[Joint House and Senate Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-612
 
        FUELING LOCAL ECONOMIES: RESEARCH, INNOVATION, AND JOBS

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 29, 2010

                               __________

          Printed for the use of the Joint Economic Committee




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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

HOUSE OF REPRESENTATIVES             SENATE
Carolyn B. Maloney, New York, Chair  Charles E. Schumer, New York, Vice 
Maurice D. Hinchey, New York             Chairman
Baron P. Hill, Indiana               Jeff Bingaman, New Mexico
Loretta Sanchez, California          Amy Klobuchar, Minnesota
Elijah E. Cummings, Maryland         Robert P. Casey, Jr., Pennsylvania
Vic Snyder, Arkansas                 Jim Webb, Virginia
Kevin Brady, Texas                   Mark R. Warner, Virginia
Ron Paul, Texas                      Sam Brownback, Kansas, Ranking 
Michael C. Burgess, M.D., Texas          Minority
John Campbell, California            Jim DeMint, South Carolina
                                     James E. Risch, Idaho
                                     Robert F. Bennett, Utah

                    Andrea Camp, Executive Director
               Jeff Schlagenhauf, Minority Staff Director


                            C O N T E N T S

                              ----------                              

                                Members

Hon. Carolyn B. Maloney, Chair, a U.S. Representative from New 
  York...........................................................     1
Hon. Kevin Brady, U.S. Representative from Texas.................     3
Hon. Elijah E. Cummings, a U.S. Representative from Maryland.....     4
Hon. Michael C. Burgess, M.D., a U.S. Representative from Texas..     6

                               Witnesses

Mr. Zachary J. Shulman, Senior Lecturer of Entrepreneurship, The 
  Johnson School, Cornell University; Managing Partner, Cayuga 
  Venture Fund, Ithaca, NY.......................................     8
Dr. Samuel L. Stanley, Jr., M.D., President, Stony Brook 
  University, Stony Brook, NY....................................    10
Mr. Dane Stangler, Research Manager, Ewing Marion Kauffman 
  Foundation, Kansas City, MO....................................    12

                       Submissions for the Record

Prepared statement of Representative Carolyn B. Maloney, Chair...    32
Prepared statement of Representative Kevin Brady.................    32
Prepared statement of Representative Elijah E. Cummings..........    33
Prepared statement of Representative Michael C. Burgess..........    35
Prepared statement of Mr. Zachary J. Shulman.....................    35
Prepared statement of Dr. Samuel L. Stanley, Jr..................    38
Prepared statement of Dr. Robert E. Litan........................    48


        FUELING LOCAL ECONOMIES: RESEARCH, INNOVATION, AND JOBS

                              ----------                              


                         TUESDAY, JUNE 29, 2010

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:01 a.m. in Room 
106 of the Dirksen Senate Office Building, The Honorable 
Carolyn B. Maloney (Chair) presiding.
    Representatives present: Maloney, Hinchey, Cummings, 
Snyder, Brady, and Burgess.
    Senators present: Klobuchar.
    Staff present: Andrea Camp, Gail Cohen, Colleen Healy, 
Jessica Knowles, Ted Boll, and Robert O'Quinn.

OPENING STATEMENT OF THE HONORABLE CAROLYN B. MALONEY, CHAIR, A 
               U.S. REPRESENTATIVE FROM NEW YORK

    Chair Maloney. The meeting is called to order. I understand 
Mr. Brady is on his way, but I have also been told that we must 
break at 10:30 for votes, so I think it is important that we 
start on time and move forward with this important hearing. I 
welcome all of our panelists today and thank you so much for 
coming.
    I just have to note that I spent the last week in this room 
on the Financial Regulatory Reform Bill, so I hope there will 
be more agreement today in moving forward than we had in the 
debates last week in this same room.
    I am very pleased to hold today's hearing on the role that 
innovation has on fueling employment and growth in local 
communities. This Congress is continuing an innovation agenda 
in order to rekindle growth and prosperity in the United 
States.
    One important part of this agenda is the reauthorization of 
the America COMPETES Act, which passed in the House of 
Representatives on May 28th. This legislation will help fund 
universities and ensure U.S. competitiveness in the global 
economy.
    Recently the JEC issued a report on the importance of 
federally funded basic research. The report shows that basic 
research--research which contributes to our fundamental stock 
of knowledge--is an important component of research and 
development and can have a large impact on productivity.
    The private sector under-invests in basic research because 
the returns from these investments are often smaller than the 
returns to the economy as a whole. Yet this basic research is 
critical to the private sector. Investment in basic research is 
a mechanism for spurring precisely the innovation that business 
leaders, academics, and policy makers have identified as 
critical for our nation's economic growth.
    The Federal Government funds almost 60 percent of basic 
research in the United States. The innovations that have 
improved the country's productivity and quality of life flow 
directly from these investments. The technology improvements 
created from basic research have played an important role in 
enhancing the productivity of businesses and workers, and have 
spurred new job-creating industries such as the biotechnology 
sector.
    Basic research occurs at universities across the United 
States. This partnership between the Federal Government and 
universities helps to form an entrepreneurial ecosystem that 
benefits the local economy by creating jobs and spurring 
economic growth.
    The Science Coalition recently released a report that shows 
the tremendous return on the Federal investment in university-
based basic research. Their report is a dramatic demonstration 
of the economic impact that these research universities have on 
the local community and it highlights a key fact: companies 
that grow out of university research often locate very near 
those universities. These universities are often the biggest 
employers in the community and serve as business incubators 
that drive new companies.
    Equally important, universities and their communities 
foster creativity, talent, and ideas, which lead to the next 
generation of businesses and innovations that will drive the 
new economy.
    I am pleased that this partnership between universities and 
businesses is represented by two New York witnesses, Dr. 
Stanley and Mr. Shulman, who can illustrate how these synergies 
are working across New York State.
    As our economy starts its recovery from the tremendous blow 
of the ``Great Recession,'' it is important to remember the 
role that entrepreneurs and innovation have in spurring growth.
    I am very sorry that Dr. Litan is ill and is unable to 
deliver his oral testimony today. I was especially eager to 
continue our conversation on strategies to promote the next 
generation of innovation in the United States.
    As some of my colleagues may recall, when Dr. Litan 
testified before us last December on financial regulatory 
reform, he also mentioned that a job creator's visa should be 
considered by Congress as a way of creating jobs without any 
additional cost to the Federal Government.
    A few months later, Senators Kerry and Lugar created 
legislation that addressed this issue: The Start-Up Visa Act of 
2010. Inspired by Dr. Litan's testimony, I recently introduced 
the Kerry-Lugar bill into the House of Representatives. I am 
happy, however, that Dr. Litan's co-author, Mr. Stangler, is 
here in his stead.
    I am eager to discuss with our panel additional ways that 
Congress can make sure that we regain the innovative and 
dynamic economy that we once had.
    I welcome each of you, and I look very much forward to your 
testimony and a conversation on ways to create more jobs and 
innovation in our great country.
    I now yield to Mr. Brady.
    [The prepared statement of Representative Maloney appears 
in the Submissions for the Record on page 32.]

    OPENING STATEMENT OF THE HONORABLE KEVIN BRADY, A U.S. 
                   REPRESENTATIVE FROM TEXAS

    Representative Brady. Thank you, Madam Chairman. I am 
pleased to join in welcoming the witnesses before the Committee 
this morning.
    Since its founding, the Republican Party has been committed 
to supporting higher education and scientific research. Back in 
May of 1862, President Abraham Lincoln signed legislation 
creating the Department of Agriculture to conduct ag research 
and disseminate its findings to farmers.
    On July of the same year, President Lincoln signed the 
Morrill Land-Grant College Act. Sponsored by U.S. 
Representative Justin Morrill, this Act endowed public colleges 
in each state with the proceeds of all federal land sales. 
These land-grant colleges grew into great state universities 
that have educated millions of Americans and conducted a 
majority of our basic scientific research over the decades.
    In July of 1958, President Dwight Eisenhower signed the 
National Aeronautics and Space Act, creating NASA. In his 1970 
State of the Union Address, President Richard Nixon committed 
this country to a ``war against cancer'' to find treatments and 
cures for this dreaded disease. And Federal funding for the 
National Institutes of Health grew by 181 percent from 1996 to 
2007 under Republican Congresses.
    By definition, basic scientific research doesn't have an 
expected immediate commercial application. However, the 
``Sparking Economic Growth'' report from the Science Coalition 
provides empirical support that Federal funding of basic 
scientific research generates real economic benefits.
    Basic scientific research leads to new discoveries and 
technological breakthroughs. Entrepreneurs can commercialize 
these discoveries and breakthroughs by establishing new 
companies, creating new products and services, and employing 
thousands of workers in highly skilled, well-paying jobs. This 
scientific and technological entrepreneurship keeps American 
firms at the cutting edge of the global economy. And in turn, 
these new companies and their workers pay millions of dollars 
in Federal income and payroll taxes.
    Supporting basic scientific research is an appropriate role 
for the Federal Government. Unlike so much of Federal spending 
that proponents mislabel as an investment, supporting basic 
scientific research is a real investment that produces 
substantial returns for American taxpayers over time.
    In this context, I am troubled by President Obama's short-
sighted decision to cancel the Constellation Program designed 
to develop new launch vehicles and spacecraft capable of 
reaching the Moon and Mars.
    Human space exploration drives technology that makes the 
United States more economically competitive. Life science 
research with astronauts has spurred breakthroughs in the 
detection and prevention of cancer, heart disease, and 
osteoporosis. De-funding the Constellation Program will harm 
the U.S. economy.
    I am also troubled that this Congress has allowed the 
research and development tax credit to expire. Congress enacted 
the R&D tax credit in 1981. Seeing the benefits of our tax 
credit, other countries have mimicked us by enacting more 
generous R&D tax credits. By 2004, the U.S. had fallen to 17th 
place in R&D tax benefits among our major member competitive 
countries.
    The U.S. competes with other developed countries for R&D 
spending by multinational companies. Corporate R&D creates some 
of the highest-skilled, best-paid jobs. We want corporations to 
conduct their R&D in the United States to strengthen the long-
term competitiveness of our economy. We should be enhancing the 
R&D tax credit and making it permanent. This Congressional 
inaction is incomprehensible.
    Turning to today's testimony, Dr. Litan cited a number of 
bureaucratic difficulties that inhibit the commercialization of 
discoveries and technological breakthroughs from basic 
scientific research at universities.
    First, he described a major weakness of the peer review 
system; that is, some established academics abuse peer review 
to squash the research that is contrary to their own views or 
that is viewed as outside of the box.
    The most recent example of peer review abuse is the scandal 
at East Anglia University when some climatologists tried to 
suppress research that contradicted their notion of man-made 
global warming. I am interested in Dr. Litan's views, or Mr. 
Stangler's views, on how to prevent peer review from becoming a 
closed ``old boys' club'' that suppresses innovative thinking.
    Second, he raised the issue of the centralization of 
licensing at universities. No single university bureaucracy is 
likely to have all the necessary knowledge to commercialize the 
varied discoveries and technological breakthroughs that may 
occur at a major research university. I am interested in 
suggestions of the panel today for introducing competition into 
the licensing process to speed commercialization.
    Third, I am also interested in the ideas of prizes to 
incentivize the development of innovative ways of 
commercializing university research.
    I look forward to hearing today's testimony. I am very 
pleased that Chairwoman Maloney called this hearing on a very 
interesting topic, and I yield back.
    [The prepared statement of Representative Brady appears in 
the Submissions for the Record on page 32.]
    Chair Maloney. Thank you very much.
    Now, Mr. Snyder is recognized.
    [No response.]
    Chair Maloney. Mr. Cummings.

