BoenD oN SctEnNCE, TncHlNoLoGy, Ar.{D EcorvoMrc PoLrcY
50t" MnnuNG oF'Tr{E Bo¿,nu May 7-8,2009 lVesruNctoN, DC
$ \ IË ti ti Ii: lrl¡\t-lol\lAt A(_ADiM\lis Advisers to tfte Natlon on Science, Englneeilng, and Mediúne National Academy ol Sciences National Academy of Engineering lnstitute of Medicine Nat¡onal Research Council
April30o 2009
STEP MEMORANDUM
TO: Members of the STEP Board
FROM: Steve Merrill
SUBJECT: 50th Meeting of the STEP Board, Washington, DC, May 7-8, 2009
To mark this STEP milestone and the advent of the Obama Administration, we have invited two senior White House advisers to join us for dinner on Thursdayo May 7 - Tom Kalilo senior adviser to OSTP Director John Holden (he played a similar key role in the Clinton White House) and Susan Crawford, special assistant to the President for science, technolory and innovation policy in the National Economic Council. Time and location: 6:30 PM.701 RestauranL 701 Pennsvlvania Avenue. NW. As background to this discussion, we have prepared a rough summary of the status of innovation-related Academy recommendations from STEP and other committees. For the President's April 27 rousing address to the annual meeting of the National Academy of Sciences, go to: http ://www.nationalacademies.ors/morenews/2 0090428. html.
Three new initiatives and an ongoing project recently assigned to STEP are on , in Room Stn Street. N.W.
Short- ønd long-term economíc ímpøcts of S&T Investments. Shortly after passage of the stimulus bilt with its $22 billion for a wide range of R&D activities, Congressman Rush Holt asked the Academy to address what that investment will buy in employment and other economic benefits. The Committee on Science, Engineering and Public Policy (COSEPUP) has asked STEP to consult on the terms of such a study and collaborate in carrying it out. Guests to lead off this discussion are Richard Bissello PGA and COSEPUP Director, and Julia Lane. Director of NSFos Program on the Science of Science and Innovation Policy.
SBIR Evøluatíon Chuck Wessner is completing a first round of evaluations of R&D agency Small Business Innovation Research Programs. This project was launched out of STEP but conducted independently. A second phase witl be done under STEP's oversight. Jacques Gansler, university of Maryland and former DoD Under Secretary of Defense for Acquisition, Technolory and Logistics, who chairs the study committee for both phases, will describe the first phase findings and future plans.
500 Fifth Street NW, Washirìgton, DC 2000'l Telephone (202) 334-1581 Fax (202) 334-1505 [email protected] o Skílled Foreígn Workers ín the U,S. The corporate offer of data and financial support for a study of workers admitted to the US under the H-18 visa program, discussed at the January meeting has been vetted with many academics and supporters and critics of the program and the Academy managemenÇ but many questions remain. A scoping meeting is planned. o Copyríght's Impact on fnnovatíon. The proposal for work on non-patent intellectual property has been narrowed to a focus on copyright policy in the digital era. Initial reactions are positive. Mike Nelson, Georgetown University visiting professoro will discuss what current and future debates the project could influence. Further, we seek your help in identiffing potential sponsors.
The balance of the meeting will review progress on ongoing projects. May 1,2009
STEP MEMORANDUM
TO: Members of the STEP Board
FROM: Steve Merrill and Daniel Mullins
SUBJECT: Status of Academy Innovation-Related Recommendations
We thought it useful to review how much progress has been made on science, technology, and innovation issues by the new Administration and Congress, and in one area, the federal courts, and what issues have yet to be addressed. We include a few studies other than STEP's (e.g., the much discussed Gathering Storm report). This is no doubt incomplete on both the Academy and government sides, particularly with respect to sectors such as energy, biomedical, and IT.
Rising Above the Gøthering Storm: Energizíng ønd Employing Amerícøfor ø Bríghter Economic Future (COSEPUP committee chaired by Norman AugustÍne)
Recommendations:
1) Sustain and strengthen the nation's commitment to long-term basic research - Increase spending by l0% each year over the next 7 years, especially in the physical sciences, engineering, mathematics, and info rmation sciences. - Create in the Department of Energy anorganization like DARPA called the Advanced Research Proj ects Agency-Energy (ARPA-E)
NOTE: Less specific recoÍrmendations for increases in physical science and engineering research support were made in a series of STEP reports, including Trends ín Federøl Support of Research and Graduate Educøtíon, Government-Industry Partnershíps for the Development of New Technologíes, and Enhøncing Productivìly ìn the Informatíon Age.
Actions (figures in $billion):
Agency Function 2008 Act Stimulus Enacted (authorization) BiI 2008 NSF General 6.13 6.60 3.00 7.33 6.85 For Research 4.84 5.16 2.50 5.74 5.59
NIST For Research 0.¡f4O 0.502 0.220 0.542 0.561 Technology lnnovation .?_r9-grqn__-" 0.065 0.1 NA 0.132 0.065
DOE Off. of Science 4.04 1.60 5.20 4.27 ARPA-E 0.300 0.400 As necessary 0.015
FY 2010 Budget proposals:
National S cience Foundation o $7 billion total o Increased support for graduate research fellowships.
Department of Commerce (NIST) o Increases over the stimulus bill's $240 million for NIST's scientific research activities and lab equipment and $180 million for construction ofNIST facilities . $70 million for the Technology Innovation Program (the previous Congress replaced the Advanced Technology Prograr4 ATP, with TIP)
Department of Energy o Increases over the stimulus bill's $1.6 billion for DOE basic science programs
National Institutes of Health . $6 billion for cancer research and diagnostics, over and above the stimulus bill's $10 billion to be spent in 2009 arñ 2010.
2) Increase America's talent pool by vastly improving K-12 science and mathematics education.
Actions (figures in $billion):
2008 Stimulus GOMPETES Organization Function Act author. Act Approp (est) Enacted B¡II 2009 2008 author.2009 NSF Education .. ...9.,!_7... ._- 0._gg _ _-._9,!-Q___.- g_.lq ---____--g_.7_9._-
Science 0.002
3) Encourage recruitment and retention of foreign talent - Improve visa processing for international students and scholars Provide a l-year visa extension to doctoral graduates of US institutions to seek employment in the US. If they are successful and pass a security screening, provide automatic work permits and expedite residence status Institute a new skills-based, preferential immigration option. In the meantime, increase the number of H-18 visas by 10,000 and ensure their availability for S&E doctoral graduates of US institutions .
Action: None to date. 4) Make the research and experimentation (R&E) tax credit permanent
Action: The President's FY 2010 budget proposal would make the credit permanent.
II. A Pøtent System for the 27't Centuly (STEP committee chaired by Rick Levin and Mark Myers)
Recommendations:
1) Preserve an open-ended, unitary, flexible patent system. 2) Reinvigorate the non-obviousness standard. 3) Institute a post-grant challenge procedure. 4) Strengthen USPTO capabilities, increase resources. 5) Shield some research uses of patented inventions from liability for infringement. 6) Modiff or remove the subjective elements of litigation (willfulness, inequitable conduct). 7) Take steps to reduce inconsistencies between US and other major patent systems (e.g. adopt first inventor to file priorit¡ eliminate best mode requirement, publish all applications).
Actions:
After a long slog extending over 3 Congresses there is a reasonable prospect that Congress will pass patent reform legislation during this session. As repofed by the Senate Judiciary Committee earlier this month (a sign that there are more than 60 votes to invoke cloture), the Senate bill has versions of the STEP report's recoÍrmendations for o first-inventor to file priority o post-grantchallenges o higher standard for willfulness o elimination of failure to show best mode as a ground for a finding of invalidity In addition, on issues where industries have been at odds with each other such as how damages for infringement are calculated, the Senate bill strikes compromises that preserve a unitary patent system and avoid carve-outs for particular sectors. Lacking an appointee to head the Patent and Trademark Office, the administration has yet to take a position on any feature of the legislation.
Other less well publicized developments relating to the STEP report:
1) William Rutledge, past president of the AIPLA, writes in the current issue of the Journal of the Patent and Trademark Society ("Reform of a Fast-Moving Target: The Development of Patent Law Since the2004 National Academies Report) :
"Perhaps the most important factor in creating the current patent reform eflort is the National Academies report. That report identified reasons to pay attention to the patent systern, criteria for evaluating the patent syster4 and seven recommendations for what it called "a 2l't Century Patent System."" He then lists the 7 recommendations and in each case the evolution of the law and congressional deliberations. 2) V/ith respect to the recommendation for "more PTO resources," congressional appropriators for the last 3 years have refrained from diverting substantial shares of PTO fees to other accounts, thus enabling the hiring and training of more examiners. (Of course, as we observed, there is not necessarily a match between needs and fee receipts. The recession may be causing a serious shortfall.)
3) A series of federal court decisions, including one late last week, more or less follow the report's reasoning: o The Supreme Court's decision in K,SA Internationøl Co. v. Teleflex, Inc., relegated to "one of several factors" status the Federal Circuit's requirement that the prior art contain a 'teaching, suggestion, or motivation" in order to render a combination of prior art pieces obvious. o The Federal Circuit's decision tn In re Seagate raised the willful infringement threshold by stating that the patentee must show by clear and convincing evidence that the accused infringer was 'bbjectively reckless." o A 3-judge Federal Circuit panel moved in the report's direction oftightening the standard for inequitable conduct, stating tn Star Scientific, Inc. v. R.J. Reyholds Tobøcco Co. that it is "inequitable to strike down an entire patent where the patentee only committed minor missteps or acted with minimal culpability or in good faith." o Last week the Federal Circuit ír In re Kubin reinvigorated the notion of 'bbvious to trj' as a ground for obviousness in biotechnology by overtuming its previous admonition against an ooobvious to trt'' test in In re Deuel.
This leaves only two 2I't Century Patent System recommendations unaddressed by Congress and the courts: . removal ofthe exemption from publication of patent applications filed only in the US (labor unions and independent inventors have so far successfully argued that US inventions could be "stolen" and exploited by foreign producers) o exemption of some research from patent infringement liability
ilI. Enhancing Productívíty ín the Informøtíon Age (STEP committee chaired by Dale Jorgenson)
Recommendations:
l) Retaining a vibrant U.S. information technology industry. 2) Expanding research funding. 3) Investing in a trained workforce. 4) Fostering public private partnerships. 5) Developing industry roadmaps 6) Setting International Standards 7) Revising Outdated Telecom Regulation 8) Developing a New Architecture for U.S. National Accounts
Actions;
According to Dale, the revision of the National Accounts (also a recommendation of the former Commerce Secretary's Advisory Committee on Innovation Measurement, 2008) is on track and adequately funded at the Bureau of Economic Analysis. He is less confident about productivity measurement improvements which are the responsibility ofthe Bureau of Labor Statistics. The Administration has not said very much about the government's statistical functions apart from the Census for which they are gearing up and which is a political hot potato.
IV. Beyond "Fortress Americs": Nøtionøl Securíty Controls on Science and Technologt in a Globalized World (PGA Committee chaired by Brent Scowcroft and John Hennessy)
Recommendations:
The president should maintain and enhance access to the reservoir of human talent from foreign sources to strengthen the U.S. science and technology base. l) Streamline the visa process for credentialed short-term visitors in science and technology fields. 2) Extend the duration of stay for science and engineering graduates with advanced degrees. 3) Include expert vouching by qualified U.S. scientists in the non-immigrant visa process for well-known scholars and researchers. 4) Institute skills-based preferential processing with respect to visa applications.
Actions: None to date. The National Academies Advisers to the Nation on Science, Engineering, and Medicine
50th Meeting of the Board on Science Technolory and Economic Policy May 7th-8th,2oo9: Washingtoñ, oc
' Table of Contonts
I. Agenda & Participants Agenda for 50th Meeting of the STEP Board b.^. Participants'List c. Guest and Member Biographies d. Board Members' Contact Information e. Schedule of Future Meetings
II. Short- and Long-term Economic Impacts of S&T Investment: New prospect for discussion. a. Memorandum b. Background Reading
III. Skilled Immigrants: New prospect for discussion. t. Memorandum b. Bacþround Reading
IV. The Impact of Copyright Policy on Innovation in the Digital Era: New prospect for discussion. a. Memorandum b. STEP Proposal c. Bacþround Reading v. university Intellectuat Property: ongoing project for information. ^. Memorandum VI. Health, Environmental, and Other External Costs and Benefits of Enerry Production and Consumption: Ongoing project for information. a. Memorandum
VII. Opportunities and Challenges for the Emerging Field of Synthetic Biolory: Ongoing project for information. a. Memorandum b. Project Proposal c. July Conference Agenda
V[I. Comparative fnnovation Policy: Best Practice for the 21,'t Century: Ongoing project for information. a. To be supplied IX. Competing in the 2lst Century: Best Practice in State & Regional Innovation Initiatives: Ongoing project for information. a. To be supplied
X. Capitalizing on Science, Teehnolory, and Innovation: An Assessment of the Small Business fnnovation Research Program: Ongoing project for information. t. To be supplied The National Academies dvisers to the Nation on Science, Engineering and Medicine
50'n Meeting of the Board on Scie_nce Technology and Economic Policy May 7th - 8ú, 2oo9 500 Fifth Street, NW Washington, DC
Agenda
Thursdayo lÙf'ay 712409 Location: 701 Restaurant: 701 Pennsylvania Avenue. lñV
6:30 Dinner: T0l Restaurant Guests: o Tom Kalil, Office of Science and Technology Policy, White House r Susan Crawford, National Economic Council, White House
Friday, May 8, 2009: Keck Centero Room 109 500 Fifth Street,IYW; Washington, DC
8:00 ContinentalBreakfastAvail¿ble
8:30 Welcome
9:00 Short- and Long-term Economic Impacts of S&T Investments Guests: o Julia Lane, Co-Chair, Office of Science & Technology Policy-science of Science Policy Interagency Group Richard Bissell, Executive Director, Policy and Global Affairs, The National Academies
10:15 Skitled Immigrants
11:15 Evaluation of the Small Business Innovation Research Programs of the tr'ederal R&D Agencies Guest: r Jacques Gansler, University of Maryland, College Park l2zl5 Break
12:30 Working Lunch: Status of Current Projects
1:30 Copyright Policy's Impact on Innovation in the Digital Era Guest: o Mike Nelson, Georgetown University
2230 Status ofcurrent projects, cont.
3:00 Adjourn The National Academies Advisers to the Nation on Science, Engineering, and Medicine
50th Meeting of the Board on Science Technolory and Economic Policy May 7-8, 2009: Washington, DC
Participantst List MBunnns GuRsrs
ED\ryARD E. PENHOET, Chaír RICHARD BISSELL Director, Executive Director Alta Partrers policy and Global Affairs Division, NRC
LEWIS COLEMAN* SUSAN P. CRAWFORI) President, National Economic Council DreamWorks Animation The White House
RÄLPH E. GOMORY JACQUES S. GA¡TSLER President Emeritus, Roger C. Lipitz Chatr, Alfred P. Sloan Foundation Public Policy and Private Enterprise School of Public Affairs, MARYL. GOOD* UniversityofMaryland Donaghey University Professor and Dean, Donaghey College of Information Science and Systems TOM KALIL Engineering, Office of Science and Technology Policy University of Arkansas at Little Rock The White House
aMoRY 6.AMO" HOUGHTON, JR. JULIA LANE ormer Member of Congress Co-Chair, Office of Science & Technology Policy and Science of DAVID T. MORGENTHALER Science Policy Interagency Group Founding Parbrer, Morgenthaler Ventures MICHAEL NELSON Visiting Professor JOSEPII P. NEWHOUSE Communication, Culture & Technology John D. MacArthur Professor of Health Georgetown university Policy and Management, Harvard University Sr¡rr
ARATI PRABHAKAR STEPHEN A. MERRILL General Partner, Executive Director U.S. Venture Parbrers CHARLES W. WESSNER WILLIAM J. RADUCHEL Program Director Independent Director and Investor SUJAI J. SHWAKUMAR JACKW. SCHULER Senior Program Officer Chainnan, Ventana Medical Systems, Inc DA.VID DIERIGHIEDE Program Officer ALAN WM. WOLFF Partner, ADAM GERTZ Dewey & LeBoeuf LLP Program Associate
DANIEL MTJLLINS Program Associate
* Via Teleconference The National Academies Advisers to the Nation on Science, Engineering, and Medicine
50th Meeting of the Board on Science Technolory and Economic Policy }day 7 -8, 2009: Washington, DC
Board Members,and Guestst
Guests
Susan Crarvford is a Special Assistant to the President for Science, Technology, and Innovation Policy and a member ofthe National Economic Council. She is on leave from the University of Michigan Law School where she teaches cyberlaw and telecommunications law. Ms. Crawford was a member ofthe ICANN Board from 2005-2008, and is the founder of OneWebDay. She was formerly a partner at W'ilmer, Cutler & Pickering (now WilmerHale).
The Honorable Jacques S. Gansler, joined the faculty of the University of Maryland School of Public Affairs in January of 2001, where he holds the Roger C.Lipitz Chair in Public Policy and Private Enterprise. He teaches graduate school courses, and leads the School's new Center for Public Policy and Private Enterprise, which fosters collaboration among the public, private and non-profit sectors in order to promote mutually beneficial public and private interests.
Previously, Dr. Gansler served as the Under Secretary of Defense for Acquisition, Technology and Logistics from November 1997 until January 200I. In this position, he was responsible for all matters relating to Department of Defense acquisition, research and development, logistics, acquisition reforrr! advanced technology, international programs, environmental security, nuclear, chemical, and biological programs, and the defense technology and industrial base. (He had an annual budget of over $180 Billion, and a workforce of over 300,000.)
Prior to this appointment, Dr. Gansler was Executive Vice President and Corporate Director for TASC, Incorporated, an applied information technology company, in Arlington, Virginia (from 1977 to 1997) during which time he playe.d a major role in building the company from a small operation into a large, widely-recognized and greatly-respected corporation, serving both the govemment and the private sector.
From 1972 to I977,he served in the government as Deputy Assistant Secretary of Defense (Materiel Acquisition), responsible for all defense procurements and the defense industry; and as Assistant Director of Defense Research and Engineering (Electronics) responsible for all defense electronics Research and Development.
Dr. Gansler has served on numerous Corporation Boards of Directors, and governmental special committees and advisory boards: including Vice Chairman, Defense Science Board; Chairman, Board of Visitors, Defense Acquisition University; Director, Procurement Round Table; Chairman, Industry Advisory Board, University of Virginia, School of Engineering; Chairman, Board ofVisitors, University of Maryland, School of Public Aftairs; member of the FAA Blue Ribbon Panel on Acquisition Reform; and senior consultant to the "Packard Commission" on Defense Acquisition Reform.
Additionally, from 1984 to 1997,Dr. Gansler was a Visiting Scholar at the Kennedy School of Government, Harvard University (a frequent guest lecturer in Executive Management courses). He is the author of 3 books, a contributing author of 23 other books, author of over 100 papers, and a frequent speaker and Congressional witness.
Dr. Gansler holds a BE (Electrical Engineering) Yale Universit¡ a MS (Electrical Engineering) Northeastern University, a MA (Political Economy) New School for Social Research, and a Ph.D. (Economics) American University.
Thomas Kalil is the Associate Director of Science and Technology Policy at the White House. Before joining the Office of Science & Technology Policy Tom served as the Special Assistant to the Chancellor for Science and Technology at UC Berkeley. He develops major new multi-disciplinary research and education initiatives at the intersection of information technology, nanotechnology, microsystems, and biology. He develops a broad range of partnerships between 2 ofthe California Institutes of Science and Innovation (Center for Information Technology Research in the Interest of Society, California Institute for Quantitative Biomedical Research) and potential stakeholders in industry government, foundations, and non-profits.
Tom also serves as the Chair ofthe Global Health Working Group of the Clinton Global Initiative. The Clinton Global lnitiative is a project of the William J. Clinton Foundation that brings together a community of global leaders to devise and implement innovative solutions to some of the world's most pressing challenges. Tom is also a Senior Fellow with the Center for American Progress, and serves on the Scientific Advisory Board ofNanomix. He has served on several committees of the National Academy of Sciences, including the Committee to Facilitate Interdiscip linary Res earch.
Previously, Thomas Kalil served as the Deputy Assistant to President Clinton for Technology and Economic Policy, and the Deputy Director of the White House National Economic Council. He was the NEC's point person on a wide range oftechnology and telecommunications issues, such as the liberalizationof Cold War export controls, the allocation of spectrum for new wireless services, and investments in upgrading America's high{ech workforce. He led a number of White House technology initiatives, such as the National Nanotechnology Initiative, the Next Generation Internet, bridging the digital divide, e-learning, increasing funding for long-term information technology research, making IT more accessible to people with disabilities, and addressing the growing imbalance between support for biomedical research and for the physical sciences and engineering.
Prior to joining the White House, Tom was a trade specialist at the Washington offices of Dewey Ballantine, where he represented the Semiconductor Industry Association on U.S.- Japan trade issues and technology policy. He also served as the principal staffer to Gordon Moore in his capacity as Chair ofthe SIA Technology Committee. Julia Lane is the Program Director ofthe Science of Science & Innovation Policy program at the National Science Foundation. Her previous jobs included Senior Vice President and Director, Economics Department at NORC/tJniversity of Chicago, Director of the Employment Dynamics Program at the Urban Institute, Senior Research Fellow at the U.S. Census Bureau and Assistant, Associate and Full Professor at American University.
Julia has published over 60 articles in leading economics journals, and authored or edited five books. She has been the recipient of over $20 million in grants; from foundations such as the National Science Foundation, the Sloan Foundation, the MacArthur Foundation, the Russell Sage Foundation, the National Institute of Health; from government agencies such as the Departments of Commerce, Labor, and Health and Human Services in the U.S., the ESRC in the U.K., and the Department of Labour and Statistics New Zealand in New Zealand, as well as from international organizations such as the World Bank. She has organized over 30 national and international conferences, received several national awards, given keynote speeches all over the world, and serves on a number of national and international advisory bo ards.
She is one of the founders ofthe LEHD program at the Census Bureau, which is the first large scale linked employer-employee dataset in the United States. She is also the PI of the NORC data enclave, a remote access collaborative environment for researcher access to sensitive business micro-data.
A native of England who grew up in New Zealand, Julia has worked in a variety of countries, including Australi4 Germany, Malaysia, Madagascar, Mexico, Morocco, Namibia, Sweden, and Tunisia. Her undergraduate degree was in Economics and Japanese from Massey University in New Zealand; her M.A. in Statistics and Ph.D. in Economics are from the University of Missouri in Columbia. She is fluent in Swedish and German and speaks convers ational French.
Michael Nelson will be teaching courses and doing research on the future of the Internet, cyber-policy, technology policy, innovation policy, and e-government in the Spring and Fall of2009.
Prior to joining the Georgetown faculty, Michael was Director of Internet Technology and Strategy at IBM, where he managed a team helping define and implement IBM's Next Generation Intemet strategy. His group worked with university researchers on NGi technology, shaping standards for the NGi, and communicating IBM's NGi vision to customers, policy makers, the press, and the general public. Until recently, Michael served as the Internet Society's Vice President for Public Policy. He recently became Chairman-Elect of the Technology Section of the American Association for the Advancement of Science and a Trustee ofthe Institute for International Communications.
Prior to joining IBM in July, 1998, Michael was Director for Technology Policy at the Federal Communications Commission, where he helped craft policies to foster electronic coÍtmerce, spur development and deployment of new technologies, and improve the reliability and security of the nation's telecommunications networks.
Before joining the FCC in January, 1997 , Michael was Special Assistant for Information Technology at the White House Office of Science and Technology Policy where he worked with Vice President Gore and the President's Science Advisor on issues relating to the Global Information Infrastructure, including telecommunications policy, information technology, encryption, electronic coÍrmerce, and information policy.
From 1988 to 1993, Michael served as a professional staffmember for the Senate's Subcommittee on Science, Technology, and Space, chaired by then-Senator Gore. He was the lead Senate stafîer for the High-PerfoÍnance Computing Act. Michael received a B.S. in geology from Caltech, and a Ph.D. in geophysics from MIT.
Members
Edward E. Penhoet is the Chief Program Offrcer, Science and Higher Education at the Gordon and Betty Moore Foundation. Previously he was the Dean of the School of Public Health at the University of California, Berkeley and was President and Chief Executive Officer of Chiron, a biotechnology company headquartered in Emeryville, California, near San Francisco. Dr. Penhoet had responsibility for Chiron Therapeutics and Chiron Vision, as well as finance and administration, regulatory and quality affairs, manufacturing, engineering, human resources and its relationships with the financial community and other key publics. Dr. Penhoet earned his A.B. in biology from Stanford University in 1963, and his Ph.D. in biochemistry from the University of Washington in 1968. He was a post-doctoral fellow at the University of California, San Diego, from 1968 to 1970. For 10 years prior to founding Chiron, Dr. Penhoet was a faculty member of the Biochemistry Department ofthe University of California" Berkeley. In May 1991, Dr. Penhoet received the first Distinguished Faculty Award from the Life Sciences Department of Molecular and Cell Biology at the UniversityofCalifornia, Berkeley.In7992, Dr. Penhoet sharedwithDr. WilliamJ. Rutter, a Chiron co-founder, the Northern California Entrepreneur ofthe Year Award presented by Ernst & Young and Inc. Magazine; n 1994, they received jointly the Harvard Business School Northern California Alumni Chapter award as Entrepreneur of the Year.
Lewis Coleman was appointed President of DreamWorks Animation, a NYSE company, in December 2005 having served as a director ofthe company since October 2004. Previously he was the President ofthe Gordon and Betty Moore Foundation from its founding in November 2000 to December 2004, and currently serves as one of the Foundations trustees. Prior to that, Mr. Coleman was employed by Banc of America Securities, formerly known as Montgomery Securities where he was a Senior Managing Director from 1995 to 1998 and Chairman from 1998 to 2000. Before he joine.d Montgomery Securities, Mr. Coleman spent ten years at the Bank ofAmerica and Bank of America Corporation where he was Head of Capital Markets, Head of the World Banking Group, and Vice Chairman of the Board and Chief Financial Offrcer. He spent the previous thirteen years at Wells Fargo Bank where his positions included Head of Intemational Banking, Chief Personnel Officer and Chairman ofthe Credit Policy Committee. Mr. Coleman currently seryes as a director ofNorthrop Grumman Corporation. He also serves on several private coqpany and civil boards. Alan M. Garber is the Henry J. Kaiser Jr. Professor at Stanford, where he is also a Professor of Medicine, and Professor (by courtesy) of Economics, Health Research and Policy, and of Economics in the Graduate School of Business, and Senior Fellow in the Freeman-Spogli Institute for International Studies and in the Stanford Institute for Economic Policy Research. He has been director ofboth the university's Center for Health Policy and the Center for Primary Care and Outcomes Research at the School of Medicine since their founding. He is a StaffPhysician at the Veterans Affairs Palo Alto Health Care Syster4 Associate Director ofthe VA Center for Health Care Evaluation, and the Director of the Health Care Program ofthe National Bureau of Economic Research (NBER).
After graduating from Harvard College summa cum laude, he received his Ph.D. in economics from Harvard and an M.D. with research honors from Stanford, and completed his residency in Medicine at Brigham and Women's Hospital. His honors and awards include the Young Investigator Award of the Association for Health Services Research (now AcademyHealth) and the Henry J. Kaiser Family Foundation Faculty Scholarship in General Internal Medicine. He is a member of the national Blue Cross and Blue Shield Association Medical Advisory Panel and serves as their Scientific Adviser. He is also a member of the Panel of Health Advisers ofthe Congressional Budget Office, the American Society for Clinical Investigation, the Association ofAmerican Physicians, and the Institute of Medicine ofthe National Academy of Sciences. He recently completed his terms as the Chair of the Medicare Evidence Development and Coverage Advisory Committee (Centers for Medicare and Medicaid Services) and as a member of the National Advisory Council on Aging (National Institutes of Health).
Dr. Garber's research is directed toward methods for improving health care delivery and financing, particularly for the elderly, in settings of limited resources. He has developed methods for determining the cost-eflectiveness ofhealth interventions, and he studies ways to structure financial and organizational incentives to ensure that cost-effective care is delivered. In addition, his research explores how clinical practice pattems and health care market characteristics influence technology adoption, health expenditures, and health outcomes in the United States and in other countries. He holds an Investigator Award in Health Policy Research from the Robert Wood Johnson Foundation in support of his study of health care productivity, leads the 19-nation Global Healthcare Productivity project, and is Principal Investigator of two centers at Stanford sponsored by the National Institute on Aging: The Center for Demography and Economics of Health and Aging, and the Center on Advancing Decision Making in Aging.
Ralph E. Gomory was born May 7,1929, in Brookþ Heights, New York. He graduated from Williams College in 1950, studied at Cambridge University, and received his Ph.D. inmathematics fromPrincetonUniversityin 1954. Gomorythenserved intheNavy (1954-57) and then was a Higgins Lecturer and Assistant Professor of Mathematics at Princeton before joining IBM's newly formed Research Division in 1959 as a research mathematician.
Gomory became Director of Research for IBM n 1970, with line responsibility for IBM's Research Division. During his 18 years as Director of Research the Research Division he made a wide range of contributions to IBM's products, to the computer industry, and to science. Gomory, who had become the IBM Senior Vice President for Science and Technology retired from IBM in 1989 and became President of the Alfred P. Sloan Foundation. During his tenure as President he led the foundation into a long list of fields relevant to major national issues. The foundation pioneered in the field of on-line learning supporting this work before there was even a public Internet, and then supported its growth to more than three million people taking courses for credit. They started the now widespread program of industry studies, and engaged a major program advocating a more flexible worþlace. The foundation developed a novel and successful approach to the problem of producing minority PhD's in scientific and technical fields. The foundation was early in perceiving the threat ofbioterrorism and was active in that area for years before the events of 9/1 1. On the scientific side the foundation supported the widely recognized Sloan Sky Survey, which has made major contributions to the problem of dark energy and initiated a major worldwide effort to survey life in the oceans known as the Census of Marine Life. In December 2007 , after 18 years as President, Gomory became President Emeritus.
Gomory has served in many capacities in academic, industrial and govemmental organaations. He w¿Ìs a Trustee of Hampshire College fromT977-1986 and of Princeton University from 1985-1989. He served on the President's Council of Advisors on Science and Technology (PCAST) from 1984 to 1992, arñ agarn from 2001 to the present. He served for a number of terms on the National Academies' Committee on Science, Engineering and Public Policy (COSEPUP).
Mary L. Good is the Donaghey University Professor at the University of Arkansas at Little Rock, and serves as Dean for the College of Information Science and Systems Engineering. She is managing member for the Fund for Arkansas' Future, LLC. (an investment fund for start-up and early stage companies), past President of the AAAS, past President of the ACS, and an elected member ofthe National Academy of Engineering. She presently serves on the Boards of Biogenldec, Inc. and Acxior4 Inc. Previously she served a four-year term as the Under Secretary for Technology for the Technology Administration in the Department of CoÍrmerce, a Presidentially appointed, Senate confirmed, position. In addition, she chaired the National Science and Technology Council's Committee on Technological Innovation (NSTC/CTI), and served on the NSTC Committee on National Security. Previously she has served as the Senior Vice President for Technology for Allied Signal and as the Boyd Professor of Chemistry and Materials Science at Louisiana State University. She was appointed to the National Science Board by President Carter in 1980 and by President Reagan in 1986. She was the chair of that board from 1988-91, when she received an appointment by President Bush to be a member of the President's Council of Advisors on Science and Technology. She has received many awards, including the National Science Foundation's Distinguished Public Service Award, the American Institute of Chemists' Gold Medal, the Priestly Medal from the American Chemical Society, and the Vannevar Bush Award from the National Science Board, among others. Good received her bachelor's degree in Chemistry from the University of Central Arkansas and her MS and Ph.D. degrees in Inorganic Chemistry from the University of Arkansas at Fayetteville.
Amory Houghton has served as a United States Representative from the State ofNew Yorlq 29th Congressional District. He was a member ofthe House Ways and Means Committee; chaired the Oversight Subcommittee and was a member of the Trade Subcommittee. He served as a member ofthe International Relations Committee, Vice Chairman of its Subcommittee on Africa, and was appointed by President George V/. Bush to serve as the Congressional Delegate to the 58th General Assembly of the United Nations. Hon. Houghton is the founder of the John Quincy Adams Society, an issues forum which brings together moderate office holders with top business leaders, and is also a founding member of the Republican Main Street Partnership, which seeks to strengthen the political center. Hon. Houghton was also Co-Chairman ofthe Washington-based Faith and Politics Institute. The only former CEO of a Fortune 500 corporation to serve in the House, Hon. Houghton joined Corning Glass Works (now Corning Incorporated) in 1951 after graduating from Harvard University and serving as a Marine during World War II. The Almanac of American Politics said of Hon. Houghton: "He may well be more what the Founding Fathers had in mind..." as the ideal congressman. In2002, Hon. Houghton was inducted into the Academy of Arts and Sciences, the group founded by John Adams and John Hancock in 1780, "dedicated to advancing intellectual thought and constructive action in American society." Before entering Congress, Hon. Houghton served on the boards of several major corporations, including Procter & Gamble, IBM, Citico{p, N.Y. Telephone, B. F. Goodrich, and Genentech. Appointed by President Reagan to the Grace Commission in 1982, he served as the panel's vice-chairman. He is a former trustee of St. Paul's School, the Brookings Institution, a former member of the Harvard Board of Overseers, a past director of the Episcopal Theological Seminar¡ and holds 16 honorary degrees. He now serves as a Board member ofthe Republican Main Street Partnership, Co-chair of the Committee for the Future - a group committed to the economic revival of upstate New York - and is a special intern for Bishop Tom Shaw ofthe Episcopal Diocese of Massachusetts.
David Morgenthaler founded Morgenthaler Ventures in 1968 and over 31 years has built a national reputation in venture capital. His current investment focus is on biotechnology. He is Chairman of the Board of Ribozyme Pharmaceuticals, Inc., and has been a director of a large number of companies, ranging in size from the startup stage to large public companies. Between 1957 and 1968, he was President of Fosec,o, Inc., a venture- backed manufacturer of specialty chemicals. From 1950 to 1957,he was Vice President and Director of Sales at Delavan Manufacturing Company, which became the largest manufacturer ofjet aircraft fuel injection nozzles in the world. Previously, he was an entrepreneurial manager with several growth companies. He was an Advisor to the Brentwood Associates Fund, and Vice Chairman of the Edison Biotechnology Institute. He is serving or has served as a Trustee of The Cleveland Clinic Foundation, a member of the Visiting Committee of Carnegie Mellon University, the Sloan School of Massachusetts Institute of Technology, and the Weatherhead School of Business at Case Western Reserve University, and a trustee of various philanthropic organizations. He served as Senior Vice President-International for the Young Presidents' Organization and as President of the Chief Executives Organization. Mr. Morganthaler was President ofthe National Venture Capital Association when the capital gains tax reduction was enacted n 1918, and played a leading role in testiffing before Congress for the new legislation. He has frequently been asked to testiff before Congress, and to speak before various administrative groups on venture capital and economic development. He is the first recipient of the National Venture Capital Association's Lifetime Achievement Award, and more recently was inducted into The Private Equity Analysts Venture Capital Hall of Fame. He is a graduate of Massachusetts Institute of Technology (8.S. and M.S. in Mechanical Engineering). Joseph Newhouse is the John D. MacArthur Professor of Health Policy and Management, Director of the Division of Health Policy Research and Education, and chair of the Committee on Higher Degrees in Health Policy at Harvard University, which administers the Ph.D. degree in Health Policy. He is a member of the faculties of the John F. Kennedy School of Government, Harvard Medical School, the Harvard School of Public Health, and the Faculty of Arts and Sciences at Harvard University, as well as a faculty research associate ofthe National Bureau of Economic Research. He co-directs the Robert'Wood Johnson Scholars in Health Policy program at Harvard. Dr. Newhouse's recent research topics include risk adjustment for reimbursement of health plans and health providers and the impact of managed care on use of services, cost, and quality of care, as well as improved medical care price indices and the economics of the Medicaid tobacco settlement. One current project that involves many of his research areas concerns structuring markets to promote efficient competition among health plans. As part of this project, he is studying why health plans tend not to enter rural areas; although some federal policies assume that this failure is attributable to low payment, market structure features are more likely responsible. He is also studying selection behavior in large groups and why private groups that offer multiple health plans tend not to use formal risk adjustment methods. Finally, he is studying whether varying reimbursement rates for cancer chemotherapy afflect the likelihood of such therapy being administered or whether they aflect the mix of agents employed. Dr. Newhouse received B.A. and Ph.D. degrees in economics from Harvard University. He was the founding editor of the Journal of Health Economics, which he continues to co-edit. He is currently a member of the Medicare Payment Advisory Commission and was its vice-chair from 1997-2001. He is a past chair of the Prospective Payment Assessment Commission, a past commissioner of the Physician Payment Review Commission, a past president of the Association for Health Services Research, a past president of the International Health Economics Association, a past Regent of the National Library of Medicine, and a member of the Institute of Medicine and the American Academy of Arts and Sciences. He has received numerous awards, including: the Distinguished Investigator Award of the Association for Health Services Research (now AcademyHealth); the Hans Sigrist Prize for distinguished scientific achievement, the Baxter American Foundation Award for a contribution to public health, the David Kershaw Award of the Association of Public Policy and Management for a contribution made under the age of 40, the Administrator's Citation from the Administrator of the Health Care Financing Administration, and the ZviGriliches Award and the Kenneth J. Arrow Award. He is a member of the board of Aetna and of Abt Associates.
