[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
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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
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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
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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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