 OPENING STATEMENT OF THE HONORABLE ELIJAH E. CUMMINGS, A U.S. 
                  REPRESENTATIVE FROM MARYLAND

    Representative Cummings. Thank you very much, Madam 
Chairwoman, and I appreciate your calling this hearing, 
especially in light of the fact that we will receive statistics 
regarding the employment situation for the month of June this 
Friday.
    According to an update provided by the Bureau of Economic 
Analysis last week, the Gross Domestic Product increased at an 
annual rate of 2.7 percent in the first quarter of 2010 from 
the fourth quarter of 2009.
    While this is a much needed improvement to the overall 
stability of the United States' economy, it does not 
necessarily translate directed into job creation, which is 
desired by our constituents and needed for a full economic 
recovery.
    For the month of May the employment situation improved by 
adding over 430,000 jobs, edging down the unemployment rate to 
9.7 percent. We are on a path to recovery, and others would say 
that it is not moving at the rate that we want it to because a 
large percentage of those jobs were in the public sector.
    The Democratic-led Congress and President Obama have 
created--or saved nearly some 3.5 million jobs through the 
stimulus legislation. To build upon this success, the House on 
June 16th passed two vital pieces of legislation to create 
hundreds of thousands of jobs on Main Street by expanding 
lending to small businesses and offering tax incentives to help 
small businesses grow, hire, and fuel our economy.
    H.R. 5297, the Small Business Jobs and Credit Act, and H.R. 
5486, the Small Business Jobs Tax Relief Act, will provide 
nearly $300 billion in loans to small businesses, and $2 
billion for innovative state lending programs supporting small 
businesses.
    Additionally, the HIRE Act, signed in March, is creating 
some 300,000 jobs by rebuilding America's infrastructure and 
giving tax credits to businesses that create jobs, and closing 
loopholes that allow corporations and the wealthy to hide 
income offshore.
    However, we must continue to look for new and creative ways 
to employ and train the 15 million unemployed people, and to 
prepare for the millions who are expected to enter the 
workforce over the next five years.
    Therefore, the hearing we are having today about the 
positive impact of federally funded research through university 
grants on communities and the potential for economic growth is 
very timely.
    I have the honor and privilege to represent Baltimore City, 
which has many wonderful universities dealing with research. We 
have the very prestigious Johns Hopkins University smack dab in 
the middle of my District, and the University of Maryland 
Professional Schools also located in the middle of my District.
    Johns Hopkins, a preeminent institution that often leads 
the Nation in the total amount of support dollars received by 
the Federal Government. In fact, nearly 85 percent of the 
research funding received by Johns Hopkins is support by 
Federal research dollars. This translates directly to the 
creation and maintenance of 5,700 full-time jobs at Hopkins.
    I might note that 20 years ago our number one employer was 
Bethlehem Steel in my District, and today it is Johns Hopkins.
    Additionally, scientists and physicians at Hopkins have 
competed for and so far won nearly $200 million in research 
funds from the stimulus bill already. This money will be spent 
over several years, but has already brought Baltimore 151 
solid, well-paying new Johns Hopkins staff jobs for research 
technicians, biostatisticians, research nurses, programmers, 
and others.
    Other educational institutions in my Congressional District 
are making great strides as well. Coppin State University just 
received a million dollars from the Department of Commerce to 
establish a computer center that will provide access to 
broadband services and offer numerous training and educational 
courses and online resources. The Center will offer a total of 
15 training and educational courses on a regular basis which 
will provide a wide variety of opportunities for the entire 
family in computer and broadband instruction, job training and 
creation, health information, and education, and education more 
generally.
    Together, the new infrastructure and instructional 
resources offered by the Center will not only stimulate greater 
and more efficient use of broadband services, but will also 
create and save approximately 5,500 jobs, provide a better-
educated workforce, improve schools, and help people be more 
globally competitive businesses and schools and greater 
financial stability.
    Federal programs have also provided nearly 100 jobs at 
Morgan State University and have sustained 22 jobs in Baltimore 
City.
    And so, Madam Chair, I look forward to hearing from our 
panel and I thank you for calling this hearing. And with that, 
I yield back.
    [The prepared statement of Representative Cummings appears 
in the Submissions for the Record on page 33.]
    Chair Maloney. Thank you so much. Dr. Burgess.

OPENING STATEMENT OF THE HONORABLE MICHAEL C. BURGESS, M.D., A 
                 U.S. REPRESENTATIVE FROM TEXAS

    Representative Burgess. Thank you, Madam Chairwoman.
    This is an important hearing that we're having today. It is 
likely to highlight some of the differences that exist on both 
sides of the dais, and perhaps even some of the differences 
that exist within our own sides: The proper role of government 
funding in scientific research.
    The issue has never been more timely. The Majority, the 
Democrats, are allowing a number of critical research and 
development tax credits to expire by refusing to compromise on 
other tax issues, the tax extender bill that should otherwise 
be enjoying bipartisan support. But the Majority's refusal to 
acknowledge the economic constraints in which we find ourselves 
as a Nation and pay for the spending that is in that 
legislation.
    Now for a long time, certainly I felt that the proper role 
of government in funding research and development and a host of 
issues for medical research, to energy policy, is when the 
government removes impediments towards advances in science and 
technology. And sometimes that means providing some measure of 
tax relief.
    The government funding that inherently comes with strings 
attached really wasn't needed in the field of cellphones. The 
private market drove those innovations, and today we have 
smaller, sleeker cellphones being released every month. I 
shudder to think what would have happened had the government 
been in charge of that. Those big, boxy, clunky things we had 
back in the '80s might still be the state of the art.
    Now all the work done at the National Institute of Health 
that has been done on genetics and personalized medicine, with 
the mapping of the human genome, is the real promise for 
medicine in the future. Government funding was the first step. 
But now it certainly is the private sector that is moving 
faster and faster than the government. It is clear that at 
least in the issue of genomic medicine government funding was 
necessary to get the ball rolling, and will be necessary in its 
initial development phase.
    Few in the private sector had the stomach to venture into 
the previously uncharted territory of genomics, and the 
government initiated the research. But it will no doubt lead to 
the private sector in spurring the private sector to actually 
develop and deliver on that promise.
    I was not a Member of Congress during the 1990s. I was just 
a regular guy. But the Congress of the late 1990s, under the 
leadership of Speaker Gingrich, when the Senate failed to pass 
a balanced budget amendment by one vote, they decided to get to 
work and play like there was a balanced budget amendment and 
worked toward a balanced budget in the House of 
Representatives.
    But at the same time, they assigned priorities. We know the 
history shows they were successful in achieving that balanced 
budget, but they did assign priorities. Because in those same 
years that they achieved a balanced budget in two years when 
they thought it would be seven, and the Administration said it 
would be ten, they assigned priorities. They doubled spending 
at the National Institute of Health.
    So it is possible to control Federal spending and fund 
those areas that are a priority for our future, to make those 
investments that are a priority for our future.
    The other instance that I would reference would be the 
development of what's called ``hydraulic fracturing'' in the 
tight-shale, alternative shale formations. It's certainly been 
an economic blessing in my part of the world in a shale 
formation known as the Barnett Shale. It protected our area 
from the Recession for a full year. The country entered into a 
Recession in December of 2007, but it was really December of 
2008 before we really felt that in Fort Worth, Texas, and 
that's because of the energy activity that was going on because 
of a Federal research and development grant from 15 years prior 
that allowed the development of that as an energy resource.
    And now it has changed the equation and changed the 
discussion about energy production in this country, because so 
many of these formations exist around--within our Continental 
United States.
    To be sure, we have to be careful about the environmental 
impacts, as we now benefit from the economic impacts, and that 
is an issue that will continue to require work, and will 
continue to require some Federal involvement. But the Federal 
Government planted the seed with research and development 15 
years ago, and the private sector took off and developed the 
resource.
    So Federal funding can be an important part of finding a 
solution to a number of the world's problems, but too often we 
put such a reliance on government spending, and then we kind of 
forget that the private sector really can do a better job at 
some of these issues than the Federal Government. And we end up 
picking winners and losers.
    I would just reference what's going on now in the field of 
electronic medical records--probably not part of this 
discussion because it was in the stimulus bill--but almost 
everyone carries a Smartphone nowadays. The Smartphone is the 
platform. Why don't we allow the applications to be built for 
medical purposes around the platform that already exists? 
Instead, we have the National Coordinator for Health 
Information Technology, or the Office of the National 
Coordinator, developing this extraordinarily complex set of 
rules regarding meaningful users, and meaningful use, and we 
may find that we end up with less use than we would have gotten 
had we simply developed the platform and then gotten out of the 
way.
    But anyway, I look forward to hearing our witnesses today, 
and I will yield back the balance of my time.
    [The prepared statement of Representative Burgess appears 
in the Submissions for the Record on page 35.]
    Chair Maloney. I thank my colleagues for their testimony 
and for being here today. And before I introduce today's panel, 
I would like to acknowledge and thank Senator Gillibrand from 
New York for her Summit on Innovation with the presidents of 
universities in New York State. Out of this research came many 
good ideas that were part of the formation of making this 
hearing happen today. So I wanted to acknowledge her 
contribution.
    I would also like to welcome our first panelist, Mr. Dane 
Stangler. Mr. Stangler has graciously agreed to testify in 
place of Dr. Robert Litan, who has submitted written testimony 
but was unable to be here today due to illness.
    Mr. Stangler is a Research Manager at the Kauffman 
Foundation. In that capacity, he provides research and writing 
on a wide variety of subjects, including entrepreneurship and 
urban economics. He also initiated and manages the Kauffman 
Foundation Research Series on Firm Formation and Economic 
Growth, and contributes to the Blog: Growthology. So we'll all 
have to check out that blog.
    And now I'd like to introduce Dr. Samuel L. Stanley, Jr. 
Dr. Stanley is the president of Stony Brook University. Stony 
Brook University is known for its prestigious research and 
integration of research with undergraduate education. He is a 
university president, as well as a preeminent scholar on 
infectious diseases.
    And finally I would like to welcome Mr. Zachary Shulman. 
Mr. Shulman is a managing partner at Cayuga Venture Fund, a 
venture capital fund located in Ithaca, New York. Mr. Shulman 
also teaches courses on venture capital and law for high-growth 
businesses at Cornell University.
    Thank you very much, and we'll begin with Mr. Shulman. You 
are recognized for five minutes. Please give your testimony and 
put the rest into the record so that we will have time for 
questions. Thank you for being here.

    STATEMENT OF MR. ZACHARY J. SHULMAN, SENIOR LECTURER OF 
   ENTREPRENEURSHIP, THE JOHNSON SCHOOL, CORNELL UNIVERSITY; 
       MANAGING PARTNER, CAYUGA VENTURE FUND, ITHACA, NY

