[Congressional Record Volume 141, Number 134 (Thursday, August 10, 1995)]
[Senate]
[Pages S12311-S12313]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


           R&D INVESTMENT AND THE FUTURE OF THE U.S. ECONOMY

 Mr. LIEBERMAN. Mr. President, the Institute for the Future has 
completed an important report on the future of research and development 
in this country. This report makes the critical connection between 
research and development investment and the competitiveness of American 
industry. This important link between R&D and our economy must not be 
underestimated. Without sufficient investment in R&D today, we are 
destined to be losers in the global economic battles of tomorrow. 
Government and the private sector need to work as partners to make sure 
that our business remains competitive, bringing jobs and prosperity to 
our economy.
  Congress is currently contemplating a major shift in our R&D policy. 
In their zeal to balance the budget, many Members have forgotten why we 
are striving to balance the budget. The reason we need to balance the 
budget is to increase our economic prosperity. Therefore, it is 
counterproductive to balance the budget by cutting spending in areas 
that are adding to our economic prosperity. We are on the verge of 
making the mistake of cutting investments in the very areas that we are 
trying to stimulate. R&D is one of those areas. We are making 
unprecedented cuts in R&D, departing from an R&D policy that has 
enjoyed bipartisan support for 50 years, since the end of World War II.
  I have been working hard in support of research and development 
initiatives in Congress to promote many of the objectives put forth in 
the report from the Institute for the Future. We are currently engaged 
in a battle to save the Department of Commerce, business' seat at the 
Cabinet table. Those in Congress who seek to dismantle the Department 
of Commerce have not recognized that Government has a role to play in 
partnership with private industry to stimulate the technology 
development that will be the foundation of the next generation of 
products in the global marketplace. The Department of Commerce also 
performs the basic science that is required to set standards that are 
the critical benchmarks of modern industry. Other programs educate 
small- and mid-size industry in state-of-the-art technologies that 
allow them to compete in an increasingly fierce international 
competition for consumers. In addition to its R&D functions, the 
Department of Commerce performs trade functions that promote and 
protect our interests abroad.
  Government also has the responsibility of providing an economic 
environment that promotes R&D in the private sector. I am currently 
involved in legislation in two areas that will have a significant 
impact on R&D investment. I am working on a bipartisan basis to draft 
legislation to make the R&D tax credit permanent and more inclusive. 
Business cannot function in an uncertain economic environment. To make 
good business decisions, particularly investment in R&D, business needs 
to have reliable and well defined tax laws regarding R&D tax credits. A 
permanent R&D tax credit will provide business with this certainty. I 
have also introduced a bill with Senator Hatch which provides a 50-
percent across-the-board exclusion on capital gains with an increased 
exclusion for qualified small businesses. The bill has a dozen 
cosponsors, spanning the range of the Senate's political spectrum. This 
change in capital gains taxes should encourage capital investment, 
including investment in new businesses which are bringing new 
technologies to market, and new jobs to our work force.
  These efforts are particularly important in the current economic 
climate. Decreasing product life-cycles and increasing competition is 
forcing industry to focus on shorter time scales, not the longer time 
horizons required for high risk R&D. We must make sure that there are 
incentives that encourage investment in long-range, high-risk R&D. 
These private sector programs, however, are only a complement, not a 
replacement for federally funded R&D efforts. The Government's role in 
science and technology tends to be longer term and in areas where 
industry does not invest. Industry is not prepared to undertake the 
risk that longer term R&D entails. Private sector R&D tends to be 
increasingly short-term, and focused on areas where there will be a 
clear short-term return. We need increasing investment in both 
Government and private sector R&D, yet we are faced with declining 
private sector R&D investment and major cuts by the new Congress in 
Government's R&D. Both of these problems must be addressed if the 
United States is to retain its economic leadership. Our competitors are 
increasing their investments in both R&D arenas.
  I applaud the Institute for the Future in their efforts to research 
the current R&D climate and to delineate goals for the future. As 
partners, private industry and Government can lay the groundwork for 
effective investments in our future. At a recent event to introduce the 
report from the Institute for the Future, Dr. Mary Good, Under 
Secretary for Technology, U.S. Department of Commerce, and Richard J. 
Kogan, president and chief operating officer, Schering-Plough Corp., 
made statements concerning the critical role that research and 
development plays in our economy. I ask that these statements be 
printed in the Record.
  The statements follow:
Comments on ``The Future of America's Research-Intensive Industries,'' 
                Prepared by the Institute for the Future

