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Innovation: A Risky Business

Government Still Finds Opportunities to Foster R&D Initiatives to Keep U.S. Competitive, Despite Fiscal Constraints

For Members of Congress and government employees with big ideas that involve taxpayer dollars, times may seem rather tough. Bean-counters and agency managers are hunkered down, trying to make scarce dollars go further. Risk-taking and agency “wish lists” are out of fashion. Congressional appropriators face the strictest constraints in a generation — a decline in discretionary spending for a third consecutive year.

That has consequences for the types of programs that the government has long played a role in promoting, mostly through the annual appropriations process, ever since the development of a national system of canals and railroads to facilitate commerce in the early days of the republic.

And the sustained constraint on federal investment is not happening in a vacuum. Rather, it’s coming just as the United States faces an unprecedented level of competition from rising economies around the world and as leaders of both political parties and outside experts warn that the government needs to act to maintain the United States’ competitive edge — although they differ vastly on the remedies.

Yet even amid all the governmental belt-tightening, there are select pockets of money for innovation that continue to survive and even grow — because they would push boundaries of human understanding and encourage economic expansion in ways that both President Barack Obama and Congressional Republicans want to embrace. Federal funding continues to play a major role in scientific innovation, particularly in the cause of strengthened national defense and easier access to sources of energy. At the same time, a relative handful of forward-looking agriculture, health, transportation and education programs have also drawn bipartisan praise and financial support.

And beyond such targeted but direct investment in federal enterprises, Congress and the administration have been taking steps to promote risk-taking in the private sector, with an uptick in federal prize money for corporate and academic innovators who come up  with solutions Washington can use. And austerity itself has in some cases prompted lawmakers to get behind forward-looking initiatives — including at least one program that had actually been on the backburner during more fiscally flush times. Moreover, budget cuts mean that public-private partnerships, which have been breeding grounds for innovations in the past, are getting more attention.

Maintaining Research and Development

“If they innovate and want to do something new, they don’t want to take money from an existing pot — they want to use new monies,” Atkinson said. “Sometimes this is because Congressional authorization ties their hands. When there’s little new or extra money, new initiatives languish.”

In that environment, it takes “courage on the part of agencies to do things in a different way,” he said. “Agencies look like deer in the headlights when it comes to innovation sometimes.”

The government has long played a role in fostering new science and technology in American laboratories, factories and research facilities, beginning with Alexander Hamilton’s push for high tariffs to protect the nation’s infant economy. The Soviet launch of Sputnik I spurred a long-term commitment to defense spending that, as a side result, helped develop the Internet, supercomputers and other technologies. The Pentagon has long been the breeding ground for technological innovations that eventually changed not just the battlefield, but also the consumer marketplace. Two other agencies, the National Institute of Standards and Technology and the National Science Foundation, do so as well.

The United States’ edge when it comes to technological innovation remains in place, both in terms of public and private investment. A September report from the Organization for Economic Cooperation and Development noted that as of 2009, the U.S. had “an unmatched national science and innovation system in terms of investment, size and reach,” devoting 2.7 percent of its overall economy to research and development, much higher than the
1.7 percent spent by the runner-up, China.

But China and other countries are gaining quickly on multiple fronts when it comes to research and development, patents and manufacturing capability. Last fall’s report said: “Given the economic context, high unemployment and the pressures on government spending, a key question is how long can the US maintain its high level of public financing of R&D?”

That question will grow ever more relevant as the specter of drastic automatic budget cuts loom at the start of the new year and as Congressional leaders come under pressure to find ways to keep popular programs by finding savings elsewhere.

That’s particularly true when it comes to research.  In many cases, the U.S. government has funded the kind of basic research that
private industry won’t.

In a 2010 paper, “Innovation Policy on Budget,” Atkinson’s think tank argued that a greater share of National Science Foundation funding needs to go toward programs that put universities and companies on the same page. “As short-term competitive pressures make it difficult for even the largest firms to support basic research and even much applied research, firms are relying more on university-based research and industry-university collaborations,” the paper argues. “Yet, the divergent needs of firms and universities can hinder the coordination of R&D between these two types of institutions. University researchers are not necessarily motivated to work on problems that are relevant to commercial needs.”

That’s essentially the idea behind the Obama administration’s recently announced “Big Data” initiative, which involves six agencies and will invest in data analysis tools aimed at generating improvements in programs ranging from scientific and medical research to advancements in the use of machines for warfare. And, relatively speaking, the effort is on the cheap, with money from each agency — just
$200 million in total.

Surviving the Partisan Divide

Still, programs cost money. And the very definition of what is innovative — and what is unwelcome government intrusion — is more a subject of partisan debate than ever before amid the continued tea party, small-government insurgency within the Republican Party. And that has made it harder for cutting-edge discretionary spending programs,  even those popular with lawmakers of both parties, to survive.

While Atkinson and other outside observers have called for a national innovation strategy, bipartisan consensus is hard to find on what that would mean. To the GOP, the answer usually lies in tax policy that encourages businesses to locate in the United States — not the sort of spending that has the improper effect, as Republicans say, of  “picking winners and losers.” Democrats generally want more spending and a greater focus on clean energy.