Arati Prabhakar Arati Prabhakar joined U.S. Venture Partners in 2001 after 15 years of working with world-class engineers and scientists across many fields to brew new technologies. At USVP, her focus is fabless semiconductor and semiconductor manufacturing opportunities. She serves on the boards of Arradiance, Kilopass, Kleer, Lightspeed Logic, Pivotal Systems, and SiBeam. She previously served on the board of Leadis Technology (NASDAQ: LDIS). Arati was a program manager and then director of the Microelectronics Technology Office at the Defense Advanced Research Projects Agency from 1986 to 1993. At DARPA, she supported R&D in company and university labs in semiconductor manufacturing, imaging, optoelectronics and nanoelectronics. In 1993, President Clinton appointed Arati Director ofthe National Institute of Standards and Technolog¡ where she led the 3,000 person staffuntil 1997. I'rati then joined Raychem as Senior Vice President and Chief Technology Offrcer. She was subsequently Vice President and then President of Interval Research Corporation. Arati began her career as a Congressional fellow at the Office of Technology Assessment. Arati serves on advisory committees for Berkeley, Caltecl¡ and UC Santa Barbara. She is a member of the Science, Technology, and Economic Policy (STEP) board of the National Research Council. Arati received her B.S. in Electrical Engineering from Texas Tech University. She received an M.S. in Electrical Engineering and a Ph.D. in Applied Physics from the California Institute of Technology. Arati is a Fellow of the IEEE.
William Raduchel William J. Raduchel is Executive Vice President and Chief Technology Officer of AOL Time Warner, Inc. He assumed that position in 2001 from a similar role at America Online, Inc. He joined AOL in 1999 from Sun Microsystems, Inc., where he was chief strategy officer and a member of its executive committee. In his eleven years at Sun he was also chief information officer, chief financial officer, acting vice president ofhuman resources and vice president of corporate planning and development. Prior to that he had senior executive roles at Xerox Corporation and McGraw-Hill, Inc. Receiving his undergraduate degree in economics from Michigan Statg he earned A.M. and Ph.D. degrees in economics from Harvard. He became a member of the STEP Board in 2000. He is also a member of the NAS Committee on Internet Navigation and Domain Name Services and of the National Advisory Board ofthe Salvation Army and has served as a director of several public companies.
Jack W. Schul€r has served as a director of Ventana Medical Systems, Inc. since April 1991 and as Chairman ofthe Board of Directors since November 1995. Mr. Schuler is also a partner in Crabtree Partners, a Chicago based venture capital firm. Prior to joining Ventan4 Mr. Schuler held various executive positions at Abbott from December 7912 through August 1989, serving most recently as President and Chief Operating Officer. He is currently a director of Chiron Corporation, Medtronic, Inc., and Stericycle, Inc. Mr. Schuler received a B.S. in Mechanical Engineering from Tufts University and a M.B.A. from Stanford University.
Alan Wm. \ilolff leads Dewey & LeBoeufs International Trade Practice Group, and is based in the V/ashington DC office of the firm. He chairs the Comparative Innovation Committee ofthe Science Technology and Economic Policy Board of the National Academies; Best Practice in National Technology Programs. He served as United States Deputy Special Representative for Trade Negotiations (1977 - 1979) in the Carter Administration, holding the rank of ambassador, after having served as General Counsel of the agency froml974 - 1971. As Deputy Trade Representative, he played a key role in the formulation of American trade policy and its implementation. Previously he served as an attorney dealing with international monetary, trade and development issues at the Treasury Department.
Mr. Wolffis a member of The National Academies Board on Science, Technology and Economic Policy (STEP Board) from1997 - present. He was then designated as a lifetime 'Ì.{ational Associate" of the National Academies. From April 2005 to present, Mr. Wolff serves as a member ofthe Committee on Comparative Innovation Policy; Best Practice in National Technolo gy Pro grams.
Mr. Wolff is Chairman of the Advisory Board of the International Commercial Diplomacy Project; and is a member of the U.S. Department of State's Advisory Committee on International Economic Policy; the Advisory Committee of the Institute for International Economics; the Board ofNational Foreign Trade Council (NFTC);the Board of Trustees of the United States Council for International Business; the Council on Foreign Relations, the American Society of International Law; and the American Bar Association.
He has co-authored books and published numerous papers on trade and U.S. trade law, many ofwhich are listed on the International Trade Group's website (www.dbtrade.com).
Mr. Wolffreceived a J.D. from Columbia University and a B.A. from Harvard University. He is a member ofthe bar in Massachusetts, New York, the District of Columbia, the U.S. Court of International Trade, the Court of Appeals for the Federal Circuit, and the Supreme Court ofthe United States.
Mr. Wolff is recognized tn Chambers USA - Ameríca's Leøding Lav'yers for Business 2009 as a leader in the field of International Trade and is recognized tn Best Lavtyers in America 2009 as a leader in the field of Intemational Trade and Finance Law. He is also included in The Lawdragon 500 Leading Lauyers in America 2008. The National Academies Advisers to the Nation on Science, Engineering and Medicine
50th Meeting of the Board on Science Technolory and Economic Policy l|l4ay 7 -8, 2009: Washington, DC
Board Memberc and StaffContact Information ,
Edward Penhoet Assistant: Chqirman: STEP Board Karen Schwelm Directol Alta Partners Phone: (415) 362-4022 One Embarcadero Center Email: kschwelm@altapartners. com 37ft Floor San Francisco, CA 94lll Phone: (415) 362-4022 Fax: (415) 362-6176 Email: epenhoet@altapartners. com
Lewis Coleman Assistant: President & CFO JoAnn Bianchi DreamWorks Animation Phone: (818) 695-3617 1000 Flower Street Email: jo ann.bianchi@dreamwo rks. corn Glendale, CA9l20l Phone: (818) 695-3626 Fax: (818) 695-7120 Email: lew@blackgnat. com or lew. coleman@dreamworks. com
Alan M. Garber Assistant: Henry J. Kaiser, Jr. Professor & Professor of Medicine Celeste Browne Director, Center for Health Policy Phone: (650)736-0815 Director, Center for Primary Care and Outcomes Research Fax: (650) 724-5T82 Stanford University Email: [email protected] 117 Encina Commons Stanford, CA 94305 Phone: (650) 723-0920 Fax: (650) 724-5182 Email: garber@stanford. edu
Ralph E. Gomory Assistant: Research Professor Patricia Stanley Stern School of Business, New York University & Phone: (212) 649-1644 President Emeritus Fax: (212) 757-5177 Alfred P. Sloan Foundation Email: [email protected] 630 Fifth Avenue, Suite 2550 New Yorþ NY 101 11 Phone: (212) 649-1649 Email: gornory@,sloan.org Mary L. Good Assistant: Donaghey University Professor and Dean Cathy Shank Donaghey College of Engineering and Information Technology Phone: (501) 569-8188 University of Arkansas as Little Rock Email: [email protected] 2801 South University Avenue, ETAS 202 Little Rock, APt72204 Phone: (501) 569-8189 Fax: (501) 569-8002 Email: [email protected]
Amory ooAmott Houghton, Jr. Assistant: Former Member of Congress Audrey Whitcomb 91 Atlantic Avenue Phone: (607)962-6527 Cohasset, MA 02025 Fax: (607)962-6565 Phone: (607) 962-6513 Email: whitcombah@corning. com Email: [email protected]
David T. Morgenthaler Assistant: Founding Partner SalleY Smith Morgenthaler Venture5 Phone: (216) 416-7514 50 Public Square, Terminal Tower, Suite 2700 Fax: (216) 416-7515 Cleveland, OH 44113 Email: [email protected] Phone: (216) 416-7500 Email: dmo rgenthaler@rnorgenthaler. com
Joseph P. Newhouse Assistant: John D. MacArthur Professor of Health Policy and Management Wilma Stahura Harvard Medical School Phone: (617) 432-1325 180 Longwood Ave. Fax: (617) 432-3503 Boston, MA 02115 Email: [email protected] Phone: (617) 432-1325 Email: newhouse@hcp. med.harvard. edu
Arati Prabhakar Assistant: General Partner, U.S. Venture Partners Maritza Hernandez 2735 Sand Hill Road Phone: (650)926-7721 Menlo Park, CA 94025 Fax: (650)234-7721 Phone: (650) 854-9080 Email: mhernandez@,usvp. com Fax: (650) 854-9018 Email: [email protected]
\ililliam J. Raduchel Assistant: Chairman Rahel Tsige Opera Software ASA Phone: (703) 450-7351 615 Kentland Drive Fax: (730)880-3522 Great Falls, VA 22066 Email: [email protected] Phone: (703) 981-0000 Email: [email protected] Jack W. Schuler Assistant: Crabtree Partners Brenda Stefanowski 28161N Keith Drive Phone: (847) 607-2066 Lake Forest, IL 60045 Fax: (847) 367-9586 Phone: (847) 607-2066 Email: Fax: (847)367-9586 brenda. stefanowski@ ctreepartners. com Email: jschuler@ctreepartners. com
Alan Wm. \ilolff Assistant: Partner, Dewey & LeBoeu{ LLP Cynthia Palmer 1 101 New York Ave., NW Phone: (202)346-7809 Washington, DC 20005 Fax: (202)299-1366 Phone: (202)346-7800 Email: cypalmer@deweyleboeuf com Fax: (202)299-1366 Email: [email protected] com
Ex-Officio Members Ralph J. Cicerone Assistant: President, National Academy of Sciences Ella Garcia 2101 Constitution Ave. NW-NAS 215 Phone: (202)334-2101 Washington, DC 20418 Email: [email protected] Phone: (202)334-2101 Fax: (202)334-1647 Email: [email protected]
Harvey V. Fineberg Assistant: President, Institute of Medicine Sandra Matthews 2101 ConstitutionAve. NW-NAS 323 Phone: (202)334-3300 Washington, DC 20418 Email: smatthews@nas. edu Phone: (202) 334-3300 Fax: (202) 334-38s1 Email: [email protected]
Charles M. Vest Assistant: President, National Academy of Engineering Barbara Schlein 2101 ConstitutionAve. NW-NAS 218 Phone: (202)334-3201 Washington, DC 20418 Email: bschlein@nae. edu Phone: (202)334-3201 Fax: (202) 334-1680 Email: [email protected] St¿ff Steven A. Merrill David Dierksheide Executive Director Program Officer Phone: (202)334-2200 Phone: (202)334-2306 Fax: (202) 334-1505 Fax: (202)334-1505 Email: [email protected] Email: [email protected]
Charles W. \ilessner Adam Gertz Program Director Program Associate Phone: (202) 334-3801 Phone: (202)334-1529 Fax: (202) 334-1505 Fax: (202)334-1505 Email: [email protected] Email: agertz@naseda
Sujai J. Shivakumar Daniel Mullins Senior Program Offrcer Program Associate Phone: (202)334-1337 Phone: (202)334-2453 Fax: (202) 334-1505 Fax: (202)334-1505 [email protected] Email: dmullins@,nas.edu The National Academies Mplsert ta, theNEttanøn , Enginceri*g..andáÍe ícine
Sûe nfeefng of the Bosral ou. ßaienoe Tochriologrr and Eeonomiß Follcy May 7-8, 2009: Washington, DC
Schedule of'X'uture
Managønd of Uaiv'ersity IP ¡ June 1-4 ïVa$hirl$s,n,'De
8.]rlüh€tic BiCIlogy Ç ¡nfuçnse . Jub¡ 9"-10, WashingtffL De
> STgPBoardMerting o October 1-I,Itrashington, IIC f H ir Nl¿\ I lONl¿\t ¿\(-ADr/V\l r:.! Atlvísers to tfte Natlon on sclence' E'nglne¿rlng' and Mediclae Nationar Academy of scienæs National Aædemy of Engineering lnstitute of Medicine Nal¡onal Sesearch Council
April30o 2009
STEP MEMORANDUM
TO: Members of the STEP Board
FROM: Steve Merrill
SUBJECT: Short- and Long-Term Economic Impacts of S&T Spending
The debate over the composition of the stimulus spending package led to claims for the job creation potential and other economic benefits of S&T spending that even Members of Congress recognized were not fact-based. One of therr¡ Congtessman Rush Holt (D-New Jersey) was moved to asked the Academies (specifically, the Committee on Science, Engineering, and Public Policy or COSEPUP) to look at several related questions. His letter follows.
COSEPUP, currently chaired by former STEP member George Whitesides of Harvard and including recent STEP member Bill Spencer, has asked STEP to help frame and collaborating in carrying out a study, assuming R&D agency funding can be obtained. A2-page preliminary prospectus fo llows.
To initiate the discussion of this request, Richard Bissell, PGA and COSEPUP director, will describe COSEPUP's discussions to date. We will also hear from Julia Lane, a labor economist who currently directs the National Science Foundation's Science of Science and Innovation Policy Program. Julia will add her considerable insight as well as describe a pilot effort to trace the effects of federal spending (not just R&D) using Census data. If time permits, Julia will describe the SciS&IP prograrr¡ now in its third round of grants, many for economic research on innovation.
500 Fifth Street NW, Washington, DC 20001 Telephone (202) 334-1581 Fax(2021334-1505 [email protected] I
RUSTI HOLT Chair ßvelflù New Di¡Het, Jersey SÊlcct Intolligenc€ Oversl gh Pa¡¡el Committee on Appropriations l0l9logworth Building WasDingron, D.C,205f 5 I 202-2ã-5801 Committee on Education
! Fax702-225-6025 and Labor
lÀåBbington 50 Road Pe¡manent tilcst Select Committee Windsor, NJ 08550 @ungrer 8 tÍ tfte lilnttBh Sfutex ol In*llig*"t 609-750-93ó5 Fâ)( 609-750.0ó18 Committee on Natural Resources wcbsitc and email: www.holt.house.gov C+Chair Childrcn'¡ Elvimnncñtâl Hcållh Caudr Corgcsional Rcerrch and February 18,2009 DcvÊlopmênt Cåuos
Dr. George Whitesides Chair Committee on Science, Engineering and Fublic policy
Dr. Richa¡d Bissell Executive Director Committee on Science, Engineering and public policy Policy and Global Affairs Divisipn
National Academy of Sciences . 500 sth Steet, N.Vf. TVashington, D.C. 2000i
j DearDr. Whitesides and Dr. Bisselli
I am pleased that the Natioual'Research Council maybe considering the economic effects of research and developme,ut As a co-chair of the congressionâl Research and Developme,lrt Caucus, I have been frustrated by the lack of economic data on the short- term and long-term effects of research. Without this information, it is not possible to describe quantitatively what our country has gained from federal research'funding in previous yean¡, nor is it possible to explain fulty the benefits from future tæ.*h- fundinq. Discussing the economic benefits ofråsea¡ch is critical when discussing research programs druing the annual federal appropriation process; addressing tñese benefits was also critical when considering research flr"ding in the recent economic recoverypackage.
I am requesting that the Academy address the following questions should it elect to undertake a study on this topic.
rWhat (1) is the current innovation ecology that describes how research discoveries !*:Ct commercial products and services? What factors determine whether federally- fixlded research discoveries result in economic benefits? How are the benefits from research different from the benefits from other federal programs? Are the eccinomic impacts of federally-funded research different from those that accrue from research fr¡nded by the private-sector?
hm (2) What are the short-term economic effects of federal research funding? How many direct, indirec! and inducedjobs are created for each dollar increase in federal research 'What ftnding? þpes ofjobs are created? What is the economic multiplier for feiteral research firnding? Do these differ by research discipline or agerrcy? Do these differ by the type of research invesünent, such as infrashucture, equipment, fellowships, or prinoipal investigator grants?
(3) What arethe long-term economic cffects of federal research funding? What is the contribution of federal research funding to gross domestic product (GDP) growth? What is the impact of federal research fi¡nding on productivity growth? Do these differ by research disoipline or agency? Do these differ by the t¡pe of research invætment, such as infrastntctrng equipment, fellowships, or principal investigator grants?
(a) TVhat are the societal benefits of firderally funded research? Can beneûts in areas such as national security, environmen! education and heatth, be quantified?
(5) What dataneed üo be collected what modelsneed to be developed, and what methodologies need to be ueated t'o fi¡rther improve quantitative metrics of the slrort and long term retum on investnent for federally-funded ressarch? lWhat data collection , policies neod to be implementod by soiénco funding agencies and other agørcies.that monitor employment, patg4ts, rWhat ' .t: and the economy? data sharing and privacy policies need place to be in to ensure resea¡chers have ac,cess ø all avälable infofmation? , ', (6) Given the cun'ent innovation ecology, what impediments exist to improving the .' economic retum from federally.funded research pioject? Is the current ràsearcÀ portfolio sufficiently balanced to allow for cross-fertilization and to ensure that American resea¡chers can exploit emergiirg research opporhrnities?'What federal policies; programs, and incentives should be considered to maximize retum on incremental research investments?
I understand that this is a challenging list of questions that perhaps is too demanding to be addressed in one study and report. However, ansrilers to all of these could be helpfirl in deterrrining federal support for resea¡ch. I look forward to seeing the results of the Academy's work on this critical project.
Sinceroly, á,Lfr# RUSH HOLT Mernber of Congress
R[Vrs THE JOB IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT PLAN
('Hllls I ilN.À lr()!tþt{ i I
JARIID IìFRNSTIìIN i Table of Contents
A. Aggregate Jobs Effects...... 3
B. Jobs Effects of the Components of the Recovery Package ...... '5
C. The Timing ofJob Creation ...... 7
D. Breakdown by Industry ....,....,...7
E. Effects on Diffetent Demogtaphic Groups...... 9
F. Kinds of Jobs ...... 10
G. Conclusions...... '.'.'.'.'...... 11
APPENDIX 1 ...... 12
I1NDNOTES...... 13 2
A key goal enunciated by the President-Elect concerning the American Recovery and Reinvestmerit Plan is that it should save or create at least 3 million fobs by the end of 2010. For this reâsofl, we have undertaken a preliminary analysis of the jobs effects of some of the prototypical recovery packages being discussed. Our analysis will surely evolve as we and othet economists work further on this topic. The results will also change as the actual package parameters are determined in coopetation with the Congress. Nevertheless, this report suggests a methodology for ensuring that the package contains enough stimulus that we can have confidence that it will create sufficient jobs to meet the President-Elect's goals.
This report also presents some discussion of the trade-offs involved in choosing different elements of the package. For example, how do tax cuts, fiscal relief to the states, and increases in infrastructure spending compare in terms of jobs created? Similarþ, how do the different types of spending differ in terms of the timing of the jobs they will create? The report also discusses the types of jobs that will be created and the possible demographic composition of the workers who will find jobs as a result of the stimulus.
We reach several key preliminary findings:
A package in the range that the President-Elect has discussed is expected to create between three and fout million jobs by the end of 201,0.
Tax cuts, especially temporary ones, and fiscal relief to the stâtes are likeþ to create fewer jobs than direct increases in government purchases. However, because there is a limit on how much government investment can be carried out efficiently in a short time frame, and because tâx cuts and state relief can be implemented quickly,they arc crucial elements of any package aimed at easing economic distress quickiy,
Certain industries, such as construction and manufactuting, ate likely to experience particularþ strong job growth under a recovery package that includes an emphasis on infrastructure, energy, and school repair. But, the more genefal stimulative measures, such as a middle class tax cut and fiscal relief to the stâtes, as well as the feedback effects of greater employment in key industries, mean that jobs ate likely to be created in all sectors of the economy.
More than 90 percent of the jobs created are likeþ to be in the private sector. Many of the government jobs ate likely to be professionals whose jobs are saved from state and local budget cuts by state fiscal relief.
. A package is likely to create jobs paying a taîge of wages. It is also likely to move many workers from part-time to full-time work.
It should be understood that all of the estimates presented in this memo are subject to sþificant margins of etror. There is the obvious uncertainty that comes from modeling a hypothetical package rather than the final legislation passed by the Congtess. But, there is the more fundamental uncertainty that comes with any estimate of the effects of a program. Our estimates of economic relationships and rules of thumb are derived from histotical experìence and so will not apply exactly in any given episode. Furthermore, the uncertainty is surely higher than normal now because the current recession is unusual both in its fundamental causes and its severity. A. Aggregate Jobs Effects
Estimating the aggregate employment effects of the proposed ,{.merican Recovery and Reinvestment Plan involves several steps. The first is to specify a prototypicøl package. We have assumed a package just slightly over the $775 billion currentþ under discussion. It includes a range of measures, all of which have been discussed publicly. Among the key components âre:
. Substantial investments in infrastructure, education, health, and energy.
. Temporary programs to protect the most vulnerable from the deep recession, including increases in food stamps and expansions of unemployment insurance.
. State fiscal relief designed to alleviate cuts in healthcare, education, and prevent increases in state and local taxes.
. Business investment incentives.
. A middle class tax cut along the lines of the Making Work Pay tax cut that the President- Elect proposed during the campaign.
A second step is to simulate the effects of the protot)¡pical package on GDP. We use multipliers that we feel represent a consensus of a broad range of economists and professtonal fotecastets. Our particular multipliers for zn increase in government purchases of 1%o of GDP and a decrease in taxes of 7o/o of GDP are given in Appendix 1. They are broadly similar to those implied by the Federal Reserve's FRB/US model and the models of leading private forecasters, such as Mactoeconomic Advisers.
The final step is to take the effect on GDP and translate it into job creation. Not all of the increased output reflects increased employment: some comes from increases in hours of work among employed workers and some comes from higher productivity. We therefore use the relatively conservative rule of thumb that a 1 percent inctease in GDP corresponds to an increase in employment of approximately 1 million jobs, or about three-quarters of a percent. This has been the rough correspondence over history and matches the FRB/US model reasonably well. The effect on jobs using the estimates from most private sector forecasting models would be somewhatlarget We look at the effects in 2010Q4, which is the end of the tv/o-year period that is the focus of the recovery plan.
Table 1 shows that we expect the proposed recovery plan to have significant effects on the aggregate number of iobs created, relative to the no-stimulus baseline. Table 1 Aggtegate Effect of the Recovery Package on GDp and Jobs in 2010e4
Real GDP @illions of chained 2000 $) Pavroll Emplovment Without Stimulus filI,770 133,876,000 \üZith Stimulus fi12,203 137,550,000 Effect of Package Increase GDP f>y 3.7% Increase jobs by 3,675,000
J'ource: Authors' calculations based on methodology described above and multipliers described in Appendix 1. -
The table shows that we exPect the plan to more than meet the goal of creating or saving 3 million jobs by 2010Q4. There are rwo important points to note, however:
First, the likely scale of employment loss is extremely large. The U.S. economy has already lost neatly 2'6 million jobs since the business cycle peak in December 2007. In the absence of stimulus, the economy could lose anothe r 3 to 4 million more. Thus, we are working to counter a potential total job loss of at least million. As Figure 1 shows, even ,5 with the large piotorypical paclage, the unemployment t^te in 2010Q4 is predicted to be approximately 7.070, which is well below the approximately 8.8% that v¡ould resulr in the absence of a plan.1
I irtl r I Lnemployrnent Rate lvith and Without the Recovery plan
With Recovery Plan
2007 2049 2011 2012 2013 20'14 second' as emphasized above, there is considerable uncertainty in our estimates: both the impact of the package on GDP and the relationship b;;;-ilgî.ì'cnn and job crearion are hard to estimate precisely' In light of the substanial q.rr*.r*olq uarten variatton in the estimates of job creation, we believe a reasonable nnge for2010d4 is 3.3 to 4.1 mi-llion jobs created.
B. Jobs Effects of the Components of the Recovery package
To estimate the jobs effect of each potential component of the package, we use an analysis similar to what we use to estjmate the overall jobs \we effect. take an estimate of the amount of spending related to a component and apply the relevanr multiplier to estjmate the likely overall effect on total effect on jobsìs then estimat"d ,13J;.*t .rri.rg'ih r-iÁ orGDp equals r i''iuio, jobs rule of rüØe further consider the direct and indirect effects of the program. The direct effects are those coming from the hiring directly caused by the program. Hele we jnclude not jusr the federal govemment workers hired by under the prográ-,_-ii.À'w. expect to be a relatively workers small number, but hired undet projects fitt"tc.J by. the_ program åd *ork.rs hired to produce the goods demanded as the result of tax credits r"piilE i^tg*¿ ""a. to specific activities (such as smarr electdcal meters and. softwate systems for health IT). tî. rn¿rr".i effects are rhose coming from the fact that the newly employeá wotkers spend mor. ,nd this stimulates other industries, For core spending programs' we assume the direct output effects move one-for-one with the spending increase' Broad tâx cuts have jobs effects, but they .r.. from indirect effecs: rax cuts only havl effecS when people go out and spend th. "J/ -o.r.y. ó".-ãän* of srate fiscal relief is assumed to result in $0'60 in hlstr3r g9t-.tt-9.,i purchases fr-gay averting spending..¿".¡or* rhat were assumed in the baserne) and $0.30 in låwet government raxes (largely due to preventing srare and local tax increases that were assumed in the baseline). The ,.r,rl* are shown in Table 2. Tal:le 2 Effects of the components package of the Recovery on Jobs in 2010e4 Component Total Effect Direct E,ffect Indirect Effect Energy 459,000 305,000 153,000 Infrastructure 377,000 236,000 142,000 Health Care 244,000 166,000 78,000 Education 250,000 166,000 83,000 Protecting Vulnerable 549,000 140,000 409,000 State Relief 921,000 442,000 379,000 MakingWork Pay 505,000 0 505,000 Tax Cut Business Tax 470,000 0 470,000 Incentives
All Components 3,675,000 1,456,000 2,219,000
J'ource: Authors' calculations. See text for details.
These estimates show that all components of the program make important contributions to job creation' The direct spending progrâms have the r*g.ã, job bang foi the buck. State fiscal relief also has important direct and indirect effects on jobs, à-nd so ,r.ry ,i.org job bang for the buck. Tax cuts, though they have no direct jobs effect aná generally affec consumer andkrm spending only graduaþ, r also have important job creation benefits by the end of the two-year window.2'
It is importânt to note that the jobs effects of temporary broad-based rax curs would probably be considerably smaller. Large proportions of temporary tax cuts are saved, blunting their stimulatory impact on output and employment. The prototypical recovery package onty prårides for the fìrst two years of the Making \)Øork Pay tax cut' our analysis ussomås that hlusehoùs trear rhe tax cur as pemânenr in determining their short_run spending. 7
C. The Timing ofJob Creation
The different comPonents of the stimulus package also differ in rerms of the timing of the jobs they will create, and thetefore serve different puqposes in terms of cushioni"g the downturn and fostedng recovery. Because it takes time to carry out new spending ptoþ^-s authorized by legislation, v/e expect the jobs created by spending on inftasrructure, educãtioã, health, und err.rgy to be concentrated in 2010 and 201,1 . At the other extreme are funds to protect the most vulnerable, which are generally spent promptly, and tax incentives for businesses to invest quickly. State fiscal relief and broad-based tax cuts fall. in between: funds for these programs can be disbursed quickly, but there can be a deray before the main response of spending.
Table 3 summarizes the information about the timing of the effects of the different components. For example, the second entry in the middle column indicates that we esrimare that the ,p..rdirrg on protecting the vulnerable will cteate 83o/o as many jobs in 2009Q4 as it will in 2010Q4. That is,"this spending will have nearþ equal effects in the two periods.
Table 3 Effects of the componenrs of the Recovery package onJob creation in 2009Q4 and 2011Q4 relative to 2010e4
Comoonent 200904 20r1,o4
Energy, Infrastructure, 46% 41% Health, Education
Protecting the Vulnerable B3 1,7 State Relief 48 48 Business Tax Incentives 83 28 Making\7ork Pay Tax Cut 67 -)t
|'ource: Authors' calculations. See text for details.
D. Breakdown by Industry
To get more detailed information on the breakdown of the jobs created, we use a simulation from a prominent private forecaster on a plan that is similar - though nor identical - to the type of plan the President-Elect is considering. The simulation yields a breakdown by indusrry of ¡obs crãated in 2010Q4' We combine the shares of jobs created in each industry from this simulation with our estimates of total iob creation from a likely-sized program. For example, if the simulation implied that 1\'4o/o of the jobs created would be in construction, our estimare of the number of jobs crËated in construction in 20i0Q4 is 18.40/o of our estimate of overall job creation of 3.675 million, or 678,000. The results of this exercise are shown in Table 4. creatio" R""T;3'|I lu"ug. by Indusrry Job "f
Indusrry Jobs Created in 20100*4
Mining 26,000 Construction 679,000 Manufacturing - Total 409,000 Wholesale Trade 159,000 Retail Trade 604,000 Information 50,000 Financial Activities 214,000 Ptofessional and Business Services 345,000 Education and Health Services 240,000 Leisure and Hospitaliry 499,000 Other Services 99,000 Utilities 1i,000 Transportation and Warehousing 99,000 Government - Total 244,000
Total 3,675,000
Sources, Authors' calculations and estimates of effects by industry from Mark Zandi, "The Economic Impact of a $600 Billion Fiscal Stimulus Package," Moody's economy.com, Nov. 28, 2008.
While estimating the effects at the industry level is even more difficult than estimating aggregate effects, there are well-established cyclical differences across industries that undedie the qualitative results of this analysis. For example, the largest percentage declines in employment over the past yeathave been in construction and manufacturing.
The estimates suggest that 30o/o of the jobs created will be in construction and manufacturing, even though these industries employ only 15o/o of all workers. Both sectors have been particularþ hard- hit recentþ. The othet nvo significant sectors that disproportionately arc represented in f ob creation rct^lltrade and leisure and hospitality (mining is also represented disproportionarel!, but employs ^re less than 1o/o of aI workers). Construction, manufacturing, retail trade, and leisure and hospitality all employ large numbers of low- and middle-income workers whose incomes have stagnated in recent decades and who have suffered greatly in the current recession. 9
E. Effects on Different Demographic Groups
The sensitivity of employment and unemployment to the overall health of the economy varies across demogtaphic groups of the population. For example, African-American, Hispanic, young, less- educated, and male workets all tend to suffer disproportionately during recessions. The expãrience in the cuffent downturn is typical unemployment rates âmong these groups have risen substantially more than the overall unemployment rate. Historically, when unemployment falls overall, these groups tend to experience particulady large employment gains.
On the other hand, some groups, such as older, college-educated, and female workers, tend to experience smaller rises in unemployment for a given rise in the overall rate. For example, in the current recession, during which the overall unemployment rate has risen 2.3 percentage points, the unemployment rate for women has increased 1.6 percentâge points. Histoiica[y, when unemployment falls overall, these groups tend to experience smaller employment gains.
It is possible to look more closely at the possible gender composition of jobs created by the recovery package by considering the industrial breakdown of job creation from Table 4. Data arc readily available on the fraction of women in each industry. If we assume that jobs created in an industry will be allocated between men and women following the industry aveteLge,we cân estimate the jobs likely to go to women by industry. The proportion female and this estimare of the likely jobs creared for women in each industry are given in Table 5. Summing âcross industdes suggests that the total number of created iobs likely to go to v/omen is roughly 42o/o of the jobs .r.ri.d by the package. Given that so far in the recession womefl have accounted for roughly 20o/o of the decline in payroll employment, this calculation could reflect that the stimulus package skews job creation somewhat towatd women, possibly as a tesult of the investments in healthcare, education, and state fiscal relief.3 However, it is important to keep in mind that it is possible that the g.nder composition of the jobs. created by industry will not follow the industry a'vereLge, and so smaller fractions are possible.a l0
Table 5 Ftaction of Employmenr that is Female
Number of Created Jobs lndustrv Fraction Female Exoeeted to so to \X/omen
Mining 13% 3,000 Construction 13 BB,OOO Manufacturing - Total 29 117,000 \üTholesale Trade 31 49,000 Retail Trade 50 304,000 Information 42 21.,000 Financial ,{ctivities 59 1.27,000 Professional and Business Services 45 154,000 Education and Health Services 18ó,000 Leisure and Hospitality 53 262,000 Other Services 52 52,000 Utilities 26 3,000 Transportation and Warehousing 24 23,000 Government - Total 5/ 140,000
Total 49 1,529,000
J'ources, BLS Establishment Survey and authors' calculations from Talle 4.
One useful consequence of this consideration of demographic and industrial composition is to again point out the importance of balance in the recovery package. Much of the discussion of the recovery plan has focused on infrastructure, rebuilding schools, and energy investments. This type of spending disproportionately creates jobs in sectors like construction. But, the protoqrpical package also includes substantial quantities of investment in education and health care, âs well as of state fiscal relief. This component tends to encourage employment in sectors such as education and health. The recovery package is also ükely to include a middle-class tax cur. This component should further spread the jobs benefits of the package. For example, the indirect effects are likely to be large in retail trade. Because different groups have different representation in various industries, maintaining range of components is important for ensuring that the benefits of job creation are ^ spread broadly among all,\mericans.
F. Kinds ofJobs
The tecovery plan is likely to create jobs paying a tange of wages. Signifìcant shares of jobs are created in sectors that pay above aveÍage, such as construction and business services, as well as sectors thz:tpay below such as retalltrade and leisure/hospitality (hotels, restaurants). ^veÍa;ge,
Union representation is higher than average in some of the sectors in which the recovery package creates significant numbers of jobs. Union coverâge in construction and manufacturing, which 11 account for almost one-third of the jobs created by the package, are 74o/o and 71o/o, respectively, compared to 7 .5o/o coverage for the private sector ovetall.