 (By Mary L. Good, Under Secretary for Technology, U.S. Department of 
                        Commerce, July 24, 1995)

       First, let me say how pleased I am to have an opportunity 
     to participate in this News Conference which announces the 
     publication of the report entitled ``The Future of America's 
     Research-Intensive Industries''. The Institute for the Future 
     and the sponsors of this report are to be congratulated for 
     their foresight and commitment to the long-term health of the 
     U.S. economy. Clearly, the U.S. research-intensive industries 
     have been one of the major vehicles for the country's 
     economic growth since World War II. They have played a 
     disproportionate role in the improvement of our standard of 
     living, in the development of our industrial infrastructure, 
     and particularly in establishing the United States as the 
     world's leader in high-technology development. In many ways 
     they have been the motivation for the creation of the world's 
     leading higher education system because they generated the 
     jobs that required high-quality graduate training in science 
     and engineering. They appreciated and utilized the research 
     output from our research universities, the national 
     laboratories, and the mission agencies of the government, 
     particularly Defense, NASA, and Energy. Less well recognized, 
     they played a vital role in the success of entrepreneurial, 
     high-tech startup companies that utilized 

[[Page S 12312]]
     the people and technology that was nurtured in their major research 
     centers but did not meet their internal criteria for further 
     in-house development. Many of our successful high-tech 
     startups over the last 30 years or so can trace their 
     ancestry back to ``parents'' or ``grandparents'' in the 
     research-intensive companies who grew and flourished in the 
     years after World War II. In addition, they have provided the 
     market for thousands of small companies, first, second and 
     third tier suppliers who have flourished over the same period 
     of time.
       The success of this industry, as so capably defined by this 
     report, has been the result of both government and business 
     foresight in the development of a research and development 
     infrastructure in the private sector, the government, and 
     academia. This infrastructure provided the intellectual 
     capital required for our industry to excel. However, it was 
     developed at a time when the government motivation was 
     substantially based on defense needs. The industry had a 
     world competitive position that encouraged long-term 
     investment in R&D that benefited it directly, and indirectly 
     spilled over to provide great social benefit ranging from the 
     creation of entirely new industries to the development of 
     technology based, civilian infrastructure.
       As the report documents, the end of the Cold War and the 
     rise of many able competitors all over the world have changed 
     dramatically the position and behavior of both the government 
     and the industry in their role in the R&D infrastructure 
     which has sustained them over the last 50 years. The 
     questions addressed by the report are vital to our country's 
     future and the ability of our children and grandchildren to 
     enjoy the same opportunities and quality of life that we 
     have. The conclusions of the report and their implications 
     for public policy must not be ignored. The recommendations 
     require active government participation with the industry in 
     working out the new paradigm for R&D infrastructure which is 
     appropriate for the 21st century. To suggest that the 
     solution to these problems belongs to the industry alone and 
     that it is time for the government to provide significantly 
     less resources and investment in this area so vital to 
     economic growth is to declare defeat in the economic security 
     battles that are raging around the world today. Our future 
     depends on the realignment of a greater share of our 
     government funded R&D effort to civilian industries; the 
     continued support of university research, both basic and 
     applied science and engineering; the cultivation of a core of 
     the ``best and the brightest'' students to seek an education 
     in science and engineering; and the encouragement of 
     industrial R&D growth over time. The global market of today 
     may well create the forces which cause individual companies 
     to realign and adjust their R&D resources to be economically 
     successful. However, those same forces may cause the United 
     States as a country to under-invest in the future where our 
     R&D intensive industries are world players but not the 
     overall contributors to the nation's well-being that they 
     have been in the past. Thus, public policy must be developed 
     which maintains the results of our Cold War policies but 
     which is focused on programs and resource allocation which 
     are appropriate for the new post-Cold War environment of 
     today.
       Let me conclude by commenting on each of the five 
     recommendations for public policy listed in the conclusion of 
     the report.


