from conducting economic impact and planning studies to 
outreach activities, such as the U.S. Measurement System study.
    Topics developed from these stakeholder feedback processes form the 
basis for many proposed initiatives which are then rigorously evaluated 
and screened. Each initiative is evaluated based on a series of 
questions including the difficulty of the problem, the NIST role and 
cost, and the impact of the solution.
    There is a clear need for improved measurement technologies in the 
biosciences and health related research. NIST's core capabilities are 
sure to have an impact in the measurements and standards gap that 
exists in the area of bio-imaging, especially as it relates to clinical 
diagnostic tools such as MRI. NIST is working with industry and 
academia to further evaluate the most significant and urgent 
measurement barriers that, if addressed by NIST, would have most impact 
to U.S. bioscience and health care industry.

Questions submitted by Representative Phil Gingrey

MEP

Q1.  Please elaborate on and provide several examples of how the 
Manufacturing Extension Partnership program leverages the applied 
research coming out of our nation's universities to help small and 
medium-sized manufacturers compete in the global market place. We know 
this type of assistance requires time and significant efforts, yet has 
large potential. How do you plan to continue to support this activity 
while reducing the funding for the program?

A1. A major focus of the MEP program is to build upon our foundation of 
process improvements with clients to develop innovation and growth 
services that will position U.S. manufacturers to meet the increasing 
demands of the global marketplace. Moving research from universities 
and federal labs is a key to providing manufacturers with access to the 
technologies needed for the development of innovative processes and new 
products. Recent examples include:

          The Montana Manufacturing Extension Center (MMEC) 
        located at Montana State University helped Universal Bio-
        availability Environmental/Soil Test Inc. (UNIBEST) bring to 
        the marketplace an innovative soil analysis device. This 
        ``cherry tomato-sized'' capsule is filled with unique resin 
        beads that allow direct analysis/measurement in the field, 
        thereby reducing the amount of material that must be 
        transported to and handled in a laboratory. In addition to 
        working on the preliminary design of the manufacturing process 
        and machinery for the soil analysis capsule, MMEC also prepared 
        cost estimates for the design and fabrication. The capsules for 
        soil testing currently make up about 95 percent of UNIBEST 
        manufacturing demand, but the manufacturer expects that to 
        change because they are working to obtain EPA approval of the 
        same technology for use in environmental testing and 
        monitoring.

          The Oklahoma Alliance for Manufacturing Excellence--
        an MEP Center--was instrumental in the implementation of the 
        Oklahoma Nanotechnology Applications Project (ONAP). The ONAP 
        extends financial support and technical services for the 
        application of nanotechnology in Oklahoma's manufacturing and 
        business community. One of the first awardees, SouthWest 
        NanoTechnology (SWeNT), manufactures high quality carbon 
        nanotubes. With the new manufacturing techniques developed at 
        the University of Oklahoma, SWeNT plans to diversify its 
        manufacturing processes and mass produce a ``commercial grade'' 
        of carbon nanotubes at a substantially lower price than is 
        currently possible. The production volumes are expected to 
        increase more than 30 fold while costs are expected to fall by 
        90 percent.

    The FY 2008 Budget request would maintain a network of MEP centers 
funded according to their performance and need, and would encourage 
these Centers to be more efficient by reducing their overhead costs, 
including marketing costs. Centers could also ask MEP clients to cover 
more of the cost of the services through modestly increased fees.

Questions submitted by Representative Jim Matheson

MEP

Q1.  An OMB justification for the MEP budget cut was that almost 20 
percent of MEP clients are manufacturing firms with more than 250 
employees and these firms would be able to make up the funding 
difference due to their size. Does the Administration now consider 
manufacturers with more than 250 employees as outside the traditional 
definition of a ``small business''? What evidence does the 
Administration use that justifies MEP clients with more than 250 
employees can charge more for their services?