Âlong the same lines, recent research by Robert Pollin and Jeannette Wicks-Lim (available at htç://www.peri.umass.edu/green-jobs) suggests thât investments in green energy will create iobs that generally paywell above the typical wage. For example, compared to the nattonal median wage of $15 in2007, some of the jobs created by these investments include: electricians (median wage, g21.SO/hour), carpenters ($18/hour), operations managers ($43/hour), and production supervisors (ff23/hour). The occupation-weighted average wage in green energy jobs is about 20o/o above the national avetage.t
Finally, in addition to creating high-quality jobs, the program is likely to improve existing iobs. One importanr way rhar it will do this is by moving workers from part-time to full-time work. Over the pâst year, as the overall unemployment râte has risen lry 2.3 Percentage points, the number of workers working pârt-time for economic reasons has risen by 3.4 million. This is a main reason why the underemplJyment rate rose to 13.50/o in December compared to 8.7o/, a ye r earher.6 We esrimate that our program will cause the unemployment rate to be about 1.8 points lower in 2010Q4 than it other$/ise would have been. If the same relationship between movements in overall unemployment and movements in workers working part-time for economic reasons holds for the effects of the recovery package, the ptogram will allow about I.8/2.3 times 3.4 million, ot 2.7 milli6n, workers to move from part time to full time. It will reduce the underemployment rate by more thân three percentage points compared to its level in the absence of the recovery package'
G. Conclusions
This study has sought to investigate the likely fob creation effects of the Ämerican Recovery and Reinvestment Plan currently under consideration. As emphasized at many points in the analysis, there is substantial uncertainty around all of our estimates. Nevertheless, we believe they can provide useful guidance âs we go forward. Among the key lessons from the analysis are:
. The recovery plan needs to be large to counter the tremendous job loss that is likely to occur. . The plan needs to include Íange of components, such as direct government spending, state ^ fiscal relief, and tax cuts to ensure that jobs are created quickly and throughout the economy' . The range of components is also important for ensuring that both male and female workers benefìt ftom the program. . An agEressive recovery progrâm is important for protecting all Americans from job loss, but particularþ for aiding those groups disproportionately hurt by the rise in the overall unemployment fate. . A well designed recovery plan will not only create rìumerous jobs, but also many jobs paying good wages and providing full-time employment' 13
ENDNOTES
I Forecasts of the unemploymcnt rate v/ithout thc recovery plan vary subsøntially. Somc private fotccastcrs anticipate uriemployment râtes as high as 77o/o in the absence of ¿ction.
2 These estimates, like the te ones, are subjcct to substantial margins of error. One additional source of ^ggreg uncertâinty concerns the impact oF thc state fiscal rclicf. \ù(/e belicve that the rule of thumb that 600/o of funds devotcd to stâte relief will be used to prevcnt spending cuts and that 30o/o will be used to prevent t¿x inct€ases, and that these effects will occur with a lag of âbout three months, are good first approximations. But, the effects will cleady differ source of uncertainty concerns the across stâtcs, and the avetage could diffcr from what wc have assumed. '{nother iobs effccts of a given increase in GDP. Again, we think that our âssumption that the telation between higher GDP and increased employment is the same âcross thc different components of the package is a good starting point. But, the exact effects are likely to vâry somewhat âcross components. For example, simulations using private-sector lorecasting increase is likely to be slightly higher for broad-b¿sed models suggest that the number of f obs created by a given in GDP tax cuts than for infrastructurc spending, presumably because the jobs crcated by infrastructute spcnding pay higher wâges on aveÍage, This effect is small, howevcr, and does not reverse thc conclusion that a dollar of infrâstructule spending is more effective in creating jobs than a dollar of tax cuts.
3 This percentage is calculated as the difference in femalc papoll cmplo]rment from November 2007 to Novcmber 2008 (Dccember 2008 data wcre not yct available) divided by the change in total paytoll employment over the samc time period. a It is prcciscly becausc of thc uncertainty surrounding this type of calculation that we do not do similar calculations for groups that ate a smaller fraction of the labor force. For t€enagcrs, for example, it is lìkely that the within- industry variation in cyclicality for demographic groups su/âmps the actoss-industry variation. s Thesc data are from the BLS Occupational Employment Survcy.
6 The underemployment rate is the most comprchensive measurc of labor underutilization (measurc U-6 in Table ,{'-12 of the monthly iobs report) published monthly by the BI,S. EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF MANAGEMENT AND BUDGET ffi WASHINGTON, D.C. 20503 IHE DIRECTOR April3,2009 M-09-15
MEMORANDUM FOR THE HEÍþS OF DEPARTMENTS AND AGENCIES FRoM: åi::,i;"'- # SUBJECT: Updated Implementing Guidance for the American Recovery and Reinvestment Act of 2009
On February 17,2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009, P.L. 1 11-5 ("Recovery Act" or "Acf')'
This memorandum transmits the second installment of govemment-wide guidance for carrying out programs and activities enacted in the American Recovery and Reinvestment Act ("Recovery Act") of 2009. Please bring this memorandum and attachment to the attention of any personnel within your organizationthat you expect to be involved in these matters.
The guidance issued today supplements, amends, and clarifies the initial guidance issued by the Office of Management and Budget (OMB) on February 18,2009, (Initial Implementing Guidanceþr the American Recovery and Reinvestment Act of 2009, M-09-10). All significant updates to M-09-10 are outlined in Section 1.5 ofthe attached guidance. These updates are based on ongoing input received from the public, Congress, State and local government officials, grant and contract recipients, and Federal personnel.
Significant work is underway at all levels of government and in communities across the nation to carry out the Recovery Act effectively. The attached guidance is intended to reinforce this progress by clarifuing existing requirements and establishing additional steps that must be taken to facilitate the accountability and transparency objectives of the Recovery Act.
Specifically, in implementing the Recovery Act, departments and agencies should bear in mind the President's commitment to ensuring that public funds are expended responsibly and in a transparent manner to further the job creation, economic recovery, and other purposes of the Recovery Act. To that end:
(1) Merit-Based Decision-Making. Consistent with the President's Memorandum of March 20,2009, Ensuring Responsible Spending of Recovery Act Funds, departments and agencies should develop transparent, merit-based selection criteria that will guide their available discretion in comrriitting, obligating, or expending funds under the Recovery Act for grants and other forms of Federal financial assistance. (2) Long-term public benefits, optimizing economic and programmatic results. Also consistent with the President's March 20,2009, Memorandum, departments and agencies should support projects that have, among other things and to the greatest extento a demonstrated or potential ability to deliver programmatic results; optimize economic activity and the number ofjobs created or saved in relation to the Federal dollars obligated; and achieve long-term public benefits by, for example, investing in technological advances in science and health to increase economic efficiency and improve quality of life; investing in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits; fostering energy independence; or improving educational quality.
(3) Targeting assistance consistent with other policy goals. Federal agencies should take additional policy considerations into account, to the extent permitted by law and practicable, when determining how best to use Recovery Act funds for achieving the Act's objectives, such as supporting projects that ensure compliance with equal opportunity laws and principles, support small businesses including disadvantaged business enterprises, engage in sound labor practices, promote local hiring, and engage with community-based organizations. These policy goals are outlined further in the attached guidance document, at Section 1.6.
An open dialogue on this guidance and other policies and requirements of the Recovery Act is essential to effective implementation. Therefore, the attached guidance includes instructions for how the public can provide additional input and feedback. Specifically, questions and feedback about this memorandum or the guidance document can be addressed to rè[email protected] and should have the term "guidance feedback" in the title of the email. OMB will issue a subsequent memorandum within the next 30 to 60 days clarifuing any updates to the guidance based on feedback received.
Thank you for your cooperation.
Attachment
-2- Updated Implementing Guidance for the American Recovery and Reinvestment Act of 2009
Table of Contents
SECTION 1 _ GENERAL INF'ORM,4.TION
SECTION 2- AGENCY PLAI\S AND PUBLIC REPORTING
SECTION 3 - GOVERNA|{CE, RrSK MANAGEMENT, AND PROGRAM INT8GRrrY...... 29
SECTION 4 - BUDGET EXECUTION...... 38
SECTION 5 - GRANTS AND COOPERATIVE A'GREEMENTS...... 47
SECTION 6 - CONTRACTS......
SECTION 7 _ LOANS AIID LOAN GU4R4NT88S...... 63
...67
APPENDIx 1_ DBr¡I,en INSTRUCTIONS ON TRANSMITTING MATERIALS...... ,.....68 AppBxnrx 2- AcENcy R¡,covønv Rrlnrnn \ilrn PAGEs ...... 71 AppBxnrx3-ÄcuNcyANDPnocuuDtr¡E1npmNTs...... 74 Appexorx 4 - Rrsx ConsroERArIoNs ...... 85 Aprpxnx 6- AcENcy Rrsx Trupr.arp ...... 87 AppENDrx 7 - Couxcu, ox ENvTnoxMENTAL Qullmv NEPA REPoRTING Gum¡¡tcn ...... 88 Apprxux 8 - Ixrpnrru FARRules ...... 94 Apprxnrx 9 - Ixrnruu FIx¡, GuIn¡ncE FoR F'EDEn¡r, tr'lx¡xctAr, AsslsrlNcc...... 121 14424 Federal Register/Vol. 74, No. 61/Wednesday, April 1, 2009/Notices accordance with the NRC E-filing rule, which the NRC promulgated in August encourage respondents to submit which the NRC promulgated in August 2OO7. See 72 FR 49,139 (A,t1.28,2OO7). comments electronically to ensure (Aug, timely receipt. We cannot guarantee that 2OO7. See 72 FR 49139 28, 2007). Issued at Rockville, Maryland, this 26th comments mailed will be received Issued at Rockville, Maryland, this 26th day of March zoos. before the comment closing date' day of March 2009. E. Roy Hawkens, Comments may be sent via http:// E. Roy Hawkens, Chief Administrative ludge, Atomic Safety www,re gulatìons, gov-a Federal E- Licensing Board Panel. Chief Administrotive ludge, Atomic Safety and Government Web site that allows the and Licensing Board Panel. IFR Doc. Es-7277 Filed 3-31-09; 8:45 aml public to find, review, and submit IFR Doc. 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The title ofthe Marguerite Pridgen, Office of Financial Management, Office of This proceeding concerns a request standard data element set is "Standard Management and Budget, Room 6025, for a hearing submitted on March 13, Data Elements for Reports under Section New Executive Office Building, 725 2009 by the law firm of Akerman 15L2 of the American Recovery and 17th Street, NW., Washington, DC Senterfitt on behalf of Mr. Dhiraj Soni Reinvestment Act of 2009, Public Law 20503. in response to a February 10, 2009 111-5 (Grants, Cooperative Agreements "NRC Staff Order Prohibiting and Loans)." Once the standard data FOR FURTHER INFORMATION CONTACT: Involvement in NRC-Licensed elements are approved, each federal Marguerite Pridgen, Office of Federal Activities, 74 FR 7930 (Feb. 20, 2009). agency must require its recipients of Financial Management, Office of Under the terms of that Order, the Staff grants, cooperative agreements and Management and Budget, telephone concluded that Mr. Dhiraj Soni, the loans made under the Recovery Act to (2O2) 355-7844 (direct) or (202) 395- former Vice President of Eastern Testing report the information and data 3993 (main office) and e-mail: and Inspection, Inc, (ETI), engaged in electronically through a central mpridgen@omb. e op. gov. The proposed deliberate misconduct that caused ETI Governmentwide portal or through an data elements can be downloaded ftom to be in violation of 1o CFR 30,9 and, agency information collection process. the OMB Grants Management Web Page accordingly, tlat Mr. Dhiraj Soni Information on the reporting procedures aT (http : / / www.whitehous e. gov / omb / violated 10 CFR 30,10. The Order will be posted to http:// gra nt s _stan d a ñ _re p o rt orm s /). TBD.-f therefore prohibits Mr. Dhiraj Soni from wvvw.f e d e ralre p orting, gov once OMB Control No,; Data Elements for any involvement in NRC-licensed available. Recipients of Recovery Act Tiflel Standard Section 1.512 of the activities for a period of one year from funded grants, cooperative agreements Reports under Reinvestment of Order. and loans may collect the data and American Recovery and the effective date the (Grants, The Board is comprised of the information approved under this Act of 2009, Public Law 111-5 following administrative judges: information collection from Cooperative Aqreements and Loans) Färm No.; Nöt applicable. Ann Marshall Young, Chair, U.S. Type of Review; Emergency clearance, Nuclear Regulatory Commission, Respondents : States, local recipients of Recovery Act funded Washington, DC 20555-0001. governments, Universities, non-profit awarded by the Paul B. Abramson, U.S, Nuclear organizations, commercial Federal government is being reviewed Regulatory Commission, Washington, -Fh*irectly organizations, subrecipients and under a separate information collection DC 20555-0001, subcontractors under grants, cooperative process. Bruce R. Matthews, U,S. Nuclear loans. agreements-Numbe¡ and Regulatory Commission, Washington, DATES: Comments must be submitted on of Responses : 9S3,1 00' DC 20555-0001. or before May 1, 2009, Estímated Time Per ResPonse:1.50 All correspondence, documents, and ADDRESSES: Due to potential delays in hours. other materials shall be filed in OMB's receipt and processing of mail Needs and Uses; The "Standard Data accordance with the NRC e-filing rule, sent through the U.S. Postal Service, we Elements for Reports under Section Federal Register/Vol. 74, No, 61/Wednesday, April 1, 2009/Notices 14825
1512 of the American Recovery and .tmerican Recovery and Reinvestment " Reinvestment Act of 2009, Public Law Act of 2o0s ("Recovery Act") from pFfiIlõtlffiaprior reporting period 1,1,1,-5" was developed to serve as a recipients of Federal grant, cooperative and is still accurate and current, government-wide standard data set for asreèment and loan funds. The data and Danny Werfel, agencies to use in collecting information required under section 1512 ofthe - Deputy Contrcller. STANDARD DATA ELEMENTS FOR REPORTS UITIOEN SECTIOru 1512 OF THE AMERICAN RECOVERY AND REINVESTMENT ACT oF 2009, PuBLlc LAw 111-5 [Grants, Cooperative Agreements and Loans]
General Section-Award and Award Recipient lnformallon Please provide requested information regarding the award and award recipient.
ARRA-A ...... Awarding Federal agency and Organiza- Provide the name of the awarding Federal agency and organizational element t¡onal Element to Which Report is identified in the award document or otherwise instructed by the agency. The or- Submitted. ganizat¡onal element is a subagency within an awarding Federal agency. ARRA-B ...... Federal Grant or Other ldentify¡ng Num- Provide the granVaward number contained in the award document' ber Assigned by the award¡ng Federal agency. ARRA-C ...... DUNS Number Provide the pr¡me recipient organ¡zation's I digit Data Universal Numbering Sys- tem (DUNS) number or Central Contractor Registration plus 4 extended DUNS number. ARBA-D ...... EtN ...... Provide the recipient organizat¡on's Employer ldentification Number (ElN) pro- vided by the lnternal Revenue Service. ARRA-E ...... oFDA ...... Prov¡de Catalog of Federal Domestic Assistance (CFDA) number on the award document or provided by the awarding agency. lf this award is being funded through multiple programs, provide each CFDA number. ABRA-F ...... Recipient Organ¡zation Provide the legal name of recipient organization and address, includ¡ng zip code. This should be the same name and address that appears in recipient's Central Contractor Registration prof ile. ARRA-G ...... Recipient Account Number or Account Provide the account number or any other identitying number assigned by the re- Number. cipient to the award. This number is strictly for the rec¡pient's use only and is not required by the awarding Federal agency. ABBA-H ...... ProjecvGrant Period ...... lndicate the proiecUgrant period established in the award document during which Federal sponsorship begins and ends. Note: Some agencies award multi-year grants for a project/grant period (e.9., 5 years) that are funded in increments known as budget periods or funding per¡ods. These are typically annual incre- ments. Please provide the total projeclgrant period, not the ¡ndividual budget period or funding period. ARRA-I Beporting Period End Date ...... ,...... The frequency of required reporting ¡s quarterly. Provide the end¡ng date of the report¡ng period. For quarterly reports, the following calendar quarter reporting period end dates shall be used: 6i30; 9/30; 12131; o( 3i3'1. For final reports, the reporting per¡od end date shall be the end date of the projecvgrant period. ARBA-J Final Report Mark appropriate box. Check "yes" only ¡f th¡s is the final report for the proiecV grant period specified in Box 6. ARRA-K ...... Report or Frequency Select "quarterly" for quarterly reports and/or "final".
Section 1 ProlecuAct¡vltylnfoÌmatlon Please provide requested information for the project or activity for which Recovery Act funds were awarded.
ARBA-1-01 Name of Proiect or Act¡vity ...... ,...... Provide a brief descriptive title of the pro¡ect or activity funded in whole or in part w¡th Recovery Act funds. lf this award funds multiple proiects or activities' pro- vide a descr¡ptive title that captures the general focus area, e.9., "community development," "comprehensive community mental heâlth services to adults with a serious mental illness," etc. ARRA-1-O2 ...... Total Amount of Recovery Funds Re- Provide the cumulative amount of actual cash received from the Federal agency ceived from Federal Agency as ot the reporting period end date. lndentified in ltem ARRA-A. 74426 Federal Register/Vol. 74, No.61 /Wednesday, April 1,2009/Notices
STANDARD DATA ELEMENTS FoR REPoRTS UNDER SeCTIOT 1512 OF THE AMERICAN RECOVERY AND REINVESTMENT ACT oF 2009, PuBLlc LAW 111-S-Continued [Grants, Cooperative Agreements and Loans]
lnstruction
Amount of recovery funds received that Provide the cumulat¡ve total for the amount of Federal fund expenditures. For re- were expended to prolects or activities ports prepared on a cash basis, expend¡tures are the sum of cash disburse- ("Federal Share of Expenditures"). ments for direct charges for property and services; the amount of indirect ex- pense charged; the value of third-party in-kind contribut¡ons applied; and the àmount of cãsh advance payments and payments made to subcontractors and subawardees. For reports prepared on an accrual basis, expenditures are the sum of cash disbursements tor direct charges for property and services; the amount of indirect expense incurred; the value of ¡n-kind contributions applied; and the net increase or decrease in the amounts owed by the recip¡ent for (1) goods and other property received; (2) services performed by employees' con- tractors, subcontractòrs, subawardees, and other payees; and (3) programs for which no current senr'ices or performance are required. Do not include program income expended.
Section 2 ProiecuActlvltylnformatlon Please provide requested ¡nformation for the pro¡ect or activity for which Recovery Act funds were awarded.
ARRA-2-01 Description of Project or Act¡vity For awards primarily funding infrastructure pro¡ects or activit¡es, as defined by the (code(s)). awarding agency, provide the North American lndustry Classificat¡on System (NAlCSlcode(s) that describe the Recovery Act proiects or activ¡ties under this award. A searchable code list is al http://www.census.gov/naicsl. For all qlÂÊr
this award
ph p? gQ ry=a I l- core & codeTy pe=N P C. Descr¡ption of Project or Activity (brief A description of the overall purpose and expected outputs and outcomes or re- narrative). sults of the award and firsþtier subaward(s), including significant deliverables and, if appropriate, units of measure. For an award that funds multiple projects or activities, such as a tormula block grant, the purpose and outcomes or re- sults may be stated in broad terms. Evaluation of completion status of the Evaluate the status of the work that has been completed. This evaluation should proiect or act¡v¡ty. be based on performance progress reports and other relevant non-financial performance information. For awards funding a single project or activity, please bhoose one of the following options: Not started; Less than 50% completed; Completed 50% or more; Fully Completed. For awards funding multiple projects or activities, such as formula block grants, provide your best est¡mate of com- pletion of all projects and/or activities based on any aggregate data and infor- mat¡on. ARRA-2-{4 A narrative description of the employ- - t"". -¡|rrff - 'f' ' ment impact of the Becovery Act fund- funded work. This narrative should be cumulative for each calendar quarter and ed work. at a minimum, address the impact on the recipient's workforce, and if known, the impact on the workforces of subrecipients. At a m¡nimum, the recipient shall provide- (¡) s or positions means those néú positions and filled, or previously existingexi unfilled positions that are tilled, as a result of Recoveryvery Act funding. "Jobs or positions re- tained" means those prev¡ously existing filled posit¡ons that are retained as a result of Becovery Act funding. This descriptiondesc may rely on ¡ob titles' broader labor categories, or the contractor's existing practice for describing jobs as long as the terms used are widely understood and describe the general nature of the work; and
new positions created and any existing filled positions that were retained to suppôrt or carry out Recovery Act projects or act¡vities managed directly by the recipient, and if known, by subrecipients. The number shall be ex- pressed as 'jf¡¡ll¡lin¡.¡g¡li¡t¡l¡di (FTE), calculated cumulatively as all hours worked d¡vided by the total number of hours in a full-time schedule, as defined by the recipient. For instance, two full-time employees and one part-time employee work¡ng half days would be reported as 2.5 FTE in each calendar quarter. (iii)' A job cannot be reported as both created and retained. As used in this instruction, United States means the 50 States and the District of Colum- bia, and outly¡ng areas means- (1) Commonwealths. (i) Puerto Rico. (ii) The Northern Mariana lslands; (2) Territories. Federal Register/Vol. 74, No. 61/Wednesday, April 1, 2009/Notices L4427
STANDARD D¡Tn EuueNTs FoR REPoRTS UNDER SEoTIoN 1512 OF THE AMERICAN RECOVERY AND REINVESTMENT ACT oF 2009, PuBLlc LAW 111-5-Continued [Grants, Cooperative Agreements and Loans]
lnstruct¡on
(i) American Samoa. (ii) Guam. (iii) U.S. Virgin lslands; and (3) Minor outlying islands. (i) Baker lsland. (i¡) Howland lsland. (i¡i) Jarvis lsland. (iv) Johnston Atoll. (v) Kingman Reef. (vi) Midway lslands. (vii) Navassa lsland. (viii) Palmyra Atoll. (ix) Wake Atoll.
For infrastructure investments made by Provide the cumulative total cost of investment. This amount should include the State and local governments: Total total cumulative federal expend¡tures and non-federal expenditures for the infra- cost of infrastructure investment made structure investment: by State and Local governments. Federal (Recovery Act funds): Federal (non-Recovery Act funds): $- NonFederal: For inÍrastructure investments made by Explain how the infrastructure ¡rwestment will contribute to one or more purposes State and local governmentst What is of the Recovery Act: the rationale of the Award Recipient for funding the infrastructure invest- Purposes: ment w¡th funds made available under (1) To preserve and create jobs and promote economic recovery' the Recovery Act? (2) To assist those most ¡mpacted by the recession. (e) to provide investments needed to increase economic etf¡c¡ency by spur- ring technolog¡cal advances in science and health. (4) fó invest inlransportation, environmental protection, and other infrastruc- ture that will provide long-term economic benefits. (5)' To stabil¡ze'State and lôcal government budgets, in order to minimize and ãvoid reductions in essential services and counterproductive state and local tax increases. For infrastructure investments made by Provide name, phone number, address and email address of the appropr¡ate con- State and local governments: Who tact in the state/local government. should we contact if we have con- cerns about this infrastructure ¡nvest- ment? Sectlon 3 Subrecipient lnformation Foranyfirsþtierat¡soVer$25,000andnotsubjecttoaggregate repoiting under Section 4, the recipient shall provide deta¡led information as follows:
ARRA-3-01 ...... Subrecipient DUNS Number Provide the subrecipient organization's I digit Data Universal Numbering Systel (DUNS) number or Ceniral Contractor Registration plus 4 extended DUNS number. by ARRA-3-O2 ...... Award Number or Other ldentifying Num- Provide the granvaward number (if any) assigned to the subrecipient award ber Assigned by the Recipient Entity. the rec¡pient. Subrecipient Name ...... provide tñe legal name of subrecipient as registered in the Central Contractor Registration (www.ccr.gov). Subrecipient Location physióal locatiôn as listed in the Cêntral Contractor Registration. For.congres' dional distr¡ct, use the format: 2 characters State Abbreviation-g characters Distr¡ct Number, e.g., CA-{05 for California sth district, CA-{12 for California 12th district, NC-tã for North Carolina's 13rd d¡str¡ct. lf the program/proiect ¡s outside the US, enter 0H00. Subrecipient Type ...... Select primary category from the l¡st of categor¡es below. A. State Government. B. County Government. C. City or Township Government. D. Special District Government. E. Regional Organization. F. U.S. Territory or Possession. G. lndependent School District. H. Public/State Controlled lnstitution of Higher Education' l. lndian/Nat¡ve American Tribal Government (Federally Recognized)' J. lndian/Native Amer¡can Tr¡bal Government (Other than Federally Recog- nized). K. lndian/Native American Tribally Designated Organ¡zation. L. Public/lndian Housing Authority' 74828 Federal Register/Vol. 74, No, 61/Wednesday, Apriì L, 2009/Notices
STRNoRno DATA ELEMENTS FoR REPoRTS U¡Ioen SEoTIoN 1512 OF THE AMERICAN RECOVERY AND REINVESTMENT ACT oF 2009, PuBLlc LAW 111-S-Continued lcrants, Cooperative Agreements and Loans]
lnstruction
M. Nonprofit with 501C3 IRS Status (Other than lnstitution of Higher Edu- cation). trt. trtonprotit without 5O1Cg IRS Status (Other than lnstitution of Higher Edu- cation). O. Private lnstitution of Higher Education' P. lndividual. Q. For-Profit Organization (Other than Small Business)' R. Small Business. S. Hispanic-serving lnstitution. T. Historically Black Colleges and Universities (HBCUS). U. Tr¡bally Controlled Colleges and Universities (TCCUS). V. Alaska Native and Nat¡ve Hawaiian Serving lnstitutions' W. Non-domestic (non-US) EntitY' X. Other. Amount of Subcontract or Subaward Prov¡de the cumulative amount of cash disbursed to the subawardee or subcon- Disbursed. tractor as of the reporting period end date. Total Amount of Subcontract or provide the anticipatêd totãl amount of cash to be disbursed to the subawardee Subaward (Ultimate ContracuAward or subcontractor by the expiration date of the subaward or subcontract, respec- Value). tively. Subaward Date ...... Providê the date the subcontract or subaward was signed (mm/dd/yyW). Subaward Proiecvcrant Period ...... lndicate the projecvgrant per¡od establ¡shed in the subaward document during which sponsoishitbegins and ends. For multi-year awards tor a proiecvgrant period (à.g., 5 years) tñat are funded in increments known as budget periods or iunding'põriodé, please provide the total proiecygrant per¡od, not the ¡ndividual budget period or funding Period. ARRA-€-10 ...... Primary Performance Location Provide physical location of primary place of performance. ARRA-3-11 ...... For the five most highly compensated of- Provide ihé names and total compensation of the five most highly compensated ficers of the entity: the names and officers of the subrecipient entity ¡f- total compensation. (1) the recipient in ¡ts preceding fiscal year received- (ai go percent or morè of its annual gross revenues ¡n Federal awards; and (n) $zs,ooo,ooo or more ¡n annual gross revenues from Federal awards; and (z) public does not have access to information about the compensation of-the ' 'sen¡oitÈe executives of the entity through periodic reports filed under sect¡on 13(a) or 15(d) of the securities Exòhange Act of 1934 (15 U.S'C Z8m(a), 78o(d)) or sect¡on 6104 of the lnternal Revenue Code of 1986 [26 USC S61041. "Total compensation" means the cash and noncash dollar value earned by the executive during the subrecipient's past fiscal year of the following (for more in- formation see 17 CFB 225.402(c)(2))l (i). Salary and bonus. 1ii¡. RwaiOs ot stock, stock opt¡ons, and stock appreciation r¡ghts. Use the dollar amount recognized for financial statement reporting purposes with respect to the f¡scal year in accordance with FAS 123R. (iii).' Earnings for services under non-equity incentive plans. Does not include l¡roup life, health, hospitalization or medical reimbursement plans that do ñot iliscriminate in favor of executives, and are available generally to all salaried employees. (iv). Change in pênsion value. This is the change in present value of defined benef¡t and actuarial pension plans' (v). Above-market earnings on deterred compensation which are not tax' qualified. (vi).' Otner compensation. For example, severance, term¡nation payments, üalue of l¡fe ¡nsurance paid on behalf of the employee, perqu¡sites or prop- efi if the value for the executive exceeds $10,000.
Seclion 4 Subawardee or Subcontract Award Information-Aggregated sub- For subcontracts or subawards valued at less than $25,000 or any subcontracts or subawards awarded to an individual, or subcontracts or awards awarded to an entity other than an ind¡vidual which in the previous tax year had gross income. und€r $300,000, the recip¡ent shall only report the aggregate numbér of such first tier subawards and subcontracts awarded in the quarter and the¡r aggregate total dollar amount.
ARBA-4-{1 ...... Total Number of Subcontracts and Sub- Self-explanatory. awards less than $25,000/award and awarded to individuals. and sub- ABRA-4-02 ...... Total Amount of Subcontracts and Sub- Provide the total cumulative amount of cash disbursed to subawardees feport¡ng awards less than $25,000/award and contractors. This aggregate amount should be cumulative as of the awarded to individuals. per¡od end date. Federal Register/Vol. 74, No. 61/Wednesday, April 1, 2009/Notices 74425
The Exchange IFR Doc. ES-73I7 Filed 3-31-09; 8:45 aml lack of current and accurate information increments of$0,01, proposes extend the pilot through BILLING COI'E 311G{l-P concerning the securities of Global to Matrechs, Inc, ("Global") because it is fuly 3, 2009. There is no new text nearly two years delinquent in its contained in this proposed rule change, reports, Global is The text of the filing is available at SECURITIES AND EXCHANGE required periodic Markets, http : / www.cchwallstre et.com / nas daq, COMMISSION ouõted oñ the Pink Sheets OTC / Iirc. under the ticker svmbol GBMR, at ÑASDAQ s principal office, and at Sunshine Act Meeting The Commission is äf the opinion tlat the Commission's Public Reference the public interest and the protection of Room, Notice is hereby given, pursuant to inveìtors require a suspension of trading Nasdaq has designated this proposal the provisions of the Government in the in the securities ofthe above-listed as non-controversial and provided the Sunshine Act, Public Law 94-409, that comDanv, Commission with the notice required by the Securities and Exchange TËerefore, it is ordered, pursuant to Exchange Act Rule 19b-4(Ð(6xiii). Commission will hold a Closed Meeting Section 12(k) ofthe Securities Exchange Nasdaq requests that the Commission on Thursday, April 2, 2009 at 2 p.m. Act of 1934, that trading in the waive the 30-day pre-operative waiting Commissioners, Counsel to the securities of the above-listed company is oeriod contained in that rule, If such Commissioners, the Secretary to the suspended for the period from 9:30 a.m. i¡¡aiver is granted by the Commission, Commission, and recording secretaries EDT on March 30, 2009, though L1:59 this rule proposal, which is effective will attend the Closed Meeting, Certain p.m. EDT on April 13, 2009, upon filiñg wittr ttre Commission, shall staff members who have an interest in By the Commission. become immediately operative pursuant the matters also may be present, fill M. Peterson, to sEC Rule 1eb-4(fx6), Counsel The General ofthe Assistant Secretary. Commission, or his designee, has II. Self-Regulatory Organization's Doc. E9-7397 Filed 3-30-09i 4:15 pm] and certified that, in his opinion, one or [FR Statement of the Purpose of, BILLING COÞÉ Basis for, the Proposed Rule more of the exemptions set forth in 5 Statutory U.S,C, 552b(cx3), (5), (7), s(B) and (10) Change (s), (7), with the Commission, and tz CFR 200,402(aX3), s(ii) SECURITIES AND EXCHANGE In its filing (10), statements concerning and permit consideration of the COMMISSION Nasdaq included scheduled matters at the Closed the purpose of and basis for the Meeting. lRelease No. 34-59632; File No. SR- proposed rule change and discussed any Commissioner Casey, as duty officer, NASDAO-200H)301 õomments it received on the proposed voted to consider the items listed for the rule change. The text of these statements Self-Regulatory Organizations; The Meeting in closed session. may be examined at the places specified Closed NASDAQ Stock Market LLC; Notice of The subject matter of the Closed in item lV below, Nasdaq has prepared F¡l¡ng and lmmediate Effectiveness of scheduled for Thursday, April set forth in Sections A, B, Meeting a Proposal To Extend the Options summaries, C of the most significant 2,zoos will be: Penny Pilot for The NASDAQ OPtions and below, an action; such statements. Institution of injunctive Market aspects of and settlement of institution A. Self-Regulatory OrganÍzation's administrative proceedings of an March 26, 2009. Statement of the Purpose of, and enforcement nature; adjudicatory Pursuant to Section r9(bXr) ofthe Statutory Basis the Proposed Rule matters; and other matters relating to Securities Exchange Act of 1934 for, Change enforcement proceedings. ("Act"¡," and Rule 19b-4 thereunder,2 At times, changes in Commission notice is hereby given that on March 25, 1, Purpose priorities require alterations in the 2009, The NASDAQ Stock Market LLC The purpose ofthe proposedrule scheduling of meeting items. ("Nasdaq") filed with the Securities and to continue to ("Commission") change is Permit For further information and to Exchange Commission specified options series to be quoted ascertain what, if any, matters have been the proposed rule change as described ald traded in increments of $o,or by please Items added, deleted or postponed, in Items I and II below, which extending the pilotthroughJuly 3, 2009' The contact: have been prepared by Nasdaq. Prior to the Penny Pilot Program, (2o2) The Office of the Secretary at Exchange filed the proposal as a "non- options were quoted options in nickel 551-5400. controversial" proposed rule change and dime increments. The minimum Dated: March 26,2oo9, pursuant to Section rs(bX¡XAXiiÐ of price variation for quotations in options s and Rule lsb-4(f[o) Elizabeth M. Murphy, the Act ãeries that are quoted at less than $3 per thereunder,a The Commission is Secretary. contract is $0.05 and the minimum publishing this notice to solicit price for quotations in options IFR Doc. E9-7228 Filed 3-31{)9; 8:45 am] variation comments on the proposed rule change series that are quoted at $3 per contract BILLING CODE persons. from interested or greater is $0.10, I. Self-Regulatory Organization's Under the Penny Pilot Program, SECURITIES AND EXCHANGE Statement of the Terms of the Substance beginning on January 26,2OO7, market COMMISSION ofthe Proposed Rule Change participants were able to begin quoting, in penñy increments in certain series of is proposing to extend a pilot lFilê No.5m-11 Nasdaq The Penny Pilot Program (the "pilot") that permits certain options optlon classes. oiiginally included the following the Matter of Order of Suspension of series to be quoted and traded in ln thiiteen options: Ishares Russell 2000 Global Matrechs, lnc. Trading (IWM); NÃSD,tQ-1oo Index Tracking 115 U.S.C. zss[b)(1). (QQQQ); SemiConductor Holders March 30, 2009. z 17 cFR 240.19b-4. Stock (SMH); Company It appears to the Securities and s 1s U.S.C. zgs(bXs)(A[iii) Trust General Electric Exchange Commission that there is a 4 17 CFR 240.1eb-4(f)(6). (GE); Advanced Micro Devices, Inc, cotuMN
Indeed, the number of academic earmarks has skyrocketed in part because ofa previous Meanwhatyou say rhetorical gambit. In the 1980s, the scientific community began describing universities as tools because money Promises about job creation in the US stimulus bill economic development was beinghanded out to spur tompetitiveness'. may be coming home to roost, says David Goldston. But associating individual grants with specific metrics about employment and considering near-term job creation as a rationale, or even f cientists may be about to learn an impor- a criterion, for making awards takes this line \ tant, and perhaps surprising, lesson about ofthinking further than it's ever gone before. J Washington: words matter. Rhetorical And all the information on jobs will be readily strategies crafted to push a particular bill affect available on the web, displayed to a public that expectations about the impact ofthat measure is in a sceptical and populist mood in the wake and can take on a life oftheir own. The stimulus ofbonus payouts to financial companies. package that became law in Februar¡ and will The Recovery Act is also prompting efforts provide more than US$21 billion for research to develop more rigorous economic analysis and development, is a case in point. ofthe impact ofscience spending on jobs. The The Obama administration, Congress and NSF's Science of Science and Innovation Pol- advocacy groups sold the stimulus package icy Program has issued a call for proposals for to each other and to the public primarily as a research to evaluate the impact of the stimulus wayto create and retain jobs in the near future. bill including such questions as: "What was The research funding in the bill was no excep- the contribution of the science investment tion, even though it was understood it could evaluated? It could. At a recent hearing ofthe to the creation and retention ofjobs?" (In the also promote longer-term economic growth. House Committee on Science and Technology, worst-case scenario, the lack ofdata aboutjob Congressman Rush Holt (Democrat, New Congresswoman Kathy Dahlkempe¡ a first- creation will be replaced by clashing economic |ersey), a physicist and a strong advocate for term Democrat from an economically hard- theories about it.) the research spending in the package, made hit section of Pennsylvania, asked whether Immediate job creation will not be the sole the political linkage between research and science agencies were "taking into considera- measure ofthe success or failure of the stimulus jobs clear when he spoke at a conference on tion what areas ofthe country have the greatest package, although it will no doubt be the most R&D priorities in Washington DC last month. need for job creatiod'when awarding stimulus politically salient metric. But even broader Holt said that the Democratic leadership had funds. This would be a poor way to distribute means of evaluating the Recovery Act have a asked for data showing the impact the research the stimulus money, but it's not a ridiculous short-term ft¡cus because of the way the bill spendingwouldhave on jobs before agreeing to question to ask about a law that was explicitly was sold. At the science committee hearing, up the funding for science agencies in the bill. presented as a way to create jobs now. Brad Miller, the North Carolina Democrat who Such data, he said, were not readily available, And the agencies' answers showed how chaired the session, said that "when the stimulus although after some scrambling, agencies were much the rhetoric around the law is shaping funds run out next year'l Congress will want to able to cobble together rough figures suffìcient their actions and how much fodder could end know ' did they provide investments needed to to carry the day. up being provided for future debates. Cora increase economic efficiency, by spurring tech- But the data question is not about to go away. Marrett of the National Science Foundation nological advances in science andheafth'. That Indeed, the stimulus bill (now the Recovery (NSF) said her agency had mapped out where may not be easy to know after just two years. Act) means that gathering data on the short- proposals already in hand that could be con- The NSF research programme is also interested term impact ofresearch spending on jobs is sidered under the Recovery Act had come in proposals exploring "what scientifìc or tech- about to become a preoccupation ofthe fed- from, and that the NSF wanted to be sure it nological advances" were achievecl with the eral science agencies and their beneficiaries. was "addressing needs, as those might vary stimulus funds, but doesnt necessarilyexpect Under the act, each grant recipient is required across the country". Matthew Rogers of the such advances to show up immediately. to report to the government quarterly on Department of Energy said that "every dollar It's obviously too soon to know whether the the number of jobs created and the number under the Recovery Act is associated with'a stimulus experience will change the way science retained as a result of the stimulus money. specific number ofjobs, a state and an impact, funding is viewed in a signifìcant or lasting way. The White House Office of Management adding that job creation and retention would And the pressures will vary depending on each and Budget is developing guidelines that will be tracked by congressional district. agency's mission. But it is soon enough to con- govern exactlyhow this information will be Concern about the geographical distribution clude that the stimulus debate has underscored calculated, gathered and made public. But it's of research funding is not new; whether federal the importance of an oft-forgotten lesson in already clear that the reporting wili probably dollars would flow almost exclusively to old- Washin$on: when you come up with a line of go beyond existing efforts, in which agencies line Northeastern universities was a subject argument, think about what would happen if collect information, at most, about how many of debate when Congress created the NSF in peopleactuallybelievedyou. I individuals were supported by a grant. 1950. And complaints about the geographical David Goldston is a visiting lecturer at There's an old sayingthatwhat you measure concentration of federal science money have Harvard University's Center for the is what you get. So, will this focus on near-term been among the justifications for congressional Environment. Reach him at job creation change the way science agen- earmarks - moneyCongress directs to specifìc partyof onecolumn@gmail,com cies go about their business or how they're projects at locations or institutions it selects. See alsopage 556,
@ 2009 Macmillan Publishers Limited. All rights reserved Technology Review: Can Technology Save the Economy? Page I of13
PUBUSHEO 3Y l{11
May/June 2009 Can Technology Save the Economy? The U.S. stimulus bill includes tens of billions to support energy and information technologies. So why are economists and innovation experts so skeptical? By David RoÍnan
Part I of 2
By any measure, $100 billion is a staggering amount of money. That's how much the federal stimulus bill devotes to the discovery, development, and implementation of various technologies. Some $20 billion will fund the increased use of electronic medical records; another $7.2 billion will support the extension ofbroadband Internet access to areas currently without such services. Most impressive, roughly $60 billion will be spent on energy, funding everything from energy-effrciency programs to loan guarantees for the construction of large facilities that use new biofuel and solar technologies.