    Mr. Shulman. Thank you very much.
    Good morning and thank you for inviting me to testify 
before your Committee. My name is Zachary Shulman. I am a 
Professor at the Johnson School at Cornell University. The 
Johnson School is Cornell's Business School. I am also a 
Managing Partner at the Ithaca-based venture capital firm 
called Cayuga Venture Fund.
    As you may know, Cornell ranked number one in New York 
State and number 15 overall in U.S. research spending in 2008. 
I would expect similar results for 2009. Fortunately, the 
spillover effect on employment and company growth in the Ithaca 
region is real and measurable.
    I can speak from experience as my Venture Fund invests 
significantly in companies commercializing Cornell-developed 
technologies. In my view, the partnership between government-
sourced research dollars, Cornell University, and my venture 
fund is a model that should be replicated in smaller cities 
throughout the U.S. that have a strong research university.
    The partnership, as I will explain, leads directly to real 
products in consumers' hands, job creation and retention, and 
direct economic growth in terms of revenue base--I'm sorry, 
revenue generation, payroll, and tax base. Let me give you some 
numbers to consider.
    My current venture fund has invested in 11 companies; 7 of 
the 11 are commercializing technologies developed at Cornell. 
Additionally, 2 out of the remaining 4 have significant grant 
collaborations with Cornell. Thus, 9 out of the 11 companies 
have a real Cornell connection. These 9 companies currently 
employ over 450 people, and that number is growing. The payroll 
for these companies is in the tens of millions.
    Likewise, in 2009 these companies generated revenues of 
over $95 million. And, importantly, these companies have 
garnered over $300 million in total investment from VCs like my 
own fund.
    We are a small fund in a small community, so you can do 
some quick extrapolation to measure the potential impact for 
other regions.
    Startup companies mean more jobs, more payroll, more 
revenue, more tax base, and more dollars invested. Smaller 
communities feel a relative impact of such drivers of economic 
growth to a greater degree.
    So the key question that I have can be framed this way: How 
is Cornell involved besides just being a research engine?
    Critically, Cornell supports the entrepreneurial community 
by being a significant direct investor in my venture fund. This 
is the true essence of the partnership. Cornell is partnered 
with the government in terms of the receipt of research 
dollars. Cornell is partnered with faculty in terms of the 
creation of intellectual property. Cornell supports the tech 
transfer function related to that intellectual property. And 
then, given its desire to see that research commercialized, 
engages in post-research activities that foster company 
creation and sustain growth.
    On the company-creation side, Cornell tech transfer works 
with entrepreneurs, including some faculty members, to vet 
technologies, look into commercial viability and market needs, 
and then licenses technologies to startup companies. Without 
the tech transfer function, the innovation culture would 
stagnate completely.
    On the sustained growth side, there's no mystery that 
startups always need more capital to start and grow. Some are 
funded by SBIR/STTR grants. That's productive but not nearly 
enough.
    Without committed seed stage investors, both venture 
capital firms and angel investors, startups would in most cases 
die. Cornell has taken the critical step of investing via its 
endowment in our venture fund. This allows us to attract 
additional investors into our fund--for example, Cornell alums 
who care about startup creation, and who also care that Cornell 
is committed to startup growth--and, importantly as the numbers 
show, allows us to attract additional investment dollars into 
our companies.
    Simply stated, without Cornell's investment in our fund, 
our model would be severely hampered and likely unsustainable.
    In summary, entrepreneurial communities built around strong 
research universities have an advantage if those universities 
actually embrace the value that startup companies bring to the 
given locale.
    In my view, the Federal Government should put into place 
directives for universities that receive Federal research 
dollars to invest in company formation. For example, a small 
portion of research dollars could be set aside for such 
investing activity. It does not take a large number of make a 
huge impact. Cornell has invested approximately $12 million in 
my current fund, and that has been leveraged into over $300 
million of investment.
    I have made some other suggestions in my written statement, 
and I will yield back to the Chair. Thank you.
    [The prepared statement of Zachary Shulman appears in the 
Submissions for the Record on page 35.]
    Chair Maloney. Thank you very much. Dr. Stanley, you are 
recognized for five minutes.

STATEMENT OF DR. SAMUEL L. STANLEY, JR., M.D., PRESIDENT, STONY 
               BROOK UNIVERSITY, STONY BROOK, NY

    Dr. Stanley. So, Chairwoman Maloney, Members of the 
Committee, thank you so much for the opportunity to testify 
before you today on this critically important subject.
    The Chair mentioned in her initial remarks this report 
``Sparking Economic Growth'' that comes from the Science 
Coalition, and again I would like to call the Committee's 
attention to this. It has some very impressive facts. It looks 
at the origin of a number of companies and finds that many of 
them had their origin in research sponsored at universities by 
the Federal Government, including companies like Google, 
Genentech, and others. And I think these provide a great 
opportunity and a great example of how much this kind of 
support has meant.
    Those companies employ more than 100,000 employees, and 
have annual sales in excess of $100 million. So as Dr. Burgess 
was talking about, we can really identify the kind of benefit 
that has come from this kind of investment.
    Stony Brook is a major leader in this area, and I think 
we--I hope--epitomize some of the things that Bayh-Dole means 
and how successful the implementation of that Act has been. 
Stony Brook is the leading technology transfer campus across 
the State University of New York system.
    We are responsible for over 90 percent of the transfers and 
licensing revenues that came across that entire system during 
the last decade. This achievement consistently puts the State 
University of New York system, as well as Stony Brook alone, 
among the top 25 tech transfer campuses in the Nation, 
according to the reports of the Association of University 
Technology Managers, or AUTM.
    Chair Maloney. Dr. Stanley, could you move the microphone a 
little closer?
    Dr. Stanley. A little closer? Sure.
    Our campus also consistently leads or ranks high in all of 
the other metrics of tech transfer performance: Invention 
disclosures, patent applications, issued patents, and executive 
licenses.
    Our technology transfer program is selective: Approximately 
60 percent of patent applications turn into issued patents, and 
we have been able to collect over $10 million in royalties 
annually that we plough black into research on our campus.
    Whereas some universities focus on exclusive licenses, 
especially in biomedicine, we focus on ensuring that our 
technology gets out into the marketplace for societal benefit. 
In fact, one of our research patents has been licensed to 
almost 120 different industrial users.
    The most successful of these licensed technologies formed 
the basis for ReoPro, which received FDA approval in 1994 and 
is still recommended for the 250,000 cardiac angioplasties 
performed annually in the United States.
    Other drugs developed with Stony Brook include Periostat, 
the first systemic treatment for periodontal disease; Oracea, 
the only oral therapy available for rosacea; and Xiaflex, our 
newest drug, which is the first approved non-surgical treatment 
for Dupuytrens contractures. These drugs are the first four to 
receive approval from a SUNY campus.
    As a New Yorker, I regret to say that the companies that 
manufacture these drugs are actually located in Pennsylvania, 
not New York, but as an American I am very proud to say that 
they have remained within the U.S.
    Together, through our efforts, our company has led--our 
university, rather, has led to companies that have created more 
than 17,000 jobs, and created companies that have obtained more 
than $600 million in financing and increased corporate 
revenues.
    So recognizing that my time is short, I want to refer you 
to my written testimony for details of some of the programs 
that have made a difference and helped Stony Brook succeed in 
this area.
    I have to note that New York State Government has been very 
important, and an important proponent of this kind of industry 
academic partnership. And their investment has made a 
significant difference in this area.
    I want to point out five lessons that Stony Brook has 
learned, in my closing statement.
    The first is: There is no magic bullet, but there are best 
practices. Stony Brook and the Long Island region have 
benefitted from programs like the University of California-San 
Diego-UC Connect, and the efforts of the APLU's Commission on 
Innovation, Competitiveness and Economic Prosperity to spread 
best practices throughout the higher education community. And 
we applaud some of the Federal efforts in this area, including 
the ``Innovation Ecosystem'' component in the National Science 
Foundation Partnership.
    In a speech--one thing that I think is very important to 
emphasize is that it's not just about technology licensing when 
you think about what universities can do. There was a famous 
speech that occurred from the Dean of Engineering at Stanford 
where he looked at what the major contributions were for 
Stanford to the region around in Silicon Valley.
    He found that 15 percent of the revenues in Silicon Valley 
resulted from technologies licensed directly from Stanford, but 
40 percent of the revenues were earned by companies that were 
started or populated by Stanford faculty or students but 
weren't directly related to university intellectual property. 
So universities are magnets for talent, and we make a 
difference, and don't just think of us in terms of licensing.
    The second is just that point. It's about talent. 
Universities manage to attract talent. They manage to bring 
them to a region. They make a tremendous difference in regional 
economies, and investment really makes a difference in that 
area.
    The third thing is about partnerships. One of the things we 
are working very hard to do is continue to find ways to partner 
in our region, to promote the kind of regional economic 
development. We partner with Brookhaven National Laboratory. So 
we develop private as well as Federal Government partnership 
for State institutions. We think this is vitally important.
    And finally, two more points, basic research is critical. 
Innovation comes from discovery and invention. And as Vannevar 
Bush foresaw, the Federal investment in basic research makes 
the innovation frontier endless. Because basic research is 
inquiry-driven not objective-driven, we cannot tell in advance 
what the results will be. But 60 years of Federal investment 
has proven its value from the MRI, to LASERs, to the Internet; 
this is the inexhaustible fountain of youth for innovation, and 
we need to build it. This is one of the reasons I think that 
the COMPETES Act is so important for NSF, and I really 
encourage its reauthorization.
    And finally, last but not least, Bayh-Dole Works. I think 
we are an example of it. It's been called by some the most 
important bill ever passed by Congress. And it continues to 
help our Nation maintain its lead in bringing innovation to 
people.
    Thank you.
    [The prepared statement of Dr. Samuel L. Stanley, Jr., M.D. 
appears in the Submissions for the Record on page 38.]
    Chair Maloney. Thank you very much.
    Mr. Stangler.