A1. I am unaware of the OMB justification to which you are referring. 
The data describing the fraction of MEP business serving clients with 
more than 250 employees was provided by the MEP in their analysis of 
their business (``Making a Difference for America's Manufacturers''), 
and was not a delineation chosen by the Administration.
    In characterizing the size of clients, MEP uses the size guidance 
developed by the Small Business Administration (SBA) Office of Size 
Standards. In the current Table of Small Business Size Standards, 
effective July 31, 2006, the majority of industries with 500 or fewer 
employees are considered small businesses.
    The cost savings and efficiency improvements reported by 
manufacturing clients of MEP Centers result in reducing costs to MEP's 
clients and could be used to support increased fees for future MEP 
Center services. The annual reported benefits by manufacturing clients 
of the MEP Centers conducted through an independent survey demonstrates 
a significant level of cost savings and efficiency improvements for the 
MEP clients. For example, the latest MEP client survey results 
(released January 2007 and reflecting FY 2005 benefits) suggest that 
MEP helped 16,448 clients create and retain 53 thousand jobs; increase 
and retain sales of nearly $6.3 billion; and generated cost savings of 
just over $1.3 billion (both recurring and non-recurring). These 
impacts resulting in reduced costs and potentially increased profits 
for the client could be used to support increased fees for future 
services. With increased revenues streams from client fees, MEP centers 
may offset, in whole or in part, the reduction in federal funds.
                   Answers to Post-Hearing Questions
Submitted to R. Stanley Williams, Senior HP Fellow in Quantum Science 
        Research, Hewlett-Packard Corporation

    These questions were submitted to the witness, but were not 
responded to by the time of publication.

Questions submitted by Chairman David Wu

Q1.  Your testimony points out that the mission creep at NIST has 
stretched the scientific staff very thin. What are the possible 
consequences for U.S. industry if NIST starts to lag behind in its core 
measurement and standards role? What NIST missions are falling behind, 
or are in danger of falling behind, because of this mission creep?

Q2.  You recommend that NIST should resist the temptation of adding new 
programs in FY08 to justify a funding increase until it is clear that 
current missions are adequately served. How do you suggest that NIST 
seek outside evaluation for determining whether current mission needs 
are being met? Are the current review by the National Research Council 
and input from the Visiting Committee on Advanced Technology 
sufficient?

Questions submitted by Representative Phil Gingrey

Q1.  Given that the President intends to double the National Institute 
of Standards and Technology's (NIST) research budget over the next ten 
years, what process do you think NIST should use to prioritize where it 
spends this new money? For example, do you believe NIST should perform 
a formal needs assessment with involvement from the external community 
to prioritize its research?
                   Answers to Post-Hearing Questions
Responses by Michael Borrus, General Partner, X/Seed Capital

Questions submitted by Chairman David Wu

Q1.  How has the role of U.S. venture capital for high-technology 
companies changed in the last five years? Is there still a need for 
early-stage seed funding that can be filled by the Advanced Technology 
Program (ATP)?

A1. Answered in submitted written and oral testimony and throughout 
oral responses (see pp. 40-44, pp. 89-93).

Q2.  The ATP has been characterized by its opponents as ``picking 
winners and losers'' among technology companies. Do you agree with this 
characterization?

A2. See oral responses, p. 90.

Q3.  The Federal Government has invested more than $7 billion in the 
National Nanotechnology Initiative (NNI) over the past six years, and 
the Administration is requesting $1.45 billion for FY08. Does the 
``valley of death'' lack of early-stage seed funding for technology 
start-ups also exist in the field of nanotechnology? In your view, 
should the ATP be a component of a federal nanotechnology initiative? 
If so, why?

A3. See oral responses, pp. 89-93.

Question submitted by Representative Phil Gingrey

Q1.  Given that the President intends to double the National Institute 
of Standards and Technology's (NIST) research budget over the next ten 
years, what process do you think NIST should use to prioritize where it 
spends this new money? For example, do you believe NIST should perform 
a formal needs assessment with involvement from the external community 
to prioritize its research?