The spending is unprecedented, not only in scale, but also in the breadth of technologies it covers. For initiatives such as broadband deployment and incentives to adopt electronic medical records, the billions of dollars represent entirely new investments. And for energy technologies, the spending levels dwarf existing public and private investments. One big winner: the U.S. Department of Energy, which received $39 billion (in addition to its $25 billion annual budget). The DOE's Office of Energy Efficiency and Renewable Energy, whose budget in 2008 was $1.7 billion, alone was given $16.8 billion. By comparison, venture capitalists, who often claim clean tech as their favorite growth area, invested just $4.1 billion in that sector in 2008.
The influx of money is particularly dramatic because it comes after years of lackluster federal spending on technology and research, especially in the area of energy. The stimulus bill unabashedly singles out energy projects for huge doses of funding: $11 billion to modernizethe electricity transmission system and create a smart grid, and millions to develop such new energy sources as geothermal power ($4OO million) and biomass fuels ($800 million). Established renewable-energy sectors, such as wind and solar, also receive tens of billions in tax credits and grants.
http://www.technologyreview.com/printer füendly article.aspx?id:22452&channel:busine... 5ll/2009 Technology Review: Can Technology Save the Economy? Page2 of 13
Most audacious, the spending bill does all this with the intention of both stimulating the economy in the immediate future and creating growth in the long term. President Obama and others in his administration have repeatedly connected the stimulus spending with the need to begin creating "green jobs" and building a "clean-energy economy."
The decision to make large energy investments in hopes of realizing both immediate economic benefits and longer-term environmental dividends represents a "massive shift" in government policy, says Robert Pollin, a professor of economics at the University of Massachusetts, Amherst. Pollin published a report last fall arguing that substantial spending on energy technologies would create two million jobs over the next two years. The idea that spending on energy technologies to address global warming could have an immediate economic benefit, he says, "would have been considered preposterous less than two years ago." Yet his study now reads like a blueprint for much of the stimulus bill's energy funding.
But just how realistic are the expectations behind the stimulus package? Can huge jumps in technology funding boost the economy? And will this sudden windfall of funding really be a positive force in encouraging new technologies?
Almost all economists agree that technological progress drives long-term economic growth. Many proponents of the technology provisions in the stimulus bill go further, however, arguing that the funding will alsocreate jobs immediately. Daniel Kammen, founding director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley, estimates that investments in renewable energy create three to five times as many jobs as the equivalent investments in fossil-fuel energies. "Energy efficiency and solar, in particular, have been shown to be two of the highest job-creating industries that we know," he says. And he believes there is clear evidence that spending on energy research will improve the performance and reduce the cost of renewable technologies already on the market.
But a number of economists and policy experts who think about these issues regard the stimulus package's technology funding with ambivalence or even dismay. They worry that the bill conflates the challenges of immediate economic stimulus and long-term technological progress, particularly in the area of energy. Thus, they say, it may not be the most effective way to achieve either goal.
In macroeconomic theory, a stimulus package has a clear, simple function: during economic slowdowns, govemments increase their own spending to compensate for the
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fact that consumers and businesses are spending less. "A stimulus is a sudden and dramatic intervention into the economy," says Robert Stavins, director of the Harvard Environmental Economics Program. And the key to its effectiveness is that it is labor intensive and quick. While some projects to make buildings more energy efficient might qualify as a short-term boon for the economy, Stavins says, other energy-related projects, like rebuilding the electricity grid, will take years and have little immediate effect. "Greening the infrastructure is highly desirable, but it is not going to happen quickly," he says.
The concern over the stimulus bill's technology spending is not just that it offends conventional macroeconomic theory about the best way to boost the economy; it's that it might harm the very technologies it means to support. Because the bill was written quickly and shaped by political expediency, economists and experts on irurovation policy are leery of many of its funding choices. Could extending billions of dollars' worth of fiber-optic lines to rural communities, for example, become aboondoggle? Or what if utilities run high-power transmission lines to remote solar or wind farms, only to find that the electricity they produce is too expensive to compete with other sources ?
As a historical analogy, experts point to corn-derived ethanol. Once the darling of altemative-energy advocates, the heavily subsidized biofuel is now routinely condemned by both environmentalists and economists. Yet because ethanol's use in gasoline is now mandated by federal law, and alarge industry is now invested in its production, its production is likely to continue even though it offers few environmental benefits over gasoline.
The problem with the stimulus package is that it is "very much a heterogeneous bag of things," says Daron Acemoglu, an economist at MIT and an expert on the role of technology in economic growth. "It's very much like pork-barrel politics," he says. As a result, it's hard to properly evaluate the different spending programs. And, he suggests, "when you make investments in bad projects under the name of stimulus and in the name of technological investments, you're doing damage in a number of ways. First of all, you're not helping; second, you're confusing matters; and third, you're poisoning the well for the future."
Solar Bottles Less than a week after the passage of the stimulus bill, Robert Atkinson is taking stock of the legislation. Maybe it's the early hour or the freezing weather that still grips Washington, DC, in late February, but the president of the Information Technology
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and Innovation Foundation (ITIF), a nonprofit think tank that argues for federal policies to promote technology, doesn't seem in a celebratory mood. Despite what would seem to be a huge victory for his cause, he still seems irritated by the bickering over the details of the stimulus package.
Much of the bill's spending plan is strikingly similar to proposals that his own group has presented. In a report published in January, the ITIF estimated that roughly a million jobs would be created by spending $30 billion on broadband, smart-grid technology, and health-care information technology in2009. While the stimulus bill broke down the spending slightly differently and extended it over several years, such forecasts ofjob creation served to justifu the inclusion of heavy technology spending in the legislation.
Likewise, a study prepared last fall by UMass's Pollin and his colleagues shows how spending $100 billion over the next two years on energy-related investments could create two million "green" jobs. The report identified six funding areas, including solar, wind, and advanced biofuels, that it argued would create jobs and facilitate transition to a "low-carbon ec,onomy." Although Pollin says he researched and wrote the paper as an academic, the work was published in September by the Center for American Progress, a think tank whose CEO, John Podestq led Obama's transition team. And like the ITIF study, Pollin's report foreshadowed many of the spending provisions in the stimulus legislation. Pollin notes that while the bill's spending for energy conservation and renewable energy is lower than the total recommended in his report, many of the legislation's details "are kind of what I proposed."
The theoretical justification for the government's stimulus package derives from John Maynard Keynes, the 20th-century British economist. Writing during the height of the Great Depression, Keynes famously suggested that ifbetter job-creation schemes were not available, the British Treasury should fill bottles with money and bury them in old coal mines for people to dig up. That idea is central to the ITIF's policy suggestions, Atkinson says: "Our main message is that innovation could be Keynesian in nature. In other words, solar-energy bottles. "
Atkinson has little patience with critics who object that investing in long-term technology growth requires a more deliberate strategy; they are "being naïVe to the real world," he maintains. "This is our one chance," he says of the massive infusion of goveÍtment funding for new technologies. "It's almost like free money." Those who criticized the bill's provisions for technology spending didn't understand that innovation could have a big short-term stimulus effect and, at the same time, "have a
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much better long-term effect than virtually anything else in the package," he says. "They couldn't walk and chew gum at the same time."
Indeed, that deliberate mixing of two goals--immediate job creation and economic growth through the development of IT and energy technologies--is just what rankles many economists. Paul Romer, an economist at the Stanford Institute for Economic Policy Research, is one. "If I sat down and tried to design a stimulus bill most likely to be effective to getting us back to full employment, there is a good chance that this kind of spending on technology would not have been a part of that bi11," says Romer, who has spent his career studying the relationship between technological progress and economic growth. The prospect of spending so much money on technology projects and science programs provoked a "feeding freî2y," he says. "Everyone was trying to grab as much as they can."
"If we believe subsidies will speed up technological change, we should do that on its own terms, separate from a stimulus," says Romer. And he worries that the heavy technology spending in the bill could eventually deter innovation strategies that would prove more effective. "The cost here is not only the dollars," he says. "[It] may also be the dog that doesn't bark--the truly important program that we could have put in place if we went about encouraging innovation in a thoughtful way. Having prominent failures can undermine the whole case for using resources wisely to encourage innovation."
Broadband Boondoggle? One area of technology spending in the stimulus package that appears to flunk economic analysis is the program to extend broadband Internet to areas not currently served. Broadband has already been built out to the areas where it makes economic sense, says Shane Greenstein, a professor at Northwestern University's Kellogg School of Management. "If there was money to be made, someone did it," he says. "It's 2009, not 2003."
According to a recent survey by the Intemet and American Life Project of the Pew Research Center, a nonpartisan organization based in Washington, DC, less than half the adults in the United States lack broadband service. Most of those people say they don't want it, either because it is too expensive or because they're just not interested. Only 4.5 percent of U.S. households (roughly 5.2 million) say they want broadband access but don't have it. The problem, says Greenstein, is that these households tend to be in isolated or rural areas where supplying broadband is extremely expensive. Whereas it costs approximately $150 to bring the service to an urban household and
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$250 to bring it to a suburban one, he says, no one really knows how much it will take to bring it to areas not currently served, since the costs for different residences will vary widely. The most optimistic estimate is that it will cost at least a thousand dollars per household to extend broadband coverage; for some isolated houses, the cost will be far greater. Even in the best-case scenario, Greenstein says, the stimulus package won't extend service to many who want it. "It easily falls short," he says. "And if it is even more expensive per household [than a thousand dollars], the money goes really fast and doesn't accomplish much."
What's more, says Greenstein, the benefit to local economies will be limited. His analysis shows that the largest financial gain from expanding broadband access goes to broadband suppliers themselves. Increasing broadband use can also benefit equipment makers and companies such as Google and Amazon, he says. The advantage that households would gain in switching from dial-up access to broadband is hard to quantify, but it "can't be big," he says. "I'm skeptical there are many local benefits from this." What is clear, according to Greenstein, is that any benef,rts add up to far less than the hundreds of billions of dollars that have been cited by Washington advocates of the stimulus spending.
Of course, advocates of federal spending to extend broadband service argue that it provides more general benefits to society. Remote communities would gain increased educational opportunities, easier access to government services, and eventually, perhaps, improved medical treatment through online interaction with physicians. But, says Greenstein, many of these benefits are several years away, and it is debatable whether expanding conventional broadband services--rather than, say, using wireless technologies--is the most effective way to deliver them. What's more, he adds, the $7 billion expenditure in the stimulus bill seems arbitrary. "How they got that number is a puzzle to me," he says. "Why not $15 billion? Or $3 billion?"
What Green Economy? Innovation in science and technology is estimated to account for as much as 90 percent of new economic growth. The reason is that better technology allows more things to be produced more cheaply and can create entirely new markets; in the terminology of economists, it increases productivity. For economists, the most dramatic recent example is the information technology boom that began in the mid-1990s.
Beginning in 1995, productivity began to grow at a much faster rate than it had in years. (While strong productivity growth in the decades after World War II fueled the prosperity of that er4 it fell off abruptly in the mid-1970s, contributing to an economic
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slowdown.) The jump first seen in 1995 was initially viewed as an anomaly, but productivity continued to rise over the next several years. As economists scrambled to figure out why, entrepreneurs raced to take advantage of the "new economy'"
Though it took economists several years to figure out exactly what was driving the bump in productivity, Dale Jorgenson, a professor of economics at Harvard and former president of the American Economic Association, says it is now clear that the decreasing cost of computer hardware and software dramatically increased the role of information technology in the economy during the 1990s. Even though IT spending represented only about 3 percent of GDP, it was having "a tremendous impact," says Jorgenson: "IT probably accounts for almost all the growth in productivity in the boom of the 1990s, and it is still perking right along."
Could the green economy be the new new economy, with energy technologies replicating the success of information technologies in boosting productivity? Jorgenson is skeptical. In fact, he says, today's scenario is the "extreme opposite" of the one in which market demand drove the use and implementation of information technology in the 1990s. "A lot of these [energy] technologies that are going to be subsidized are not commercially viable without a subsidy," he says. "These things have been around for a quite a while, and have never gotten to the stage ofbeing financially viable without sizeable subsidies. What does a subsidy mean? It means it's not good for the economy. It doesn't meet the market test, so there has to be some other reason to do it."
Of course, the other reason for investing in new energy technologies is to address climate change. But Jorgenson says the best way to encourage innovation for that purpose is through carbon pricing--either a direct carbon tax, which he advocates, or the cap-and-trade program that is now being debated in Congress. Such a market-based program would produce "a shift to noncarbon technologies," says Jorgenson. Meanwhile, if there is going to be a carbon pricing program in the near future, he says, it "doesn't really make a lot of sense to be funding energy stuff in the stimulus bill. It will be less risky, he says, to let the carbon pricing scheme determine which of the renewable-energy technologies are viable in the market.
MIT's Acemoglu agrees. While he is optimistic that energy technologies will be "a great platform for economic growth" and can eventually play the same type of role that hardware and software did in boosting the economy, he too is skeptical of the subsidies in the stimulus bill. "I'm quite confident that alternative energies, new hybrid vehicles, new power sources, a more sophisticated power grid, will be one of the handful of sectors that will spearhead the growth of the economy over the next decade," says
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Acemoglu. But, he adds, "a lot of that fgrowth] will be market generated."
Instead of providing subsidies to develop new technologies, says Acemoglu, the government should establish a carbon tax and support research. The federal govemment, he points out, played a critical role in the development of IT by supporting the early, basic research that led to the V/eb and by funding research programs in computer science and electrical engineering. But it would have been "a kiss of death," he says, if the government had tried to dictate how to wire computers or define the type of software that should be used.
Likewise, the govemment should encourage the development of new energy technologies by supporting research, says Acemoglu, but "more soberly" than it does in the stimulus bill. He suggests "limited but well-designed funding for the National Science Foundation and other agencies that will create the right type of synergies between private, public, and university research." That, he says, would create an environment conducive to energy R&D.
Becalmed While academic economists might be worried about long-term growth strategies, the entrepreneurs and executives running renewable-energy businesses, including solar, wind, and biofuel companies, say they are struggling just to stay alive. The credit and banking crisis that took hold last fall ruined any chance of obtaining financing for most large-scale, capital-intensive projects. As a result, construction on many costly solar- power and wind-energy facilities came to a halt, and a number of companies announced layoffs. Those developing truly novel technologies, such as cellulosic biofuels, were left stranded without the prospect of obtaining the hundreds of millions in private financing needed to demonstrate their technologies on a larger scale.
"It is really ugly out there for a lot of these technologies," says David Victor, director of the Program on Energy and Sustainable Development at Stanford University. One of the biggest potential benefits of the stimulus bill is that it might well "protect the [renewable-energy] sector in a period when it would otherwise be absolutely pummeled by market forces," he says. "If the sector were to blow up, it would take a while for people to put Humpty Dumpty back together. And during that period, a lot of these companies would just disappear completely."
The cellulosic-biofuels sector, in particular, is at a crossroads, says Bruce Jamerson, chairman and CEO of Mascoma, a Boston-based startup specializing in advanced biofuels. Though often touted as a source of alternative transportation fuel that doesn't
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have the environmental drawbacks associated with corn-based ethanol, cellulosic biofuels are not yet produced commercially in the United States, because they are too expensive. Mascoma wants to construct a coÍrmercial-scale facility in northern Michigan that could be in operation by 2012, says Jamerson. But building the plant will cost from $300 million to $325 million. Without the grants and loan guarantees in the stimulus package, he says, "it would be very difficult to get a deal done with large equity investors and lenders on a coÍrmercial plant."
A slew of provisions in the stimulus legislation will indeed benefit these fledgling clean-energy businesses. Howard Berke, executive chairman and cofounder of Konarka, a manufacturer of organic photovoltaics based in Lowell, MA, says that 17 provisions will "in one form or another" benefit the solar industry; they include a refundable tax credit that will effectively cover 30 percent of the cost of solar projects, a $6 billion loan guarantee program for renewable projects, and investment credits for manufacturing facilities built in the United States. The Solar Energy Industries
Association estimates that overall, the provisions will create 1 10,000 jobs over the next two years.
Beyond helping companies in the energy sector survive the recession, the stimulus bill could--supporters hope--jump-start fledging technology sectors such as the smart grid, the effort to modernize the electricity infrastructure so that energy can be distributed more cost-effectively and used more efficiently. Federal spending on an improved power grid could, in tum, increase industry's spending on electric vehicles and renewable power, advocates argue. And it will begin to spur further investments in improving the electric grid. The $4.5 billion that the legislation devotes to smart-grid technology is barely enough for one utility to build up its transmission system, says Martin Fleming, IBM's vice president of corporate strategy. However, he says, by "providing incentives for the progress to begin," the bill could give smart-grid technology the market momentum it needs to survive when the incentives go away.
Indeed, what happens when the stimulus spending ends will largely determine the bill's real impact on technology. The danger, of course, is that while the federal dollars could help renewable-energy companies survive the recession, they could also prop up existing technologies that would not be competitive in an open market. Not only could the federal spending support uneconomical energy sources (as has been the case with ethanol), but the resulting backlash could discourage policy makers, investors, and the public from embracing newer, more efficient technologies. As the stimulus runs its course in two to three years, pressure to reduce the federal budget and cut government spending could make such a backlash even worse.
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One renewable sector that could be particularly vulnerable in such a scenario is the solar industry. Photovoltaics "still have a way to go on the leaming curve," says Henry Lee, director of the Environment and Natural Resources Program at Harvard's Belfer Center for Science and Intemational Affairs. Not only are they still too expensive, but researchers need to develop longer-lasting, more efficient solar cells that can handle higher voltages. Though Lee is encouraged by the stimulus bill's emphasis on solar and wind energy, he fears that by funding the construction of extensive solar capacity using existing photovoltaic technology, it could distract attention from the effort to improve renewables. "What you want to stimulate is learning to build better wind turbines and solar collectors," says Lee. Instead, he says, much of the funding is focused on "how many windmills and solar panels you can erect."
Great Expectations By the end of this year, Congress is likely to debate--and perhaps pass--ambitious legislation that will, like the stimulus package, help redefine the economics of energy technology for decades to come. While the specifics are still being considered, the legislation is likely to introduce a cap-and-trade program to set pricing for carbon-- based energy sources, establish nationwide standards for renewable electricity, and provide provisions to modernize long-distance electricity transmission systems. In such a context, the stimulus bill is just one part of a larger energy agenda that will, arguably, be the most important change in technology policy for a generation.
Such laws could help address global warming. But few energy experts believe that renewable technologies will be reliable and cheap enough to replace fossil fuels on a large scale anytime soon. Electricity produced by existing solar technologies is likely to remain relatively expensive. Advanced biofuels are also too expensive, and they're years away from significantly cutting into gasoline consumption. Overhauling the electricity grid will take years, cost at least a hundred billion dollars, and require new storage technologies in order to be fully effective. In testimony before Congress this March, Secretary of Energy Steven Chu stressed the importance of finding "transformational technologies" in all these areas. He noted, among other things, the need for "photovoltaic solar power that is five times cheaper than today's technology."
No doubt, then, new funding for research will be critical to the search for low-carbon technologies. Somewhat overshadowed in the stimulus bill is the $1.6 billion increase for basic science at the DOE. Even more encouraging, the legislation included $400 million to start up and fund the Advanced Research Projects Agency-Energy (ARPA- E), an office designed to mimic the success of the original ARPA program that pioneered such breakthroughs in information technology as the precursor to the
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Internet. Programs like ARPA-E, which emphasizes goveffiment and industry research on high-risk programs, are likely to yield significant advances. It's also encouraging that in his recent 1O-year budget plan, President Obama proposed almost $75 billion for a permanent R&D tax credit to stimulate private funding of research.
The money is welcome to many in the research community, especially after years of declining federal and private support (see "Enqrg R&Ð-SJsvvdpvn'). But the new emphasis on energy R&D is also a stark reminder that, almost 30 years after such funding peaked in the late 1970s, there are still no good or easy answers when it comes to replacing fossil fuels. Recent statistics from the DOE's Energy Information Administration reflect the lack of progress: coal-f,rred power plants still supply the overwhelming bulk of the nation's electricity, while solar, wind, and geothermal together provide about 2 percent (and most of that comes from wind power). There is little, if any, sign that the green economy has even begun to sprout.
Congress and the president were, arguably, right to attempt to revitalize energy research and to link technology spending to the long-term objective of transforming the country to a clean-energy economy. Including R&D and other technology programs in the stimulus bill makes evident to the public what every economist knows: long-term economic growth depends on innovation and technological progress. Most important, it has once again established energy research and the search for cleaner power as a national priority.
But including so much technology spending in the stimulus bill also brings dangers. Technology--more specifically, technological progress--can save the economy. A cleaner energy infrastructure will prove invaluable to economic growth in the long term. However, it will take time to realize the benefits. By confusing immediate help for the economy with technology's role in creating growth, the stimulus bill runs the risk of raising unrealistic expectations that could backfire in the face of inevitably slow progress.
If the transition to a clean-tech economy is ever truly to begin, government policy makers will have to move past politics and get the economics, policy, and technologies right. The way technologies are chosen, implemented, and funded will matter. That means properly designing a carbon pricing program and supporting institutions like the DOE in the expectation that they will make informed decisions and work closely with private investors and venture capitalists to develop the most viable technologies. Perhaps most important, it means that the government will need to support and fund energy research even as the stimulus spending peters out and political support for
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massive technology funding wanes.
Richard Lester, director of MIT's Industrial Performance Center and a professor of nuclear science and ørgineering, seems clearly ambivalent about the merits of the technology funding in the stimulus bill. "Would it be better not to spend the money on R&D? Probably not," he says, choosing his words carefully. "I just don't think we should have high expectations." The difficulty, he says, will be to select the right research projects, given the sudden flood of money. "It would be prudent to expect that a lot of the money will not be well spent," he says.
Adds Lester: "I don't think there is an understanding of the scale of the task that lies ahead. This will be a long transformation, and it is going to be very expensive." The reinvention of the nation's energy sources, he says, "is inherently a project on the time scale of several decades."
Part II will take a look at how the stimulus money is being spent around the country.
David Rotman is the editor of Technology Review.
Copyright Technology Review 2009.
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"It hardly seems necessary these days to point out the importance of technical advance. We look to it to rescue us from the consequences of exhausting essential natural resources; abate inflation through productivity increases; improve our balance of payments deficit; elirnìnate famine; and cure cancer, heart disease, and a variety of other ailments. Our faith in technical advance is bolstered by achievements such as the atomic bomb, electronic computers, the landing of a man on the moon, heart transplants, and test-tube babies. We no longer ask if something is possible, but how soon it can be done and at what price." (Kamien and Schwartz,1982,p.l)
. Thus two important mainstream economists opened their landmark book alrnost two decades ago. It was one of a set of seminal publications in the late 1970s and early 1980s that changed the image of economists as laggards in the study of technological advance. This sct would ccrtainly include Caves (1982), Chandler (1977), Freeman (1982), Mansfield et al. (1977), Nelson and Wintcr (1982), Rosenberg (1976,1982), and Stoneman (1983), among others, V/hile only a subset of thesc cconomists would classify theirwork.into the "nrainstleam", they have all stepped more or less on the shoulders of the same giants, incìuding Adarn Smith (1976), Alfred Marshall (1911), and Joseph Schumpeter (1942).
Nonetheless, much Ítore recently Chris Freeman wrote that a continuing paradox in economics "... has been the contrast between the general consensus that technical change is the most important source of dynamism in capitalist economies and its relative neglect in most mainstream literature." (Freeman, 1994, p. 463), Such views can better be explained by Nelson and Winter's (1982) clichotomy between "appreciative" economic theorizing and "formal" economic theorizing. Appreciative theorizing stays very close to empirical analysis and case study work. Its strength lies in moving fast to interpret what is going on and explain relationships among irnportant variables. The principal weakness of this kind of theorizing is its basis on what the analyst thinks is happening and may contain logical inconsistencies. Formal theorizing, on the other hand, often stays ât some distance from applied work, Empirical work is used to provide stylized facts rather than wholesomc storics, Thc strength of formal theorizing is the elimination of logical inconsistencies; its weakncss is its slower pace that often leaves it at some distance from actual events. Formal economic theorizing is basically what one has in mind whcn onc talks about "ecottomic theory"; an abstract edifice to explore logical arguments,
Critics have tended to attack formal economic theorizing for its slow response to neler concepts and empirical findings regarding the causes of technological advance and its impact on the economy. But that should be expected if the argurnentation above is correct. Moreover, formal economic theory is not a good descriptol of wlrat amounts to a very significant contribution of economists in this area of study. This short summary will prcscnt basic cconomic argumcnts on the causcs and effects of technological advance while disregarding the aforementioned dichotomy. The first section takes a short historical recount of the general direction and main puzzles of the economic analysis of technological advance, Several following sections deal with a speci fi c analytical objectives.
Economic Directions and Puzzles Regarding Technological Advance
Economists became concerned with the effects of technological change early on in view of the industrial revolution unfolding around them. Unfortunately, classical economists did not perceive technological change as part and parcel of the economic process. For example, they failed to conceive the true nature of natural resources as "man-made" rather than "natural", missing the fact that changes in the relative scarcity of resources creates conditions for substituting one resource for another (including technological advance). Ând they did not adequately appreciate the fact that rapid technological advance is not simply the outcome of capitalist forces but also shapes and moulds the forces and institutions of the capitalist system. Classical cconomists had to ovcrcome significant limitations. Their understanding of the forces underlying technological progress varied widely. Tlrey lacked reliable en'rpirical infon¡ation. And, the novelty of their field of inquiry ¡nade it difficult to agree on methodological issues.
The introduction of consistent analytical structure in economic tþeory was the pursuit of the marginal utility school, starting in the second half of the 19tr'cenrury. In addition to the factors influencing consumer behaviour, proponents of this school ernphasized the objective aspects of production, But in the effort to produce a workable theoretical construction of the production function, the study of technological change was ostracized. "(A)s the importance of the production function increased, so the question of technical change receded into the background. Those lvho procluced the most mathematical treatment of the production function, i.e., Walras, Wicksteed and Barone, tended to ignore the changes caused by technology," (Heertje, 1977, p.94).The neoclassical microfoundations were now in place.
With few exceptions - one may cite the early work of zealots like Kuznets and Schumpeter - economists were minimaliy interested in the process of technological advancè as a corc topic of cconomic analysis in the first half of thc 20th ccntury. The time of systematic consideration of technological change, including theoretical, empirical and policy oriented work would come well into the century when organized R&D activities in industry became widespread and technology vias recognized to be a central part of the engine of economic growth. Several reasons have accounted for the renewed inlerest of economists in technological advance in the latter half of the century (see also Rosegger, 1996): l. Massive commitment of government resources in R&D during the war demonstrated that purrposeftil searches for technological solutions to specific problems can be organized. 2. Once they had engaged in the purposeful search for innovations, firms learned that this is an economic activity like others, albeit with some peculiar characteristics and fuzzy relationship between inputs and outputs (Lundvall, 1992). 3. It was quickly recognized that the impact of this activity transcended the conventional economic measures of performance (positive and negative external cffccts). the 4. Questions of international competitiveness, relating first to the dominance of United States and then to the emcrgcncc of Japan and Europe as formidable powers, started to increasingly focus on scientific and tcchnological capabilities' 5. A large group of newly established developing countries after the war wcrc looking for ways to close the gap with the industrialized countries. Technological and, morc generally, innovation capabilities seemed to be key. 6. A rapid process of globalisation has had at its epicentre large rnultinational corporations the existence of which has been explained since the mid-I960s on the basis of intangible assets and related market failures (Caves 199ó). The foremost intangible asset is frequently argued to be technological capability and, more generally, ability to innovate.
It was the appreciative theoretical work of Schumpeler (1942) which probably contributed more than any other in providing the necessary impetus for contemporary economic research in the causes and consequences of technological change. His stylised representation of the process of technological advance as "gales of creative destruction" captured the imagination and proved a tuming point in economists' conceptualisation of technological progrcss. Schumpeter's contribution triggered a prolonged discourse over the relationshþ bètween market structure and evolution, economic institutions, and the incentives for and the intensity of technological invention and innovation' Sorting out the implications of the so-called neo-Schumpeterian hypothcses concerning market concentration, flrm size, and the pace of technological advance attractcd a lot of attention. It did not matter much that Sohurnpeter's path breaking ideas were neither completc not always right (Nelson, 1990). What really maltered was that econonrists now had a new handle on a issue too important to disregard. They started paying attentiou not only to the effects ofnew technology but also to the factors inducing technological change.
However, the task of f,rnding an appropriate procedure to incorporate technological progress into existing formal theory proved daunting. A number of unsettling observations were made quicklY:
L Endogenising technology complicated theoretical modelling significantly, especially if dynamics were to be introduced. 2. This area required genuine thinking given that market f'ailure in producing technological knowledge was suspected to be widespread, rendering traditional models less satisfactory. 3, The preoccupation of standard economic theory with utility maximizing rational choice subject to known constraints created a gcnuine problern in explaining technological creativity since the latter often implies an attack by an individual on a constraint that everyone else takes as given (Mokyr, 1990)' 4. There was a problem with the acfual process leading to technological innovation: only fairly simplified hypotheses of this process could be handled by standard economic theory, given the theory's unsatisfactory record with investigating economic institutions.
