Innovation Policy in the US - an Interview with Charles Wessner

bridges vol. 19, October 2008 / Feature Article

By Philipp Marxgut

Charles Wessner
Dr. Charles Wessner

If you Google “Charles Wessner” and “Innovation,” you get an impressive 7460 hits in 0.29 seconds. The quantity of information provided by search engines might not always correspond with the quality, but it can provide an indication of how well the two search terms go together. In this case, it is a perfect match.

Director of the Program on Technology, Innovation and Entrepreneurship at the  National Academy of Sciences, Charles Wessner is recognized nationally and internationally for his expertise on innovation policy. Wessner has testified several times to the US Congress, advises government agencies, and lectures at major universities all over the world.

bridges welcomed the opportunity to interview Charles Wessner about the strengths of the US innovation system, best practice models to support innovation, and his recommendations to the new administration for how to secure US leadership in S&T.

{access view=guest}Access to the full article is free, but requires you to register. Registration is simple and quick – all we need is your name and a valid e-mail address. We appreciate your interest in bridges.{/access} {access view=!guest} bridges:     Mr. Wessner, you hold a degree in international affairs from Lafayette College and received your PhD from Fletcher School of Law and Diplomacy. What awoke your interest in technology policy, innovation, and entrepreneurship?

:     Even as an undergraduate, I was interested in the connection between technology and economic growth. My work as chairman of an OECD working party led to a better appreciation of the close interaction between government policy and the growth of high-tech industry within a nation’s borders. Subsequent work in the technology administration at the Department of Commerce only deepened that interest.

bridges:     In recent decades, the US has always been a leader in research and innovation. In your opinion, what have been the strengths of the US innovation system?

Wessner:     One of the key advantages has always been the positive attitude and trust of the US society towards science and scientific institutions. Americans tolerate risk and are willing to “try again” after a failure. This environment has created an economic and institutional infrastructure that quickly re-deploys resources to their most efficient use. Other advantages include the strong and diverse higher education system, especially the outstanding research universities, the many high-tech SMEs, the ability to create new, large companies and of course the fact that the US government makes major R&D investments, in health for example. The flexible capital and labor markets have also been important factors. These framework conditions created a supportive environment for entrepreneurs and innovation. 

bridges:     In the budget proposal for the fiscal year 2009, the proposed federal R&D portfolio is about $147.4 billion. Looking at the R&D portfolio by major functional categories, $84.5 billion would go into the defense category, health R&D accounts for $30.8 billion, and space-related R&D would receive $12.3 billion (Source: AAAS). Which adjustments, if any, would you recommend to the new US administration and to Congress?

Wessner:     The focus of the federal R&D spending on defense and health accounts for 80 percent of the total US government R&D investments. The problem, in my view, is that the Department of Defense’s spending is on later stage technology development. It is often not basic or even applied research but rather testing and certification. The R&D element of the budget is therefore overstated. A new administration and Congress need to make major investments in disciplines such as physics, chemistry, mathematics, and engineering, as recommended in the Academies’ report, The Gathering Storm. Above all, Congress needs to fund the America Competes Act.

bridges:     There is a widespread view that spending on defense research and procurement leads to military spin-offs and commercial applications. Often cited examples are the Internet and the GPS. You do not fully support this assumption. Why?

Wessner: Because spending on defense research is only focused on applications for military technologies that often have limited civil applications. For example, what is the commercial application for stealth technologies? If military spending really worked better, Europe would have increased its military spending rather than its support for commercially relevant technologies.

bridges:     From a European perspective, an important component of the US innovation system has always been its private venture capital (VC) industry. How would you describe the impact of VC as a driving force for innovation?