A1. As one of the very best federal research labs, NIST has scientists 
who are fully competent to determine the institution's research 
priorities and they should consequently be accorded a very substantial 
role in the priority-setting process. However, NIST is also the primary 
federal research lab entrusted with interacting with essentially all 
U.S. industries--because all rely on metrology--and with playing a 
significant role to enhance long-term U.S. technological 
competitiveness. Consequently, NIST should also solicit substantial 
input from Universities and from the broad private sector in setting 
priorities. A formal needs assessment with input from the relevant 
external communities--including, inter alia, the academic science and 
technology communities, technology-intensive industries, long-term 
technology investors--would indeed insure that NIST priorities rested 
on the strongest possible foundation of insight into future needs.
                   Answers to Post-Hearing Questions
Responses by Peter Murray, Vice President, Welch Allyn, Incorporated

Question submitted by Chairman David Wu

Q1.  The Administration indicates that it believes its proposed cut to 
MEP can be absorbed by increased charges to small manufacturers, 
increases in efficiency, cost-reduction at MEP Centers, and 
consolidation of Centers. Do you agree with this assessment? How would 
the proposed cut affect the Oregon MEP?

A1. I do not agree with this assessment for the following reasons:

        A.  Increased charges to small manufacturers will reduce 
        revenues and force the MEPs to seek larger manufacturing 
        clients,

        B.  I am on the board of the Oregon MEP and feel that the 
        organization is very well run and has little to no room to 
        absorb further cost reduction and,

        C.  Consolidation and further cost reduction activities will 
        divert already scare managerial resources away from providing 
        client services or badly needed marketing efforts.

Questions submitted by Representative Phil Gingrey

Q1.  Given that the President intends to double the National Institute 
of Standards and Technology's (NIST) research budget over the next ten 
years, what process do you think NIST should use to prioritize where it 
spends this new money? For example, do you believe NIST should perform 
a formal needs assessment with involvement from the external community 
to prioritize its research?

A1. I agree with Ranking Member Gingrey that the prioritization of the 
proposed increase in funding for NIST must follow a formal needs 
assessment with involvement from the external community.
                   Answers to Post-Hearing Questions
Responses by Michael J. Ryan, President and CEO, TUG Technologies 
        Corporation

Questions submitted by Representative Phil Gingrey

Q1.  Given that the President intends to double the National Institute 
of Standards and Technology's (NIST) research budget over the next ten 
years, what process do you think NIST should use to prioritize where it 
spends this new money? For example, do you believe NIST should perform 
a formal needs assessment with involvement from the external community 
to prioritize its research?

A1. Because NIST plays such a significant role in establishing 
standards for technical applications across our country, we should 
develop a clear process for aligning the private sector with the 
important standards setting for the benefit it provides across the 
Nation. I believe that a needs assessment would be useful. It would 
allow and provide a catalyst for private science to benefit from a 
government body and optimize the needed change process; especially in 
the manufacturing sector. Our county is being out-paced by other 
countries globally serving a global market. The MEP represents a 
national tool for manufacturing system changes that requires an 
education of the decision-makers so that our U.S. based companies can 
compete ``on a level playing field.'' The MEP provides the needed 
support. We should try to enhance it's ability, not restrict it.
                              Appendix 2:

                              ----------                              


                   Additional Material for the Record




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      Statement of Daryl G. Hatano
                     Vice President, Public Policy
                   Semiconductor Industry Association
    The Semiconductor Industry Association (SIA) appreciates the 
opportunity to submit testimony on the importance of NIST to the 
competitiveness of the U.S. semiconductor industry.
    The SIA strongly supports doubling NIST as envisioned in President 
Bush's American Competitiveness Initiative and the House Democrats 
Innovation Agenda's call for a doubling of basic research in the 
physical sciences across all agencies.
    Today I would like to share the impact of semiconductor technology 
advances, the role NIST metrology research plays in furthering these 
advances, and NIST's potential contributions to the challenges we face 
as we approach the physical limits of our current technology. Simply 
put, the country whose companies are first to market in this technology 
transition will likely lead the coming nanoelectronics era the way the 
U.S. has led for half a century in microelectronics, and NIST can play 
a critical role in ensuring that America earns this leadership 
position.