              Maintain federal support for basic research

       This is a major priority for going forward. Not only must 
     we maintain the portfolio in the universities funded by the 
     civilian agencies like NSF and NIH, we must continue at least 
     the current level of support from the mission agencies like 
     Defense, NASA, Energy, and Agriculture. This university 
     research includes a significant amount of applied and 
     engineering research which must not be
      removed on the fallacious argument that the government's 
     role should be limited to ``basic research''.
       In addition, the role of a segment of the government 
     laboratories in fundamental research must be re-examined and 
     strengthened to provide facilities and long-term programs 
     which support and supplement both the civilian industry and 
     academic efforts.


             encourage long-term private investment for r&d

       An environment must be created that induces both U.S. 
     industry and U.S. subsidiaries of foreign-owned firms to 
     invest in R&D and high-level manufacturing within the United 
     States. Future high-paying and intellectually challenging 
     jobs depend on this environment. Tax and investment policies 
     which provide these incentives must be part of any public 
     ``technology policy''.


       lower government-generated risk associated with innovation

       Public policy must address regulatory and litigation issues 
     so that public interests are balanced against innovation 
     incentives. The lost value of innovations not done because of 
     regulatory and legal disincentives must be considered in the 
     overall context of the optimization of public protection vs. 
     private industry activities.


                     protect intellectual property

       In the market place, intellectual property is a major part 
     of the competitive edge which justifies R&D expenditures. 
     Without world-wide protection of that intellectual property, 
     companies cannot capture the full value of their R&D 
     investment through global sales with appropriate margins. As 
     products and services become more knowledge-based and 
     software intensive, the need for new paradigms in the 
     protection of intellectual property will become more urgent. 
     Clearly, public policy must focus on international trade 
     relations as well as on domestic legislation if our companies 
     can continue to reap the benefits of extensive R&D 
     investments.


                  support industry cooperation on r&d

       As product live cycles continue to decrease and private 
     industry spends less on enabling and emerging pre-competitive 
     technologies, the need for better bridges between university 
     and government research and the industrial sector become more 
     urgent. Joint ventures and government-private partnerships 
     provide rapid technology transfer and continue to 
     technological infrastructure that has served us so well in 
     the past. These activities must not be lost by ideological 
     attacks on so-called ``corporate welfare'' and arguments 
     about the government's role in industrial innovation. 
     Programs which have been developed over the past five or six 
     years such as the Advanced Technology Program in the 
     Department of Commerce and the CRADA programs in the 
     Department of Energy must be strengthened and continued. 
     Overall a 5-10% portion of the federal R&D budget should be 
     reserved for these partnership programs. They should 
     encourage both government and academic interaction with 
     industrial R&D and foster the kind of relationships where 
     emerging technologies can develop and spin off new industries 
     in a competitive time frame and new enabling technologies can 
     be rapidly assimilated by the industry.
       The response to these recommendations by today's policy 
     makers and legislators will determine the quality of our 
     country's future. The investments called for must be made in 
     an era of great need to reduce the overall federal deficit 
     and where the need for investments in education and continued 
     support for the needy and the elderly must be found. Thus it 
     is a time when a thoughtful review of government R&D 
     activities is in order to prioritize the expenditures to meet 
     the recommendations of today's report. Current budget 
     resolutions in the House and Senate project a decrease of at 
     least one-third of all federal government R&D expenditures by 
     the year 2002 and a prohibition on all R&D partnership 
     activities where the federal government funds any part of an 
     industrial firm's civilian technology development. The 
     appropriation process which is now underway for 1996 budgets 
     would indicate that the plan is on track. Some $5-6 billion 
     of the $34 billion or so of civilian R&D have been identified 
     for reduction and most of the newer partnership programs have 
     been severely reduced or eliminated. The Advanced Technology 
     Program has been eliminated, the Technology Reinvestment 
     Program in the Defense Department has almost been eliminated 
     and the DOE CRADA budget has been reduced to a few million 
     dollars. The report before us outlines why the industry will 
     not and can not replace these activities. The discontinuity 
     which will be caused by these budget actions, the consequent 
     loss of thousands of R&D jobs, and the effect it will have on 
     academic research departments will not be amenable to ``quick 
     fixes'' next year or in the foreseeable future. We can only 
     hope that this report and other current analyses will 
     convince the public and the Congress that this approach is 
     suicidal. A balanced budget will only be achieved by both 
     government reductions and strategic investments in labor, 
     capital and technology which will provide the economic growth 
     and jobs of the future. This report goes a long way to 
     explaining in clear terms why that is true.
       Thank you.
       ``The Future of America's Research-Intensive Industries''