STATEMENT OF MR. DANE STANGLER, RESEARCH MANAGER, EWING MARION 
              KAUFFMAN FOUNDATION, KANSAS CITY, MO

    Mr. Stangler. Well thank you, Chair Maloney, and Members of 
the Committee.
    Obviously I am not Bob Litan, so I apologize for any 
disappointment on that front. But I have the privilege of 
delivering his testimony today, so I will only briefly make 
some remarks based on the written testimony.
    First, at the national level economic research has 
established beyond doubt that innovation is the most important 
driver of economic growth. And in turn, Federal R&D support is 
crucial for innovation.
    Moreover, innovation drives jobs. Since many of our most 
important innovations through history were brought to market by 
entrepreneurs. Since 1980, in fact new firms have accounted for 
nearly all net job creation in the American economy.
    Second, at the local and regional level Federal R&D monies 
have important positive spillovers beyond the traditional 
multiplier impact of any government spending. Federal dollars 
help local communities by supporting the work of star 
scientists, those unique individuals who are not only great 
teachers and researchers but also successful entrepreneurs who 
launch new companies.
    Companies launched re aided by star scientists, whose 
research typically is federally funded, grow faster and survive 
at much greater rates than other new firms. Firms founded by 
star scientists also help local entrepreneurial ecosystems of 
other scientists and skilled workers and professionals of the 
kind we see in many communities in the United States, not just 
Silicon Valley and Route 128.
    Third, you have asked whether we can get more bang for our 
Federal research bucks in terms of new products and services 
brought to the market more quickly. The answer is: Yes. But 
only if we recognize and fix some limitations of our current 
innovation ecosystem.
    For one thing, Federal research monies are not allocated as 
efficiently as they could be because the peer review process 
unintentionally has biases against younger, more innovative 
researchers and also because funding agencies, quite frankly, 
like to please Congress and distribute at least some funds for 
political rather than scientific reasons.
    The age bias might be fixed by requiring research funding 
agencies to have younger scientist set-asides, or by putting 
younger scientists on peer review panels.
    Fixing the political bias is more difficult. A halt to all 
research funding earmarks would be a good start. In addition, 
some sunlight might help. Research funding agencies might be 
required to report on new firms and their growth that Federal 
research money has stimulated by State and Congressional 
Districts.
    Our universities and Federal labs also could do an even 
better job of commercializing their inventions. This is not to 
denigrate the huge progress toward commercialization that has 
been made since the Bayh-Dole Act was passed in 1980. But one 
unintentional consequence of Bayh-Dole is that universities 
have concentrated their licensing activities in single offices 
known as ``Technology Licensing'' or ``Transfer Offices,'' TLOs 
or TTOs.
    On each campus these have legal monopolies. Faculty members 
have little choice except to go through their campus TLO if 
they want to commercialize their technologies. We believe this 
slows commercialization. Nowhere else in our economy do we 
sanction such artificial monopolies or bottlenecks.
    Ideally, therefore, universities and Federal labs would 
permit faculty and Federal innovators to choose their licensing 
agent. The government could push this along without having to 
touch Bayh-Dole itself, by requiring research applicants to 
demonstrate commercialization effectiveness, and having an open 
licensing policy would be presumptive evidence that this is the 
case.
    Government also should encourage universities, on their own 
or working together, to harness the wisdom of serial 
entrepreneurs to help screen ideas and mentor innovators who 
need and want help.
    The Federal Government should also consider awarding prizes 
to universities that have the best short- and long-run records 
of spinning out new firms and growing them.
    Finally, innovation policy cannot be discussed fully 
without recognizing the unusually strong contributions of 
skilled immigrants who account for roughly one-quarter of all 
high-tech startups in the United States, as well as a similar 
fraction of patents.
    These percentages clearly are far greater than the share of 
immigrants in the U.S. population. These data are screaming out 
to us. If we want more innovation and more job creation, we 
need more highly skilled immigrants to come and stay here. Many 
are already studying at our universities and benefitting from 
Federal research money, so why not staple green cards to 
diplomas earned by foreign students at our universities? If 
that's too politically difficult, then at least why not adopt 
the Kerry-Lugar proposal that would give start-up visas to 
immigrants with $250,000 of outside financing?
    Even better, why not improve upon the Kerry-Lugar bill and 
tie entrepreneurs or job creators' visas to jobs created here 
without any investment threshold?
    I would be happy to expand on these ideas and to answer any 
questions. Thank you.
    [The prepared statement of Robert E. Litan appears in the 
Submissions for the Record on page 48.]
    Chair Maloney. I want to thank all the panelists. You've 
given us a great deal to think about. We have been called to a 
15-minute vote, which is followed by a 5-minute vote. I am told 
that Senator Casey is on his way, but we need to adjourn so 
that we may go and vote and we will be back as quickly as 
possible. I hope Senator Casey will be here shortly so he can 
begin participating and learning from your new ideas.
    We are now in recess. Thank you.
    [Brief recess.]
    Chair Maloney. The meeting is called to order, and the 
Chair recognizes herself for five minutes.
    First of all I want to thank you for your testimony, and I 
would like to cite a recent New York Times article that talked 
about the ``valley of death.'' The ``valley of death,'' as they 
described it, is the difference between having a good idea and 
getting the funding to turn that idea into the reality of jobs 
and a company.
    Some universities seem to be very, very successful in 
getting the funding for their research, such as MIT, to cite 
one, and of course Stony Brook and others. I would like to ask 
the panelists, what can be done to identify the university-
generated innovations that deserve to be funded? And how can we 
facilitate getting the funding to get these ideas into the 
reality of companies, innovations, and jobs?
    And I recognize anyone who would like to comment on it. Mr. 
Shulman? Dr. Stanley? Mr. Stangler?
    Dr. Stanley. I would be happy to start. It's a great 
question, and I think one that we think a lot about in the 
academic community and throughout the universities.
    I think there's a couple of things that we're trying to do. 
One is, there are programs--and I think the SBIR and STTR 
program is a great example of a program that is designed 
essentially to help with that valley of death, providing very 
early-stage support for faculty and their ideas before they 
potentially have great appeal to industry or academic sponsors.
    The second I think is something that Mr. Shulman talked 
about, the possibility of creating our own kind of mini-funds 
which we have done at Stony Brook and we did at Washington 
University in St. Louis when I was there before. We created 
funds that were designed to help our faculty.
    They are actually in part administered by our technology 
licensing offices. But they were funds designed to help our 
faculty get over that gap. Again, do proof-of-principle 
experiments, for example, that would allow them to show that an 
invention potentially could have appeal for market.
    So I think those are the kinds of things we can do both 
externally in terms of the SBIR/STTR program, and internally in 
terms of universities taking some responsibility for helping 
their faculty in those ways.
    Chair Maloney. Any other comments?
    Mr. Shulman. Yes. I'll add to that. So the valley of death 
really in my view is not the initial SBIR/STTR monies, because 
the first couple hundred thousand dollars actually is not that 
hard to come by. It's once you get to that phase and you have 
something that might be worth commercializing. It's how do you 
get to the next phase of funding, which typically are angel 
investors.
    So it's the next $500,000 to $1 million that's actually 
really, really tough. And that is the true valley of death. So 
you're beyond the research. You have a product that might be 
commercializable, and you're waiting. You go to a bunch of 
venture capitalists like myself and we all say: Oh, no, you're 
too early. You know, you don't have a market yet. Or you 
haven't introduced anything quite yet. So you're still a little 
too risky for us.
    And that's actually what my thought in my oral testimony 
provided, was if the school, the university actually had funds 
set aside to invest after the company has got its first grants, 
and when it's on its way to becoming a real commercial entity, 
that would be the perfect solution, in my view.
    And I mean Cornell is kind of lucky in that they have us 
there serving that purpose, but most schools don't have a local 
venture fund that's tied to the school.
    I just read an article yesterday that NYU is starting a 
venture fund--I'm not sure if you guys saw that or not. So NYU 
is starting a venture fund, and it's actually being funded by 
donations.
    So all the returns from that venture activity will go back 
to the fund, back to the school essentially, to keep investing. 
So it's really that extra, you know, first million dollars of 
investment that's so hard to come by.
    Chair Maloney. Should the Federal Government tie its 
research dollars to a proven record of being able to 
commercialize or turn it into a job or a company? Should we 
target that? Or require a track record? Is there any way we 
could incentivize it in a way that might spur more turning the 
idea into a reality? Should we do that? What's your response? 
Mr. Stangler?
    Mr. Stangler. Yes. I think there are opportunities for 
conditions to be attached to Federal research dollars. 
Obviously one danger you run is you don't want to pick winners 
in advance and prospectively subsidize companies that will fail 
or lose jobs. But I think there are ways to do it to sort of 
push, or nudge universities and centers within universities to 
pull the technology out.
    Some of the ideas we support--and this goes to your prior 
question, too, on the valley of death, proof-of-concept 
centers, which I believe was the focus of that article you 
mentioned, and have had some success in sort of overcoming 
that.
    You know, it's possible the Federal dollars could be used 
to scale those across the country. We might also want to think 
about some sort of commercialization education that could be 
tied with Federal research dollars to sort of--for those who 
want it--to sort of help teach the basic skills and pull those 
technologies out.
    So, yes, I do believe there are opportunities for that.
    Chair Maloney. Any other comments? Is there any game-
changer, any new policy we haven't put in place that could help 
make this happen?
    Dr. Stanley. Well I don't have that answer immediately, 
unfortunately, but I would just add that I think it's 
reasonable to have some metrics in place to ask. But they 
really have to be I think based on a relatively long time 
frame. Because as you know, there is a long time between the 
time one of these basic discoveries hits and the time that a 
product develops. And of course not every basic discovery, 
every discovery coming out of an academic institution, will 
lead to a product.
    So while I'm not opposed to the concept of metrics, I would 
be careful about how I set this up. And I would be careful 
about the time frame we're looking at in terms of how we 
evaluate. Because I think it could be very counterproductive to 
set up a system where, as my colleague talked about, we're too 
focused on short-range gain and less focused on the long-term 
benefits that happen.
    The work that led to the MRI, magnetic resonance imaging, 
and many of the people in this room may have had one, came out 
of some basic chemistry research at Stony Brook. It led to a 
Nobel Prize for the person who did the work at Stony Brook, but 
it was very basic research. And decades passed before that 
transferred into the technology we now know as the MRI.
    We would have to have seen a situation where, because we 
were looking too short-term, we missed this kind of 
opportunity.
    Chair Maloney. My time has expired. Mr. Hinchey is 
recognized for five minutes.
    Representative Hinchey. Thank you very much, Madam Chair.
    Let me apologize, first of all, for not being here for the 
opening of these remarks. We have sort of a tenuous schedule 
here today, and I really wanted to be here to listen to what 
you were talking about.
    The situation that we're dealing with here, the general 
economic circumstances of this country, are deeply critical. We 
are seeing some interesting aspects in a lot of other 
countries, particularly over in Europe, and the way in which 
they are operating.
    The major tendency appears over there to be increasing 
taxes and reducing spending, which strikes me as just the 
opposite things they ought to be doing. We have a great need in 
this country for internal investment. We have not had an awful 
lot of internal investment here in this country in decades, and 
there are a lot of things that really need to be done.
    In addition to things like investments in transportation 
and things like that, which is very necessary, the focus of 
attention that you are putting on is intellectual investment. 
This is something that is critically important to the future of 
this country and the future of this planet.
    One of the major aspects of that of course is energy. We 
see a lot of interesting issues with regard to the growing 
shortage of the kind of energy that we need--oil, and gas, and 
things of that nature.
    One of the things that strikes me as being very important, 
and one of the issues that frankly we've been concentrating on, 
is alternative energy: The need to be able to develop energy 
outside of the fossil fuels.
    So I wonder if you might be interested in and willing to 
talk a little bit about the need for solar energy? I know that 
Cornell University is engaged in research for solar energy. I 
have the privilege of working directly with them. We have set 
up a not-for-profit corporation called ``The Solar Energy 
Consortium,'' and we have been generating jobs as a result of 
that.
    Energy investment is something that really needs to be done 
on a big scale. So I wonder if you might be interested in 
talking a little bit about that, what we should be doing with 
regard to the development of alternative energy in this 
country, and then spreading that development globally?
    We know that Germany is doing certain things. We know that 
China is doing certain things. Both of those countries more 
than we are doing. We have a responsibility for leadership, and 
we have a responsibility for the internal needs of this 
country.
    So I wonder if you would be willing to talk a little bit 
about that, gentlemen?
    Mr. Shulman. Sure. Well, I was going to--first I want to 
thank you, Mr. Hinchey, Congressman Hinchey, for your help with 
Primet, which is a battery company which does relate to solar 
energy, that stores energy, and great things will certainly 
happen there. I was speaking with the CEO last night, and he 
wanted me to send his regards.
    Representative Hinchey. Thank you.
    Mr. Shulman. I think that for a venture capitalist, solar 
energy--any type of alternative energy is a really, really hot 
topic. We make lots of investments in that space continually, 
and we will always want to do so.
    And at the risk of sounding like a broken record, I think I 
will just say it again: If 1 percent of research dollars, let's 
say a university receives $500 million from different sources 
of Federal research monies, if 1 percent, say $5 million of 
that was actually earmarked and mandated by the Federal 
Government to be invested into startups, it would really make a 
big difference.
    And that investment could be either directly by the 
university, which I don't think would be that efficient, or it 
could simply be by the university investing in a venture fund 
as an example, or other investment vehicle that invested in 
those startups.
    What that would do then--you could even in your market, if 
you wanted to, you could say, listen, it's going to be invested 
in companies that are about alternative energy, if you really 
wanted to get specific. And those investment vehicles could 
then invest in those types of companies.
    I think that the conflicts are completely manageable. In 
one of my colleagues' comments, there's some risk about, you 
know, what technologies get the money. Okay? And the tech 
transfer office, should they make the decision? I think that's 
a little bit risky in terms of conflicts. There are ways to 
handle the conflicts.
    Dr. Stanley. So I think a little different perspective. I 
think in some sense I agree with what you said. I think maybe 
this is our next Space opportunity in terms of trying to commit 
to what is an extraordinary problem, not just for the United 
States but for the world, and how do we harness the same kind 
of tremendous partnership between government, between private 
industry that we saw essentially in how we got to the Moon.
    And I think in some sense, based on our position in the 
world today, it is absolutely imperative that we take a 
leadership role in this area. So I think there are many ways to 
do it. But I think some of the efforts that Congress has done 
already in conjunction with the Administration, in terms of 
increasing funding to the Department of Energy, to the National 
Laboratories that already have a very strong infrastructure in 
this area, to encourage as we're trying to do here partnerships 
between industry and academia that are going to lead to the 
cutting-edge research we need. But it does require investment. 
There's no argument about that.
    But we need to think. And I think having some type of 
national strategy--and I think that is coming from Secretary 
Chu and others, but helps guide where are the areas where we 
want to focus I think is critically important. But I agree with 
you completely that this is a critical issue, and I think the 
research universities are absolutely critical to helping move 
it forward, and are interested in doing our part to help. But I 
think it has to be a partnership, as I said, with National 