In recent decades, formal economic theorists:
(a) have moved swiftly to tackle the first two problems at both the macro-level (e.g,, endogenous growth theory (Grossman and Helpman, l99l; Romer, 1990) and micro-level (industrial organizatiorì, garne theory (Tirole, 1988; Stoneman, i995); (b) have been creative in going around the thir The problem of formal theory with the pïocess of technological advance has been knorvn for some time. I1 has, for example, beset the traditional line of research trying to measure the contribution of past R&D investments to total factor productivity growth through an econometric production function (Griliches, 1979). Proxies of technology inputs and/or technology ouþut are related to some measure of the ensuing economic outcome while the analyst is agnostic of the actual process of technological change. The exercise is encapsulated in figure l. The diagram suggests: (i) the transformation of R&D expenditures (R) into economically valuable, but imperfectly observable, technological knowledge stock (K); (ii) thc approximation of the change in K over time (I(:ðIVðt) with the stock of patents (P) (or any other indicator of technology outpufi and (iii) the effect of K and other measurable factors X (e.g., physical capital, labour) on some measure of value Z (e.9., growth, productivity, profitability, or the stock market value of the firm or industry). Random components are expressed by the error terms u and v. Thus, an attempt is made to estimate the direct relationship between P/R and Z. The intermediate stage of aniving at K and transforming it into Z over tirne, as well as the complex interactions (multidirectional causality) between X, K, ancl Z cannot be appropriately represented cfue to the lack of knowledge about the behaviour of the fhctors determining K's intertemporal change - that is, the lack of knowledge of the process of technological advance. Of course, this is not entirely the result of agnosticism but also of the need to aggregate across innovations and economic agents. To compensate, cconomists and business analysts have resorted to historical case studies. Detailed case studies of particular innovations are quite informative and show rather bigh intemal rates of reh¡rn to private R&D expenditures and even higher social ratEs of retum (on the order of l0 to 50 per cent per annum) (Griliches, 1995). However, they are difficult and costly to pursue and cannot be generalized given the tendency to focus on the prominent and successful, Figure I The knowledge production function: A simplified path anaþls diagram (GrÍliches' 1990) A lesson leamed, even though not as quickly as desired, is that no single approach can claim monopoly in explaining the relationship of technological advance and the economy. A complex, multi-dimensiorral phenomenon like innovation requìres multi- dimensional analytical approachcs based on formal theory, aggregate empirical analysis (econometrics), acute observation and appreciative theorizing to establish rcgularities, and data from diverse sources including large databases, surveys, and case studies. It may even require new ways of conceptualising the process, an endeavour undertaken more recently by the rejuvenated evolutionary econornic approach, Returns to R&D A long stream of empirical research has triecl to appraise the private and social returns to R&D. It has been summarized in Griliches (1984) ancl more recently in Mansfielcl (1996), Halt (1996), and Nadiri (1993). Most of this work has used variants of the production function apploach and has been subject to well known limitations (see previous section). In addition, several limitations must be emphasized when considering these results of this literahrre, including: The private sector has been the main subject of study; By and large, these results have been oblained with manufacturing data only; The analytical focus has been on the economic effects of technology, much less of science; The lack of consistent data has made this an "inexact science", basing the analysis on data that the author(s) often collect for the specific study; Methodologies have tended 1o vary widely, making aggregation across stutlies a hazardous exercise. i¡i, tit"ruture has nonetheless produced important tesults, some of which are highlighted below. L A ubiquitous finding of the empirical studies has been that R&D expenditures contribute substantially to the growth of output in a variety of industries. 2. A strongly positive relationship between the stock of R&D and productivity at the {irm level has bccn shown in several studies. 3, The estimated elasticities and the rate of return to R&D investment vary considerably depending on the type of data used (cross-section or time-series), the method of estimation, and the unit of analysis (firm, intluslry, country). Elasticities and rates of retum are higher with cross-section data than those obtained with time-series data. At the firm level, the elasticities of R&D tend to fall in the range 10-30% and the rates of return in the 20-30o/o range. At the industry level, the respective levels are 8-30% and 20-400/o. There are significant outliers in both sets of measures at both levels. 4. The majority of available econometric sftrdies fincl that, for inclividual companies, the rates of return on R&D financed internally are significantly higher than those on R&D financed by the public sector. Whilc the rates of rcturn for privatc R&D rangc between 27o/o and 60%, those for publicly financed R&D are often insignificant and, in some cases, negativel. Several strong caveals apply here. First, such estimations take into account only directly subsidized R&D and not the broad public investntent in soientific anrl technological infrastructure (human and physical capital, institutions, regulations) that the private sector draws upon all the time to raise the efficiency of and returns from its R&D. Second, it has been argued that the use of US-based data for such comparisons is inappropriate due to the large share of defence-related R&D expenditures in that country which do not directly target commercial payoff. 5. The rates of return also vary significantly between product and process innovations. Process innovations seem to receive higher marks in this respect than product innovations - ê,9., Griliches and Lichtenberg ( I 984) calculated retums ín The 58-7 6Yo range and 20-30% range respectively,2 6. Results in inteuelated factor demand models treating the stock of R&D as a factor of production indicate that changes in R&D affect the dcmand for inputs such as labour, materials, energy, and physical capital. The patterns of substitutions and complementarities between inputs varies across industries (Bemstein and Nadiri, l9B9; Nadiri and Prucha; 1990), In general, R&D investment seens to increase demand for capital but to decrease demand for labour and materials, AIso the stock of R&D is subject to adjustment costs which aflect the level of investment and rates of refurn to R&D, Investments in R&D are affected by changes in the prices of other factors of production and changes in demand. In short, R&D investment affects the structure of production; its own demand is affected by changes in the prices of conventional factors of production and changes in demand. 7. Private rates of retum to R&D have generally been found to be lower than social rates of return. This implies that the innovator often has difficulty appropriating the full returns fi'om the innovation due to the existence of one or more of three kinds of spillovers: (a) pecuniary spillovers; (b) knowledge spillovers; and (c) network spillovers. Various studies that Mansfield and colleagues have undertaken during the 1970s and 1980s indicated that detailed information on the nature of new products and processes are in the hands of imitators within a yeff from market introduction. The extent to which the social benefits from R&D are appropriable depends on how much competition the potential innovator faces and on the kind of research or development activify in question (including patentability among other factors). 8. Significant effort has gone into capturing the externalities between firms and industries. The pioneering work of Scherer (1982) with technology flow matrioes, Jaffe (1986, 1988) with estimations of "technological distance", and Los and Verspagen (1996) did indicate the feasibility of using fìrm-level patent data to look I Lichtenberg (1988), for example, has argued that public R&D rray crowd out private R&D in particular industries. 2 Undoubtedly a peculiar result ifjuxtaposed to the clear tendency to spend way more on product R&D. at the direction of the flows of disembodied knowledge spillovers. Input-output matrices have been used for some time to capfure embodied knowledge spillovers. These roughly corespond to the categories of knowledge spillovers and pecuniary spillovers above respectively. No good effort to empirically appraise network spillovers is known. All available studies show signifrcant flows of technological knowledge between organizations of diflerent kinds, universities, firms, government laboratories), industries, and nations. 9. There is increasing evidence that acacJemic research has become a major underpinning of industrial innovation in many science-based industries. In a pioneering study, Mansfield (1991) showed that l0o/o of the appraised innovations would not have been possible without recent academic research and that the mean time lag between academic research and industrial innovation \ilas seven years. Signifrcant differences between sectors existed. The mean social rate of retum of academic research, with the most limiting assumptions, exceeded 200lo. 10. Finally, empirical analysis has shown a strong positive relationship between basic research expenditures in the private sector and productivity at the finn level (Griliches, 1986). ll. Estimates of the rate of retum to publicly funded research range from 20% to 600/o (Salter and Martin, 2001). These depend on companies picking up knowledge produced by public research organizations and successfully applying it to their innovative activities. These estimates do not include more general societal returns from basic reseaich which need to be appraised separately. 5.1.1 Value of Pubtic Research 3 The contribution of publicly funded and/or performed research to the economy remains a topic of strong interest. During the past couple of decades, a large body of literature has analysed the role of public research in the process of industrial innovation. Since the government has traditionally funded or performed research of more basic and generic nature, whose value is very difficult to calculatc in monctary tcrms, a significant part of this recent literafure has tried to appraise its value indirectly by accounting for thc knowledge flows from publicly-funded research organizations (PROs) to companies, PROs include universities and various types of research institutes. Essentially four different methods have been used to evaluate knowledge flows from PROs to industry: production function models using patents or product announcements as the dependent variable; citations ofscientific papers; case studies ofspecific innovations; and surveys of the subjective importance of PROs to firms as a source of knowledge. . Jaffe (1989) used the production function model to estimate spillovers from university research to commercial innovation in the United States. The dependent 3 This section draws extensively on Arunclel and Geuna (2001). variable is the number of patented inventions (a proxy for innovative output) and the explanatory variables included private corporate RTD experiditures and university research expenditures. The model estimations pr-ovide evidence that expenditures undertaken by universities positively influence corporate patenting activity. Acs et al (1992), use a similar method, replacing the number of patents with the number of product innovation announcements. Their estimations also reported an increased elasticity for university research expendifures, confirrping the importance of public research for industrial innovation. Patent citations have also been frequently used to trace knowledge flows. A patent citation of a scientific paper is assumed to represent the flow of knowledge from scientific research to the firm that patented the invention. Jaffe et al. (1993) reported that patents granted to U.S. universities received. more citations than patents granted to corporations. Narin et al (1997) found that 73o/o of the papers cited by U.S. industry patents were produccd by PROs. Malo and Geuna (2000) used the same methodology to study scicncc-tcchnology links in combinatorial chemistry and biology using thc European Patent Office database. They find Ihat 8l% of palent citations to the literature are to universities and other research institutions. Verspagen (1999) sowed that half the scientific literafure citations of patents taken out by Philips Electronic are to papers from PROs. The case study approach was used by the National Science Foundation in the TRACES project in 1968 to trace the contribution of knowledge from basic research knowledge to four major industrial innovations. It shorved that the agriculture and medical research sectors benefited the most from public research investment (Steinmueller, 1996). Mansfield (1991, 1995) and Mansfield and Lee (1996) usecl a hybrid method lying between case study and survey methods to gather data from a sample of 76 large R&D performing firms in seven manufacturing industries for the period 1975-1985. According to the R&D managers, about l0% of the new products and processes could not have been developed in the absence of recent academic research (occurring within l5 years of the commercialisation). Thc final method involvcs dircct hrm surveys, The Yale survey of large R&D performing firms in the United States in the early 1980s found that universify-based research was less important than other sources of scientific output and, surprisingly, that applied knowledge produced by universities was of greater value to the specifìc line of business of the finn than basic science, (Klevorick et al, 1995). Later surveys, based on the OECD's Oslo Manual asked respondents about the importance of different information sources to the firm's own innovative activities. The results of the first European Community Innovation Survey (CIS) in 1993 show that public research is one of the least important sources of information for firms with less than 500 employees (Arundel and Steinmueller, 1998). The seconcl CIS in 1997 confirmed these results. In contrast, initial results from the 1993 PACE survey of Europe's largest industrial firms found that PROs were one of the most important infbrmation sources for large firms (Arundel et al., 1995). 2.1.1 Technology Diffusion While the importance of R&D is undeniable, new technology on its own is of limited economic significance. The contribution of R&D to the economic performance of a nation depends on the ability of flrrms to utiiize and commercialise the results by introducing profitable products and processes, Technological diffusion is thus of the utmost imporlance (Karshenas and Stoneman, 1995). Economists have studied technology diffusion extensively through various approaches such as "epidemic" (logistic) models leading to the popular S-curves, technology vintage models, stimulus-response models, and process models. There is general agreement that both supply and demand factors affect the speed and direction of technology diffusion. Diffusion takes time and depends on (Rosegger, 1996): (i) factors related to the characteristics of the innovation such as its origin, expected effects on other inputs, location of the innovation in the existing production structure, changes in the innovation, complementarities among innovations; (ii) factors attributable to the structural characteristics of adopters and non-adopters such as technological specificity of the existing system, the fìrm's hnancial position, technological capability, market position and altemative strategies, managerial attitudes, age of firms and industries; (iiÐ factors having to do with the mechanics of diffusion in a particular setting such as external versus internal information, extemal interests in diffusion, international diffusion; and, (i") factors relating to the institutional environrnent of the finn and the industry such as the patent system, laws and governrnental regulations, specification-writing agencies, insurance companies, labour unions. 2.1.2 Neo-Schumpeterian Hypotheses The work of Schumpeter is mostly associated by later generation with the evolutionary school of thought (see later section). However, for a significant period of time covering the first 3-4 decades after his second major publication (Schumpeter, 1942), mainstream industrial organization economists were preoccupied with empirically verifying two broad hypotheses that have been associated with Schumpeter: a (i) There is a positive relationship between innovation and monopoly power resulting in supernormal profits; (iÐ Large firms are more than proportionately more innovative than small firms. A third related debate that raged for sorne time was the technology-push versus demand- pull hypotheses. According to the technology-push hypothesis, the research staff of a firm a Kcnneth Galbraith (1952) seems to have had a lot to do with lhe forrnulation of the hypotheses. See Cohen (1995), Cohen and Levin (1989), and Kamien and Schwartz (1982) for reviews of the literature on the Schumpeterian hypotheses. l0 may be regarded as the initiator of innovations. The important implications of this view are, first, that firms with large research facilities have an advantage over smaller fltrms and, second, that the pace of innovative aotivity will depend ott advantages in the scientifîc base. In the demand-pull hypothesis, initiation of thc innovation is seen as coming from the firm's rnarketing or production staff. The main idea behind this hypothesis is that innovation is a response to profit oppornrnities. The issue has been settled with an understanding that it is not one or the other, but rather a matter of degree, Radical innovations seem to rely more on technology-push factors; incremental innovations rely more on demand-pull. The long series of empirical investigations on these hypotheses indicates a strong relationship between resource allocation and technical advance. The search for profits and the allocation of resources do influence the rate and direction of inventive activity, despite the role of serendipity and other motivations for discovery. The relationship appears to be bi-directional, rvith the state of knowledge shaping and being shaped by profit opportunities and resourcc availability. Earlier studies (until the late 1970s) seemed to indicate the nah¡re of the innovative process to resemble some features of a neoclassical production process with increasing returns up to a threshold level and decreasing returns beyond. Such thresholds were advocated for both neo-Schumpeterian hypotheses. More detailed data and better controls for industry and company effects have since made such resul[s seem suspect, More recently, the outcome of the extensive empirical evaluation of the two neo- Schumpeterian hypotheses has been interpreted as relatively inconclusive (Cohen and Levin, 1989; Cohen 1995). V/ith regard lo the effect of market concentration on the rate of innovation the literature suggests that its clirect influence is small and that it likely reflects the influence of other more ñlndamental cleterminants of technological advance, specif,rcally technological opportunity and appropriability conditions. With regard to the role of firm size, the literature suggests that it is very important, albeit not in the simple way neo-Schumpeterians imagined, The influence of firm size largely emerges from underlying industry conditions. Demand (tastes), technological opportunity, and appropriability conditions are now reasonably assumed to determine inter-industry differences in innovative âctivity over relatively long periods. The uncertainty of this argumcnt indicatcs thc fact that all thcsc conditions are subject to change themselves, particularly in response to radical innovations. Unfortunately, the ernpirical validation of the inrportance of all three factors has been limitecl largely due to the lack of appropriate data. The gap is cuuently bridged by an emerging body of descriptive evidence on how the nature and effeots of tlemantl, technological opportunity and appropriabiliry differ across industries. A small number of surveys have also made their mark in the last couple of decades (Levin et al,, 1987; Klevorick et al. 1995; Hansen,200l). 2.1.3'Iechnology and Growth 11 Recent years have witnessed a resurgence of interest in growth rnodelling. To soms extent this is a reflection of the changed perspective concerning the sources of growth with the aclvent of the "new growth" theory. In the basic neoclassical growth model developecl by Solow (1956) there is no technological change and employment is assumed equal to the supply of labour. Restrictive assumptions of constant retums to scale, perfectly competitive markets, two factors of production only one of which (capital) can be accumulated, and optimising behaviour, result in a stationary path where capital per head does not grow over time, To accommodate thc observation that economic growth outpaces the growth of the capital stock, Solor,v (1957) introduccd an exogenous trend of technological change into the production function. While this model was later heavily criticizcd for its crude treatment of technology, neoclassical growth theory has continued its development coursc on more or less Solowian principles for sometime. According to this approach, growth of economic output is triggered by changes in the employed factors of production, the capital stock, the labour force, and the available technology. A good cornpendium of neoclassical growth was presented by Bano and Sala-i-Martin (1999). In the mid-1980s, a major departure from the neoclassical approach was proposed that has resulted in an impressive collection of publications under the heading of new growth theory.s The clear point of cleparture is that these sfudies allow for increasing retums to scale at the level of industries or economies. They stress the existence of Marshallian positive extemalities (Lucas, 1988; Romer, 1986) and stress that the sum of individual actions irnpinges upon the environment of such actions. Most proponents of this new endogenous growth theory focus on the effect of collective learning and knowledge on the efficiency of individual production processes. Externalities can enter in various ways: they can be the equivalent of a growth factor when they consist of endogenising Solow's technological shift factor, or they can affect directly capital or labour. More recent endogenous growth models havc placcd more emphasis on human capital. Others break capital ùrto a series of different intermediate goods, with R&D rcsulting in the discovery of new intermediate inputs. Yet others incorporate innovation as a series of "crcative destructions" in an effort to i¡rtroduce Schumpeterian dynamics (Aghion and llowitt, l99Z). Finally, growth in these models can also be realized through public goods and infrastrucfure that increase the productivity of private factors. New endogenous growth theory models are intuitively appealing because they are able to create a virtuous cycle of intangible investment, learning, physical investment, and market pressures at the macroeconomic level. Endogenous growth models suffer from a [endency to leacl to explosive grorvth paths. While intuitive appealing, their empirical appraisal has been fairly sketchy, based on reduced forms (e,g., Bano, l99l). The new growth theory has also been criticized for not being that "new" (Nelson 1994). The criticism is that new growth theorists have been three decades late in incorporating the signifîcant insights into growth and the role of technology that appreciative economic theorists like Moses Abramovitz (1952) had been writing for a long time, 5 See Verspagen (1992) for a review, tz The strong attraction to growth theory has traditionally been related to thc cffort to understand relative rnovements in international competitiveness and trends in convergence/divergence between countries. An important implication of the neoclassical grorvth theory is the convergence of economies with different initial endowments. According to the assumption of diminishing marginaì returns, the productiviry of capital is higher in countries with lower endowments in this factor, Hence, the growth rates in economies with lower capital endowments should exceed growth in the better endowed ("richer") economies and in the long run enclowments, and thereby growth rates, should converge. Evìdence, however, has been quite mixed,6 requiring to move from absolute convergence (initial capital endowments determine growth rates) to conditional convergence taking into account the dynamics of growth. A large part of the work on conditional convergence has been summartzed in Baumol et al. (199a). It essentially amounts to the investigation of a convergence hypothesis according to which: "When the productivity level of one (or several) country(ics) is substantially superior to that of a number of other economies, largely as a result of differences in their productivc techniques, then those laggard countdes that are not too far behind the leaders will be in a position to embark upon a catch-up process, and many of these laggard countries will do so, The catch-up process will continue as long as ths economies that are approaching the leader's perfonnance have a lot to learn from the leader, However, as the distance among the two groups narrows, the stock of knowledge unabsorbed by the followers will grow smaller and approach exhaustion. The catch-up process will then tend to terminate unless some supplementary and unrelated influence comes into play. Meanwhile, those countries that are so far hehind the leaders that it is impractical for them to profit substantially from the leader" knowleclge will generally not be able to participate in the convergence process at all, and many such economies rvill find themselves falling even fùrther behind." Overall, available long-term growth data seem to support this convergence hypothesis. It is important to mention here that the complexity of the growth process has necessitated the consideration of so many factors that formal economic theory still finds impossible to handle. Hence, most insightful analyses are frequently based on appreciative theorizing. Onc exccllcnt cxample is Nelson and Wright's (1992) analysis of the factors responsible for the rise of American technological leadership in the 20'h century. Another example is Abrarnovitz's (1986, 1994) account of the post-war convergence boom, 6 Barro and Sala-i-Martnr (1999) give ernpirical examples for the convergence hypothesis in which they compare growth rates from the period from I 960 to 1985 to the initial endowment, measured by CDP per capita in 1 960. In the case of 1 1 8 countries there is hardly any corlelation between the two variables, the evidence even slightly indicates a positive relation, i.e. high endowments cause high growth rates and Ìow endowments result in lower ones. For a selection of the 20 original OECD mcmbcrs the hypothesis holds, the relation is clearly negative and the sample fit is much better. l3 Particularly appealing is Abramovitz's distinction of two sets of conditions that influence the abiliry of different countries to realize their potential (thus be members of the converging group). The first set of factors amounts to the so-called technological conglrence. This is basecl on the observation that technology does not advance evenly in all directions. It advances in a biased fashion that reflects: (i) the past influence ofscience and technology on the evolution of practical knowledge; (ii) the complex adaptation of that evolution to the natural resource and factor availabilities and to market scales, consumer demands, and technical capabilities of those relatively advanced countries operating at or near the frontiers of technology. The laggards face varying degrees of difficulties in adapting and adopting the current practice of the leaders according to the cxtcnt that rcsourcc availabilitics, factor supplics, tcchnological capabilities, markel scales and consumer demands conform well to those required by the technologies that have emerged in the leading countries, The degree of difficulty is not a constant but changes over time as the laggards' development adapts to the factor supply and to the organizational and institutional challenges presented by more advanced countries, The second set of factors amounts to the so-called social capability, This covers the country's levels of general education and technical competence, the commercial, industrial and financial instifutions that bear on its ability to finance and operate modern, large-scale business, ancl the political ancl social characteristics that influence the risks, the incentives and the personal rewarcls of economic activity including those rewards in social esteem that go beyond money and wealth. Social capabilities are also not constant. They evolve in the directions to which the requirements of a leading technology point, or in the case of a leading country, in the directions defined by those of an emerging technology, Countries' potentials for rapid productivity growth by catch-up, therefore, are not determined soiely by the gaps in the levels of technology, capital intensity and efhcient allocation that separate them from lcading countrics. Thcy arc also restricted by the natural resource endowments and more generally because their market scales, relative factor supplies and income-constrained patterns of demand make their technical capabilities and their product structures incongruent with those that characterize countries that operate at or near the technological frontiers. And they are limited by those institutional characteristics that restrict their capabilities to finance, organize, and operate the kind of enterprises that the frontier technologies require, 2.1.4 Evolutionary Theorizing Perhaps the most comprehensive challenge to mainstream economic theory has come from a set of propositions and models collectively referred to as evolutionary theories.T While the development of these theories has not yet matched that of mainstream economics, there is considerable unanimity among the school's adherents about the intellectual framework and future directions. The challenge is comprehensive because the 7 Nelson and Winter ( 1982) is generally recognized as tlre cornerstone ol evolutionary theory. For a broad survey of the approach see Nelson (l 995), 14 evolutionary approach is rooted in biology, thus explicitly considering dyriamics and path dependence, whereas mainstream economic theory is mur:h more meshanistio, more akin to (older) physics. At the heart of the evolutionary approach is that history matters: firms are constrained by past experience in their effort to optimise. Experience is embodied in routines - explicit and tacit rules of behaviour. Firms develop roulines that incorporate both public knowledge about markets, technologies, and the business environment and ftrm-specific knowledge. In relatively stable competitive environments, this irnplies a selection process that rewards certain kinds of routines (behaviour) and penalizes others. Routines are gradually adapted on the basis of experience through leaming, They tend to change more or less frequently depending on the business and technological environment. Evolution principles also underline the emergence and development of all institr"rtions affecting the general business infrastructure such as laws, regulations, tcchnical standards, etc, Schurnpeter's concept of "creative destruction" is embodied in evolutionary theories in the form of "mutations" through drastic innovation. Drastic innovation changes technologies as well as routinçs and instirutions. The extent to which innovation succeeds or fails is dependent on a complicated interplay of initial conditions and path dependence in addition to standard efficiency miteria and technical superiority. This interplay explicitly recognizes historical and accidental events, and thus hardly fits the characteristics of an optimisation process. When they dominate, drastic innovations set a new process of errolution. Importantly, the concept of path dependence implies that a successftil technology with widespread use may persist in dominating its market even after the reasons for its initial dominance have disappeared. In other words, a well-established technology may be very difficult to replace by demonstrably superior innovations. In contrast, selection in conventional economics is more mechanistic, largeiy dependent on straightfonvard efficrency criteria of the technology at hand. The evolutionary approach is, thus, perceived by many economists to provide a new and, some say, much improved framework for thc study of firms, technologies, and markets. This frarnework seems to be much closer to Schurnpeter's theorizing in which technical and institutional ilrnovations played a central role in the economic process. The net effect of the evolutionary/structuralist framework on policy decision-making and how that differs from mainstream (sometimes called neoclassioal) approach is currently a matter of heated debate among economists. One way of arguing has been put forward by Stanley Metcalfe in several publications whereby policies based on the mainsrearn approach are concemed with resources and incentives taking the technological possibilities and capabilities of firms as given whereas policies based on the evolutionary perspective focus much more on the process of technological advance, i.e., on changing and enhancing the innovation capabilities and possibilities (options) of firms. This line of argumentation may be compatible with considering the two approaches as complements, each with specific strengths and weaknesses that could be combined to draw valuable policy advise. Yet, others strongly disagree, arguing that the chasm between the two l5 analytical approaches is just too big and often leads to strong differences in policies (Lipsey and Carlow. 1998), 2.1.5 Summary Implications for European Policy Evaluation z\ general observation from the brief review of economic literature in this paper is that the discipline of economics has much more to offcr in thc analysis of thc inccntivcs for and results from technological innovation than is typically assumed by critics. Major advances in both formal and appreciative economic theory have empowered economists with significant tools to appraise the causes and effects of resources devoted to the production and disseminal.ion of new technological knowledge. A mix of important developments and results from the reviewed econolnic theory with rich implications for RTD policy and policy evaluation include the following. . No single approach can claim monopoly in explaining the relationship of technological aclvance and the economy. A complex, multi-dimensional phenomenon like innovation requires multi-dimensional analytical approaches based on formal theory, aggregate empirical analysis (econometrics), acute observation and appreciative theorizing to establish regularities, and data from diverse sources including large databases, surveys, and case shldies. It may even require new ways of conceptualising the process, an endeavour undertaken more recently by the rejuvenated evolutionary economic approach. ' R&D expenditures contribute substantially to thc growth of output in a varicty of industries. ' There is a strong positive relationship between the stock of R&D and productivify at the firm ievel, ' Social rates of return frorn R&D are much higher than private rates of retum indicating high levels of inter-firm and inter-industry spillovers. ' Rates of refi¡rn vary considerably between industries, between types of . innovations, and by type ofsponsor. ' R&D investment affects the structure of production; its own demand is affected by changes in the prices of conventional factors of procluction ancl changes in dernand. ' Academic research has become a major underpinning of industrial innovation in many science-based indushies. There are significant differences between sectors in this respect, Basic research expenditures raise finn productivity. ' Available estimates of the rate of return to publicly funded research range from 20% to 60%. Such good rates of return are dependent on the successful application of the knowledge produced by public research organizations in the production process. These estimates do not include morc gcneral societal refurns from basic research which need to be appraised separately, ' There is significant survey evidence that publicly funded research is responsible for quite significant knowledge flows to industry, Evidence varies, however. For example, two large industry surveys in Europe have shown that R&D underlaken r6 by public organizations is not a very important source of inf'ormation at least for relatively smali companics (Community Innovation Survey 1993, 1991). The contribution of R&D to the cconomic performance of a nation depends on the ability of firms to utilize and commercialisc the results by introducing profitable products and processes, Technological diffusion is thus of the utmost importance. Diffusion depends on lactors related to the characteristics of the innovation, the structural characteristics of adopters and non-adopters, the mechanics of diffusion in particular settings, and the institutional environment of the frrm and thc industry. a There is a strong correlation between resource allocation antl technical advance, a Demand (tastes), technological opportunity, and appropriability oonditions are now widely recognized to determine inter-industry differences in innovative activity over relatively long periods. All these conditions are subject to change themselves, particularly in response to radical innovations. The recent resurgence of interest in growth theory has coinciclecl with the advent of the "new growth" theory that focuses on endogenous technoiogical aclvance, increasing rcfurns to scale from R&D at the levels of industry or the economy, positive extemalities, the effect of knowledge and learning on production efficiency, human capital, and the imporlance of public goods and infrastructure. Assisted by new analytical tools, formal and appreciative growth theory has c 17 The net effect of the evolutionary/structuralist framework on policy decision- making and the differences from the mainstream approach is currcntly a matter of heated debate among economists. An important argunrent has been that policics based on the mainstream approach are ooncemed with resources and incentives taking the technological possibilities and capabilities of firms as given whereas policies basecl on the evolutionary perspective focus much more on the process of technological advance, i.e., on changing and enhancing the innovation capabilities and possibilities (options) of f,rrms. This line of argumentation may be compatible with considering the two approaches as complements, each with specific strengths and weaknesses that could be combined to draw valuable policy advise. Yet, others hardly see any room for complementarity, arguing that the chasm between the two analytical approaches is just too big and often leads to strong diff-erences in policies. r8 5.1.2 References to Section 2.1 Abramovitz, Moses (1986) "Catching up, forging ahead and falling behind", Journal of Economic History,46: 385-406. 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Mansfield, E. (1995) "Academic research underlying indusrial innovations: Sources, characteristics, and flrnance", The Review of Economics A¡¡d_$l4Il$çS, '17:55-65, Mansficld, Edwin (1996) "Contributions of new technology to the economy", in B. L, R. Smith and C. E. Barfìeld (eds,) Technoloey. R&D and the Economy, Washington, DC; The Brookings Institution and American Enterprise Instifute, Mansfìeld, Edwin and J.-Y. Lee (1996) "'fhe moclern university: Cont¡ibutor to inclustrial innovation and recipient of industrial R&D support", Research Policy. 25:104'7-58, Mansfield, 8., J. Rapoport, A. Romeo, S. Wagner, and G, Beardsley (1977) The Production and Appli-cation of New Industrial Technolqgy, New York; Norton. Marshall, Alfred (191i) Principles of Economics, London: Macmillan. Mokyr, Joel (1990) The Lever of Riches, New York: Oxfbrd University Press. Nadiri, Ishaq M. (1993) "Innovations and technological spillovers, C.V. 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Nelson, Richard R. and Gavin Wright (1992) "The rise and fall of American technological leadership", Journal of Economic Literature, XXX(4): 1931-1964. Romer, Paul (1986) "Increasing retums and longrun growth", Joumal of Political Economl¿,94: I 002- 1 037. Romer, Paul (1990) "Endogenous technological change", Joumal of Political Economy, 98: 71- 102. Rosegger, Gerhard (1996) The Economics of Production & Innovation, 3'd edition, Oxford: Buttcrwofih -Heinemann. Rosenberg, Nathan (1976) Perspectives on Technology, Cambridge: Cambridge University Press. Rosenberg, Nathan (l 982) Inside the Black Box, Cambridge: Cambridge University Press. Salter, A.J. and B,R. Martin (2001) "The economic benefits of publicly funded basic research: A critical revie'w", Research Policv, 30: 509-32. Schcrcr, Frcdcrick M. (1982) "Intcr-industry tcchnology flows in the US", Research Policy, tt(4):227 -245. Schumpeter, Joseph A. (1942) Capitalism. Socialism and Democracy, New York: McGraw-Hill. Smith, Adam (1976) An Inquiry into the Nature and Causes of the V/ealth of Nations, Solow, Robert (1956) "A contribution to the theory of economic growth", Ouartcrly Joumal of Economics, 70l'65-94. Solow, Robert (1957) "Technical change and the aggregate production function", Review of Economics and Statistics ,39: 214-231 . Steinmueller, W.E.(1996) "Basic research and industrial innovation", in M. f)odgson ancl R. Rothwell (eds). The Handbook of Industrial Innovation, Cheltenham: Edward Elgar. Stonemart, Paul (1983) The Economic Analysis of Tçchnoloqical Chanee, Oxford: Oxford University Press, Stoneman, Paul (ed.) (1995) Handbook of the Economics of Innovation and Technological Change, Oxford: Blackwell. Tirole, Jean (1988) The Theory of Industrial C)-{ganization, Cambridge, MA: The MI'l' Press. Verspagen, B, (1992) "Endogenous innovations in neo-classical growth models: A survey, Journal of Macro-Economics, | 4(4): 631 -662. Vcrspagen, B. (1999) "Largc firms and knowlcdgc flows in thc Dutch R&D system: A case study of Philips Electronics", Technology Analysis & Sfrategic Management. I l: 2l l-33. 22 I i ll: Nl/\t l()\l/\l A(_ADi-:À^li::j Adviserc to tlte Natlon on Science, Englneerlng, and Mediclne National Acâdemy of Scienæs National Academy of Engineering lnstitute of Medicine National fl esearch Council April30, 2009 STEP MEMORANDUM TO: Members of the STEP Board FROM: Steve Merrill SUBJECT: Skilled Foreign-born Temporary Workers Orìgíns STEP was approached last winter by a group of IT companies (Microsoft, Intel, Oracle, HP, Qualcomm, and Cisco) to conduct of a study of high-skilled foreign workers allowed into the United States each year under the HlB visa prograrr¡ currently capped at 65,000. Both the cap and the terms ofthe program have long been controversial, especially so since the onset of recession (see accompanying news clips and blogs, just within the past couple of months). Fact- based (or at least fact-informed) policy has been severely handicapped by lack of information from administrative data or surveys. We know very little about the types ofjobs that HlBs hold, their terms of employment, pay, and contributions and the availability of US-born candidates with similar qualifications. There has been some research, some of it suggesting immigrants are highly productive, other articles suggesting they depress wages (of course, both may be true); but very little of it relies on data directly on HlBs. In addition to providing access to proprietary firm HR data, the companies would support the project financially. They agree that other visa-holding firms, including India-based IT service firms, should be asked to participate. They understand that the Academy has a 49- percent ceiling on contributions by financially interested sponsors. The majority of funding would have to come from one or more foundations - Sloan, Kauffrnan, and Ford are possibilities. Project Structure . An ad hoc committee under STEP's auspices would formulate the questions that could reasonably be addressed, provide guidance on the essential elements of a research methodology, identify complementary data sources, select qualified investigators (perhaps from a pool of solicited proposals), peer review their results, and interpret them (and their limitations) in a report addressed to the administration and Congress. The researchers would work under non- disclosure agreements while also respecting privacy requirements. 