Wessner:     The role of venture capital on innovation, while important, is sometimes overstated. Venture funding represents only one path forward for new firms seeking to scale up.  Indeed, only 4 percent of VC can be considered as an investment in the seed stage ($ 1.2 billion (415 deals) out of a total of $29.4 billion in venture investments in 2007). This is not a large number for the American economy as a whole. In addition, VC firms are understandably reluctant to manage numerous small investments, because the overhead costs are similarly too large. This limits the willingness to make small investments in small firms. Lastly, VC is focusing on later stages of technology development and then seeks an early exit. These are all reasons why I believe that VC is not the only bridge across the “valley of death” between research and innovation. 

bridges:     The Board on Science, Technology, and Economic Policy (STEP) of the National Academies directed studies centered on government measures to encourage entrepreneurship and support the development of new technologies. Which innovation programs do you consider to be best practice models and why?
Wessner: SBIR (Small Business Innovation Research Program) and ATP (Advanced Technology Program) represent global best practice and are increasingly adopted and adapted by other countries. 

The NRC recently conducted the most comprehensive study ever of the SBIR program. The NRC study, led by Jacques Gansler of the University of Maryland, found that the SBIR program “is sound in concept and effective in practice”: It succeeds in stimulating technological innovation, increases the private sector commercialization of innovations derived from federal R&D, uses small businesses to meet federal R&D needs, etc. It also has a positive impact on participating companies and their growth. SBIR has become a key force in the innovation economy of the United States with a significant percentage of the top 100 innovations coming from SBIR backed firms.
bridges:     SBIR supports R&D projects by small businesses with an annual budget of approximately US $2 billion. What makes SBIR an attractive funding instrument for SMEs?
Wessner:     SBIR is attractive because it helps small firms to cross the valley of death and attract private capital or public contracts. It is mission-driven, industry-led, and transparent. Importantly, it provides incentives and not merely mandates. Currently funded at $2.3 billion per year, it is larger than early stage VC funding. Furthermore, agencies must allocate 2.5 percent of their external R&D budgets for awards to small businesses. This provides great stability to the program, a valuable asset in turbulent times. Although this year the reauthorization failed, I am hopeful that it will be renewed in the new Congress and that bills reflecting the recommendations of the Academies’ study will be adopted. This will ensure that the program is politically stable.

bridges:     On August 9, 2007, US-President Bush signed the American Competes Act, which abolished the Advanced Technology Program (ATP) and created the Technology Innovation Program (TIP). The program seeks to provide federal funds to small businesses for early-stage investments to accelerate the development of high risk, high reward technologies.
However, no funding was appropriated for TIP in the FY2009 budget. Why is that?

Wessner:     There is great complacency in Washington about the US position in the world. There is relatively limited understanding in the policy community about the scale and scope of foreign investments in new technologies, including new institutions, such as ASTAR in Singapore or the large and apparently effective Chinese S&T Parks, or the highly successful Microelectronics center, called IMEC, in Flanders.

Here in the US we do not need to do exactly what others are doing, but we do need to greatly strengthen the interaction between the government, the universities, and the private sector by providing a wide variety of incentives for cooperation on the new technologies that will be the basis of future industries. 

bridges:     Several US reports see America’s continued leadership in S&T endangered. With a new Administration taking office in January, which would be the most important policy measures a McCain or Obama administration should take to ensure America’s leadership in innovation?

Wessner:  A series of reports from the President's Council of Advisors on Science and Technology (PCAST) to The Gathering Storm have underscored the need to invest in science, technology, engineering, and math. We need substantial and steady increases in the support for disciplines such as physics, chemistry, engineering and mathematics. 
Importantly, we also need to reinforce successful programs like SBIR, while also providing substantial additional funding for the new technology innovation program (TIP) that is focused on Critical National Needs such as civil infrastructure, water, energy, manufacturing, and personalized medicine. For promising new industries like solar energy, we need to provide investment tax credits, substantial R&D support, R&D tax credits, and we need to provide a supportive regulatory environment.  We also need to reinforce our talent base, for example, we need to enable foreign students to remain in the country after they obtain advanced degrees, and allow our companies to recruit the best and the brightest from around the world.  The U.S. benefits from having a “first draft choice” of leading scientists in the world.  It is very important not to give that up. It is essential to adjust immigration laws to allow us to continue to attract the world’s best talent.   

Above all, we need to recognize that innovation is a key component to our national security and the future welfare of the nation.  We cannot take our world position and future prosperity for granted. 



The views expressed herein are those of the interviewee and are not presented as those of the National Academies.