NIST Contributes to U.S. Semiconductor Competitiveness

    The semiconductor industry employs 234,000 people across the U.S., 
directly contributes $60 billion to U.S. GDP and is America's largest 
export sector. The U.S. industry has 46 percent of the $248 billion 
world semiconductor market, down four percentage points from the 50 
percent market share in 2000 but still about twice that of the next 
leading industry.
    SIA's support for increased NIST funding is part of our overall 
innovation agenda calling for a doubling of funding for NSF, NIST, 
Department of Energy Office of Science; $20 million for the Defense 
Department to co-fund with industry the university Focus Center 
Research Program; increased availability of green cards and H-1Bs visas 
through immigration reform; increasing the number of science, 
technology, engineering and math graduates and improved K-12 math, 
science education; a permanent and enhanced R&D credit; and increased 
awareness of the impact of foreign tax incentives.

The Exponential Increase in Transistors Drives Economic Growth

    As the enabling technology behind computers, telecommunications, 
consumer electronics, and the Internet, the industry's ability to 
continually make better, faster, and cheaper chips is driving increased 
productivity and creating more jobs throughout the economy.
    For over three decades the industry has followed Moore's Law, which 
states that the number of transistors on a chip will double every 
eighteen months. The transistor is the basic building block within the 
semiconductor chip and can be thought of as an electronic switch or as 
retaining one bit (a one or a zero) in memory. The transistor is 
composed of a series of precisely etched and deposited layers of 
materials and semiconductors, with as many as two billion transistors 
integrated on a single silicon chip, are the most complex product 
manufactured on the planet.
    Today the cost of making one million transistors is one penny.
    The impact of Moore's Law on our economy is immense. Harvard 
economist Dale Jorgenson has noted that ``The economics of Information 
Technology begins with the precipitous and continuing fall in 
semiconductor prices.'' Professor Jorgenson quantified the rapid 
adoption of IT in the U.S. for driving substantial economic growth in 
the U.S. gross domestic product since 1995, concluding ``Since 1995, 
Information Technology industries have accounted for 25 percent of 
overall economic growth, while making up only three percent of the GDP. 
As a group, these industries contribute more to economy-wide 
productivity growth than all other industries combined.'' \1\
---------------------------------------------------------------------------
    \1\ Dale W. Jorgenson, ``Moore's Law and the Emergence of the New 
Economy'' in ``2020 is Closer than You Think;'' 2005 SIA annual report.
---------------------------------------------------------------------------
    To see the impact of the productivity gains on a single sector, it 
is instructive to consider the benefits the government (Federal, State, 
and local) receives as a consumer of semiconductors. The Department of 
Commerce's Bureau of Economic Analysis has data indicating that the 
government sector of the economy purchased $8.1 billion of computers in 
2004, but that they would have had to spend $46.7 billion for that same 
amount of computing power if they had to pay 1995 prices. The 
cumulative benefit from technology improvements and resulting price 
declines from 1995 to 2004 is $181 billion of ``free'' computing. In 
this tight budget year, it is important to remember that the federal 
investments made to support basic research are not only beneficial to 
the overall U.S. economy, but also allows the government itself to do 
more with less as a result of falling computing costs.

The Roadmap Sets a Timetable for Technology Advances

    To continue the exponential growth of the number of transistors on 
a chip, over 800 hundred chip experts around the world contribute to 
``The International Technology Roadmap for Semiconductors'' (ITRS).\2\ 
The North American participation of the ITRS is under the auspices of 
the SIA. NIST has been a strong supporter of the ITRS--in fact one of 
the first meetings of what is now the ITRS was held at NIST's Boulder, 
Colorado facility. Today NIST co-chairs and has four people on the 
Metrology technical working group, and also has representatives on the 
Emerging Research Devices and Materials, Assembly and Packaging, 
Factory Integration, and RF for Wireless working groups.
---------------------------------------------------------------------------
    \2\ http://www.itrs.net/
---------------------------------------------------------------------------
    The ITRS identifies the milestones that must be reached in all 
aspects of semiconductor manufacturing for technology trends such as 
Moore's law to continue. One example of a roadmap characteristic is 
microprocessor transistor gate lengths--a critical dimension that 
affects the processor's speed. When SIA testified about the NIST budget 
before this committee in 2004, the transistor gate length was 37 
nanometers.\3\ This year it will shrink to only 25 nanometers, and it 
is targeted to decrease from 14 nanometers in 2012 and eight nanometers 
in 2017. (Note: a nanometer is one-billionth of a meter. A human hair 
is 100,000 nanometers in width, and a red blood cell is 5,000 
nanometers in width.) If these and other milestones identified in the 
ITRS are reached, microprocessors would be five times faster.\4\
---------------------------------------------------------------------------
    \3\ Testimony of Daryl G. Hatano, Semiconductor Industry 
Association, Before the House Science Committee Subcommittee on 
Environment, Technology, and Standards; April 28, 2004.
    \4\ ITRS Table 4c.
---------------------------------------------------------------------------
    The ITRS lists the technical barriers at each stage of production 
that must be overcome if we are to continue to enjoy the benefits of 
chip technology advances. One important set of challenges is in the 
area of metrology. New metrology tools and techniques are needed to 
accurately perform critical measurements as new materials, processes, 
and device structures are introduced.
    About 100 key measurements and controls have been identified by the 
ITRS metrology working group as critical to future semiconductor 
technology advances from now until 2020. Examples of the types of 
metrology challenges confronting industry over this timeframe are:

          Integrating metrology at the factory level;

          Measuring the thickness of layers deposited on a 
        wafer, the lengths of transistor gates, and the aspect ratio of 
        the depth and width of trenches etched on a chip;

          Measuring the roughness of line edges at the 
        nanoscale;

          Detecting impurities in new substrates; and

          Insuring that metrology within a chip accounts for 
        variations across a single chip and across a wafer with 
        hundreds of chips.

NIST's Ability To Meet The Challenges Has Not Kept Pace With Advance Of 
                    Technology

    NIST is the leader in semiconductor metrology research. Its 6th 
annual nanoelectronics metrology conference next month is expected to 
attract 250 attendees from all over the world and the conference 
proceedings will be published by the American Institute of Physics. 
However NIST's efforts are insufficient given the magnitude of the 
technical challenges that must be overcome to continue the current rate 
of technology advances. As an indication of the shortfall, NIST 
spending on semiconductor research has only increased 35 percent since 
1995. As an indication of the growing technical challenge as circuits 
continue to shrink, the semiconductor industry's total investment in 
R&D increased 143 percent during that period. See Figure 1.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Support for increased funding for NIST semiconductor work has come 
from many quarters. In February 2005 the Defense Science Board Task 
Force on High Performance Microchip Supply issued a report that 
concluded ``Semiconductor technology and manufacturing leadership is a 
national priority that must be maintained if the U.S. military is to 
continue to lead in the application of electronics to support the 
warfighter.'' \5\ In its list of recommendations, the DSB singled out a 
NIST increase as a key element in a program to keep U.S. leadership in 
semiconductors:
---------------------------------------------------------------------------
    \5\ The Defense Science Board Task Force on High Performance 
Microchip Supply, February 2005 p. 27.

         ``NIST is best positioned to focus research on many of the 
        metrology challenges identified in the International Technology 
        Roadmap for Semiconductors. When it was established in 1994, 
        the NIST Office of Microelectronics Programs was to start at 
        $12 million in annual funding and grow to $25 million. This 
        level was not achieved, but this task force considers this 
        activity an important contribution to the national 
        microelectronics supply issue.'' \6\
---------------------------------------------------------------------------
    \6\ Ibid. p. 61.

                 Defense Science Board Task Force on High Performance 
                Microchip Supply
                 February 2005