500 Fifth Streel NW, Washington, DC 20001 Telephone (2021334-1581 Fax (202) 334-1505 [email protected] Pros, Questíons, and a Way Forward This is an opportunity for STEP and the Academies to shed light on a contentious policy issue probably important to innovation and US firms' competitiveness. Both critics and supporters of the program and academics studying it agree that this would a useful contribution. In addition, responsible use ofbusiness proprietary information could open other opportunities for STEP and the Academies. At the same time, many questions that STEP and the Academy leadership will want clarified remain unanswered. Before seeking formal approval to proceed with raising funds, we propose to hold an invitational scoping meeting to explore the following among others: o How many ofwhat kinds of firms should be recruited to participate? 'What o questions can reasonably be addressed? What questions are beyond the scope ofthe proposed research (e.g., what the annual number ofvisas should be)? r What if the pool of data is not representative of the Hl-B universe? e What data will be made available? o Are those data comparable across firms? o Are there highly qualified researchers willing to do this work? o While criticism of the results is inevitable, what steps need to be taken to protect STEP and the Academies from charges of bias? Invitees would include representatives of interested firms, accomplished labor economists, an immigration expert, representatives of selected federal agencies (e.g., NSF, DOL, Census), and critics ofthe HIB program. STEP Actíon Needed . Approval to proceed along these lines o One or more volunteers to participate in the meeting, possibly in late June o Suggestions for funding sources Op-Ed Columnist - The Open-Door Bailout - NyTimes.com Page I of2 &+SørSar*&rrtc* "ll,{-'i:i-".,' Fgi¡xTg*'Ffi tgft *tt FÐ[TåT SFû*äSRIã EY February 11, 2oo9 {}p-*F} {l{}il.rMNrsT The Open-Door Bailout ByTHOMAS L. FRIEDMAN Bangalore, India Leave it to a brainy Indian to come up with the cheapest and surest way to stimulate our economy: immigration. "All you need to do is grant visas to two million Indians, Chinese and Koreans," said Shekhar Gupta, editor of The Indian Express newspaper. "We will buy up all the subprime homes. We will work 18 hours a day to pay for them. We will immediately improve your savings rate - no Indian bank today has more than z percent nonperforming loans because not paying your mortgage is considered shameful here. And we will start new companies to create our own jobs and jobs for more Americans." While his tongue was slightly in cheek, Gupta and many other Indian business people I spoke to this week were trying to make a point that sometimes non-Americans can make best: "DearAmerica, please remember how you got to be the wealthiest country in history. It wasn't through protectionism, or state-owned banks or fearing free trade. No, the formula was very simple: build this reaþ flexible, really open economy, tolerate creative destruction so dead capital is quickly redeployed to better ideas and companies, pour into it the most diverse, smart and energetic immigrants from every corner of the world and then stir and repeat, stir and repeat, stir and repeat, stir and repeat." While I think President Obama has been doing his best to keep the worst protectionist impulses in Congress out of his stimulus plan, the U.S. Senate unfortunately voted on Feb. 6 to restrict banks and other financial institutions that receive taxpayer bailout money from hiring high-skilled immigrants on temporary work permits known as H-rB visas. Bad signal. In an age when attracting the first-round intellectual draft choices from around the world is the most important competitive advantage a knowledge economy can have, why would we add barriers against such brainpower - anywhere? That's called "old Europe." That's spelled: s-T-u-p-I-D. "If you do this, it will be one of the best things for India and one of the worst forAmericans, þecausel Indians will be forced to innovate at home," said Subhash B. Dhar, a member of the executive council that runs Infosys, the well-known Indian technology company that sends Indian workers to the U.S. to support a wide range of firms. "We protected our jobs for many years and look where it got us. Do you know that for an Indian company, it is still easier to do business with a company in the U.S. than it is to do business today with another Indian state?" Each Indian state tries to protect its little economy with its own rules. America should not be trnng to copy http://www.nytimes.com/2009l02llllopinion/l lfriedman.html? r1&adxnnl:1&pagewan... 4l2gl200g Op-Ed Columnist - The Open-Door Bailout - NYTimes.com Page2 of2 that. "Your attitude," said Dhar, should be " 'whoever can make us competitive and dominant, let's bring them in."' If there is one thing we know for absolute certain, it's this: Protectionism did not cause the Great Depression, but it sure helped to make it "Great." From r9z9 to Lgg4, world trade plunged by more than 6o percent - and we were all worse off. We live in a technological age where every study shows that the more knowledge you have as a worker and the more knowledge workers you have as an economy, the faster your incomes will rise. Therefore, the centerpiece of our stimulus, the core driving principle, should be to stimulate everything that makes us smarter and attracts more smart people to our shores. That is the best way to create good jobs. According to research by Vivek Wadhwa, a senior research associate at the Labor and Worklife Program at Harvard Law School, more than half of Silicon Valley start-ups were founded by immigrants over the last decade. These immigrant-founded tech companies employed 45o,ooo workers and had sales of g5z billion in 2oo5, said Wadhwa in an essay published this week on BusinessWeek.com. He also cited a recent study by William R. Kerr of Harvard Business School and Wiltiam F. Lincoln of the University of Michigan that "found that in periods when H-rB visa numbers went down, so did patent applications filedbyimmigrants [in the U.S.]. And when H-rB visa numbers went up, patent applications followed suit." We don't want to come out of this crisis with just inflation, a mountain of debt and more shovet-ready jobs. We want to - we have to - come out of it with a new Intel, Google, Microsoft and Apple. I would have loved to have seen the stimulus package include a government-funded venture capital bank to help finance all the start-ups that are clearþ not starting up today - in the clean-energy space they're dying like flies - because of a lack of liquidþ from traditional lending sources. Newsweek had an essay this week that began: "Could Silicon Valley become another Detroit?" Well, yes, it could. When the best brains in the world are on sale, you don't shut them out. You open your doors wider. We need to attack this financial crisis with green cards not just greenbacla, and with start-ups not just bailouts. One Detroit is enough. Coovr¡oht 2009 Privacv Policy I Searcn I Corrections I *ss lFirstlook lHêto lContactus lWorkforUs lS¡teMao http://www.nytimes.com/2009102/11/opinion/l lfriedman.html? r1&adxnnl:l&pagewan... 412812009 Economist.com Page I of 3 ECONOMICS FOCUS Economics focus Give me your scientists,.. f'1ûr'itl) 2ilL)9 'Ilie [:'rorÍr Icl)no¡rì,st p11Iìt e(jìtiofì Restricting the immigration of highly skilled workers will hurt America's ability to innovate lllLISlralI0ì1 by,iâe {)ellczyk r*':.rêi.$ffi.i ttp JOE BIDEN, America's new vice-president, is prone to gaffes. In 2006 it was the turn of some Americans of Asian descent to take offence at his comment about needing "a slight Indian accent" to go to a 7-Eleven or a Dunkin'Donuts in Delaware. Mr Biden's defence was that he was trying to compliment the immigrant group on its entrepreneurial zeal. Many Americans are less favourably disposed towards immigrants. And rising unemployment is hardening attitudes. In the hubbub over the insertion of "Buy American" provisions into President Obama's fiscal-stimulus package, the Grassley-Sanders amendment was largely overlooked, This restricts the freedom of recipients of federal bail-out money to hire high- skilled foreign workers under the government's H-18 visa programme. Some people were delighted at what they saw as a significant, if small, first step in cracking down on those who they fear crowd skilled American workers out of the workplace. But others contend that such restrictions could dull America's edge in innovation, just when it is needed to help revive the economy, Mr Obama says that part of the solution to America's economic problems should come from its universities and research laboratories. Yet these institutions in America are now manned disproportionately by immigrants, who made up 47o/o of scientists and engineers in America with PhDs, according to the 2000 census. Immigrants accounted fortwo-thirds of the net addition to America's stock of such workers between 1995 and 2006. Their role in innovation may seem obvious: the more clever people there are, the more ideas are likely to flourish, especially if they can be commercialised, But although contemporary theories of growth emphasise the importance of ideas. they assign no special role to immigration. Economists have tended to think of innovation as driven by the demand for better goods, which generates a need forskilled innovators. People's choices of career and education should respond to the labour market's demands, encouraging more of them to become innovators if needed, But http://www.economist.corn/finance/economicsfocus/PrinterFriendly.cfm?story_id= 1323... 3/9/2009 Economist.com Page2 of 3 because career choices cannot be expected to adjust instantly, there might be scope for skilled immigrants to fill the gap. Addressing these issues requires data on just how inventive immigrants are, a question that until recently was the province of educated guesswork, But William Kerr, an economist at Harvard Business School, used name-matching software to identify the ethnicity of each of the 8m scientists who had acquired an American patent since 1975, He found that the share of patents awarded to scientists born in America fell between 1975 and 2004, The share of all patents given to scientists of Chinese and Indian descent living in America more than tripled, from 4.7o/o in the second half of the 1970s to 13.9olo in the years between 2000 and 2004. Nearly 4Oo/o of patents filed in 2005 by Intel, a silicon-chip maker, were for work done by people of Chinese or Indian origin. Some of these patents may have been awarded to American-born children of earlier migrants, but Mr Kerr reckons that most changes over time arise from fresh immigration. What of the criticism that these workers are displacing native scientists who would have been just as inventive? To address this, Mr Kerr and William Lincoln, an economist at the University of Michigan, used data on how patents responded to periodic changes in the number of H-18 entrants, If immigrants were merely displacing natives, increases in the H-18 quota should not have led to increases in innovation. But Messrs Kerr and Lincoln found* that when the federal government increased the number of people allowed in under the programme by 10olo, total patenting increased by around 2o/oin the short run. This was driven mainly by more patent¡ng by immigrant scientists. But even patenting by native scientists increased slightly, ratherthan decreasing as proponents of crowding out would have predicted. If anything, immigrants seemed to "crowd in" native innovation, perhaps because ideas feed off each other. Economists think of knowledge, unlike physical goods, as "non-rival": use by one person does not necessarily preclude use by others. ...and your huddled mathematicians But does all this emigration from the developing world harm the originating countries'capacity for innovation? A new paper*x uses data on the patents cited by scientists working in India in their applications to America's patent office. It finds that proximity does matter: Indian patent applicants refer to research by people in India much more often than they cite work by those elsewhere. In that sense/ having many scientists leave India does harm innovation there. But Indian researchers also refer to scientists of Indian origin in America more than very similar work by scient¡sts with whom they do not share ethnic ties. So a scientific diaspora gives countries of origin a leg-up in terms of access to the latest research, m¡tigating some of the problems of a "brain drain". And given that the same scientist is likely to be more productive in America than in a developing country because of betterfacilities and more resources, immigration may help overall innovation (some of the benefits of which may flow back to firms in poorer countries). Overtime, knowledge flows between countries, and innovations in one place may benefit people elsewhere. So in the long run it may not matter where research takes place. Nonetheless, innovation benefits from clusters. Until there are Silicon Valleys all over the place, the world (and not just America) would be better off if American firms could hire the best people regardless of where they come from, x William Kerr and William Lincoln, "The Supply Side of Innovation: H1-B Visa Reform and US Ethnic Innovat¡on". HBS Working paper 09-005, December 2008. ** Ajay Agrawal, Devesh Kapur and John McHale, "Brain Drain or Brain Countrv Innovat¡on". NBER Working paper No. 14592, December 2008. http://www.economist.com/finance/economicsfocus/PrinterFriendly.cfm?story id=1323... 3/9/2009 They're Taking Their Brains and Going Home Page 1 of3 ffitrffiW#s#f They're Taking Their Brains and Going Homè ¡{ds*rfìmnren* * Ypçr Ad lter€ ByVivekWadhwa Sunday, March 8, 2009; P,02 Seven years ago, Sandeep Nijsure left his home in Mumbai to study computer science at the University of North Texas. Master's degree in hand, he went to work for Microsoft. He valued his education and enjoyed the job, but he worried about his aging parents. He missed watching cricket, celebrating Hindu festivals and following the twists of Indian politics. His wife was homesick, too, and her visa didn't allow her to work. Not long ago, Sandeep would have faced a tough choice: either go home and give up opportunities for wealth and U.S. citizenship, or stay and bide his time until his application for a green card goes through. But last year, Sandeep returned to India and landed a software development position with Amazon.com in Hyderabad. He and his wife live a few blocks from their families in a spacious, air-conditioned house. No longer at the mercy of the American employer sponsoring his visa, Sandeep can more easily determine the course of his career. "We are very happy with our move," he told me in an e-mail. The United States has always been the country to which the world's best and brightest -- people like Sandeep -- have flocked in pursuit of education and to seek their fortunes. Over the past four decades, India and China suffered a major "brain drain" as tens of thousands of talented people made their way here, dreaming the American dream. But burgeoning new economies abroad and flagging prospects in the United States have changed everything. And as opportunities pull immigrants home, the lumbering U.S. immigration bureaucracy helps push them away. When I started teaching at Duke University in 2005, almost all the international students graduating from our Master of Engineering Management program said that they planned to stay in the United States fol at least a few years. In the class of 2009, most of our 80 international students are buying one-way tickets home. It's the same at Harvard. Senior economics major Meijie Tang, from China, isn't even bothering to look for a job in the United States. After hearing from other students that it's "impossible" to get an FI:lB:isa -- the kind given to highly-skilled workers in fie1ds such as engineering and science -- she teamed up with a classmate to start a technology company in Shanghai. Investors in China offered to put up millions even before Z3-year-old Meijie and her 21-year-old colleague completed their business plan. When smart young foreigners leave these shores, they take with them the seeds of tomorrow's innovation. Almost 25 percent of all international patent applications filed from the United States in 2006 named foreign nationals as inventors. Immigrants founded a quarter of all U.S. engineering and technology companies started between 1995 and 2005, including half of those in Silicon Valley. In 2005 alone, immigrants'businesses generated $52 billion in sales and employed 450,000 workers. Yet rather than welcome these entrepreneurs, the U.S. government is confining many of them to a painful purgatoq¡. As of Sept.30,2006, more than a million people were waiting for the 120,000 permanent-resident visas granted each year to skilled workers and their family members. No nation may claim more than 7 percent, so years may pass before immigrants from populous countries such as India htþ://www.washingtonpost.com/wp-dyn/contentlafüc1e12009103106/4R2009030601926_p... 412812009 They're Taking Their Brains and Going Home Page2 of3 and China are even considered. Like many Indians, Girija Subramaniam is fed up. After eaming a master's in electrical engineering from the University of Virginia in 1998, she joined Texas Instruments as a test engineer. She wanted to stay in the United States, applied for permanent residency in2002 and has been trapped in immigration limbo ever since. If she so much as accepts a promotion or, heaven forbid, starts her own company, she will lose her place in line. Frustrated, she has applied for fast-track Canadian permanent residency and expects to move north of the border by the end of the year. For the Kaufmann Foundation, I recently surveyed 1,200Indians and Chinese who worked or studied in the United States and then returned home. Most were in their 30s, and 80 percent held master's degrees or doctorates in management, technology or science -- precisely the kind of people who could make the greatest contribution to the U.S. economy. A sizable number said that they had advanced significantly in their careers since leaving the United States. They were more optimistic about opportunities for entrepreneurship, and more than half planned to start their own businesses, if they had not done so akeady. Only a quarter said that they were likely to return to the United States. Why does all this matter? Because just as the United States has relied on foreigners to underwrite its deficit, it has also depended on smart immigrants to staff its laboratories, engineering design studios and tech firms. An analysig of the 2000 Census showed that although immigrants accounted for only l2 percent of the U.S. workforce, they made up 47 percent of all scientists and engineers with doctorates. What's more, 67 percent of all those who entered the fields of science and engineering between 1995 and2006 were immigrants. What will happen to America's competitive edge when these people go home? Immigrants who leave the United States will launch companies, file patents and fill the intellectual coffers of other countries. Their talents will benefit nations such as India, China and Canada, not the United States. America's loss will be the world's gain. [email protected] Vivek Wadhwa is a senior reseqrclt associate at Harvard Law School and executive in residence at Duke Universíty. t¿tcyq illçqlamç$q that have been posted about this article. Post a Comment View all comments that have been posted about this article. Comments that include profanity or personal aüacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content thatyou post. http://www.washingtonpost.com/wp-dyn/contenlafüc1e120091031061AR2009030601926_1t... 412812009 050 EC0NÍIM|CS & P0L|CY ment against a New |ersey-based company called Vision Systems Group is just "the tip of the iceberg." Vision Systems did not return calls A Narrowing Window seekingcomment. Senators Charles Grassley (R- Iowa) and Richard Durbin (D -I11.), two of the program's vocal critics, are pressing for For Fore¡ n Workers? legislative reform as well. They planto introduce legislation by early April that would require employers to pledge they With H-tB visa abuse under scrutiny, U.S. tech had attempted to hire American work- companies worry they'll run short of skilled staff ers before applying for H-tB visas-a step not required under current law "I want to make sure that every employer searches to make sure there By Moira Herbst is no American available to As the unemployment rate inthe U.S. do the job," says Grassley. rises, the federal government is tight- Americantech com- ening its oversight of a controversial panies are wary of any visa program that allows companies to reforms. Microsoft, the bring skilled workers in from overseas. top U.S. recipient of H-rBs The crackdown is aimed at reducing in zoo8, says the Durbin- alleged abuses ofwhat are known as Grassley plan risks making H-tB visas, but it may also make it it more difficult to recruit more diff,cult for U.S. companies to talentedworkers to the . hire talented workers from abroad. U.S. andmore likely com- Tech giants such as Microsoft, Oracle, panies willhire abroad. The and IBM have been active participants company says expansion in the program, and have lobbied for of the program willbring its expansion. in skilled immigrants who The H-rB visa program was original- will help the U.S. economy ly designedto let American companies recover. Still, Microsoft fill high- skill positions for which no says it supports govern- local workers were available. But critics ment efforts to crack down say the programhas had such lax over- on companies misusing the sight that it has been open to abuse and existing program and has fraud, In several cases, companies have abroad to work in their U.S. operations, met with the USCIS to help develop been charged with underpaying work- typicaþ for two or three years. methods to detect fraud. "We are sup- ers they bring to the U.S, In addition, Increased oversight ofthe program portive of steps to reform the H-rB visa outsourcing firms have become some is likely to come on several fronts. The system to eliminate the potential for of the heaviest users of the program, Labor Dept. is tightening review of abuse/t says Microsoft General Counsel raising concerns that vísas are be- applications for the work visas, having Brad Smith. ing used to train foreignworkers who staffers process requests manually The government willbegin aceept- end up taking American jobs. Late last for the frrst time. Meanwhile, the U,S. ing applications for this year's H-tBs month the government disclosed that Citizenship & Immigration Services on Apr. t. In recent years, the ó5,ooo the top four recipients of the work visas (USCIS) is more actively investigat- visas permitted annually have been in zooS were all Indian outsourcers - ing companies that receive the visas scooped up in days. Robert Hoffman, Infosys Technologies, Wipro, Satyarn, for potential mísuse. Last month, the spokesman for the tech lobbying group and Tata Consultancy. The companies USCIS andthe U.S. Attorney's ofÊce in Compete America, says it's important use the visas to bring employees from Iowa cooperated on a six-state raid of the government not clamp downtoo companies allegedly much beeause skilled workers will abusing the program. be needed in green tech, health care, Senator Grassley: "l want to make sure Matthew Whitaker, and other sectors that are targeted for Éu that every employer searches to make U.S. Attorney for the expansion in the stimulus plan. "We're Southern Distriet of trying to create industries where none f sure there is no American available" 6 Iowa, says the result- exist," he says, "That may create an z e 6 ing ro-count indict- addedneedfor workers." rew r BUSINESSWEEK I MARCH 16,2OO9 BusinessWeek Outside Shot April 2, 2009, 5:00PM EST It's Time to Overhaul II-18 Visas We need to build a skilled-immigrant policy that will help our economy thrive Reading the editorial pages ofAmerica's major dailies, you'd think the economic recovery depended on granting plenty oftemporary work visas to skilled foreigners. After Congress voted in February to limit the use of these H-l8 visas by financial firms getting taxpayer bailout money, The Washíngton Post called the provision (part of the 2009 American Recovery & Reinvestment Act) "antithetical to innovation and domestic prosperity." The Wall Street Journal criticized the move in an editorial headlined "Turning Away Talent." In The New York Times, columnist Thomas Friedman simply called it "s-T-u-P-I-D." Such advocacy presents a false choice: Keep the program as it is or risk losing exceptional foreign workers. As employers are sending offtheir H-18 visa requests for fiscal year 201O-and with some in Congress considering an overhaul of the progranÈ-it's time to dispel the myths 'We about H-18s. need to mend this troubled program and look beyond it to create a comprehensive skilled-immigrant policy that helps our economy thrive. What myths distort the H-18 debate? The biggestmay be that employers can hire H-l8 visa holders only when there is no American for the job. The program, run by the U.S. Labor and Homeland Security Dept., has no such constraint. Nor do employers getting the visas have to demonstrate a shortage of U.S. workers in their field. Indeed, they can opt not to recruit American candidates and to give preference to foreign workers. As the Labor Dept. states in its 2006-2011 Strategic Plan: "H-18 workers may be hired even when a qualif,red U.S. worker wants the job, and a U.S. worker can be displaced fromthe job in favorofthe foreignworker." This is not just ahlpothetical possibility. According to news reports, a number of major U.S. companies require American employees, as a condition of their severance pay, to train H-18 workers to do the work they do. This process, often called "knowledge transfer," is a key step in offshoring the tasks to a low-cost country. Another myth: H-18 workers are the world's best and brightest. While some are truly exceptional, they make up a small share ofthe visa holders. The minimum degree required to hold an H-18 visa is a bachelor's degree or equivalent experience, hardly a rare commodity. Instead, companies frequently turn to H-1Bs because they can be paid below-market wages. This contradicts the visa program's intent (and helps push wages down for American employees). But it is a coÍrmon practice, given the gaping loopholes in the regulations. In 2008 the Labor Dept. certified more than 5,000 applications for H-18 positions paying less than $15 an hour. In 2005, the latest year for which there are demographic statistics for the prograrn, the median yearly wage for new H-1B recipients working in computers, including the many with master's degrees and years of experience, was $50,000. That's comparable to the $51,000 median salary paid to entry-level U.S. workers with only a bachelor's degree in the field. Then there's the mistaken belief that granting H-18 visas helps prevent the outsourcing of American jobs. In fact, the program is expediting that offshoring, and not just because of "knowledge transfer." Ofßhore outsourcing firms with U.S. operations, including Infosys (INFY) and Wipro Technologies (WIT), now dominate the top ranks of employers getting H-lB workers. In 2008, such firms accounted for 7 of the top l0 H-1B visa recipients, getting almost 12,000 of the 85,000 quota. They use their U.S. operations to train their foreign workers, who learn more about U.S. clients and then rotate back to their home countries to provide service more effectively. Perhaps the most dangerous myth of all is that the H-18 program has the same advantages for foreign workers-and the economy-as peffnanent immigration does. High-skill immigrants who stay permanently in the U.S. make enonnous contributions to the economy through their work, research, and entrepreneurialism. But the H-18 is a temporary work permit, one that allows participating foreigners to be mistreated. The visa, remember, is held by the employer, not the worker. That considerably diminishes the H-18 holder's bargaining power for better wages and working conditions. Some H-18 workers are eventually sponsored for permanent residency, but, again, this is at the discretion of their employers. Because the number of guest workers far exceeds the number of available employment-based green cards, H-18 workers can get stuck where they are for as long as 10 years, with no ability to switch employers or even get a promotion. The H-18 program can be cleaned up by closing loopholes and increasing oversight. Senators Richard Durbin (D-Ill.) and Chuck Grassley (R-Iowa) are expected to reintroduce a version of last,year's bipartisan reform bill in the coming weeks. Passed into law, it would require employers to try to hire Americans first and to pay H-18 workers market wages. It would also bar employers from replacing American workers with H-18 holders. Perhaps most important, it would create a random-audit process to ensure compliance with the rules. Such common-sense fixes would provide employers with access to top foreign talent while treating the workers in a way that encourages them to settle in the U.S. But it's not enough. We must also work on a comprehensive approach to permanent skilled immigration. This should include a merit-point system like the ones used in Canada and Britain, where immigrants working in needed occupations can move up the queue. It should also involve the creation of an independent board to gauge, at regular intervals, how many immigrants we can absorb without hurting the job prospects of American workers. Then, just as the Federal Reserve oversees the supply of money, we could rationally regulate the flow of workers being welcomed primarily for economic reasons. Ron Hira, an assistant professor of public policy at Rochester Institute of Technology, is co-author, with Anil Hira, of Outsourcing America. Claim that H-18 Workers Create American Jobs is Statistically Flawed By Norm Matloff, Thursday, April 2, 2009, 1l:50 AM There was a column in the Wall Street Journal today by "Numbers Guy," Carl Bialik, concerning the claim by NFAP/Stuart Anderson that each H-18 worker creates five new jobs, oft-repeated by the industry lobbyists. lt's amazing that an assertion as obviously flawed as this one, with textbook statistical errors, has gotten so much attention. But then that's why the lobbyists are paid the big bucks. Bialik has done a generally excellent job here, but I do have a few comments. First, I wish the Numbers Guy had gotten numbers on Stuart Anderson--where does his funding come from? Anderson has been making a living promoting H-18 for 15 years, and he literally wrote the H-18legislation that expanded the program in 1998 and 2000, when working as a Senate staffer. Given that he is cited by the immigration lawyers so much, lVe long believed that his NFAP organization receives funding from the AILF, wtrich is the research arm of the American lmmigration Lawyers Association. The AILA sells a tape of featuring Anderson speaking on behalf of the AILF, together with two other speakers, including Dan Siciliano, who is an AILF official ( htto://heather.cs. ucdavis.edu/Archive/NotBestAnd Briqhtest3.Et). Now, concerning Bialik's own comments, let's start with this one: With the filing period for employers beginning April 1, immigration advocates argue that granting more H-18 visas to foreign nationals creates jobs for Americans. Critics dispute that notion and say that financial firms receiving bailout funds have been hiring foreign workers while laying off tens of thousands of Americans. Both sides are playing fast and loose with the numbers. That last sentence is very unfortunate. The only "critics" that Bialik finds wanting in terms of quality of analysis are the AP and Sen. Bernie Sanders. Putting aside the question of whether these two sources are accurate in their criticism, it must be pointed out-and Bialik should have pointed out-{hat neither the AP nor Sen. Sanders are professional researchers, and that Bialik's article does not take issue with the analysis done by the three professional researchers he cites on the H-1B-critic side, namely Ron Hira, John Miano and me. I've found all the ruckus about the AP study to be an unfortunate distraction to the H-18 debate. The real issue is the banks' past (and by the way current, as seen in the last few days with Wachovia) poor track record regarding foreign workers. For details, see htto:/iheather.cs.ucdav is.edu/Archive/BankOfAmWad hwaHira.txt%3Cbr%20/o/o3E Anyway, Bialik gets right to the heart of the matter, both in his blog, I sent the study -- which has been cited by Microsoft chairman Bill Gates, New York mayor Michael Bloomberg and Republican Senator Judd Gregg of New Hampshire * to several statisticians, and most questioned the findings. and in the article Microsoft Chairman Bill Gates, New York mayor Michael Bloomberg and Republican Senator Judd Gregg of New Hampshire all have cited a study they claim shows that each one of these visas awarded to technology companies creates five jobs. Mr. Gates interpreted the study in testimony to Congress last year as finding that "for every H-18 holder that technology companies hire, five additionaljobs are created around that person." But the study shows nothing of the kind. lnstead, itfinds a positive correlation between these visas and job growth. These visas could be an indicator of broader hiring at the company, rather than the cause. Some think the claim that the study, conducted by the pro-immigration National Foundation for American Policy, demonstrates awarding visas boosts hiring is way off base. lt "has all the scientific sense of cold fusion," says Harvard University economist Richard B. Freeman, "though of course it could be we have discovered the perpetual employment expansion elixir." The middle paragraph is the key. lt's a very famous statistical error, often called Simpson's Paradox, in which the relation between two variables is very misleading, due to their mutual relation to a third variable. (For details, consult a statistics textbook or see the Wikipedia entry on this topic.) Now this one really intrigued me: Some researchers find the general premise of the study persuasive, even if the study didn't prove it. Duke University statistician David Banks said correlation can't prove causation, but he did think the study "corroborates the idea that H-18 visas support job creation." lt does so, he says, by contradicting the theory that companies seek foreign workers to replace domestic ones. ln reading this, I wondered, 'Who is this guy Banks, and why was he interviewed by Bialik, out of the literally thousands of statistics professors in the nation? What in the world does he have to do with H-18?" Well, it turns out that he works with outspoken immigration attorney Bruce Hake! ln fact, Banks has coauthored chapters with Hake in AILA publications. So Banks is certainly not the impartial observer ("finds the study persuasive"!) that Bialik apparently thought him to be. Bialik then cites Vivek Wadhwa, but though Vivek has done some excellent work on H-18, he had to withdraw his patent study due to data problems, and he has explicitly stated that he never found that immigrants are more innovative than Americans. The point is that we cannot conclude that the demonstrated displacement of U.S. citizens and permanent residents by foreign workers cann has led to a net increase in patenting, a point made by Anthony Hayter in the blog. Finally, in the blog Bialik refers to me as "Ratloff." I hope that wasn't a Freudian slip. :-) Norm Matloff is a Professor of Computer ScÍence at the Unìversity of Calìfornia at Davis. He wrÍtes an e-newsletíer on the H-18 work vísa, offshoring and related r'ssues. We repost hís wrítìngs here with hÍs permÍssíon. To dírectly subscribe to his e-newsletter, contact h i m at m atloff(d c s. u cd avì s.ed u. In Silicon Valley, Recruiting Clashes With Immigration Limits - NYTimes.com Page I of8 €tre$nrþr*ffixtø ,"1 I _r l-. ! .^:-. i Th¡s copy is for your peflìônâ|, non{:onìmêrc¡âl use only. You can order presentåtion-ready ôopies for distribution to your colleaguês, cl¡ents or customers here or use the "Reprints" tool that appêârs next to any ârtiÖls. Visit www.n',trèprints.com for samples and add¡t¡onat ¡nlormatíon. Order â reprint of th¡s article now. April rz, eoog Tech Recruiting Clashes With Immigration Rules ByMATTRICHTEL MOUNTAIN VIEW, Calif. - Where's Sanjay? The question comes from one ofdozens ofengineers around a crowded conference table at Google. They have gathered to discuss how to build easy-to-use maps that could turn hundreds of millions of mobile phones into digital Sherpas - guiding travelers to businesses, restaurants and landmarks. "His plane gets in at 9:3o," the group's manager responds. Google is based here in Silicon Valley. But Sanjay G. Mavinkurve, one of the key engineers on this project, is not. Mr. Mavinkurve, a z8-year-old Indian immigrant who helped lay the foundation for Facebook while a student at Harvard, instead works out of a Google sales office in Toronto, a lone engineer among marketers. He has a visa to work in the United States, but his wife, Samvita Padukone, also born in India, does not. So he moved to Canada. "EveryAmerican ITe talked to says: 'Dude, it's ridiculous that we're not doing everything we can to keep you in the country. We need people like you!' " he said. "The people of America get it," he added. "And in a matter of time, I think current lawmakers are going to realize how dumb they're being." Immigrants like Mr. Mavinkurve are the lifeblood of Google and Silicon Valley, where half the engineers were born overseas, up from ro percent in tg7o. Google and other big companies say the Chinese, Indian, Russian and other immigrant technologists have transformed the industry, creating wealth and jobs. Just over half the companies founded in Silicon Valley from the mid-rggos to the mid-zooos had founders born abroad, according to Vivek Wadhwa, an immigration scholar working at Duke and Harvard. The foreign-born elite dating back even further includes Andrew S. Grove of Hungary, who helped found Intel; Jerry Yang, the Taiwanese-born co-founder of Yahoo; Vinod Khosla of India and Andreas von Bechtolsheim of Germany, the co-founders of Sun Microsystems; and Google's Russian-born co-founder, Sergey Brin. But technologr executives say that byzantine and increasingly restrictive visa and immigration rules have http://www.nytimes.com/2009104/12lbusiness/12immig.html?pagewantedlrint 412812009 In Silicon Valley, Recruiting Clashes V/ith Immigration Limits - NYTimes.com Page 2 of 8 imperiled their ability to hire more of the world's best engineers. While it could be said that Mr. Mavinkurve's case is one of a self-entitled immigrant refusing to live in the United States because his wife would not be able to work, he exemplifies how immigration policies can chase away a potential entrepreneur who aspires to create wealth and jobs here. His case highlights the technology industry's argument that the United States will struggle to compete if it cannot more easily hire foreign-born engineers. "'We are watching the decline and fall of the United States as an economic power - not hypothetically, but as we speak," said Craig R. Barrett, the chairman of Intel. Mr. Barrett blames a slouching education system that cannot be easiþ fixed, but he says a stopgap measure would be to let companies hire more foreign engineers. "With a snap of the fingers, you can say, 'I'm going to make it such that those smart kids - and as many of them as want to - can stay in the United States.'They're here today, they're graduating today - and they're going home today." He is opposed by staunch foes of liberalized immigration and by advocates for American-born engineers. "There are probably two billion people in the world who would like to live in California and work, but not everyone in the world can live here," said Kim Berry, an engineer who operates a nonprofit advocaey group forAmerican-born technologists. "There are plenty of Americans to do these jobs." The debate has only sharpened as the country's economic downturn has deepened. Advocates forAmerican- born workers are criticizing companies that lay offemployees even as they retain engineers living here on visas. But the technolog¡r industry counters that innovations from highly skilled workers are central to American long-term growth. It is a debate well known to Google, and it is a deeply personal one to Mr. Mavinkurve. An Eye on America Sanjay Mavinkurve (pronounced MAY-vin-kur-VAÐ was born in Bombayto working-class parents who soon moved to Saudi Arabia. He thought everything important in life was American - from Baskin-Robbins and Nike Airs to the Hardees's and Domino's in the food court at the shopping mall. When in the car, he and his olderbrother played a game, naming all the things they could see that came from the United States. "I know this sounds romantic, but it's true: I always wanted to come to America," said Mr. Mavinkurve, lanþ, with bushy hair and an easy smile. "I admired everything in the way America portrayed itself - the opportunity, U.S. Constitution, its history, enterprising middle class." When he was 14, he and his brother were accepted at Western Reserve Academy, a private school in Cleveland, and received scholarships. During his senioryear, Mr. Mavinkurve finished near the top of his http://www.nytimes.com/2009104/12lbusiness/l2immig.html?pagewantedlrint 412812009 In Silicon Valley, Recruiting Clashes With Immigration Limits - NYTimes.com Page 3 of g class, ran cross-country and trac\ and scored 156o out of 16oo on the SAT. Next stop: Harvard. His freshman year, he won the prize for best essay written in French, a comparison of books by Annie Ernaux. His friends described him as social but with a quiet, determined work ethic. He took the toughest classes, and to make money he took a job cleaning toilets in the dorm. He remained patriotic; on his dorm wall, he hung an American flag his brother had purchased at Fort McHenry in Baltimore, where "The Star-Spangled Banner" was written. But he knew he could lose his immigration status after he graduated and his student visa expired. So he decided to major in computer science, which he understood to be in demand, and entered a four-year program for a master's degree. In eoo3, his final year, he and three friends decided to build a Web site where college students could connect. Mr. Mavinkurve wrote the computer code. Eventually, the team disbanded, although some of its work evolved into Facebook. He had helped create the foundation for a product that has become a national sensation. He started at Google in August 2oog, as a product manager on the teams that developed Google News and the Google toolbar, then worked on the look and feel of the video search, and on the earþversions of Google Maps for cellphones. He developed a reputation for helping design the way the products look, and making them simple to use. Still, he had ample reason to worry about his visa status, given the limits on how manyvisas are issued for skilled immigrant labor. It is a category whose significance has been growing since the 192os, when politicians and business executives started recognizing the value of skilled immigrants. After World War II, companies began actively ' recruiting scientists, among them Nobel Prize winners, from around the world. The emphasis on skilled labor was codified in the Hart-Celler Immigrant Act of 1965, which said that for zo percent of immigration spots, candidates with certain skills would get preference to stay indefiniteþ, though that 20 percent also included the family members of those skilled immigrants. (At the time,74 percent of visas were given to people to be reunited with famiþ members here, and 6 percent for political refugees from the Eastern Hemisphere.) Reflecting the growing importance of technology - and responding to industrylobbying - in r99o Congress set aside 65,ooo temporary workvisas, known as H-rB visas, for skilled workers. The visas, which are sponsored by companies on behalf of employees, permit three years of work, with an automatic three-year extension. The limit was raised twice as the technology sector boomed, to u5,ooo in rg99 and to tg5,ooo in zoor. But those temporary increases were not renewed for zoo4, and the number of H-rB visas reverted to 65,ooo. (There are an additional 2o,ooo Ht-B's for people with graduate degrees from American universities.) Since zoo4, there has been a growing gap between the number of H-rB visas sought and those granted, htþ://www.nytimes.com/2009104/12lbusiness/l2immig.html?pagewantedlrint 4/28t2009 In Silicon Valley, Recruiting