« Gathering Storm »

The Politics and Economics of Offshore Outsourcing
   in Author: Pielke Jr., R. | Gathering Storm | Technology Policy August 08, 2006

Be Careful What You Wish For
   in Author: Pielke Jr., R. | Gathering Storm August 04, 2006

Amar Bhidé on Getting Beyond Techno-Fetishism and Techno-Nationalism
   in Author: Pielke Jr., R. | Gathering Storm August 02, 2006

New Article and Podcast
   in Author: Pielke Jr., R. | Gathering Storm | Science Policy: General April 20, 2006

Long Live the Linear Model
   in Author: Pielke Jr., R. | Gathering Storm | Science Policy: General April 19, 2006

An Outsourcing Urban Myth
   in Author: Pielke Jr., R. | Gathering Storm | International April 19, 2006

Hoodwinked!
   in Author: Pielke Jr., R. | Gathering Storm | R&D Funding March 14, 2006

Review of Rising Above the Gathering Storm, Part 3
   in Author: Pielke Jr., R. | Gathering Storm March 02, 2006

Newsweek on Outsourcing
   in Author: Pielke Jr., R. | Gathering Storm | Science Policy: General February 28, 2006

A Review of Rising Above the Gathering Storm, Part 2
   in Author: Pielke Jr., R. | Gathering Storm | Science Policy: General February 28, 2006

A Review of Rising Above the Gathering Storm, Part 1
   in Author: Pielke Jr., R. | Gathering Storm | Science Policy: General February 27, 2006

United States Competitiveness
   in Author: Pielke Jr., R. | Gathering Storm | R&D Funding | Science Policy: General January 23, 2006

The Politics and Economics of Offshore Outsourcing

Anyone wanting to understand the debate over outsourcing should have a look at this paper by former Bush insider Greg Mankiw and Philip Swagel:

The Politics and Economics of Offshore Outsourcing
NBER Working Paper No. 12398
Issued in July 2006
link (free to .gov and universities that subscribe to NBER, follow link titled "Information for subscribers and others expecting no-cost downloads")

Abstract: This paper reviews the political uproar over offshore outsourcing connected with the release of the Economic Report of the President (ERP) in February 2004, examines the differing ways in which economists and non-economists talk about offshore outsourcing, and assesses the empirical evidence on the importance of offshore outsourcing in accounting for the weak labor market from 2001 to 2004. Even with important gaps in the data, the empirical literature is able to conclude that offshore outsourcing is unlikely to have accounted for a meaningful part of the job losses in the recent downturn or contributed much to the slow labor market rebound. The empirical evidence to date, while still tentative, actually suggests that increased employment in the overseas affiliates of U.S. multinationals is associated with more employment in the U.S. parent rather than less.

Be Careful What You Wish For

Democrats on the House Science Committee have been trying to get the Technology Administration in the Department of Commerce to release a report that Congress had requested and paid for on the impact of "outsourcing" on U.S. science and technology jobs. For some unknown reason, whether hardball politics or simply incompetence, Secretary Carlos Gutierrez ignored requests for release of the study, which was to be delivered in 2004.

Finally a few weeks ago, Science Committee Democrats were able to get the report they had been seeking, and have posted excerpts on their website. What does it contain that DOC or the Administration might want to hide? Not much.

My reading of the report finds the following two statements to be the most interesting, because they are counter to claims of a looming outsourcing crisis:

The effect of offshoring on the competitiveness of the US IT services and software sector appears to be negilible . . .

The present outsourcing and offshoring trends will increase the competitiveness of the U.S. semiconductor industry in the short term . . .

So what gives? The DOC report does provide some strong counter-evidence to the claims of an outsourcing crisis presented in the NRC report Rising Above the Gathering Storm, which has been used in support of a bipartisan push for more science and engineering funding in the name of competitiveness. Maybe the DOC report was being sat on so as not to provide a mixed message on competitiveness. After all, running on the issue of foreigners taking "our" jobs sounds pretty appealing. But I am skeptical about this explanation. After all, Democrats as well as Republicans like to run on the jobs issue and the DOC report doesn't exactly help the Democrats cause (they clearly were looking for evidence that the Administration was hiding evidence of a mass exodus of jobs overseas). And surely there are also behind-the-scenes politics going on that may trump this explanation.

In any case, the Science Committee Democrats are to be applauded for wrestling the report that they paid for out of DOC. However, in the end it provides little help to their cause, and in fact contains data at odds to the recent bipartisan push on addressing U.S. competitiveness through more funding for research. It also suggests that the crisis in offshoring is not as bad as advertised, but this is a result not being told by either party.

Amar Bhidé on Getting Beyond Techno-Fetishism and Techno-Nationalism

This week’s Economist describes a study by Columbia University’s Amar Bhidé on the production of scientists and engineers, critical of the ideas of "techno-fetishism and techno-nationalism.' According to the Economist, if Mr. Bhidé’s views are correct, "then America's policymakers should worry more about how to keep consumers consuming than about the number of science and engineering graduates, at home or in the East." The analysis presented by Mr. Bhidé is consistent with some of my critiques of the recent focus by the NAS, Bush Administration, and Congress on the production of more scientists and engineers as a palliative for the U.S. economy.

Here is an excerpt from the Economist article, and after that a link and excerpt from Mr. Bhidé’s paper (PDF).