Laboratories, and with other components of the infrastructure 
that we have in place already.
    Chair Maloney. The gentleman's time has expired. The Chair 
recognizes herself for five minutes.
    Mr. Stangler, last year, in December actually, when Dr. 
Litan testified before this Committee, he talked about a job 
creator's visa that would be a no-cost way of creating new jobs 
and growing our economy.
    Please expand on his idea and any other ways we could 
reform our immigration laws to help generate entrepreneurs and 
growth in jobs in our country. Any member of the panel, 
starting with you, Mr. Stangler.
    Mr. Stangler. Yes. Thank you. Great question.
    The Job Creator's Visa, or the Entrepreneur's Visa, is 
something that we have promoted. We're not the only ones 
promoting it. There are lots of people--venture capitalists, 
notably, are promoting the idea.
    As you mentioned, Senator Kerry and Senator Lugar have 
introduced the Start-Up Visa bill. It's a great first step. As 
I noted in my remarks, and as you'll read in the written 
testimony, it is only a first step.
    It might be more important to bring in immigrants who can 
create jobs with a lower investment threshold than is currently 
proposed at a quarter of a million dollars. There are a lot of 
immigrants who come to this country who do not meet that 
threshold, and they are going to make jobs by creating new 
companies.
    The research is absolutely clear on this. Immigrants 
contribute hugely to job creation in this country. These are 
immigrants who make jobs. They don't take American jobs. They 
make jobs for Americans. And many of them are studying at our 
universities. And the one option to get them to stay, instead 
of sort of sending them home after they study here, after they 
conduct research here, is to staple a green card to their 
diploma.
    Many of them will start companies. Many of those who leave 
will start companies, but if they leave they're going to start 
companies somewhere else. So we fully support this idea of 
encouraging them to start up here.
    This is a critically important source of job creation and 
innovation to the future of the economy, particularly now.
    Chair Maloney. Any other comments? Dr. Stanley?
    Dr. Stanley. Thank you. I agree with everything that was 
said. I think one of the key things that has helped the U.S. 
lead in innovation has been our ability to import talent. 
Essentially we have been able to pull the best and the 
brightest from countries outside of the United States.
    That is threatened. And it is threatened of course by 
immigration policy, and it is also threatened by the fact that 
these countries are now developing better universities. They 
are going to have more attraction essentially for the people at 
home.
    So I think the notion of really revising our policies so 
that we really do encourage the outstanding students who come 
from China, India, South America, to stay in our universities, 
makes tremendous sense. They will be innovators in the future, 
and I think we want to make them U.S. citizens.
    Chair Maloney. Mr. Shulman.
    Mr. Shulman. Yes. Let me add a slightly different angle. So 
the EB-5 Program, which I'm not very familiar with, but just a 
little bit, allows for investors who invest in companies, I 
think it's a half a million dollars, if that investment stays 
invested for a certain period of time, which I believe is 5 
years, they can then be on their way to getting a green card 
visa.
    The strange thing about the program is that it doesn't work 
for start-up companies. These investments have to be made in 
companies that are actually larger, and that can actually keep 
the money for five years. Lots of venture-backed companies want 
their companies sold quickly.
    So what I would advocate and ask you to consider would be a 
tacking program, where if an outside investor makes an 
investment in a company, and the company is then sold and the 
person gets their money back, that they could then roll it into 
another company, okay, to get their 5 years of credit, as 
opposed to having to start again from time zero.
    Likewise, that investment has to be tied to job creation, 
which I think it should be. And again, a little bit self-
serving here, but if that investor could invest in a venture 
fund, okay, as opposed to a company directly, right? I mean the 
venture funds are creating tons of jobs. And their money, I can 
almost guarantee, will be tied up for five years in a venture 
fund because their return portfolios are much longer than that, 
typically.
    So there are very, very I think accessible ways that 
wouldn't cost the government any money at all where we could 
actually stimulate additional investment dollars here. Thanks.
    Chair Maloney. Thank you. Senator Klobuchar, thank you for 
joining us, and you're recognized for five minutes.
    Senator Klobuchar. Thank you very much. I was just up at 
the Supreme Court hearing, but I needed a little break so I 
thought I'd come down here.
    I head up a Subcommittee of Commerce on Innovation, and 
have become completely devoted to this idea as a way to get out 
of this economic slump, including export promotion. I always 
think about those Beijing Olympics with the opening ceremonies 
with the 2,000 drummers, and I remember watching with my family 
thinking we're in trouble. Those drum beats are only getting 
louder and louder, and I'm convinced the way that we need to 
achieve in our economy is by promoting innovation.
    I come from a State that has always believed in science. We 
brought the world everything from the pacemaker to the Post-It 
Note. We are now 7th in the country for Fortune 500 companies, 
even though we're 21st in population. Medtronics started in a 
garage. The 3M started as a sand paper company in Two Harbors, 
Minnesota. And so I'm very concerned about the lack of a 
competitiveness agenda in our country.
    Senator Warner and I and others have been working on this 
in the Commerce Committee. So I see this as one what should be 
the uniting causes for our country right now. So I think we 
need a competitiveness agenda, an innovation agenda.
    We have done this in the past when we had other problems. I 
think there are regulatory obstacles--everything from the 
510(k) process for medical devices on down. We need to look at 
these things in a way that is sensible, education issues, 
science and engineering, and then also immigration policy, 
which I know you have just talked about. I would add to 
education issues also that the H-1B visa issue needs to be 
changed.
    And then finally of course a government policy with R&D tax 
credits, which we're trying to get done right now in this 
Extender bill, as well as other small business policy that I 
know that you have already discussed.
    So I think I would like to start with regulatory obstacles. 
Not talking specifically about the FDA, but what you see as 
something that could guide us. And, if you see that as an issue 
for investment.
    I know in the medical devices we have seen a one-third 
reduction in venture capital because of some decisions that 
have been made recently. And just where are you in terms of 
seeing that as something that we should look at? That is 
supposed to be Cass Sunstein, who I believe in. I think we need 
to look at that as a piece of this as well.
    Mr. Shulman.
    Mr. Shulman. Well in short terms, anything you can do to 
quicken the 510(k) process and the full FDA review process 
would be incredibly appreciated.
    There are many, many small companies and they are asked 
repeatedly by investors when they'll bring products to market, 
because we care about that, and the answer is often tied to, 
well, time one starts after regulatory approval. And gauging 
when that will be is often difficult.
    So, you know, for a full-blown process, and I'm sure that 
Dr. Stanley can talk about this further because of all the 
stuff at Stony Brook. I mean, it's a long, drawn-out process.
    Senator Klobuchar. Right. And what's happening now on the 
89th day, somebody at the FDA is coming in and asking for more 
studies. And there have just been a lot of disruptions. People 
don't understand this, but China is requiring country-of-origin 
approvals, starting to do that. So what's happening is that a 
lot of the countries are just moving over their innovation to 
Europe because there they have a process that is fair and safe, 
but works quicker.
    So we are encountering a major problem right now. I don't 
know if you want to add anything, Dr. Stanley?
    Dr. Stanley. Just very briefly. I think that unfortunately 
research universities, particularly those with medical schools, 
are probably among the most regulated industries I think in the 
world. So I think anything that can be done to take a hard look 
at what do we want to accomplish, what are our regulations 
designed to accomplish, and how can we streamline them so we 
still provide the protections that are necessary and yet really 
free up our scientists and physician scientists to do the kinds 
of research they need to do. I think that would be welcome, and 
I think that is what you are driving at, Senator.
    Senator Klobuchar. Um-hmm.
    Dr. Stanley. And I think groups like the AAU and the AAMC I 
think would be more than willing to work with you in trying to 
get these things done.
    Senator Klobuchar. On Sunday, there was a piece on a broad 
array in The New York Times that focused on the efforts of 
universities, including MIT, to help professors take their 
inventions to the private sector.
    The concept is to take new discoveries from universities 
and turn them into start-ups that create jobs. One professor of 
mechanical engineering from MIT, who has already sold one 
start-up and is busy on another, put the need for more efforts 
to help professors commercialize their research this way:
    The public is paying for all these wonderful innovations 
that are just sitting in the drawer because there's no way for 
them to make the leap to the commercial world.
    My last question: How do we change that? And how do we make 
the private sector best positioned to develop products based on 
the work being done in our great universities?
    Mr. Stangler.
    Mr. Stangler. Yes. Thank you. That was a great article on 
the MIT professors, the proof-of-concept centers. One of the 
things I might call your attention to is, in North Carolina the 
universities there have pioneered the Carolina Express License 
Agreement, which is to deliberately smooth the process, lower 
the barriers for faculty and researchers at the universities to 
take their innovations from the university and turn them into 
companies.
    Rather than going through an individualized process for 
everyone, they are now standardizing the process for 
professors, this License Agreement, to get things out the door 
faster.
    I think that might be something that would be worth taking 
a look at to see if somehow the Federal Government could sort 
of encourage that in other states.
    Senator Klobuchar. Thank you very much.
    Chair Maloney. Mr. Shulman, you had a comment?
    Mr. Shulman. Yes, let me go back to the question for a bit. 
So the Deshpande Center at MIT, that's actually funded by MIT, 
and alums from MIT. And it's an incredible Center. So if the 
Federal Government wanted to increase its activity with tech 
parks, I kind of consider the Deshpande Center to be in essence 
a tech park. It's one huge building with lots of companies 
inside.
    If they could work with the universities directly to 
actually foster the creation of additional technology parks--
and notice I'm not using the word ``research,'' I'm actually 
using the word technology because I'm talking about companies 
as opposed to R&D--so you would know better than I the ways the 
Federal Government could do that. But there could be incredible 
innovation and then commercialization if the Federal Government 
encouraged universities through incentives to actually create 
additional technology parks.
    Senator Klobuchar. Um-hmm.
    Chair Maloney. Thank you very much.
    Mr. Shulman, you mentioned using tax credits for 
investments in start-ups based on university research. Would 
this give an advantage to university-based research over 
private-sector development of technologies that would also be 
competing for these funds?
    And are there other targeted approaches that we could use 
to incentivize the creation of start-ups that does not choose 
between private-sector technology or university-based 
technology?
    Mr. Shulman. Yes. Exactly. So I would actually encourage--
and the way we do it in New York State, we have QETC credits, 
Qualified Emerging Technology Company credits. And it's 
literally a direct tax credit for investing in start-ups.
    There are certain parameters put around the size of the 
start-up, which is fine because the thresholds are quite 
liberal. So to address your question, there is no need in my 
view to actually limit a Federal tax credit to university-
generated technology companies. If you wanted to take a baby 
step, that would be the first baby step.
    What I would rather see would be a tax credit, the same way 
we do it in New York State, where it is simply a tax credit for 
investments made into technology companies. And again to bring 
it back to the venture fund world, our venture fund gets a tax 
credit for making an investment in a New York State technology 
company, and those tax credits are then passed directly through 
to our investors--because we're a pass-through entity, a VC 
fund is a pass-through tax entity.
    Our investors care about those tax credits. I mean they 
really care. So it clearly, in my view, fosters and encourages 
investment, which is exactly what we want. So, sure, a tax 
credit costs the government some dollars, but I think the 
benefits far outweigh the costs.
    Chair Maloney. Any other comments on this issue? Mr. 
Stangler?
    Mr. Stangler. Yes. I second Mr. Shulman's remarks, and I 
would also say, on MIT and the Deshpande Center, there's been 
some great work on just how important MIT is not only to the 
Massachusetts economy but also to the national economy. And the 
reason that places like MIT and Silicon Valley are such hotbeds 
of innovation is they rely on networks, social networks. And 
those are sort of squishy, you know, they can't totally be 
codified and they can't just sort of be created. But those are 
the bedrock of those clusters of innovation.
    And those networks rely on openness and sharing of ideas. 
It doesn't mean you're always going to get a home run or a hit, 
but if we found a way to sort of push or encourage more of that 
sharing of innovations in universities, the focus of this 
hearing, and types of innovation exchanges, we can sort of 
foster those networks in additional places, that might be 
another thing you could do that wouldn't cost additional money.
    Chair Maloney. Well thank you.
    Mr. Hinchey.
    Representative Hinchey. I just want to focus a little bit 
more on the kind of operations that colleges are doing and the 
practical outcome of that, and how it might be more effective.
    In particular with regard to the situation that we're doing 
at Cornell University, the City of Ithaca and the general area 
there, currently, Tioga County has the lowest unemployment rate 
of any place in New York, and one of the lowest unemployment 
rates any place in the country.
    One of the reasons for this notably low rate is the ability 
of the research and development there to spread out into 
activities that are productive and income-generating. New jobs 
are being created. New companies are being set up.
    That is something that really has to be encouraged and 
accelerated as much as possible. We have been able to do that, 
particularly with regards to Primet, and Applied Materials; 
which has generated into a small battery operation, which is 
something that is moving forward very effectively. The ability 
for this little battery to absorb huge amounts of energy from 
the Sun and then be able to generate that energy over periods 
of time is impressive. This battery could be very positive in 
the context of the energy circumstances that we're dealing with 
and also in the context of the economy.
    So one of the issues that we are dealing with here now is 
internal opposition within this Congress, and to some extent 
outside of it, to try to prevent spending in a variety of ways. 
There is an awful lot of money that is being wasted. We see 
some of the recent stories about the situation in Afghanistan 
and elsewhere, how billions of dollars are being transferred to 
places like that, and away from this country, not having any 
effect on the economy here but having positive effects for at 
least minor people in the context of economies in that 
particular situation.
    I think we need much more internal investments 
intellectually, and then much more security to ensure that the 
intellectual investments are then spread out into more opening 
operations.
    So I'm wondering if you might be willing to talk a little 
bit about that, and to make some suggestions about the kinds of 
things that we should be doing.
    Dr. Stanley. I'm happy to start. I think you have really 
pointed to I think what is a critical issue for us at this 
point in time. That is, that this is absolutely the wrong time 
to de-invest essentially in the institutions that I think have 
helped lead us over the past 60 years.
    And again I will point to this incredible partnership that 
has occurred between the research universities and the Federal 
Government. That has really driven a tremendous amount of the 
innovation.
    The discovery of the Tablet Computer, as this iPad I have 
today, a lot of the components of that were done at the 
University of Illinois, work 40 years ago--30 years ago. So 
this kind of work I think is really leading to innovation, and 
we should not be de-investing.
    And I think the remarkable things about the research 
universities is they do lead to regional growth, as you talked 
about. They become anchors, essentially, for regional growth. 
So you point to Cornell in Upstate New York. You point to Stony 
Brook around Long Island. Obviously Silicon Valley with 
Stanford and Berkeley. University of Minnesota. These become 
the anchors, essentially, for the regional growth.
    So I think that it is the wrong time to de-invest. We have 
to be careful about how we invest, and I think programs again--
and I hate to harp on the same thing every time, but I do 
believe that an investment in basic research tends to pay long-
term dividends. And I would not pull away from that.
    It does not mean that we do not need to consider applied 
things. It does not mean we should not be tackling big problems 
as we have talked about before in terms of energy, health 
devices, and so on. It does not mean that. But it also means we 
should not pull away from basic research. So I do share your 