Clashes With Immigration Limits - NYTimes.com Page 4 of 8 through a lottery. In zoo8, companies made 163,ooo applications for the 65,ooo slots. Google applied for 3oo of them; 90 were denied. In zoo4, Mr. Mavinkurve was one of the lucþ ones. "You can be very proud," said the congratulatory e-mail message he received from an immigration lawyer at Google. Good fortune followed at Google. In honor of the country that made it possible, on June 14,2oo4, Flag Day, Mr. Mavinkurve made a laser print of an American flag and taped it to a white board in a Google hallway. The flag remains. When Google went public that August, Mr. Mavinkun¡e was on his way to becoming a multimillionaire. "I remember quantiffing: for each dollar the stock goes up, I make more than my mother and father make together in a whole month at ì.,tork," he said. Indeed, recent immigrants like those at Google have been successful. "The thing distinctive about this generation, and I think unprecedented, is that they are coming with the highest level of skills in the leading industries," said Annalee Saxenian of the school of information at the University of California, Berkeley. She added that this was acute in Silicon Valley because of its entrepreneurial culture. "You don't see immigrant success at any other place in the U.S. at anSrwhere near the same scale," she said. The GuyWith the Answer The role Mr. Mavinkurve played in Google's success was on stark display in earþ eoo7, when the company's . map-making team faced a problem that even the best and brightest could not solve. The team met in Winnipeg, one of many conference rooms at Google headquarters named for foreign cities, like Algiers, Tunis ' and Haifa. International tributes take other forms; over cubicles in one building hang flags from dozens of countries. The cafeteria, where much of the fare is ethnic, includes Indian and Chinese food stations. These touches are appropriate. Of Google's 2o,ooo workers, between r,zoo and 18oo were born abroad and work on temporary visas, while numerous others (the company would not disclose how many) have become American citizens or been granted permanent residency, the so-called green card status. The work force is international, and so is the company's market. With the mobile phone, Google believes it can expand in places where reaching the Internet over computers is difficult, and create advertising- supported versions of maps and other services so consumers can effectively use the services free, exchanging not money, but attention. But back in late 2o,c,6, maps produced by the service were taking too long to download and appear on phones. As customers waited for the maps to form, they racked up huge bills from cellphone providers, which at the time were charging for every minute or everybyte of data transferred http://www.nytimes.coml2009l04l12lbusiness/l2immig.html?pagewantedlrint 412812009 In Silicon Valley, Recruiting Clashes With Immigration Limits - NYTimes.com Page 5 of 8 Enter Mr. Mavinkurye, who floated an alternative: cut the number of colors in each map section to zo or 4o from around zS6. The user would not see the difference, but the load times would be reduced 20 percent. Mr. Mavinkurve used a rare combination of creativity, analysis, engineering and an understanding of graphics to find a solution that had eluded the rest of the team, said Mark Crady, a manager in the maps group. "He's one of the best U.I. guys I've ever seen," Mr. Crady said, referring to user interfaces. "Google Maps for mobile reflects Sanjay." Many innovators in Silicon Valley come from overseas; 4z percent of engineers with master's degrees and 6o percent of those with engineering Ph.D.'s in the United States are foreign-born. Foreigners also spur innovation bybroadening understanding ofconsumers abroad. For instance, on the advice of Chinese-born workers, Google dotted its mobile maps for China with fast-food restaurants, which locals use as navigational landmarks. When Google cannot get visas for people it wants to hire, it seeks to accommodate them in overseas offices, like the bureaus in Britain and Brazil from which map-team members attend meetings via video conference. That work-around presents a number of drawbacks, one of which is especiaþ apparent when one worker is in California and a colleague is in India. "It's u hours to Hyderabad," Peter Norvig, director of research for Google, says of the time difference. "We do video conferences where we're up late and they're up earþ. Maybe a video conference is as good as a formal meeting, but there are no informal meetings. As a result, we lose the pace of work, and we lose trust." The larger riskis employees growing unhappyworking at a distance, orforeign companies recruiting them. For his part, Mr. Mavinkurve, in Toronto, typicaþ talks with colleagues via video conference, e-mail or instant message. But he does fly twice a month to headquarters and once a month to Britain, his life a whirlwind of time zones andvirtual interaction. For Google and Mr. Mavinkurve, working here would be better. The trouble is, he fell in love. Stuck North of the Border He sits at a rooftop pub in Toronto, drinking Canadian amberbeer. His wife, Ms. Paduko ne,27,sips sangria. Evident between them is a respect, and slight emotional distance - understandable given their brief history together. In zoo6, while working for Google in Mountain View, Mr. Mavinkurve saw his future wife's photo on the cover of a newsletter published by his Indian ethnic community, the Konkani. She was attending college in Singapore. He found her pretty, so he e-mailed her. "For three months, we sent messages back and forth - but regularþ," she said. http://www.nytimes.coml2009l04/12lbusiness/l2immig.hünl?pagewantedlrint 412812009 ln Silicon Valley, Recruiting Clashes With Immigration Limits - NYTimes.com Page 6 of 8 "I hate talking on the phone," he explained. They arranged to meet while Mr. Mavinkurve was in Singapore during a flight layover on his way to India. They met for two hours, and connected. They were engaged in January zooT in India, their second meeting. They married there in zoo8. Like first-generation immigrants throughout American history, Mr. Mavinkurve has deep ethnic ties but is quickly assimilating. His wife is no different. Butvisa rules preclude her from working in the United States unless her husband gets a green card. That process can take two years. So they live in Toronto, where she recentþ landed a job in finance. Mr. Mavinkurve and his wife get little s¡rmpathy from Mr. Berry of the Programmers Guild, a nonprofit group with a volunteer staff that lobbies Congress on behalf of American-born high-tech workers. To Mr. Berry, So - who lives in Sacramento, where he was born - it is unfathomable that Google, which receives one million résumés a year, cannot find enough qualified Americans. Further, he says immigrants depress wages. By law, H-rB workers must be paid prevailing wages, but there are conflicting studies on whether some employers actuaþ pay less when they control the fate of the sponsored workers. Even some of the supporters of allowing in more skilled immigrants say the H-rB system is flawed because it gives employers so much power over employees. As the recession deepens, many people, including members of Congress, have criticized companies like Microsoft and Intel for laying offAmericans while retaining visa holders. Google says it will cut 35o workers this year. Mr. Berry says his skills and education - a bachelor's degree in computer science from California State University, Sacramento - are denigrated by an industry that asserts that the best talent comes from overseas, via hy League schools. He worries about the employability of his children, who are studying engineering at top colleges, the University of Southern California and California Polytechnic State University. Mr. Berry, for his part, works at a major technology company he declines to name because his employment agreement precludes him from talking about his employer when in his advocacy role. He does not believe that skilled immigrants are essential to innovation. In fact, he argues the opposite. "In my experience," he said, "foreign software programmers are less likeþ to step out of the box and present alternatives to management." His arguments have caught the attention of some on Capitol Hill. "Not all our own people are able to get good jobs right rìow," said Senator Jeff Sessions, Republican of Alabama and one of the members of Congress who oppose temporary work visas. Mr. Sessions favors broad immigration reform that puts even greater emphasis on admitting people with skills. He even wants to ask visa applicants to take a scholastic aptitude test. http://www.nytimes.com/2009104/12lbusiness/12immig.html?pagewanted:print 412812009 In Silicon Valley, Recruiting Clashes With Immigration Limits - NYTimes.com Page 7 of 8 But he opposes temporary workers, whom he argues have incentive to work for less and return to their countries to share what they have learned. This puts him at odds with tech companies. "They need to step up and look at what's in the national interest," he said. Google estimates that it spends about $zo million a year on its immigration efforts - including lobbying, administration and fees to a law firm. Microsoft, while it would not disclose expenses, probably spends more. Its in-house immigration team numbers eo lawyers and staffmembers. On the political front, the tech industry lobbies Congress through an organization called Compete America, which includes titans like Intel, Microsoft, Google and Oracle. "The next generation of Google engineers are being turned down," says Pablo Chavez, Google's senior policy counsel. "If a foreign-born engineer doesn't come to Google, there is a very good chance that individual will return to India to compete against us." At the rooftop pub, Mr. Mavinkurve and his wife both express some anger. He thinks America should embrace him, given his contributions and taxpaying potential. After Google went public, he paid more than $zoo,ooo in federal taxes on his income from salary and, mostly, sales of his shares, just in one year. He misses interaction with colleagues. It hinders efficiency, slows work. He is physicaþ drained from travel. He is frustrated that he cannot put down roots inAmerica, and maybe start his own company, because he cannot leave Google, his visa sponsor. He says he feels, on one hand, great gratitude that America gave him extraordinary opportunity. But he says he fulfilled his side of the bargain by striving and succeeding. "Dude, I love this country," he said. But he doesn't feel loved back: "My devotion is unrequited." To Stay or to Go On each of Mr. Mavinkurve's twice-monthlyvisits to the United States (he keeps a room not far from Google), he meets with two friends at the Red Mango frozen yogurt shop on UniversþAvenue in the heart of Palo Alto. Over scoops of green tea yogurt, they brainstorm for their next venture. But he is not sure he can start a company - at least in America. Unless he gets his green card and his wife can work, he wouldbe the onlybreadwinner, risking his savings, and he says theywouldbe unhappy. "Quitting Google means saying goodbye to my green card," he said. If America will not have him, he might have to stay in Canada. The proof is on the wall of the two-bedroom high-rise apartment he shares with his wife - who is pregnant - and his parents, who have moved in with them. On the living room wall is a Canadian flag. "Quality stitching," he said, fingering it. Mr. Mavinkurve, who once hung American flags in his dorm room and then in Google's hallway, still loves htþ://www.nytimes.com/2009104/12lbusiness/l2immig.html?pagewanted:print 4/28/2009 In Silicon Valley, Recruiting Clashes With Immigration Limits - NYTimes.com Page 8 of 8 America. But the Internet-era immigrant, who moves so quicHybetween worlds, cannot decide where to land. Where is Sanjay? Bven he is not sure where he belongs. "I'm not sure I want to go bac\" he said of the possibility of moving back to the United States. "I'm not sure I can." This article has been revised to reflect the following correction: Correction: April 19, zoog An article last Sunday about immigration policies that are hindering efforts by technolory companies to hire foreign-born engineers misstated the birthplace of Jerry Yang, co-founder of Yahoo. He was born in Taiwan, not China. The article also misstated the Hungarian-born Andrew S. Grove's role in the start-up of the Intel Corporation. He was brought in by Robert N. Noyce and Gordon B. Moore to operate the company at its founding in 1968; he was not a co-founder. This article has been revised to reflect the following correction: Correction: April zg, zoog An article on April rz about immigration policies that are hindering efforts by technolog' companies to hire foreign-born engineers overstated the number of Google employees who were born abroad and work at the company on temporaryvisas. The number ranges from r,zoo to t,Boo; it is not 2,ooo. Coovright 2009 PrivacyPol¡cv lSearctr lCorrections l'$lsJ I FirstLook I Helo lContactus lWorkforUs lS¡tetr,tao http://www.nytimes.com/2009104112/business/l2immig.html?pagewantedlrint 412812009 H-18, J-1 Immigrants More Productive Than Americans, Study Says - Real Time Econo... Page 1 of 2 TTIH WÅT,TüTßffiTJHMåT APRIL 27, 2009, 6:00 AM ËT H-rB, J-r Immigrants More Productive Than Americans, Study Says lmmigrants who come to the U.S. on work or trainee visas ultimately outperform American-born workers and contribute to the country's productivity, new research shows. Examining measures such as earnings, patenting, commercializing and licensing patents, publishing books or papers and presenting at major conferences, McGill University economics professor Jennifer Hunt concluded that those who were most successful came to the U,S. on temporary work visas for the highly skilled, known as H-1Bs, or studenUtrainee visas, such as J-1s or F-1s, Meanwhile, those immigrants that came to the U.S. as legal permanent residents performed as well as those who were born in the U.S. But, those immigrants who came to the U.S. as dependents of those with temporary visas - spouses, relatives, etc. - were less productive than native Americans. Hunt concludes, "Firms, universities and teaching hospitals are successful in attracting and selecting immigrants who remain in the United States to outperform natives, thereby likely increasing U.S. total factor productivity. By contrast, natives and immigrants already in the United States sponsor college-educated immigrant spouses and family members who perform similarly to college-educated natives." Looking at hourly wages, Hunt's study showed American workers, with a bachelor's degree or higher, made $2g.60 per hour compared to those, with the same education level, who came to the U.S. on a work visa and earned $34.20 per hour. Besides earnings, Hunt primarily attributes the performance advantage to the immigrants' higher education and tendency toward more lucrative fields of study. When it comes to earnings though, immigrants' success is heavily dependent on when they come to the U.S. "Foreign education commands a lower wage return in the U.S. labor market, and the more foreign education an immigrant has, the older he or she is upon arrival in the United States, which further reduces wages and productivity. Only immigrants who arrived as college students (due to their young age at arrival and U.S. degrees) and immigrants who arrived on temporary work visas earn as much as similar natives." Hunt used the 2003 National Survey of Gollege Graduates to examine college graduates in the U.S. for at least three years, 64 years old or younger. Her final conclusion was listed, from most to least productive: "postdoctoral fellows and medical residents; graduate students; temporary work visa holders; college students; other students/trainees; legal permanent residents; dependents of temporary visa holders; and other temporary visa holders. Hunt's research comes as the hiring and recruitment of foreign workers becomes more controversial, against an 8.5% U.S. unemployment rate. For example, the State Department has encouraged sponsors of J-1 visas to bring in fewer workers, companies that accept Troubled Asset Relief Program funds can't employ H-18 workers without proving they searched for an equally-skilled American and applications for H-J B visas trickled in slowly compared to the flood of them in previous years. Copyright 2008 Dow Jones & Company, lnc. All Rights Reserved http://blogs.wsj.com/economics/2009104127|h-1b-j-l-immigrants-more-productive-than-a.. . 412812009 If lr: tll¿\ l-l()t\l/\l ;\(-Ar)i-rrV\lr::j l¡tlvisers to tfte Natlon on Êclence, Englneerlng, anil Medlclne Nat¡onal Academy of Sciences National Academy of Enginrer¡ng lnstitute of Medicine National Research Council April30, 2009 STEP MEMORANDUM TO: Members of the STEP Board FROM: Steve Merrill SUBJECT: Copyright Policy's Impact on Innovation Previous discussions of STEP work on non-patent intellectual property policy led to suggestions to focus the proposal more narrowly a particular form of IP involving policy issues currently under debate or foreseeable in the near future. Academics, business people, and NGO executives consulted had the same advice. With Bill Raduchel's help and that of Mike Nelson, Georgetown visiting professor, former IBM Internet policy executive, and before that Clinton White House official, the following proposal has emerged and been vetted with several of the people previously consulted. The consensus seems to be that it is very much on target, and the project needed to arrive at better copyright policy in the digital environment. Your criticisms and suggestions are still very much in order, but the principal task is to raise approximately $500,000 from companies and foundations (federal policymakers being unlikely to make contributions). Your help with the following or suggestions of other sources will be very much appreciated. Fírms Google (in discussion) Microsoft (in discussion) Foundøtíons Open Society Institute (George Soros) -- approached Omidyar Network Fund Samuelson -- approached Andrew W Mellon -- approached John and Catherine MacArthur -- approached Ford Rockefeller William and Flora Hewlett 500 Fifth Street NW, Washington, DC 20001 Telephone (202) 334-1581 Fax(2021334-1505 [email protected] THE NATIONAL ACADEMIES Ådvlsen h rhe Nslion on Stienæ, Enginærrng, snd ¡úed¡(ine Proposal of the The National Academies' Board on Science, Technology, and Economic Policy (STEP) For a project on The Impøct of Copyright Policy on Innovatíon in the Digital Era Summary The National Academies' Board on Science, Technology, and Economic Policy (STEP) proposes a project aimed at expanding and improving research on the impacts of copyright policy, particularly on innovation in the digital environment. The National Academies are seeking support from several private foundations to undertake this project The STEP Board will form an ad hoc organizing committee to recruit participants for this project and refine its scope. The committee will be composed of experts in the subject from economics and other research fields as well as investrnent, industry, and law, some with previous government experience. This project will be organized in four steps. First, the organizing committee will engage in a private online forum to identiff key issues for and methods of investigation and the experts best able to address them. The committee will also commission a small number ofbackground papers. Second, the committee will plan and convene a multi-disciplinary workshop with 25-35 experts in the field. Third, following the workshop, additional experts will be invited to continue the discussion in an expanded online forum focused on refining and elaborating on the ideas and proposals discussed at the workshop. Fourth, the committee will prepare a final report assessing the current state of the research field, identit¿ing policy-relevant research questions that need attention, suggesting how to approach these topics, and recommending how public agencies and private institutions might support such work. With sufücient funding, the Academies will hold the workshop in the fall of 2009. The online forum following the workshop would continue for 6-8 weeks. The report, subject to the peer review procedures of the Academies' Report Review Committee, would be completed in the spring of 2010 and released along with other materials generated, including background papers and workshop digital recordings. Bearing the imprimatur of the National Academy of Sciences, the report will be given wide circulation among academics, stakeholders? government officials, and NGOs. 500FifrhStreetNW,Washington,DC20001 Telephone (202)3342200 Fax(202)334 1505 [email protected] \ilhy Focus on Copyright Policy? Copyright, like the patent system, derives from the Constitutional authorization for legislation allowing authors, creators, and inventors to enjoy time-limited monopolies as an incentive for creation and discovery. Compared with patents, however, copyright directly impacts a broader range of industries - publishing, recording, films, games, and software among others -- as well as virtually all activity on the Internet, whether or not commercial. The rules of copyright evolved for the most part in a pre-1990 era when the number of authors and publishers was small relative to the entire population, each instance of a creative work had a physical manifestation, the uses to which works could be put were known and relatively narrow, and collaboration to produce a work generally required physical co-location or the repeated exchange of physical objects. As a result of the Internet, the number of authors approaches the size of the population, most works exist in non-physical form as a collection of bits, works can be readily excerpted, altered, and cornbined in limitless variety, and collaboration can occur on a vast scale across diflerences of time and location. One manifestation of these changes is the emergence of communities of interest (e.g., open source software, Creative Commons, etc.) operating in novel ways within the copyright framework. Another manifestation is widespread digital piracy, which has spawned vigorous efforts by content owners to strengthen and extend enforcement of the copyright rules framework. The resulting tension between the need to protect copyright and the need to foster the widespread flow of information and ideas (in 1987 Stewart Brand posed it as follows: "Information wants to be free. Information also wants to be expensive....That tension will not go away.") has raised a number of issues that are being vigorously debated in the United States, other advanced countries, and multilateral forums such as the World Intellectual Property Organization (WIPO). Negotiations among a select group of countries to craft an anti- counterfeiting trade agreement (ACTA) have generated considerable controversy. And the amount of copyright litigation has increased in recent years. o The scope of fair use and other exceptions and limitations to copyright. The fair use doctrine has served to protect free speech, advance education and researcþ and enable the copying and transfer of information necessary to operate computers and the Internet. Over the last several years numerous court decisions have attempted to define the concept of fair use in domains as different as music sampling and domain names. o Technology mandates that require use of new methods for protecting digital information such as mandatory filtering of copyrighted materials, broadcast flags, or regulation of device outputs. For example, the development of deep packet inspection technologies has led content owners to call for a requirement that Internet Service Providers (ISPs) use them to screen for copyrighted material transmitted over the Internet. ISPs have resisted such measures on grounds of expense and interference with online innovation. o Secondâry or intermediary liability, of Internet Service Providers (ISPs) and social networking sites, for example, is an alternative approach to blocking the dissemination of copyrighted material through music downloads and user- generated content platforms. Recent debate has centered on a proposal to have ISPs bar from the Internet individuals who commit a series of infringements. Some argue that the large statutory damages for copyright infringement are, especially in the Internet context, divorced from any calculation of actual harm and deter investment in new technology and new services. In recent years, the U.S. and other governments have required some recipients of public research grants to make their results freely available online, even if they are in the form of copyrighted journal articles. There is an ongoing debate about the impact of such policies on publishers and about how broadly they should be applied. Why a Need for a Research Agenda? In the ongoing debate over these and other elements of copyright law and regulation in Congress, the courts, and elsewhere, the content owners on the one hand and the critics of strengthened protection on the other hand tend to frame their arguments in terms not much more detailed or nuanced than Brand's formulation. Content owners often argue that more IPR protection is better and in support of their case cite data on the amount of economic activity and international trade generated by the movie, recording, and media industries and estimates of their sales losses due to piracy. Advocates for fair use and free access to information, on the other hand, argue that more information to more people benefits innovation and society as a whole. Content owners see almost all sharing as theft, while their opponents see it as valuable social expression with limited harm to or even value enhancement for owners. Rarely does the discussion advance beyond philosophical and emotional arguments, in part because there is so little rigorous research on the costs and benefits of policies to protect copyrights and measures to expand copyright limitations and exceptions. This polarization also means that there has been a scholarly neglect of topics that may point the way to policy options that lie between maximum and minimum protection. These include, for example o The incidence, functioning, and effectiveness of experimental licensing schemes that supplement or substitute for the traditional legal copyright framework; ¡ The viability of creator remuneration models in situations where perfect enforcement is technically or politically infeasible; and o International comparisons that would illuminate whether the ways in which copyright law is interpreted and enforced in other countries could inform eflorts to improve U.S. policy. In patent policy there has emerged a small but growing and prolific international community of scholars who are devoting a significant part of their careers to studying the impacts of different approaches to patent protection in different technologies and industrial sectors. Empiricallybased analysis has strongly influenced many of the elements ofpatent reform legislation that appears likety to be enacted in the 1 1lth Congress.t Itr contrast, there is no such group ofresearchers studying the impact of copyright and the implications of the policy changes currently being debated. What papers have been written on the topic (e.g., on the rationale for copyright terms of different length) tend to be theoretical and produced by scholars who write one or two papers before moving into other fields. One reason for the limited amount of research on the impact of copyright policies is the lack of the kinds of administrative data generated by the system of patent application, examination, issuance, and maintenance. Another reason is the complex, inherently multi- discþlinary nature of the work. Not only do researchers need an understanding of both IPR and antitrust law and their economic impacts, to do a comprehensive analysis they also need to understand a range of technological issues and have a gasp of the literature on innovation, collaboration and information flows within and between organizations. There are classic papers on the economics of copyright (e.g. Landes and Posner, 1989) that try to compare the cost of creating a work with the expected returns to the creator under difflerent copyright regimes. However, little work has been done to assess the second- and third- order impacts of copyright protection. For instance, what is the economic value of works that sample orbuild on the copyrighted works of others? What is the cost of so-called orphaned works which remain under copyright even though it is not possible to determine the copyright o\ryner and thus negotiate with him or her for rights to the works? What are the additional costs of lawsuits brought to protect copyrighted works? What might be the economic benefits and costs of increased enforcement measures by law enforcement agencies and ISPs? Plan of Action Commíttee formatían' The National Academies will appoint an ad hoc organizing committee of 8-10 mernbers. An effort will be made to ensure that the panel includes members of the research community (economics, law, and other disciplines related to innovation), representatives of the content industries and the information technology sector, innovators in copyright workaround regimes, and representatives of the NGO community focused on information policy. People with diverse professional experience (e.g., law, research, business, and government) will be recruited. As is standard practice, the proposed roster will be published on the National Academies' Website and public comments solicited. Before being frnalized, the committee slate is screened for instances ofbias and conflict of interest, whether selÊidentified or identified in public comments. Commßsínned papers: In preparation for the workshop, the organizing committee will commission recognized scholars to prepare background papers on the following topics: I By the same token, the two most contentious remaining issues in patent reform - how the calculation of damages for infringement and the selection of trial court venues for patent infringement lawsuits affect litigation behavior - have not been subject to rigorous analysis. . A review of the existing literature on the costs and benefits of copyright and related IPR policies.2 o A baseline estimate of the magnitude and enumeration of the categories of U.S. economic activity affected by copyright together with a discussion of the range of business models dependent on its protection. o A theoretical analysis of how copyright might stimulate or inhibit innovation, collaboration, and creativity. These papers will serve as starting points for discussion at the workshop. But they also have the potential to be controversial. Accordingly, the project is likely to issue a request for proposals and vet submissions with members of the committee. In addition, preliminary versions of each report will be sent to selected reviewers and made available on the Web for comment. lüorkshop: Through a private online forum the organizing committee will plan a one- and-a-half day public workshop in Washington to address and prioritize a range of research topics and methodologies. An ef[ort will be made to include among the 25-30 invited participants non-U.S. scholars and other experts and to ensure that panels represent different disciplines and views on the optimal level of copyright protection. Attendance will be limited to 100 people, the maximum capacity of the Academies' meeting facility most conducive to an exchange of views among invited speakers and with members of the audience. Further delÍberatíons.' Following the workshop other experts will be invited to join in an online forum, lasting approximately 6-8 weeks, to delve more deeply into some of the topics explored at the workshop. This unusual approach for Academy committees is well-suited to this project because of the range of expertise relevant to the topic and the fact that a number of the experts whose participation would be most valuable reside in Europe, Canada, Australia, and elsewhere (see Towse, et a1.,2008) and may not be able to participate in a face-to-face meeting. Delíverables.' The presentations and panel discussions at the conference will be digitally 'We recorded and immediately made available as Podcasts. anticipate that summaries of the discussions during the post-workshop online forum willbe made publicly available but that the discussion among the online forum participants will be governed by Chatham House rules in 'Within order to foster full and open dialogue. approximately six months of the completion of the online forum the organizing committee will issue a peer-reviewed report containing a review of the state of research, suggestions for investigators, and recommendations for funding agencies and private institutions. Published by the National Academies Press, the report will be widely disseminated in hard copy and as a free PDF. Objective for Evaluation The near-term objectives of the project are to showcase useful research that has already been done, identi$ policy-related topics that merit attention and suggest research methods that may be appropriate for addressing them, and encourage communication and coordination among scholars interested in the subject. A slightly longer range objective is to influence government 2 An example of related work is the initial effort to assess the impact of the 1996 European Union Database Protection directive (Cardinale, 2008). funding agencies as well as foundations and other private sources ofresearch support to focus more attention on the need for additional research on the impacts of copyright and other non- patent intellectual property policies. Ultimately, the objective is to contribute to better informed, more empirically and theoretically grounded policy-making in the area of copyright law in the United States and globally. Experience and Qualifications of the National Academies The National Academy of Sciences (NAS) was congressionally chartered in 1863 to honor scientific achievement by election to membership and to provide advice to the federal government and the public on issues of science, technology and health. The National Academy of Engineering (NAE) and the Institute of Medicine (IOM) were later created as honorific membership organizations, and jointly with the NAS they operate the National Research Council (NRC), which appoints ad hoc committees to organize public conferences and carry out consensus studies recommending steps that policymakers and government managers should take. The careful selection of guidance committees for balance of views, diversity of expertise, and freedom of conflicts of interest, together with the rigorous peer review that draft reports undergo have given Academy work an unequalled reputation for independence, objectivity, and thoroughness. Recommendations of the Academies are generally influential even when not directly requested by decision makers. Experience and Qualifications of the STEP Board The National Academies' STEP Board was established in 1991 as a standing committee to advance understanding of the relationship of science and technology and national economic performance and living standards and to recommend appropriate public policies. Composed of senior-level industrial technologists, research scientists, academic economists (including four Nobel Laureates during its 18-year existence), and financial executives, the STEP Board has conducted studies of innovation and competitiveness in a wide range of technology sectors. With the sponsorship of a growing number of federal government agencies, foundations, multinational companies, and international organizations, the STEP Board program has become an important discussion forum and authoritative voice on technical standards, intellectual propert¡ trade, taxation, human resource, and statistical as well as research and development policies. The Board's 2004 selÊinitiated report, A Patent Systemfor the 2l't Century, funded in part by the Andrew W. Mellon Foundation, was the genesis of the patent reform legislation currently proceeding through Congress and provided the reasoning behind a number of recent decisions of the U.S. Supreme Court and the Court of Appeals for the Federal Circuit. Other recent reports on intellectual property include Patents in the Knowledge-Based Economy (2003), and Reaping the Benefix of Genomic ønd Proteomic Research: Intellectual Property Rights, Innovqtion and Public Health (2006). A Committee on Management of University Intellectual Property: Lessons from a Generation of Experience, Research, and Dialogue will issue its final report in early îall2009. The latter two projects are joint activities of STEP and the Academies' Committee on Science, Technology and Law. Other STEP activities and products are described at http : //www. nationalacademies. orglstep/. References Cardinale, Philip J,2007. Sui Generß Database Protection: Second Thoughtsþr the European union and What It Meansfor the United States.6 Chi-Kent J. Intell. prop. 157 Landes, William M., and Posner, Richard A., An Economic Analysis of Copyright Law, 18 J. Leg. Stud. 325, 325-33, 344-53 (1 989) Towse, Ruth, Handke, christian, and stepan, Paul, The Economics of copyright Law: A Stocktake of the Literature, Review of Economic Research on Copyright Issues, vol. 5(1), pp. 1- 22,2008 GUEST COLUMN Supreme Gourt grants certiorari to decide s¡gnificance of copyright registrations Jeffrey A. Simmons March 6,2009 On March 2,2009, the U.S. Supreme Court granted a writ of certiorari in Reed Elsevier, Inc. v. Muchnik, No. 08-103. This case presents a potentially crucial issue for copyright owners seeking to enforce their rights in court: Must a copyright owner obtain a copyright registration before a federal court can hear a lawsuit claiming infringement of the copyrighted work? More precisely, the Supreme Court frames the question as: Does 17 U.S.C. $ al I (a) restrict the subject matter jurisdiction of federal courts over copyright infringement actions? Section an@) of the Copyright Act (Act) provides that "no civil action for infringement of the copyright in any ... work shall be instituted until preregistration or registration of the copyright claim has been made" in accordance with the Act. The Act also expressly permits copyright owners to file infringement lawsuits if they applied for copyright registration but their application was rejected. Thus, ñling for a copyright registration is essential to initiating an infringement suit. The U.S. Circuit Courts of Appeals, however, are split on the issue of whether a copyright owner is merely required to have properly filed an application for copyright registration (along with the requisite fee and deposit requirements), or whether it is necessary for the U.S. Copyright Office to have acted on the application (i.e., approved the registration or rejected the application) before an owner can file suit. The distinction can be vitally important for copyright owners because it can take months for the Copyright Office to act on an application, but owners often want to file suit immediately to enjoin infringing activity. Reed Elsevier may resolve this split, although it is not certain to do so given the case's unusual facts. Specificall¡ Reed Elsevier involves the proposed settlement of a class- action copyright infringement suit brought mainly by freelance authors against publishers who republished the authors'works on the Internet. Although the named plaintifß in the suit had obtained copyright registrations for their works, most of the other class members had not. After years of negotiation, the parties sought court approval for a settlement, which is necessary in a class-action suit. The district court approved the settlement, but the Court ofAppeals for the Second Circuit vacated that decision, holding that the courts could not approve the settlement because they did not have subject matter jurisdiction over the claims of copyright owners who had not registered their works. Given the way the Supreme Court has framed the issue on appeal, it seems likely that the Court's decision will involve a close examination of the text and pu{pose of $ 41 1, which could provide important guidance about how quickly a copyright owner can initiate a lawsuit after filing its application for registration. Ipa*"""m"oet*" French lawmakers reject Internet piracy bill fn surprise move, French lawmakers reject bill punishing illegal downloading o Scott Sayare, Associated Press Writer . On Thursday April 9, 2009,4:05 pm EDT PARIS (AP) -- French legislators on Thursday rejected legislation to permit cutting off the Internet connections of people who illegally download music and films. But a stubborn government plans to resurrect the bill for another vote this month. Backers of the bill -- record labels, film companies and law-and-order parliamentarians -- couldn't rally the needed support during in a near empty lower chamber ahead ofthe Easter holiday. Lawmakers voted 2l to 15 against it. The measure would have created a goveffiment agency to track and punish those who pirate music and film on the Internet. Analysts said the law would have helped boost ever-shrinking profits in the entertainment industry, which has struggled with the advent of online file-sharing that lets people swap music files without paying. The government, intent on gaining the upper hand in piracy, managed to slip the measure into an April23 special session devoted to initiatives by President Nicolas Sarkozy's conservative UMP party. The president's office reaffirmed Sarkozy's wish to get the law passed "as quickly as possible." He "does not plan to renounce this whatever the maneuvers" to try to stop the bill's passage, a statement said. Music labels, film distributors and artists -- who have seen CD and DVD sales in France plummet 60 percent in the past six years -- almost universally supported the measure, hailing it as a decisive step toward eliminating online piracy and an example to other governments. Artists'groups in France have said the future ofthe country's music and film industries depends on cracking down on illegal downloads, and the legislation received industry support from around the world. "It is disappointing that the law was not confirmed today," said London-based John Kennedy, Chairman and CEO of the International Federation of the Phonographic Industry, which represents the recording industry worldwide and supported the bill. Legislators and activists who opposed the legislation said it would represent a Big Brother intrusion on civil liberties -- they called it "liberticide" -- while the European Parliament last month adopted a nonbinding resolution that defines Internet access ¿ß an untouchable " fundamental freedom. " Opponents also pointed out that users downloading frompublic WiFi hotspots or using masked IP addresses might be impossible to trace. Others called its proposed monitoring structures unrealistic. "It is a bad response to a false problem," said Jeremie Zimmerman, coordinator of the Quadrature du Net, a Paris-based Internet activist group that opposed the bill, calling it "completely impossible to apply." He said the bill's rejection is proof of a widespread sense that it was a draconian approach. Under the legislation, users would receive e-mail warnings for their first two identified offenses, a certified letter for the next, and would have their Web connection severed, for as long as one year, for any subsequent illegal downloads. French Culture Minister Christine Albanel had said the bill did not aim to "completely eradicate" illegal downloads but rather to "contribute to a raising of consciousness" among offenders. "There needs to be an experiment," said Pierre-Yves Gautier, an Internet law expert at the University of Paris, noting the plummeting profits of the entertainment industry. "Frankly, it's worth it." Associated Press writer Emmanuel Georges-Picot in Paris contributed to this report. 