 (By Richard J. Kogan, President and Chief Operating Officer, Schering-
                             Plough Corp.)

       Members of the Administration and Congress, distinguished 
     scientists and professors, ladies and gentlemen:
       Good morning. As the Institute's researchers have noted, 
     pharmaceuticals and biotechnology are one of this nation's 
     ``top eight'' R&D-based industries examined for their ability 
     to continue their innovation track record.
       Certainly, major challenges lie ahead for our industry. 
     With biopharmaceutical industry R&D costs rising, it's 
     increasingly difficult to repeat our previous innovation 
     achievements that have made America the worldwide 
     technological leader in medicine. Just as we cannot return to 
     yesterday's markets, we cannot replicate our former R&D 
     expenditures. Growth in industry R&D spending today is less 
     than half the level of the early 1980s.
       Schering-Plough in the 15-year period 1979-1994 spent 
     almost $500 million to develop our recombinant alpha 
     interferon, plunging ahead even when it initially appeared 
     the drug would help only a handful of cancer patients. It 
     took nearly 14 years of work before we saw a penny of return 
     on that investment. Today, such an effort might not be made--
     nor our subsequent discovery that the drug can treat 16 
     cancer and viral diseases.
       For pharmaceutical and biotech firms, the burning issue now 
     is not only whether we can continue bringing products to 
     patients that treat unconquered diseases, but whether we can 
     continue covering the expenditure for leading-edge research. 
     Our industry is currently responsible for more than 90 
     percent of all new U.S. drug discoveries.

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       Today's diseases--Alzheimer's, AIDS, heart and kidney 
     disease, prostate cancer and arthritis--are far more complex 
     than those successfully treated in the past. Moreover, many 
     of today's most prevalent diseases--primarily chronic and 
     degenerative conditions--are at the high-cost stage in the 
     innovation cycle. If we cut investment in medical progress 
     today, the consequence may be irrevocable and society may rue 
     that decision for years to come.
       The annual medical costs of only seven major uncured 
     diseases account for about half of today's health care bill. 
     However, many of those diseases are within reach of effective 
     pharmaceutical control or cure. As biomedical technology 
     progresses to that point, the total cost of treating these 
     major ailments should drop sharply. If the cycle of 
     innovation is disrupted, we run the risk of being trapped 
     with today's higher-cost, less-effective options.
       Today's rapidly changing health care market signals the 
     continuing sense of urgency for optimal patient care and cost 
     containment. By the same token, we must constantly remind 
     ourselves that medical innovation is the most viable, long-
     term solution for cost-effective quality care--as the 
     findings of the Institute study attest.
       In 1995, an urgent task before U.S. policymakers should be 
     to assure that the path of innovation remains open, 
     unobstructed and attractive to investors. And, that statement 
     applies across the aboard--from our industry that has cured 
     polio, tuberculosis, measles and diphtheria to our fellow 
     industries that have brought the world the laser, fiber 
     optics, lightweight alloys, integrated circuits, the CAT 
     scanner, and that have taken us into outer space.
       Thank you.
       

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