Finding a New Switch

    We are beginning to reach the fundamental limits of the CMOS,\7\ 
the process that has been the basis for the semiconductor industry for 
the past 30 years. By introducing new materials into the basic CMOS 
structure and devising new CMOS structures and interconnects, further 
improvements in CMOS can continue for the next ten to fifteen years, at 
which time CMOS begins to reach its physical (layers only a few atoms 
thick) and power dissipation limits. For the U.S. economy to continue 
to benefit from the information technology productivity improvements 
described above, there will need to be a ``new logic switch'' to 
replace the current CMOS-based transistor.
---------------------------------------------------------------------------
    \7\ Complementary Metal Oxide Semiconductor
---------------------------------------------------------------------------
    There are a number of candidates for the new switch, including 
spintronics (changing a particle's spin) and molecular electronics 
(changing a molecule's shape). There are many metrology challenges as 
scientists search for the new switch. For example, molecular 
electronics advances require the measurement of intrinsic molecular 
conduction in single molecules and in 2 nm thick molecule monolayers. 
Advances in spintronics will require development of capabilities to 
measure spin densities and material polarization at the nm-size scale.
    To identify the new logic switch to replace the transistor, the SIA 
has launched the Nanoelectronics Research Initiative (NRI) that pulls 
together semiconductor companies, 23 universities in 12 states, State 
governments, and the National Science Foundation. The House 
Appropriations Committee report singled out the NSF's work with the NRI 
as well as its Silicon Nanoelectronics and Beyond program and 
encouraged such work to be continued.\8\ NIST scientists have been 
participating in NRI meetings and SIA and NRI are discussing with NIST 
officials how this participation might be expanded.
---------------------------------------------------------------------------
    \8\ ``The Committee commends NSF for its Silicon Nanoelectronics 
and Beyond program and its partnership with the Nanoelectronics 
Research Initiative, which involves the sponsorship of research in the 
areas of information' technology and electronics. The Committee 
encourages NSF to continue its support for such research in Fiscal year 
2007.'' House Report 109-118--Science, State, Justice, Commerce, And 
Related Agencies Appropriations Bill, Fiscal Year 2006.
---------------------------------------------------------------------------
    NIST involvement in the effort to find a new switch is absolutely 
critical. As noted at the outset of this testimony, the country whose 
companies are first to market will likely lead the coming 
nanoelectronics era the way the U.S. has led for half a century in 
microelectronics. The impact on the U.S. economy and national security 
should the U.S. not lead in the nanoelectronics is unfathomable.

SIA Recommendations to Congress for NIST and Other Research Agencies

    The SIA supports a significant increase for the NIST Scientific and 
Technical Research Services for FY 2008 along the lines of the 
Administration's budget request and the House Democrats Innovation 
Agenda's call for a doubling of basic research in the physical sciences 
across all agencies within five years. In particular SIA supports the 
increased funding for the newly created NIST Center for Nanoscale 
Science and Technology which will engage in research on many of the 
challenges outlined in this testimony, and full funding of the 
facilities budget for the Advanced Measurement Laboratory.
    The budget increases at NIST aimed at metrology issues should be 
done in concert with increased appropriations for other programs in 
semiconductor research at universities. SIA supports the significant 
increases in the NSF budget envisioned by the American Competitiveness 
Initiative and the House Democrats' Innovation Agenda; and in 
particular encourages increased funding on National Nanotechnology 
Initiative. SIA also urges Congress to appropriate $10 million for the 
Defense Department's Government-Industry Co-sponsorship of University 
Research program.\9\ Coupled with an expected $10 million from DARPA, 
this appropriation would allow the Defense Department to leverage $20 
million from industry to fund the $40 million Focus Center Research 
Program that supports semiconductor research at 38 universities across 
the country.\10\
---------------------------------------------------------------------------
    \9\ The Government-Industry Cosponsorship of University Research 
(GICUR), program element number 0601111D8Z, is funded through the 
Office of the Secretary of Defense.
    \10\ For further information on the Focus Center Research Program, 
see http://fcrp.src.org
---------------------------------------------------------------------------

Summary

    NIST defines its mission as ``To promote U.S. innovation and 
industrial competitiveness by advancing measurement science, standards, 
and technology in ways that enhance economic security and improve our 
quality of life.'' There is no better opportunity for NIST to fulfill 
its mission than to expand its interactions with the semiconductor 
industry and solve the metrology challenges associated with advancing 
CMOS technology to its ultimate limits and finding a new switch to 
ultimately replace CMOS technology.
    For the past five decades, semiconductors have become ever faster, 
better, and cheaper, and today are a major driver of growth in economic 
productivity. Congress must increase the NIST laboratory budget if the 
country is to continue to enjoy the benefits of every increasing 
semiconductor capabilities at ever decreasing costs.