14 April2009 The ACTA Threat To The Future Of WIPO Disclaimer: the views expressed in this column are solely those of the authors qnd are not associøted with Intellectual Property lilatch. IP-Watch expressly disclaims and refuses any responsibility or liøbilityfor the contenL style or form of any posts made to this forum, which remain solely the responsibility of their authors. By Michael Geist Since representatives from the United States, European Union, Canada, and a handful of other countries simultaneously announced their participation in the Anti-Counterfeiting Trade Agreement negotiations in October 2007, the ACTA has been dogged by controversy over the near-total lack oftransparency. Early negotiations were held in secret locations with each participating country offering near-identical cryptic press releases that did little more than fuel public concern. The participating countries conducted four major negotiation sessions in 2008 and though the first session of 2009 was postponed at the request of the US (which was busy transitioning to a new president), the negotiations are set to resume in Morocco in May. In recent weeks, the structure and key provisions within the draft treaty have come to light, yet it is the candid acknowledgment that ACTA represents an attempt to avoid the consensus-building approach of the World Intellectual Property Organization that should give supporters of a multilateral approach to intellectual property policy making pause. The ACTA details have come from two sources - a growing number of internet-based leaks and the governments themselves. The leaks began in early February, with blog postings and online references to specific draft language. With the cat seemingly out of the bag, the negotiating countries released a six-page summary earlier this month that confirmed much of the online speculation. The proposed treaty has six main chapters: (1) Initial Provisions and Definitions; (2) Enforcement of Intellectual Property Rights; (3) International Cooperation; (4) Enforcement Practices; (5) Institutional Arrangements; and (6) Final Provisions. Most of the discussion to date has centred on the Enforcement of Intellectual Property Rights chapter, which is divided into four sections - civil enforcement, border measures, criminal enforcement, and the Internet. The first three sections were addressed in meetings last year. Although there is still considerable disagreement on the final text, leaked documents indicate that the draft includes increased damage awards, mandated information disclosure that could conflict with national privacy laws, as well as the right to block or detain goods at the border for up to one year. Moreover, the criminal provisions go well beyond clear cases of commercial infringement by including criminal sanctions such as potential imprisonment for "significant wilful copyright and trademark infringement even where there is no direct or indirect motivation of financial gain." Jail time for non-commercial infringement will generate considerable opposition, but it is the internet provisions that are likely to prove to be the most controversial. At the December meeting in Paris, the US submitted a "non-paper" that discussed internet copyright provisions, liability for internet service providers, and legal protection for digital locks. While the substance of the treaty will remain fodder for much debate, Canadian officials recently hosted a public consultation during which they acknowledged the true motivation behind the ACTA. Senior officials stated that there were really two reasons for the treaty. The first, unsurprisingly, was concerns over counterfeiting. The second was the perceived stalemate at WIPO, where the growing emphasis on the Development Agenda and the heightened participation of developing countries and non-governmental organisations have stymied attempts by countries such as the United States to bull their way toward new treaties with little resistance. Given the challenge of obtaining multilateral consensus at WIPO, the ACTA negotiating partners have instead opted for a plurilateral approach that circumvents possible opposition from developing countries such as Brazil, Argentina, India, Russia, or China. There have been hints of this in the past - an EU FAQ [frequently asked questions] document noted that 'the membership and priorities ofthose organisations [G8, WTO, WIPO] simply are not the most conducive" to an ACTA-like initiative - yet the willingness to now state publicly what has been only speculated privately sends a shot across the bow for WIPO and the countries that support its commitment to multilateral policymaking. Indeed, there is little reason to believe that \ilPO could not serve as the forum to advance intellectual property enforcement. The WIPO General Assembly created the Advisory Committee on Enforcement (ACE) lr;.2002 with a mandate that includes "coordinating with certain organisations and the private sector to combat counterfeiting and piracy activities; public education; assistance; coordination to undertake national and regional training programs for all relevant stakeholders and exchange of information on enforcement issues through the establishment of an Electronic Forum." The decision to move outside the WIPO umbrella and effectively exclude the developing world from participating in the ACTA negotiations has significant short and long-term implications. In the short-terrn, \MPO members can expect progress on Development Agenda issues to stall as ACTA partners focus on completing their treaty. Given the scepticism surrounding the Development Agenda harboured by some ACTA countries, they may be less willing to promote the Agenda since their chief global policy priorities now occur outside of WIPO. The longer-term implications are even more significant. While it seems odd to conclude an anti-counterfeiting treaty without the participation of the countries most often identified as the sources or targets of counterfeiting activities, the ACTA member countries will undoubtedly work quickly to establish the treaty as a "global standard." Non-member countries will face great pressure to adhere to the treaty or to implement its provisions within their domestic laws, particularly as part of bilateral or multilateral trade negotiations. In other words, there will be a concerted eflort to transform a plurilateral agreement into a multilateral one, though only the original negotiating partners will have had input into the content of the treaty. With all the cards now on the table, the developing world faces a stark choice - remain on the ACTA sidelines and face a future filled with pressure to implement its provisions or demand a seat at the table now. Countries such as Mexico, Morocco, and the United Arab Emirates have all been part of current or previous ACTA negotiations, suggesting that there is little reason to exclude any country that wants in. By bringingBrazil, Argentina, Chile, India, Eglpt, South Africa, China, Russi4 Indonesi4 and a host of other countries into the mix, the ACTA would shift back toward a rnr¡ltilateral treaty and in the process ensure that the counterfeiting and piracy concerns of the global community are appropriately addressed. Moving the ACTA discussion into WIPO may not be happen, but it is still possible to imbue the negotiations with both transparency and broad participation from the developed and developing worlds. Dr. Michael Geíst is a law professor at the University of Ottawa where he holds the Canada Research Chair in Internet qnd E-commerce Law. Dr. Geist has been an active commentator on the Anti-Counterfeíting Trade Agreement in hís weekly columns in the Toronto Stqr and Ottawa Citizen as well øs on his blog at www.míchaelgeist.ca. He can be reached at [email protected]. TT{E WAT,L SMMTJ{X]RNAI,. . TECHNOLOGY . APRIL 18, 2009, 7:02 A,M. ET Pirate Bay Operators Convicted in File-Sharing Trial ByAARON O. PATRICK and SARAH MCBRIDE STOCKHOLM--The operators of a notorious file-sharing Web site were found guilty of copyright infringement by a Swedish court, a key legal victory for the entertainment industry that nonetheless may do little to stem the piracy of entertainment on the Internet. Four men behind the site, called the Pirate Bay, were sentenced to a year in jail and ordered to pay 31 million Swedish kronor ($3.7 million) in damages to artists. The men- Peter Sunde, Gottfrid Svartholm W*g, Fredrik Neij and Carl Lundstrorn-remain free and said they would appeal. Associated Press Pirate Bay founders Gottfrid Svartholm Warg, left, and Peter Sunde at the Stockholm district court Thursday. The music industry said the ruling would serve as a global deterrent to file-sharing, which has hobbled the music business and begun to eat away at the film and TV industries. The industry also hopes it will prompt Internet service providers in Sweden and elsewhere to shut offaccess to people who download music and movies without paying. "A generation will understand that the Pirate Bay and what they are doing isn't OI!" said John Kennedy, the head ofthe global music trade body the International Federation of the Phono graphic Industry. Other big file-sharing sites also face legal challenges, including civil suits against both Mininova, based in the Netherlands, and isoHunt in Canada. But the industry's past legal victories against services like Napster andKazaa were short- lived, as new services sprang up quickly to replace those closed by the authorities. Combating new file-sharing sites is complicated, forcing the industry to go jurisdiction- by-jurisdiction to persuade governments and Internet service providers to take action. "The real problem is that average people...seem to like getting entertained for free on the Internet," said Eric Garland, president of Big ChampagneLLC, a digital entertainment consultancy. "People find and anoint new places to do this again and again and again." In the wake of Friday's verdict, the Pirate Bay site was operating normally, offering links to thousands of games, TV shows, books and movies, including "X-Men Origins: Wolverine", an action movie from News Corp.'s Twentieth Century Fox movie studio due to open May I in the U.S. "Will [the court decision] on its own act as a deterrent? No," said Eric Nicoli, a former chief executive of music company EMI Group Ltd. "There is no price that can effectively compete with free." The U.S. entertainment industry has been trying to shut down Pirate Bay almost since it began in 2003, and enlisted the support of the U.S. State Department pressure the Swedish government to act. Swedish police raided the site's office in 2006 and later charged the men with copyright violations. The industry admitted Friday's ruling does not solve its problems. "This isn't the end of the battle," said Ted Shapiro, general counsel for the Motion Picture Association in Europe. He said the group is exploring ways to capitalize on the legal victory such as perhaps going after Pirate Bay's Intemet-hosting providers. ssociated Pless Reporters scrambled to get the Pirate Bay verdict Friday in Stockholm. He also said any consumers who believed Pirate Bay's assertions that they weren't doing anything wrong will have second thoughts about using file-sharing sites after the ruling. "Today the court made it clear that what they were doing was illegal, and a serious offense," he said. The ruling also comes as the entertainment industry is still struggling to find a business model that works for a world in which consumers increasingly expect content to be free. Some artists have argued the music industry should give up fighting Internet piracy and make most music free online. But record company executives continue to try to charge as much as possible for online sales, even though analysts estimate more than 90% of music downloaded is not paid for. Mr. Kennedy said the music industry would now take legal action through the Swedish courts to shut the Pirate Bay down. But the process of appeals and civil litigation could drag on for years. The operators of the site have said most oftheir computer equipment has been moved out of Sweden. The site is the world's largest host of BitTorrent trackers, programs that monitor the location of files on the computers of people prepared to share thern, according to David Price, an Intemet security expert at Envisional Ltd. in Cambridge, England, who has investigated the site for clients. The trackers allow the Pirate Bay to operate as a giant global index of free entertainment on the Internet. BitTorrent breaks up large computer files into small pieces so they can be sent quickly over the Web. The Pirate Bay site probably needs 20 or 30 high-end server computers to operate, according to Dr. Price, and may be too expensive for someone else to replicate. True to its philosophy of free information, one of the defendants, Mr. Sunde, posted Friday's verdict on the Internet using Twitter before it was read aloud by a judge in Stockholm district court. Mr. Sunde later appeared in an online video message and held up a sign saying "I owe uI you 3l million Swedish (kronor)" with "J/Ç" or just kidding, at the bottom. think that's as close as they're going to get to any money from us," he said. Martinez contributed to this article. -Jennifer Write to Aaron O. Patrick at [email protected] and Sarah McBride at sarah. mcbride@wsj. com EU parliament seeks to extend music rights April 23,2009 STRASBOURG (AFP) The European Parliament voted Thursday in favour of extending musicians'royalties- to 70 years, a sizeable increase on the current 50 years but less than an original EU Commission initiative. The move comes as ageing rockers such as the remaining Beatles and the Rolling Stones prepare to see their right to royalties on their recordings expire. Unfortunately for them the measures, adopted by 377 votes to 178 in the Strasbourg chamber, are only a first reading by the assembled MEPs and would in any case apply only to new recordings. The European Commission, the EU's executive arrru last year mooted a 95-year royalties copyright, which would ensure that artists never saw their music rights expire. Irish MEP Brian Crowley, who introduced the plan to the parliament, said that the 70- year compromise takes into account resistance from some ofthe 27 EU member states and would facilitate an agreement. The move must be formally agreed by the parliament and the EU nations if it comes into force. Under current EU laws, recorded musical performances are protected for a maximum of 50 years. During that period performers, musicians and singers receive remuneration for each time their work is played on the air. After 50 years, artists lose control over the use of their works and no longer receive this income. Music composers already enjoy copyright protection for 70 years after their death. Copyright O 2009 AFP. All rights reserved. 24 April2009 ELI Stakeholders Debate Copyright, Access And Artists In Digital Age By David Cronin for Intellectual Property l{atch @ 10:58 pm BRUSSELS - Copyright should be abolished because it undermines cultural diversity, a Brussels conference has been told. Dutch academic Joost Smiers, author of the book Imagine! No Copyright, believes that modern intellectual property laws have enabled a small number of powerful firms to control the mass media in a way that is unhealthy for democracy. He contends that copyright has been used primarily to protect investments made by Hollywood,large record companies and media moguls, with almost no benefits accruing to the vast majority of artists. Smiers is urging that atwo-pronged attack should be launched on what he termed "cultural conglomerates" such as the publishing and broadcasting empires linked to Rupert Murdoch and the Italian prime minister Silvio Berlusconi, as well as the entertainment industry dominated by Walt Disney. Such an attack would involve both the scrapping of copyright and invoking antitrust law to insist that the relevant industries are no longer concentrated in so few hands. He pointed out that the United Nations universal declaration on human rights recognises that all individuals have the right to communicate and to participate in culture. '"Ihis right does not only belong to the CEOs of a few companies," he added. "We should do things at the same time: abolish copyright and cut the cultural conglomerates into pieces," he said. "At this moment of a financial crisis, we should not stop with reorganising financial markets but all markets." Smiers was speaking at a conference on the future of intellectual property, held in Brussels on23-24 April. Organised by the Goethe-Institut, a foundation promoting the German language and international cultural exchange, the event heard several speakers questioning the direction in which European law relating to intellectual property has been heading in recent years. Ruth Hieronymi, a German member of the European Parliament, voiced concern at how economic issues can be given greater emphasis than those pertaining to culture, democracy or consumer protection. Within the European Commission, the directorate-general (DG) taking the lead on copyright matters is the one responsible for the EU's single market. Elected representatives in the Parliament generally take a broader view of the surrounding issues than the civil servants working in this key division in the EU's executive arn¡ she said. ooDG Internal Market is tasked with making sure the internal market works properly," she noted. "It is not its task to deal with cultural diversity. To that extent, we have quite a conflict with the European Commission." Hieronymi also suggested that one of the cornerstones of the EU's laws on intellectual property, the 2001 Copyright Directive, is ill-suited for the internet age. 'oWe don't need to reinvent the wheel here but we do need to find new legislative directions for this area," she said. o'Online services are going to be by nature cross-border without getting licences for doing that because licences are mainly national at the moment," she added. "Ifwe don't find a way of adapting international copyright and intellectual property rights to cross-border activities, then new models will develop of their own accord. At some point, these will become so anchored in the economy they will just carry on like that." David Baervoets, an EU single market official, said that the Commission is studying the possibility of revising the 2001 copyright directive. Some 400 responses were received before a formal public consultation exercise on the subject closed in November last year. According to Baervoets, the debate on the directive has become 'îøery polarised." The most contentious issues involved relate to the exceptions from copyright that are provided for by the law. Under it, for example, libraries are granted leeway to make copies of material so that it can be preserved in archives. Copyright rules also can be waived to allow blind or visually-impaired people have access to material in Braille formats, in large print or as audio recordings. At present, these exceptions are of a voluntary nature, leaving it at the discretion of EU governments whether they should be granted. While some disability rights organisations and librarians are urging that the exceptions should be made mandatory, many book publishers are not in favour of doing so. The European Bureau of Library Information and Documentary Associations (EBLIDA) complains that the vast array of different contractual arrangements that publishers are seeking with libraries often eliminates the benefits of the exceptions. This is particularly so in the case of scientific books and journals, the publication of which is dominated by a handful of companies. EBLIDA representative Toby Bainton said that greater standardisation of licensing for publications is needed. "The EU institutions should have the courage to say that certain exceptions should be mandatory" he added. Andreas Bogk from the Chaos Computer Club, an organisation of computer hackers, suggested that intellectual property should not be used to deny access to information. "Digital libraries should be places that I can access from anywhere in the world," he said. 'olf I'm in German¡ why shouldn't I be able to access a library in the UK? EU member states should be ensuring that our books and our knowledge is digitalised and stored and made available to all citizens. That's something we can do." But Anne Bergman from the Federation of European Publishers said her o'ideal digital library would respect intellectual property rights." Discussions need to be held to ascertain how the remuneration of authors can be guaranteed once more books are made available in electronic forrn, she added. "If tomorrow, all books sold in book shops can be accessed for free in [digital] libraries, I suspect that the book shops will close immediately," she said. "The only way authors would be paid is through state aid. The Soviet regime had state financing for publishing. Is this what we want?" Danny O'Brien from the Electronic Frontier Foundation, a civil liberties group, said a 'þragmatic solution" is required to the question ofhow artists will be paid in the future, given that an increasing amount of films, music and other cultural goods are available free of charge on the internet. He warned against using draconian methods to uphold copyright law, adding: "If the insistence is that the only way forward is increased enforcement and that every copy made is monitored, then I dread to think what will happen in the next ten years." David Cronin may be reached at [email protected]. ft I r: N¿\ l-lO\lAl Af-¡¡Di-:/\t\l F:.i Adpísers to the Natlan on sclence' Ettglneerlng' and Medicíne Nat¡onal Acâdemy of sciences National Academy of Engineering lnstitute of Medicine National Research Council Aprit 30, 2009 STEP MEMORANDUM TO: Members of the STEP Board FROM: Steve MerriII SUBJECT: Management of University Intellectual Property The STEP-STL (Science, Technology, and Law) committee responsible for this project (under Washington University Chancellor Mark Wrighton and Novartis R&D CEO Mark Fishman) will meet June 1-2 to consider a draft report with recommendations. Included will be recommendations relating to, inter alia, o Institutions' articulation of missions for technology transfer and the implications of mission for organization, staffing, and outcomes; o Ways to minimize any adverse impact on the over-riding technology dissemination roles of the university, i.e., through education of students and publication of research results o Placement ofthe technology transfer function within institutions and lines ofreporting to senior management o Licensing (e.9., exclusive v. non-exclusive) policies and practices o How to overcome the inefficiency of each institution's "going it alone" with many having sub-optimal capacity o Treatment of IP rights in the context of research sponsored by private firms and foundations o Oversight of the federal interest in technology transfer under the Bayh-Dole Act. Barring serious disagreement about recommendations, the target date for report release is early fall 2009. 500 Fifth Street NW, Washington, DC 20001 Telephone (202) 334-1581 Fu(202) 334-1505 [email protected] f i- li: \l;\ t lr)NAl ;\(-¡\f)i':/V\li:5 Advísers to the NatÍon on Eclence, Englneeúng, and Me¡liclue National Academy of Sciences National Academy of Engineering lnstitute of Medicine National Research Council April30,2009 STEP MEMORANDUM TO: Members of the STEP Board FROM: Steve Merrill SUBJECT: Enerry Externalities Project This congressionally mandated joint study (being led by the Academies' Board on Environmental Studies and Toxicology) ofthe costs and benefits of energy production, consumption, and waste disposal, is well advanced, with a draft report in hand. The focus is on environmental, and healttr, infrastructure damages and national security costs, current and projected for 2030, in o In electric power generation (comparing coal- and gas-fired and nuclear plants and windpower generation) o In transportation (comparing gasoline, biomass, hybrid, and electric-powered vehicles) o In home and industrial heating and o From GHG-caused climate warming (through 2100 rather than 2030) Wherever possible, costs are being monetized and compared on the same basis, e.g., per kw hour, per mile of travel, etc. The results are likely to confirm well-known facts (e.g., damages from coal) but also contain some surprises. STEP staffare stafüng the development of the climate chapter and in the process identifying topics for further independent work, e.g., l) Climate change damage estimates vary widely, depending less on climate uncertainties than on the discount rate applied to costs incurred over very long periods of time. It turns out that there is little agreement on what rate should be used, but a consensus study might narrow the range.. 2) There is a need to develop a research agenda for economic analysis of climate change impacts. 3) V/ith developing countries already calling for compulsory licensing of climate- related technologies (e.g., renewable energy sources, drought-resistant crops, infectious disease countermeasures, etc.), indications are that the role of and terms of access to IP rights could become as polarized internationally as they are in the arena of health and medicines. STEP could organae a conference to examine this subject and help develop a U.S. response that is not simply reactive. The target date for release of the externalities report is early fall2009. 500 Fifth Street NW, Washington, DC 20001 Telephone(2021334-1581 Fax(20213?A-1505 [email protected] f ii I NlÅ\t|ONI/\L ¿\CADi^/\li,i Advkers tu Úte Natlon an Eclence' Englneerlng' and Medlclw National Academy of sciences National Academy of Fngineering lnstitute of Medicine Nalional Research Council April30, 2009 STEP MEMORANDUM TO: Members of the STEP Board FROM: Steve Merrill SUBJECT: Implications of Synthetic Biolory The Academies' Committee on Science, Technology, and Law, a frequent STEP collaborator on study projects, has invited the Board to cosponsor a July 2009 intemational conference in Washington on developments in the field of synthetic biology because of the program's focus in part on commercializationpotential and intellectual property issues. Synthetic biology also raises ethical, safety, and security issues that will be explored. The rationale for this activity and an agenda as it currently stands follow this memorandum. I simply wanted to bring this to your attention and see if there are any concerns about being associated with this activity. Ifthere is interest in the content ofthe July discussions we can put this on the agenda for the October board meeting. 500 Fifth Street NW, Washington, DC 20001 Telephone (2021334-1581 Fax (202) 334-1505 [email protected] 2.1.t September 12,2007 For Action New Project Policy and Global Affairs Division SUMMARY DATA PIN: STLP-Q-07-01-A Opportunities and Challenges for the Emerging Fietd of Synthetic Biologyt A Symposium Committee on Science, Technology, and Law Board on Life Sciences Board on Science, Technology and Economic Policy Development, Security, and Cooperation NAE Program Office ABBREVIATED STATEMENT OF' TASK An ad hoc committee will organize a syrnposium that will bring together the scientific, engineering, legal, and policy communities along with members of the public to explore the opportunities and challenges posed by the emerging field of synthetic biology. The symposium will feature invited presentations and discussion. An unedited transcript of the sympoisum will be issued. Oriein: Intemal; Board/Parent Unit Keywords: synthetic biolory; intellectual property; science policy; regulation; law; science and security ASSESSMENT OF RISK Minimal Risk FACA COMPLIANCE No {Explanation: This workshop activity, which will result in an unedited transcript prepared in accordance with institutional guidelines, is not subject to FACA Section 15.) TYPE OF'ACTIVITY 2.1.2 T]¡pe: Convening Activity: symposium Balance/Conflict: Yes - General studies/assistance {Explanation: Yes- Institutional oversight or non-advisory program activity (including standing board or committee/type 3 or 4 workshop. ) Product(sì Report Explanation (if different Review than default) Other Reports; Other Yes {Explanation: unedited transcript) Classified: intentionallyleftblank ESTIMATED COSTS AND SPONSORS Cost: Total: $250,000 New Funds: $250,000 Duration: 8 Months Sponsors: Name Potential Sloan Foundation Medium likelihood NIH Unknown DOE Unknown DARPA Unknown EPA UNKNOWN VEnter Institute Unknown Gordon Moore Foundation Unknown FDA UNKNOWN NSF Unknown USDA Unknown Limitation: 0% from for-profit financially interested sponsors EARLIER WORI( AND COLLABORATIONS Earlier Work: 2.1.3 Life Engineering Symposium (KECK FUTUR,2005) NAE meeting on Ethical and Health Risks of Emerging Technologies of Synthetic Biology and Nanomedicine (NAE, 2004) Guidelines for Human Embryonic Stem Cell Research (BLS, 2005) 2007 Amendment to 2005 Guidelines for Human Embryonic Stem Cell Research (BLS, 2007) Biotechnology Research in an Age of Terrorism (DCS, PGA, 2004) Collaboratine Units: Major Units: intentionally left blank Performing Units: BLS; DSC; NAEP; STEP Outside Collaborations: intentionally left blank APPROVAL RECORD CSTL (71212007) CSTL Co-chairs Don Kennedy and Dick Merrill PGAD (711312007) MRC Greenwood, Chair, Policy and Global Affairs GBEC (9/r2t2007) RESPONSIBLE STAF'F OFFICER(S) Anne-Mari e Mazza, Keck- 5 1 l, 2469, amazza@nas. edu Janet Nelson, Keck, I 865, [email protected] Jo Husbands, Keck, 2Sl6,[email protected] Procter Reid, Keck, 2467, [email protected] Steve Merrill, Keck, 1581, [email protected] Fran Sharples, Keck, 2787, ß[email protected] CONTEXT Policy Context: Synthetic biology is a transformative innovation in which engineering methods are applied to biological systems to engineer new organisms or modifr existing ones with new or different properties. This hybrid discipline combines elements of both science and engineering into a highly interdisciplinary and rapidly growing area of research that offers opportunities for the construction ofbioengineered microorganisms that could yield new drugs, detect and break-down toxic chemicals, and generate new energy forms. As with anynew technology, public mis-understanding of this field is high because of exaggerated concems and horror stories. Nonetheless very real concems exist regarding the risks of accidental release or deliberate misuse. The scope of the technological possibilities offered by synthetic biology could be vast, 2.1.4 and so it is critical at this stage to provide a framework for the community of scientists, engineers, and policy-makers to explore this field and to engage the public in an informed dialogue. How synthetic biologymay change current legal and regulatory arrangements governing intellectual propert¡ innovation, and use has not been fully explored. The rules of engagement for the community of engineers and scientists are not well defined. Biosafety and biosecurity challenges and associated risk needs funher study. And the underlying ethical dimensions of this new field also need further discussion that transcends the usual biology or ethics/law disciplines. To address these emerging social, economic, ethical, and legal challenges it is important to bring together engineers, scientists, lawyers, and ethicists with other stakeholders to discuss these issues. This symposium will engage the international science and engineering community in a wide-ranging discussion addressing the implications of synthetic biology. Technical Context: Rapid advances in technology have revolutionized how we approach the engineering of biological systems. The design and construction of new biological systems and the redesign of existing biological systems offer potential advances in fields such as medicine (new drugs and vaccines), energy (inexpensive biofuels), and environment (degradation ofpollutants). Synthetic biology research already has produced important results and holds promise for many more such as tailor-made organisms to synthesize therapeutic molecules, organisms to monitor body cells for pathogenic derivations, artificial bacteria that can produce energy from sunlight, water, and organic wastes, bacteria that can detect and destroy toxic pollutants, etc. The ability to gain a general understanding of complicated biological systems offers the potential to treat disease, solve the energy crisis, and reverse pollution. Looking ahead to the development of this powerful technology, a range of social, ethical, and legal challenges emerge along with the opportunity for scientifi c advances. The complexity of this hybrid and highly interdisciplinary field makes it often difficult to agree on a global definition of synthetic biology. The possibility of "dual-use" products that can function as bioweapons or pathogens raises questions about not only what can we create, but what should we create. Construction of anificial chromosomes leads to debates around both societal morality as well as ecological risk. A host of ownership questions surface during discussions and arrangements of intellectual property rights. There is a large gap between what scientists can do and the public understanding of what they actually do. As this young, but rapidly growing field begins to define itself, these questions require a look from various perspectives. The synTposium will bring together the intemational scientific, engineering, legal, regulatory, and policy communities with the public to explore the opportunities and challenges posed by synthetic biology. The overarching goals of the proposed workshop are to help foster this new community of 2.1.5 professionals, to frame the language of the discussion and the issues, to identify issues and areas for future stud¡ and to educate the public and policy-makers about this emerging field. Origin: Suggested by Mary Clutter (formerly NSF) at the PGAD Oversight Committee Review of CSTL; CSTL Executive Committee (Kennedy, Merrill, Cohen, Bienenstock, Korn, Samet, Anderson). CSTL Spring 2007 meeting with Drew Endy (MIQ and Rick Johnson (Arnold & Porter). Alta Charo (Univerisity of Wisconsin) and Keith Yamamoto, BLS chair), spring 2007 meeting. Conference call with Drew Endy, Rick Johnson, Alta Charo, and staff from CSTL, BLS, STEP, DSC, and NAE. PLAN OF ACTION Statement of Task: An ad hoc committee will organize a symposium that will bring together the scientific, engineering, legal, and policy communities along with members of the public to explore the opportunities and challenges posed by the emerging field of synthetic biology. The symposium will feature invited presentations and discussions on the myriad of legal, policy, and ethical questions spthetic biology raises in the global enterprise, including (1) A Brief Overview of the Research; (2) Ethical Issues; (3) Ownership, Sharing, and Innovation; (4) Safety and Security; (5) Pathway to Market - the Regulatory Framework; (6) Building a Community; and (7) Public P erception and Understanding. The overarching goals of the meeting are to help foster this new community of professionals, to frame the language of the discussion and the issues, to identify issues and areas for future study, and to educate the public and policy-makers about this emerging field. Anunedited transcript of the syrnposium will be issued. The project is to be performed by: Ad Hoc committee Expertise Required: life sciences; engineering; IP law; ethics; science and security Consideration of Balance: The committee needs to include leaders from engineering, life sciences, law, security, and ethics. Members will need to be sensitive to the strong culture differences and perspectives of the various disciplines. It will be important to include intemational representation on the committee to fully address the broad international context of the enterprise, especially given the rapid 2.1.6 gLob alization o f bi otechno 1o gy. PreliminaryWork Plan: An ad hoc committee of approximately 8 individuals will be appointed under the auspices of the CSTL after consultation with and input from BLS, DSC, STEP, and NAE. The Committee will meet once and conduct most of its work via conference call and email. The committee will define the scope of the two-day symposium, frame the topics, and identifu the speakers and the audience. The symposium will be structured to cover the following areas: (1) A Brief Overview of the Research What is Synthetic Biology? What are the roles of science and engineering? How did the field evolve? How is it different from genetic engineering or systems biology? What are the technological possibilities? (2)Ethical Issues How can or should democratic processos be used to identiff, discuss, and resolve ethical issues, or problems, or opportunities involving synthetic biology? What economic and social risks and benefits are applicable, and how should the distribution of risks and benefits be considered? What has been learned from other social controversies involving emerging technologies that might be relevant to synthetic biology? (3) Ownership, Sharing, and Innovation What ownership arrangements have been created? TVhat can we learn from intellectual property for genomics/proteomics? What arrangements make the most sense in terms of stimulating innovation and providing forpublic health? (4) Safety and Security What are the issues for security (bioweapons/biotenorism) and safety (worker safet¡ ecological risks)? What kinds of safeguards or restrictions might be warranted? What is culrently being done? Where are the gaps? (5) Pathway to Market-Regulatory Structure what is the appropriate regulatory framework? (FDA/EPA new products, etc.) (6) Building a Community V/hat different approaches are taken by engineers and biologists? What are the codes of professional conduct? What resources are available from federal agencies and other sources? Is there a need for a new professional society? (7) Public Perception and Understanding. what are the concerns and misunderstandings? How do we engage the public? A webcast of the symposium will be developed. An unedited transcript of the two-day symposium will be prepared in accordance with institutional guidelines and the Office of General Counsel will be consulted before the unedited transcript is released and posted to the CSTL website with links to the collaborating units. 4t27t09 Opportunities and Ghallenges in the Emerging Field of Synthetic Biology Under the Auspices of The U.S. National Academies The Organization for Economic Cooperation and Development The RoyalSociety Keck Center 500 Fifth Street NW 9-10 July 2009 Washington, DC Draft Agenda PRE-MEETING Dinner/July 8'n Planning meeting for moderators with staff and planning committee members Thursdav. Julv 9th 8:15 Registration/Gontinental Breakfast 9:00 Welcome: Ralph Cicerone - invited President, National Academy of Sciences (5 minutes) 9:15 Session l: Synthetic Biology Overview Moderator (5 minutes): Jane Maienschein, No Professor and Director Center for Biology and Society Arizona State University Country: USA lnvitation: NAS Speakers (2 @ 20 minutes): Drew Endy - Confirmed Assistant Professor Ðepartment of Bioeng ineering Stanford University Country: USA lnviter: NAS Paul Rabinow, Confirmed Director of Human Practice Synthetic Biology Engineering Research Center (SynBERC) Country: USA lnvitation: Royal Society and NAS 10:00 Q&A 10:15 Break 10:45 Session ll: Public policy - Government Perspectives and Approaches Moderator (5 minutes): James Wilsdon - Confirmed Director I Science Policy Centre at the Royal Society Country: UK lnvitation: RoyalSociety Speakers (3-4 @ 15 minutes): John BeddingtoniNO Chief Scientific Adviser UK Government Country: UK lnvitation: RoyalSociety lndian Official Country: lndia lnvitation: TBD Chinese Official Country: China lnvitation: TBD US Official Dr. Arden Bement, Director, NSF Country: USA lnvitation: NAS 1 1:50 Q&A 12=15 Lunch (Note: if we have 4 speakers in Session ll, everything will be 15 minutes later) 1:00 Session lll: Roundtable Discussions on lnnovation in Synthetic Biology A) Tools & Techniques - Enabling lnnovation Moderator (5 minutes: Caroline Ajo-Franklin, Confirmed Berkeley Staff Scientist, Biological Nanostructures Facility Country: US lnvitation: NAS Speakers (2 @ 10 minutes): Jason Chin, invited Group Leader Medical Research Council Laboratory of Molecular Biology Trinity College, Cambridge Country: UK lnvitation: OECD/RS Christina Smolke, Gonfirmed Assistant Professor, Stanford University Country: US lnvitation: NAS Q&A (20 minutes) B) "Eco-lnnovation" Moderator (5 minutes): James Greenwood, Gonfirmed President and CEO Bto Country: US lnvitation: NAS Speakers (5 @ 10 each): Bioremediation Sven Panke, Confirmed Associate Professor for Bioprocess Eng ineering Department for Biosystems Science and Engineering ETHZ in Basel Country: Switzerland lnvitation: OECD Victor De Lorenzo, Gonfirmed Professor National Centre of Biotechnology in Madrid Country: Spain lnvitation: OECD Biofuels Rui Lacerda Ferras, invited cEo Crystalev Country: Brazil lnvitation: OECD PaulZorner, confirmed President and Chief Executive Officer. Hawaii BioEnergy Country: USA lnvitation: NAS Food Daphne Preuss, NO Division of Biological Sciences, University of Chicago Country: USA lnvitation: NAS Moderator-led discussion (25 minutes) Q&A (20 minutes) 3:30 Break 4:00 Session lll (cont'd) G) Health and Medicine Moderator (5 minutes): Richard I Kitney, invited Director of the Graduate School of Engineering and Physical Sciences, Chairman of the lnstitute of Systems and Synthetic Biology, Professor of BioMedical Systems Engineering, Department of Bioengineering lmperial College Country: UK lnvitation: OECD Speakers (3 @ 10 minutes): Luis Serrano, invited Head CRG-EMBL Systems Biology Unit Country: Spain lnvitation: OECD Adriano Henney - Gonfirmed Director Systems Biology, Global Discovery Enabling Capabilities & Sciences AstraZeneca plc Country: Germany lnvitation: OECD William Chin, invited Vice President Discovery Research and Clinical lnvestigation Eli Lilly Country: Singapore lnvitation: OECD Moderator-led discussion (20 minutes) Q&A(15 minutes) 5:15 Adjourn/Reception [Dinner for speakers, moderators, organizers and funders] Opportunities and Ghallenges in the Emerging Field of Synthetic Biology Under the Auspices of The U.S. National Academies The Organization for Economic Cooperation and Development The RoyalSociety Keck Center 500 Fifth Street NW 9-10 July 2009 Washington, DC Draft Agenda Fridav. Julv lOth 8:30 Welcome Chuck Vest, NAE President, Gonfirmed 8:45 Session lV: Developing the Field - Needs of Academia and Industry Moderator (5 minutes): Pam Silver, Gonfirmed Professor, Department of Systems Biology Harvard University Country: US lnvitation: NAS Speakers (3 @ 15 minutes): Research I nfrastructure and Support Francois Kepes - Gonfirmed Director Program in Epigenomics Genopole@ Country: France lnvitation: OECD I nte rn ati o n a I Ed u c atio n a I Op port u n itie s an d Ch al le n ge s Randy Rettberg, Tentatively Confirmed Principal Research Scientist MIT Computer Science and Artificial lntelligence Laboratory Country: USA lnvitation: NAS Ownership/lP/Access Rick Johnson, Gonfirmed Senior Counsel Arnold & Porter Country: USA lnvitation: NAS Moderator-led discussion (20 minutes) Q&A (f 5 minutes) 10:15 Break 10:45 Session V: Roundtable on Investment Models for Synthetic Biology Moderator (1 0 minutes): Ed Lazowska, confirmed Bill & Melinda Gates Chair in Computer Science Department of Computer Science & Engineering University of Washington Country: USA lnvitation: NAS Participants (Moderator Led Group discussion for 40 minutes): Jack Wadsworth, tentatively confirmed Advisory Director Chairman & Partner Morgan Stanley Ceyuan Ventures, Beijing Country: USA lnvitation: NAS Welcome Trust Country: UK lnvitation: RS Paula J. Olsiewski, Confirmed Program Director Alfred P. Sloan Foundation Country: USA lnvitation: NAS loannis Economidis - Gonfirmed European Commission Country: Greece lnvitation: OECD Q&A (20 minutes) 12:15 Lunch 12=45 Session Vl: GovernansE lssues Related to Synthetic Biology A. Health/Safety/Environment Moderator (5 minutes): Helge Torgersen, Confirmed lnstitute of Technology Assessment Country: Austria lnvitation: OECD Speakers (2 @ 15 minutes): Takuji Wakita - Confirmed Director Department of Virology ll National lnstitute of lnfectious Disease Country: Japan lnvitation: OECD Jacqueline Corrigan-Curay, Gonfirmed Executive Secretary Recombinant DNA Advisory Committee Office of Biotechnology Activities, NIH Country: USA lnvitation: NAS NIH Guidelines for Research lnvolving Recombinant DNA Molecules QAA (20 minutes) B. Security Moderator (5 minutes): lain Gillespie Head Biotechnology Division Organization for Economic Cooperation and Development Country: France lnvitation: OECD Speakers (2 @ 15 minutes): Nicolas Bécard - Gonfirmed Secretariat de la Défense Nationale Country: France lnvitation: OECD David Relman, invited Assistant Professo r Med icine Division of lnfectious Diseases; Microbiology and lmmunology Veterans Administration Medical Center Stanford University Country: USA lnvitation: NAS Q&A (20 minutes) 2:30 Break 3:00 Session Vll: Public Engagement and Participation Moderator (5 minutes); Mike Rodemeyer, ConfTrmed Adjunct Professor Science, Technology, and Society University of Virginia Country: USA lnvitation: NAS Speakers (4 @ 15 minutes): Ruth Faden, invited Executive Director, Johns Hopkins Berman lnstitute of Bioethics Philip Franklin Wagley Professor in Biomedical Ethics Country: US lnvitation: NAS Pier Luigi Luisi, invited Professor Emeritus ETH-Zürich Department of Biology, Università degli Studi di Roma Tre Country: ltaly lnvitation: OECD Lord Robert Winston Professor of Science and Society Emeritus Professor of Fertility Studies lmperial College, London Country: UK lnvitation: RoyalSociety Adam Bly, Confi"rmed Chairman/CEO Founder and Editor-in-Chief Seed Media Group Seed Magazine Country: USA lnvitation: NAS O&A (30 minutes) 4:30 Session VIll: The Path Forward Roundtable of All Session Moderators 5:15 Adjourn