desire and goal that this is the right time to further invest.
    Representative Hinchey. Mr. Shulman.
    Mr. Shulman. Do I get in trouble for saying the same thing 
three times? [Laughter.]
    So I think that--maybe for the fourth time--that the 
Federal Government should force universities to spend a very 
small portion of the research that they receive on investment 
in companies. Call it one percent. Call it half a percent. It 
probably will not be more than one percent. But force them to 
spend the dollars that they receive, that small percentage, 
directly into companies. And Dr. Stanley will probably punch 
me, so I'll stay away, but I think that that money, that one 
percent that I am talking about, cannot be subject to 
university overhead because it will take half of it away.
    When a grant comes into the school, half of it goes, or 
more than half, probably, at least at Cornell it is close to 
half, goes not to the actual R&D lab, it goes to overhead to 
the university. Well maybe there is a way to say to the 
university, that one percent that you are going to make 
investments with, it is not subject to overhead.
    So again in the case of a school that does $500 million of 
R&D that is federally funded, $5 million, which is not a large 
amount but it can make an incredible difference because it can 
be leveraged many times over, can be invested.
    Dr. Stanley. Can I make a quick response to that?
    Chair Maloney. Yes.
    Dr. Stanley. Just very quickly, I think that there is a 
challenge, I think, in this proposal. I think that that is, 
this seems to be one area where market is really very 
important. And I think to mandate for all universities across 
the country that they have to set aside this kind of fund would 
probably, to me, not push what you want to push forward.
    It is very interesting that Cornell has done this on their 
own. It is very interesting that this kind of opportunity 
exists all the time in Silicon Valley. And on Long Island, we 
are setting up our own angel network, and we are working with 
private investors and the university to try and set up our own 
network.
    My own bias is, this is something I would rather see market 
driven rather than directly instructed to universities. And we 
can disagree on that, but this is----
    Mr. Shulman. This actually makes a lot of sense. And again, 
this is going to sound very self-serving, but I am only down 
here once so I guess I will just do it, the way to make it 
market driven is to force the investment into a venture fund. 
Then it's completely market driven.
    There's no one at the school that would be making the 
investment decision. It would be a set of investment 
professionals deciding what to invest in. Okay? And if they 
don't invest in the regional companies, that's not the end of 
the world. So if the school happens to be based in, I don't 
know where, I'm not going to say any particular state at the 
risk of offending anybody, but there are some states that don't 
do as much R&D as others, but there are certainly schools in 
all states that receive R&D funds. If the VC firm wants to 
invest somewhere else, that's actually okay. It's still going 
to be creating jobs through those investments, so that could be 
a good market check.
    Chair Maloney. Thank you very much. Senator Klobuchar.
    Senator Klobuchar. Thank you. I have listened to this 
debate here and am thinking what examples do both have from 
other countries? What has worked?
    Because as we know, there has been a recent study out 
showing that we are starting to fall behind with innovation. 
The American people think we are falling behind. They're right.
    What are the other countries doing? I am not talking about 
here top-down with China, but what are some of these other 
countries doing that are allowing them to beat us out?
    Dr. Stanley. So I think I will point to a couple of things. 
So one is, I still think that some of what they are doing, 
Senator, is imitating us. So one of the things they have done, 
actually, and Japan is an example, I think Sweden may have 
followed suit but I am not positive, is to actually adopt 
things like Bayh-Dole, to actually realize that this kind, 
again, of government-university partnership which encourages 
universities and their inventors to actually get technology out 
works, and I think they are actually trying to emulate that.
    The second thing, again, and I am going to be guilty of 
beating the same drum probably again, is investment. I think in 
many cases they are making investments essentially in this kind 
of infrastructure. And they are saying that in order to compete 
with the U.S., we need to put money essentially into talent. 
And I think that is the big thing.
    So if you look at what Singapore, what other countries are 
doing, they are going after U.S. talent. They are going after 
international talent. And that is the coin of realm in terms of 
innovation. And I think we----
    Senator Klobuchar. And that leads you to the immigration 
changes. How about education? My daughter was in the Arlington 
high school science fair recently in 9th grade. Her experiment 
was comparing the bacteria in unwashed lettuce and washed 
lettuce, which she concluded, looking at the judges and saying: 
I have one piece of advice for you. Wash your lettuce.
    Dr. Stanley [continuing]. Excellent.
    Senator Klobuchar. So let's just say she didn't win a 
ribbon, but I was able to watch these kids. I was just in awe 
of them. It was very exciting. Hundreds of kids. I don't 
remember this from my high school. Public high school here in 
Arlington. You know, walking across with their ribbons. And how 
do you take that excitement and then move it up a notch so they 
are going into science and engineering, going into that in 
college.
    I know we have STEM, and I know we are doing--but we still 
are not keeping up with some of these other countries.
    Dr. Stanley. It is a tremendous challenge, and I think two 
things.
    One is, I do think COMPETES and STEM are very important 
components to helping us in that. So I wouldn't look away from 
that at all. But it does start I think in K-12. I think it is a 
pipeline issue. It is something at Stony Brook that we are very 
concerned about.
    We have traditional strengths in science, engineering, and 
math, and the quality of students coming to us, unfortunately, 
from K-12 many times are not able essentially to perform.
    So I think it does get back to that. I think it gets back 
to emphasizing as a society that we value teachers of science 
and mathematics, that we value engineering and these 
disciplines, that they are something that is actually important 
to us as a society, they mean something.
    I think it is almost a cultural issue. But I think it is 
also about coming up and learning and looking at best practices 
in other countries, as you have implied. How are they doing 
better in science education than us?
    I think some of it is cultural, I really do. I think some 
of it is mom and dad at home saying that you have to perform in 
math. Math is critical, and there's no if, ands, or buts. I 
think that's part of it.
    Senator Klobuchar. That's what we heard at an Innovation 
Forum. I did an Innovation Forum at IBM in Rochester, 
Minnesota, and it was surprising the number of sort of small 
business owners that were very focused on the cultural issues 
at home. They're watching TV. I mean, they were obsessed with 
that in terms of trying to push the kids into a direction and 
making that much more acceptable than other activities.
    Dr. Stanley. I agree. But it's not just that. And I think 
that's very important, but again I think one of the reasons 
those countries are going after our university system is that 
they recognize that it's not just enough to get those STEM 
things, but to get the kind of creativity and innovation you 
need all of the components I think with universities.
    I think that one of the reasons we are so successful is 
that we actually blend social sciences, and humanities. This 
gives people a perspective, helps them understand as they're 
discovering things as well. So I think it is a mix of those 
things.
    Senator Klobuchar. What about this idea--and then I will 
end with this question, for all of you coming back, which we 
have done in other decades, to coming up with a competitiveness 
innovation agenda for our country?
    Understanding that there are certain regional clusters, 
that there are certain areas of development that we want to 
foster and focus on, and that this would help us get to the 
issues you are talking about, but as well as some of these 
regulatory issues we identified--immigration--and really 
pushing this as a national agenda. As we look at this 
incredibly difficult competitive environment globally, that we 
should be doing what Tom Friedman, who is a Minnesota native, 
has said, ``Nation building in our own Nation.''
    Answer? We're looking at some kind of an actual 
competitiveness innovation agenda to guide decisions in 
Congress so we're not hurting innovation, and that we are 
promoting things that help the industries that are growing 
leaps and bounds and are trying to export, as opposed to just 
spreading our money out across the board with any industry that 
we want to save?
    Dr. Stanley. So I wish I could encapsulate an answer to 
that, but I will simply say I think we do have some examples 
where it is working. We have talked today about MIT. We have 
talked today about Silicon Valley. I think there are best 
practices we can look at.
    And then I think to bring the people, as you are doing 
right now, and ask what are the barriers again that are keeping 
us from reaching full potential? This kind of hearing I think 
is very valuable to identify those things. But I think looking 
at those cases for best practices I think is a good start for 
us.
    But I do believe, as I talked about before, that it also 
makes sense to me to set some major targets in terms of what 
are the things that the U.S. wants to lead on going forward in 
the future?
    I would say: Renewable energy to me is an example of that.
    And then: What's our national agenda to push that forward?
    And that involves DOE, as I've talked about before. That 
involves National Science Foundation. But some type of 
cohesiveness there could be very helpful. Again--and I will 
shoot myself if I don't say this--but again, emphasizing basic 
research is a critical component to moving that forward.
    Chair Maloney. Thank you.
    I would now like to invite the panelists to talk about 
efficient leveraging of Federal research funds. Specifically, 
some of you believe that the universities' technology licensing 
offices may not have the expertise or resources to facilitate 
commercial development of inventions. And while there are some 
economies of scale to lead to commercialization in the 
university, there may be inefficiencies created at the same 
time.
    Can each of you comment on this challenge, on your 
perspective and your ideas to better leverage Federal research 
funds? Starting with Mr. Stangler.
    Mr. Stangler. Thank you. One of the primary intents behind 
the Bayh-Dole Act of 1980 was to lower the transaction costs to 
moving innovations out of universities, whether into existing 
companies or new companies. It was to sort of build this 
platform upon which researchers could work on a standard 
platform.
    Over the years, perhaps predictably and quite 
understandably, bottlenecks have developed in that process. No 
institution is perfect, and our innovation ecosystem changes 
from year to year. We have to make policy changes to keep up 
with that.
    My colleagues, Lesa Mitchell and Bob Litan, have proposed 
that to carry forward the intent of Bayh-Dole, to keep moving 
those intentions forward of lowering transactions costs, that 
we open up the market of technology transfer and allow 
professors--not force them; they can do what they want--but 
allow them to go outside their own university to license their 
technology, rather than making them stay within their 
universities.
    It is completely optional, but you would see a new market 
develop. This is sort of the point of Bayh-Dole. If the point 
is to move more innovations out of universities, this is sort 
of the next step in that process of what we want to do.
    Chair Maloney. Dr. Stanley.
    Dr. Stanley. So let me preface my comments by saying that I 
think much of the work that the Kauffman Foundation has been 
doing, particularly at universities to promote 
entrepreneurship, I think is right on target and I think is 
very positive.
    I disagree very strongly with this recommendation, however, 
about the concept of free-agent faculty. I think there are 
three problems I have.
    The first is, I do not think there is any demonstrable 
evidence that technology licensing offices are failing in their 
mission. I do not see that. And I think you will see in 
supplemental materials that you may have that that really I do 
not think has been proven to anybody's satisfaction that that 
is the case.
    So we have great examples. The office at Stanford, I spend 
a lot of time speaking with the people who ran Stanford. When I 
was Vice Chancellor for Research at Washington University, I 
was responsible for a tech transfer office.
    I went to Stanford. I met with Kathy Koo who ran it. What 
are you doing? And I found out that they were doing the same 
things that we were doing, the same things we are doing. It 
really was not very different. And they are widely 
acknowledged, including by the Kauffman Foundation, of being 
among the best.
    So I do not think the problem is with our technology 
licensing offices. I think we could work to try and improve 
them. There always can be room for improvement. I do not think 
that is a fundamental problem. I think there are other 
components of the pathway that are more flawed.
    But the second thing is, we had this kind of system really 
before Bayh-Dole where faculty were more free agents. And I can 
tell you, everybody tells me, and I wasn't doing this kind of 
work then, that it was pretty disastrous. So what you ended up 
doing was, you ended up paying lawyers to mitigate disputes 
between faculty who felt they had co-invented things, between 
faculty and companies who didn't have any expertise in this 
area but ended up trying to make deals with a company in 
negotiating their own things, and ended up discovering that in 
fact all of their research in perpetuity was now owned by a 
company and not by them anymore.
    So I think the notion of having free agents in this makes 
no sense. Less than one percent of faculty have extensive 
experience in this area. So to think that they are going to 
license and go out and shop around in an educated manner I 
think does not make sense.
    Having a local tech transfer office at the university that 
knows them, that serves them, and importantly knows the region 
as well I think is incredibly important. We have heard before 
that economic development tends to be regional in nature, and I 
think to take this out and try and shop it widespread makes no 
sense.
    I think it would lead to more litigation. I think it would 
lead to less efficiency, and I am very much opposed to this 
concept.
    Chair Maloney. Mr. Shulman.
    Mr. Shulman. Yes. I would tend to side with Dr. Stanley on 
this. The university owns the intellectual property, the same 
way that IBM owns the intellectual property of its employees.
    You know, if a faculty member invents something, the 
university owns it. I don't think that Mr. Stangler is arguing 
against that, right?
    So then the question becomes how does that technology 
actually get out into the field? And if the faculty member 
thinks he can do it better than the tech transfer office, that 
actually might be the case in certain circumstances. The person 
might have a connection with a company that might actually want 
the technology.
    I mean, at Cornell I think it has actually happened a 
couple of times, and it still goes through the tech transfer 
office. So we can leave that argument aside, because it's been 
talked about enough.
    What I think would be interesting would be if there is a 
way for again for the Federal Government to incentivize 
universities to actually start companies. So it's interesting. 
Again what Dr. Stanley said is right. The Stanford policy for 
IP transfer and conflicts looks a lot like Cornell's--maybe the 
other way around, Cornell's looks a lot like Stanford's. But 
Stanford is simply better at it.
    And there is a reason, which we can't avoid. Stanford is 
located in a beautiful spot with lots of people. And Cornell is 
located in a beautiful spot with no people, and with no 
highway, and with no high-speed rail, and with a little tiny 
airport. So there are some definite geographic/demographic 
constraints that limit the ability of a university to start 
companies, or to help transfer the technology out to startups.
    But that is not to say that it can't be helped. So if for 
example the Federal Government gave an extra boost, whatever 
form it came in, an extra research dollar to reward actual 
startup creation--and I really do mean startup creation again 
as opposed to licensing to big companies, because startups 
create more jobs--that would be interesting.
    We have a group of entrepreneurial faculty at Cornell. And 
let me tell you, it is a very different feeling at Cornell than 
it is at Stanford. I mean, at Stanford a faculty member is 
rewarded for starting a company. I mean, in their tenure 
process it is looked on favorably, I think. At Cornell, that is 
not the case yet. A faculty member who wants to start a 
company, if they are not already tenured, it is risky. And that 
is a problem. I don't think it should be, but it is.
    So again, if the government gave incentives to the 
university to actually start companies, it might change the way 
the universities think about their faculty members getting 
involved with those companies.
    Chair Maloney. Thank you very much. Our time in this room 
was limited to 12 o'clock, and we have passed that time. So I 
want to thank all our panelists.
    Today's hearing was focused on the role of basic research 
in fueling employment and growth in local communities. Over 
half of basic research is funded by the Federal Government. 
This partnership between the Federal Government and 
universities helps form an entrepreneurial ecosystem that 
benefits local economies.
    At our last hearing in December on innovation, some of the 
ideas of the panelists were turned into legislation, 
specifically the Jobs Creation Visa, and I believe that some of 
the ideas you have presented today will be further examined 
before Congress in the form of legislation.
    I want to thank you for your work, for your time, and for 
your testimony today. This meeting is adjourned. Thank you.
    [Whereupon, at 12:10 p.m., Tuesday, June 29, 2010, the 
hearing was adjourned.]