And in these more partisan times, programs that push money to innovative companies in industries such as energy production, which are hailed by outside observers and business groups as
forward-thinking, are often simultaneously bashed by conservatives as wasteful industrial policy.

That’s true even of the Department of Energy’s widely popular Advanced Research Projects Agency — Energy, or ARPA-E, which was modeled after the Defense Advanced Research Projects Agency, the storied Pentagon program that helped lay the groundwork for the Internet.

Members of the conservative House Republican Study Committee, however, unsuccessfully tried to zero out funding for the program during last year’s appropriations floor debate, with Rep. Tom McClintock (R-Calif.) saying that similar energy research programs have “left us billions of dollars poorer and has left us stuck with mediocre technologies that only survive on a lifeline of public subsidies.”

But ARPA-E survives, for now, as do many other programs, such as the Navy’s Electromagnetic Aircraft Launch System, the heart of the new USS Ford-class aircraft carriers.

And R&D Magazine’s list of the top 100 inventions of last year is littered with inventions hatched in U.S. government-affililated research operations. Among them is the chemical decontamination technology developed at Idaho National Laboratory and the airborne ladar imaging research testbed developed at MIT’s Lincoln Laboratory.

And they go well beyond energy, science and defense. The Agriculture Department’s Environmental Quality Incentives Program, for instance, provides payments to producers to help finance improvements to feedlots or farms, buy new equipment and reduce the cost of new soil-saving agricultural practices.

Promoting Innovation With Prizes

Amid the tight budgets and competing visions of government,  there is also bipartisan agreement on one method of spurring innovation: prizes. Congress and the administration have increased support in recent years for a range of government-funded prizes to promote research and development.

The reauthorization of the America COMPETES Act, which Obama signed into law in late 2010, tweaked and expanded the government’s role in funding prizes, and the administration has been ramping up its effort to implement the changes in recent months, most prominently through a website, challenge.gov, and a new Center of Excellence for Collaborative Innovation, run out of NASA.

The law “makes it easier for agencies to use prizes to supplement more traditional R&D funding mechanisms such as grants and contracts,” John Holdren, director of the White House Office of Science and Technology Policy, told a Senate Commerce subcommittee last month. The Department of Health and Human Services, for instance, has moved forward with a $5 million prize competition to promote innovations in health information technology.

“The potential in this prize domain is enormous. It reaches a much greater reservoir of creativity, and our traditional approach is the funding. It brings interdisciplinary teams into being that compete for these things. You pay only for result,” Holdren said.

Forging Public-Private Partnerships

Additionally, the tight budget environment may actually be encouraging more innovation. That’s true in the case of the deal that lawmakers reached in February to allow the Federal Communications Commission to auction off blocks of wireless spectrum to wireless providers and device manufacturers, who are trying to meet public demand for smartphones and other devices — and to allocate a large block of 700 megahertz portion of the radio spectrum for emergency responders, a recommendation of the 9/11 commission back in 2004.

Years in the making, the proposal finally got across the legislative finish line because it would raise $15 billion over 10 years. That money was needed to help offset the extension of federal funding for unemployment insurance in a February tax cut deal because conservatives were demanding that the jobless benefits not add to the deficit.

While conservatives contend that the government is littered with too many spending programs, some liberals argue that reorganization would help businesses take advantage of the innovative initiatives that can be hidden within the government.

“To truly bring federal businesses and innovation programs into the 21st century, Congress needs to empower federal agencies to share information, increase the flexibility with which assistance tools can be applied to eligible firms, and coordinate strategically toward shared goals such as job creation, export expansion, regional economic invigoration, and technological innovation,” Sean Pool, a science innovation policy analyst at the Center for American Progress, said in a recent report advocating the creation of a more streamlined portal to help businesses access government programs.

But tight budgetary times are also prompting more discussion of greater public-private collaboration, in the form of public-private partnerships.  “If that’s where the politics are, then you have to do PPPs — innovative PPPs,” Atkinson said.

The U.S. Agency for International Development, for instance, has several programs in developing countries designed to leverage private funds to promote economic growth — and offset shrinking foreign aid funds.

In some cases, partnerships can save money and lead to better results, advocates argue. That’s the message of a new book,  “Collaborative Governance: Private Roles for Public Goals in Turbulent Times,” by two professors at Harvard’s Kennedy School of Government, John Donahue and Richard Zeckhauser. They single out efforts by USAID, the Coast Guard and other agencies to collaborate with the private sector. “When well applied, the collaborative approach can be a powerful lever for creating public value,” they write. “But it is often misunderstood — confused with conventional contracting or charity, or merged with woolly conceptions of public-private partnership — by policy makers and the public alike.”

Federal contractors, meanwhile, are watching the budget wars closely, tailoring their pitches. Indeed, lean times can instill a growth opportunity for companies looking to sell to the government.

Just read IBM’s “Smarter Government” website, targeted toward government managers.

“Federal governments and agencies are facing budget constraints and are seeking cost savings in all areas, including IT. You may be under pressure to reduce costs, energy usage and space requirements of government data centers,” it reads. “Cloud-based solutions can increase your security and risk exposure, as your data is distributed across multiple systems and locations.”

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