                       SUBMISSIONS FOR THE RECORD

 Prepared Statement of Carolyn Maloney, Chair, Joint Economic Committee
    I am pleased to hold today's hearing on the role that innovation 
has on fueling employment and growth in local communities. This 
Congress is continuing an Innovation Agenda in order to rekindle growth 
and prosperity in the U.S.
    One important part of this agenda is the reauthorization of the 
America COMPETES Act, which passed the House just one month ago, on May 
28th. This legislation will help fund investments aimed at ensuring 
U.S. competitiveness in the global economy.
    Recently, the JEC issued a report on the importance of federally 
funded basic research. The report shows that basic research--research 
which contributes to our fundamental stock of knowledge--is an 
important component of R&D, and can have a large impact on 
productivity.
    The private sector underinvests in basic research because the 
returns from these investments are often smaller than the returns to 
the economy as a whole. Yet this basic research is critical to the 
private sector. Investment in basic research is a mechanism for 
spurring precisely the innovation that business leaders, academics, and 
policy makers have identified as critical for our nation's economic 
growth.
    The federal government funds almost 60 percent of basic research in 
the United States.
    The innovations that have improved the country's productivity and 
quality of life flow directly from these investments. The technology 
improvements created from basic research have played a singular role in 
enhancing the productivity of businesses and workers, and has spurred 
new job-creating industries, such as the biotechnology sector. Most 
basic research occurs at universities across the U.S. This partnership 
between the federal government and universities helps to form an 
entrepreneurial ecosystem that benefits the local economy by creating 
jobs and spurring economic growth.
    The Science Coalition recently released a report that shows the 
tremendous return on the federal investment in university-based basic 
research. Their report is a dramatic demonstration of the economic 
impact that these research universities have on the local community and 
highlights a key fact: companies that grow out of university research 
often locate very close to that university. These universities are 
often the biggest employers in the community and serve as business 
incubators that drive new companies.
    And equally important, university communities foster creativity, 
talent and ideas which lead to the next generation of businesses and 
innovations that will drive the new economy.
    I am pleased that this partnership between universities and 
businesses is represented by two New York witnesses, Dr. Stanley and 
Mr. Shulman, who can demonstrate how these synergies are working across 
New York. As our economy starts its recovery from the tremendous blow 
of the ``Great Recession,'' it is important to remember the role that 
entrepreneurs and innovation has in spurring growth.
    I am sorry that Dr. Litan is ill and thus unable to deliver his 
oral testimony. I was especially eager to continue our conversation on 
strategies to promote the next generation of innovation in the U.S. As 
some of my colleagues may recall, when Dr. Litan testified before us 
last December on financial regulatory reform, he also mentioned that a 
job creators' visa should be considered by Congress as a way of 
creating jobs without any additional costs to the federal government.
    A few months later, Senators Kerry and Lugar crafted legislation 
that addressed this issue--the Start Up Visa Act of 2010. Inspired by 
Dr. Litan's testimony, I recently introduced the Kerry-Lugar bill into 
the House. I am happy, however, that Dr. Litan's co-author, Mr. 
Stangler, is here in his stead.
    I am eager to discuss with our panel additional ways that Congress 
can make sure that we regain the innovative and dynamic economy that we 
once had.
    I welcome each of you this morning and look forward to your 
testimony.
                               __________
            Prepared Statement of Representative Kevin Brady

    I am pleased to join in welcoming the witnesses before the 
Committee this morning.
    Since its founding, the Republican Party has been committed to 
support higher education and scientific research. On May 15, 1862, 
President Abraham Lincoln signed legislation creating the Department of 
Agriculture to conduct agricultural research and disseminate its 
findings to farmers. On July 2, 1862, President Lincoln signed the 
Morrill Land-Grant College Act. Sponsored by U.S. Representative Justin 
Morrill, this act endowed public colleges in each state with the 
proceeds of federal land sales. These land-grant colleges grew into 
great state universities that have educated millions of Americans and 
conducted a majority of our basic scientific research over the decades.
    On July 28, 1958, President Dwight Eisenhower singed the National 
Aeronautics and Space Act, creating NASA. In his 1970 State of the 
Union Address, President Richard Nixon committed this country to a 
``war against cancer'' to find treatments and cures for this dread 
disease. And federal funding for the National Institutes of Health grew 
by 181 percent from fiscal years 1996 to 2007 under Republican 
Congresses.
    By definition, basic scientific research does not have an expected 
commercial application. However, the Sparking Economic Growth report 
from the Science Coalition provides empirical support that federal 
funding of basic scientific research generates real economic benefits.
    Basic scientific research leads to new discoveries and 
technological breakthroughs. Entrepreneurs can commercialize these 
discoveries and breakthroughs by establishing new companies, creating 
new products and services, and employing thousands of workers in highly 
skilled, well-paying jobs. This scientific and technological 
entrepreneurship keeps American firms at the ``cutting edge'' of the 
global economy. In turn, these new companies and their workers pay 
millions of dollars in federal income and payroll taxes.
    Supporting basic scientific research is an appropriate role for the 
federal government. Unlike so much of federal spending that proponents 
mislabel as an ``investment,'' supporting basic scientific research is 
a real investment that produces substantial returns for American 
taxpayers over time.
    In this context, I am troubled by President Obama's short-sighted 
decision to cancel the Constellation Program designed to develop new 
launch vehicles and spacecraft capable of reaching the moon and Mars. 
Human space exploration drives technology that makes the United States 
more economically competitive. Life science research with astronauts 
has spurred breakthroughs in the detection and prevention of cancer, 
heart disease, and osteoporosis. Defunding the Constellation Program 
will harm the U.S. economy.
    I am also troubled that this Congress has allowed the research and 
development tax credit to expire. Congress enacted the R&D tax credit 
in 1981. Seeing the benefits of our R&D tax credit, other countries 
have mimicked us by enacting more generous R&D tax credits. By 2004, 
the U.S. had fallen to 17th place in R&D tax benefits among OECD 
member-countries. The United States competes with other developed 
countries for R&D spending by multinationals. Corporate R&D creates 
some of the highest-skilled, best-paid jobs. We want corporations to 
conduct their R&D in the United States to strengthen the long-term 
competitiveness of the U.S. economy. We should be enhancing the R&D tax 
credit and making it permanent. This congressional inaction is 
incomprehensible.
    Turning to today's testimony, Dr. Litan, you cite a number of 
bureaucratic difficulties that inhibit the commercialization of 
discoveries and technological breakthroughs from basic scientific 
research at universities. First, you describe a major weakness of the 
peer review system; that is, some established academics abuse peer 
review to squash the research that is contrary to their own views or 
that is viewed as ``outside of the box.'' The most recent example of 
peer review abuse is the scandal at East Anglia University when some 
climatologists tried to suppress research that contradicted their 
notions of man-made global warming. I am interested in your views on 
how to prevent peer review from becoming a closed ``old boys' club'' 
that suppresses innovative thinking.
    Second, you raise the issue of the centralization of licensing at 
universities. No single university bureaucracy is likely to have all of 
the necessary knowledge to commercialize the varied discoveries and 
technological breakthroughs that may occur at a major research 
university. I am interested in your suggestions for introducing 
competition into the licensing process to speed commercialization.
    Third, I am also interested in your idea of prizes to incentivize 
the development of innovative ways of commercializing university 
research.
    I look forward to hearing today's testimony.

                               __________
        Prepared Statement of Representative Elijah E. Cummings

    Thank you, Madam Chair.
    I appreciate your calling this hearing, especially in light of the 
fact that we will receive the statistics regarding the employment 
situation for the month of June on Friday.
    According to an update provided by the Bureau of Economic Analysis 
last week, the gross domestic product--the output of goods and services 
produced by labor and property located in the United States--increased 
at an annual rate of 2.7 percent in the first quarter of 2010, from the 
fourth quarter of 2009.
    While this is a much needed improvement to the overall stability of 
the U.S. economy--it does not necessarily translate directly into job 
creation, which is desired by our constituents and needed for a full 
economic recovery.
    For the month of May, the employment situation improved by adding 
over 430 thousand jobs--edging down the unemployment rate to 9.7 
percent (from 9.9 percent).
    We are on the path to recovery!
    The Democratic-led Congress and President Obama have created or 
saved nearly 3.5 million jobs through the stimulus legislation.
    To build upon this success, the House on June 16th passed two vital 
pieces of legislation to create hundreds of thousands of jobs on Main 
Street by expanding lending to small businesses and offering tax 
incentives to help small businesses grow, hire and fuel our economy.
    H.R. 5297, the Small Business Jobs and Credit Act and H.R. 5486, 
the Small Business Jobs Tax Relief Act will provide nearly $300 billion 
in loans to small businesses and $2 billion for innovative state 
lending programs supporting small business.
    Additionally, the HIRE Act (PL 111-147) signed in March is creating 
300,000 jobs by rebuilding American infrastructure, giving tax credits 
to businesses that create jobs, and closing tax loopholes that allow 
corporations and the wealthy to hide income offshore.
    However, we must continue to look for new and creative ways to 
employ and train 15 million unemployed people and to prepare for the 
millions who are expected to enter the workforce over the next five 
years.
    Therefore, the hearing we are having today about the positive 
impact of federally funded research through university grants on 
communities and the potential for economic growth is very timely.

* * *
    I have the honor and privilege to represent Baltimore, Maryland--
home to many universities and research institutions--the most 
prestigious being Johns Hopkins University, a preeminent institution 
that often leads the nation in the total amount of support dollars 
received by the federal government.
    In fact, nearly 85 percent of the research funding received by 
Johns Hopkins is supported by federal research dollars--this translates 
directly to the creation and maintenance of 5,700 hundred full-time 
jobs at Hopkins.
    Additionally, scientists and physicians at Hopkins have competed 
for and, so far, won nearly $200 million in research grants funded by 
the stimulus bill.
    This money will be spent over several years but has already brought 
Baltimore 151 solid, well-paying new Johns Hopkins staff jobs for 
research technicians, biostatisticians, research nurses, programmers 
and others.
    Other educational institutions in my Congressional District are 
making great strides as well. Coppin State University just received $1 
million from the Department of Commerce to establish a computer center 
that will provide access to broadband services and offer numerous 
training/educational courses and on-line resources.
    The center will offer a total of 15 training and educational 
courses on a regular basis, which will provide a wide variety of 
opportunities for the entire family in computer and broadband 
instruction, job training and creation, health information and 
education, and education more generally.
    Together, the new infrastructure and instructional resources 
offered by the center will not only stimulate greater and more 
efficient use of broadband services, but also create, save or improve 
5,500 jobs, provide a better educated work force, improved schools, 
healthier people, more globally competitive businesses and schools, and 
greater financial stability.
    Federal programs have also provided nearly 100 jobs at Morgan State 
University, and have sustained 22 jobs in Baltimore City.
    These figures do not even take into consideration the number of 
employees of local companies who benefit from local purchases of goods 
and services needed to support the research work.
    But just as important to creating jobs, these dollars are also 
creating a better future and leading to innovation.

* * *
    The economic downturn has been traumatic to the millions who have 
been unemployed for an extended period of time--needing to be re-
trained because they have lost jobs that are never returning to the 
United States.
    However, one of the few good things that can come from this 
hardship is that this nation will have the opportunity to re-establish 
itself as a leader in developing new technologies that translate into 
``real world'' applications and create long-term employment.
    Madam Chair, I look forward to hearing from our witnesses on how 
university research can assist in job creation, and to a productive 
discussion that helps us find the road back to another prolific decade 
of economic growth.
    With that, I yield back.

                               __________
     Prepared Statement of Representative Michael C. Burgess, M.D.

    Thank you, Madame Chairwoman.
    I look forward to this hearing today because I think it will 
highlight some fundamental differences that Members of this Congress 
have concerning the proper role of government in funding scientific 
research. Indeed, the issue has never been timelier, as Democrats are 
allowing a number of critical R&D tax credits to expire by refusing to 
compromise on a tax extenders bill that should otherwise be enjoying 
bipartisan support, but for the Majority's refusal to acknowledge the 
economic constraints we find ourselves in as a nation and pay for the 
spending in the legislation.
    I have long believed that the proper role of government in funding 
research and development on a host of issues from medical research to 
energy policy is when government removes the impediments toward 
advances in science and technology--including burdensome taxes. 
Government funding that inherently comes with strings attached wasn't 
needed in the field of cell phones--the private market drove 
innovations that, today, result in a newer, faster, smaller, sleeker 
cell phone being released every month. Moreover, even with all the work 
the NIH has done on genetics and personalized medicine the mapping of 
the human genome, government funding was the first step, but it was the 
private sector that far surpassed the government in the end. However, 
it is clear that, at least in this last instance, government funding 
was necessary to get the ball rolling and will continue to be necessary 
in this initial development phase. While few in the private sector had 
the stomach to venture into previously unchartered territory of 
genomics the government-initiated research will no doubt lead to the 
private sector actually developing the promise.
    Let me be clear, federal funding of research can be an important 
part of finding a solution to any number of the world's problems. But 
too often, people place such a reliance on direct government spending 
that they lose the forest through the trees. What we should be focused 
on is, when we as the federal government do decide that direct spending 
is proper, what is the best way to ensure that taxpayers' dollars are 
being utilized to their maximum advantage. Political decisions on where 
funding should go have no place in scientific research. How do you best 
create a system of funding that allows the best ideas to reach the top 
and allow for less-than-ideal ventures to be left behind? I look 
forward to a frank discussion with our witnesses today.
    With that, I yield back.

                               __________
     Prepared Statement of Zachary J. Shulman, Senior Lecturer of 
  Entrepreneurship, The Johnson School, Cornell University; Managing 
                      Partner, Cayuga Venture Fund

    Good morning Chairwoman Maloney, members of the Committee. Thank 
you for inviting me to testify before the Joint Economic Committee 
today. My name is Zachary Shulman. I am a professor at The Johnson 
School at Cornell University where I teach courses on entrepreneurship 
and run a program called Entrepreneurship@Johnson. I also am a managing 
partner at Cayuga Venture Fund, an Ithaca-based venture capital firm.
    I believe the partnership between government-sponsored research 
dollars, Cornell University, and Cayuga Venture Fund is a model that 
can be replicated in smaller cities throughout the United States that 
have a strong research university. This kind of partnership leads 
directly to new consumer products and services, job creation and 
retention in the community, and direct economic growth in terms of 
revenue generation and expansion of the tax base.
    Cornell University is a major research university located in a 
small town. It ranked first in New York State and fifteenth in the U.S. 
in research spending in 2008 with a level of approximately $688 
million. I expect comparable rankings in 2009, as the University's 
research expenditures fell only slightly to $687.4 million. The 
spillover effect on employment and company growth in the Ithaca region 
as a result of such spending is real and measurable. The Bureau of 
Labor Statistics reports that Tompkins County has the lowest rate of 
unemployment in New York State, 5.2 percent in May 2010, compared with 
a state rate of just over 8 percent.
    Cayuga Venture Fund is a small fund in a small community. Since 
1995, we have been working to create and establish a thriving community 
of leading edge, high tech start-up companies in Ithaca and upstate New 
York by providing the necessary capital and other resources they need 
to grow and prosper. We have a history of opportunistic investing 
across a wide variety of industry sectors. Many of our companies have a 
strong Cornell University technology connection.
    To date, Cayuga Venture Fund III (our current fund) has invested in 
11 companies, seven of which are commercializing technologies developed 
at Cornell. Additionally, two of the remaining four have significant 
grant supported collaborations with Cornell. These nine companies 
currently employ more than 450 people and that number is growing. 
Together, their payrolls are in the tens of millions of dollars. 
Likewise, in 2009 these nine companies generated revenues of 
approximately $95 million. They have attracted more than $300 million 
in total investment dollars from CVF and our investment partners.
    Startup companies mean more jobs, more payroll, more revenue, a 
higher tax base, and more dollars invested. As the unemployment figures 
for Tompkins County suggest, smaller communities feel the relative 
impact of such drivers of economic growth to a great degree.
    Cornell is more than just a government-funded research engine, but 
is a full partner in the economic growth and development of Ithaca, 
Tompkins County, and New York State. You are probably most familiar 
with the way that Cornell partners with the government to attract 
research dollars from federal and state agencies. The University also 
partners with faculty as they create new intellectual property by 
providing lab space, library resources, and support services. Once 
promising IP has been developed, Cornell's partnership extends to post-
research activities--technology transfer and commercialization--that 
foster company creation and sustained growth.
    On the company creation side, the Cornell Center for Technology 
Enterprise & Commercialization (CCTEC) manages the technology transfer 
process for the main campus in Ithaca, the Weill Cornell Medical 
College campus in Manhattan, and the New York State Agricultural 
Experiment Station in Geneva. CCTEC connects Cornell technology to 
industry and business development efforts by working with entrepreneurs 
(including some faculty members) to vet technologies, research 
commercial viability and market need, and license technologies to 
startup companies. Without the technology transfer function, much 
university research would never leave the laboratory and the innovation 
culture would stagnate completely.
    On the sustained growth side, startup companies need capital to get 
off the ground. Some are funded at inception by the Small Business 
Innovation Research/Small Business Technology Transfer (SBIR/STTR) 
programs and related grants. Those programs are helpful, but only up to 
a point. Without committed seed stage investors such as venture capital 
firms and angel investors, most technology-based startups would die. 
Cornell has taken the critical step of investing some of its endowment 
funds in CVF. This allows us to attract additional investors into our 
fund--for example, Cornell alumni who care about startup investing and 
care that their alma mater is committed to startup growth--and, more 
importantly, allows us to attract additional direct investors into our 
companies. Simply stated, without Cornell's investment in our fund, our 
model would be severely hampered and likely unsustainable.
    In summary, entrepreneurial communities built around strong 
research universities have an advantage only if the university embraces 
the value that startup companies bring to their community. In my view, 
the federal government could foster the sort of partnership that has 
flourished at Cornell by directing universities that receive federal 
research dollars to invest in company formation. For example, if a tiny 
portion of research dollars were set aside for such investing activity, 
it could be leveraged to have a huge impact. Cornell has invested 
approximately $18 million of its own resources in CVF ($12 million in 
our current fund), which we in turn have leveraged into over $300 
million of investment. Finally, let me suggest several ways that the 
federal government could help foster the commercialization of 
university-developed technologies:

        1. As stated above, the government could mandate that a 
        university recipient of research dollars apply a small 
        percentage of these funds to actual company investment. In 
        other words, if the research yields a technology or process 
        worthy of commercialization, a small portion of research 
        dollars would be invested in the company (in exchange for 
        equity) and spent on building prototypes and doing market 
        assessments.

        2. The government could offer direct tax credits for 
        investments made in companies commercializing university-
        developed technologies. This would attract investment at the 
        critical start-up phase when it's needed the most. The credits 
        could be limited to investments into pre-revenue companies.

        3. The government could actively support regional research and 
        commercialization business parks associated with research 
        universities, mainly in the form of tax relief. I believe that 
        the Senate is already having discussions on this topic.

    It has been a pleasure to testify before your Committee. Thank you. 
I would be pleased to answer any questions you may have.

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