In a marvellously contrarian new paper, Amar Bhidé, of Columbia University's business school, argues that these supposed remedies, and the worries that lie behind them, are based on a misconception of how innovation works and of how it contributes to economic growth. Mr Bhidé finds plenty of nice things to say about many of the things that most trouble critics of the American economy: consumption as opposed to thrift; a plentiful supply of consumer credit; Wal-Mart; even the marketing arms of drug companies. He thinks that good managers may be at least as valuable as science and engineering graduates (though given where he works, perhaps he is talking his own book). But he has nothing nice to say about the prophets of technological doom.

Mr Bhidé says that the doomsayers are guilty of the "techno-fetishism and techno-nationalism" described in 1995 by two economists, Sylvia Ostry and Richard Nelson. This consists, first, of paying too much attention to the upstream development of new inventions and technologies by scientists and engineers, and too little to the downstream process of turning these inventions into products that tempt people to part with their money, and, second, of the belief that national leadership in upstream activities is the same thing as leadership in generating economic value from innovation.

But nowadays innovation—a complex, gradual process, often involving many firms making incremental advances over many years—is not much constrained by national borders, argues Mr Bhidé. Indeed, the sort of upstream innovation (the big ideas of those scientists and engineers) most celebrated by those who fear its movement to China and India is the hardest to keep locked up in the domestic market.

The least internationally mobile innovation, on the other hand, is the downstream sort, where big ideas are made suitable for a local market. Mr Bhidé argues that this downstream innovation, which is far more complex and customised than the original upstream invention, is the most valuable kind and what America is best at. Moreover, perhaps the most important fact overlooked by the techno-nationalists, notes Mr Bhidé, is that most of the value of innovations accrues to their users not their creators—and stays in the country where the innovation is consumed. So if China and India do more invention, so much the better for American consumers.

The most important part of innovation may be the willingness of consumers, whether individuals or firms, to try new products and services, says Mr Bhidé. In his view, it is America's venturesome consumers that drive the country's leadership in innovation. Particularly important has been the venturesome consumption of new innovations by American firms. Although America has a lowish overall investment rate compared with other rich countries, it has a very high rate of adoption of information technology (IT). Contrast that with Japan (the original technology bogeyman from the East) where, despite an abundance of inventive scientists and engineers, many firms remain primitive in their use of IT.

One reason why American firms are able to be so venturesome is that they have the managers capable of adapting their organisations to embrace innovation, says Mr Bhidé. Pressure to be venturesome may have come from America's highly competitive markets. And America's downstream firms are arguably the world's leaders in finding ways to encourage consumers to try new things, not least through their enormous marketing arms and by ensuring that there is a lavish supply of credit.

And here are the opening paragraphs from Amar Bhidé’s paper:

The "techno-fetishism and techno-nationalism" described by Ostry and Nelson in 1995 has apparently drawn strength over the last decade from concerns in the West about globalization. The mindset incorporates two related tendencies. One is the focus on the upstream development of new products and technologies while glossing over their downstream consumption and use. The other is the belief that national prosperity requires upstream international leadership in upstream activities – "our" scientists, engineers, entrepreneurs, and firms have to better than everyone else’s – they must write more papers, file more patents and successfully launch more products. Otherwise, competition from low-wage countries like China and India will erode living standards in the West especially as they upgrade their economies to engage in more innovative activities.

In this paper I claim that the two tendencies misapprehend the nature and role of innovation as well as the implications of globalization. I argue that the willingness and ability of individuals to acquire and use new products and technologies is as important as – and in small countries more important than – the development of such products and technologies. Moreover nations – unlike many individuals and organizations – don’t have to outperform 'competitors' in order to prosper. Notwithstanding the rhetoric about the competitive advantages of nations – a transplant from the domain of inter-firm rivalry that has displaced references to old-fashioned comparative advantages – countries are not locked into zero-sum trade. An innovation originating in one country does not impoverish other countries. Rather it tends to improve standards of living in all countries that have the downstream capacity to acquire and implement the innovation.

New Article and Podcast

What does British philosopher Stephen Toulmin have in common with George Bush's science advisor John Marburger?

My latest column for Bridges is out and is titled, "Science Policy Without Science Policy Research." This time the folks at the Office of Science & Technology at the Embassy of Austria in Washington, DC have also produced a podcast, which can also be heard online. See the essay, hear the podcast, and learn the answer to the question posed above here. The entire issue of Bridges is worth your attention.

Long Live the Linear Model

Scholars who study the role of science in society have long dismissed the so-called “linear model” of science as descriptively inaccurate and normatively undesirable. In fact, within this community, such discussions are often viewed as pretty old stuff. However, when it comes to practicing scientists and many policy makers, the knowledge of the science studies crowd seems pretty far removed.

The linear model holds that investments in basic research are necessary and sufficient to stimulate scientific advancements, motivate technology developments, and bring products and serves to the market, where society benefits. The linear model was championed in Vannevar Bush’s post-war science policy manifesto titled “Science: the Endless Frontier” and has been fundamental to modern science policy ever since. Here is a graphic I made up illustrating the linear model.

I am reminded almost daily at the depths to which the linear model shapes science policy, science advocacy, and science politics. Yesterday I came across an op-ed which used the linear model to argue for increased funding, at an exponential rate it seems, for health research, based on the linear model. Here is an excerpt:

In 2002, roughly one-third of the papers were from US research groups. By 2004, US groups accounted for only one-quarter of the publications. Government policy may be among the factors contributing to the gap between US and international publications in the field.

Why worry about this trend? The answer lies with our biomedical ''discovery machine," which operates on a seven-step assembly line:

1.) An academic scientist designs an experiment to answer an important question.

2.) The scientist applies to the government to fund the research.

3.) The money pays for students and fellows who conduct the research.

4.) The results are published in journals, which advance the field.

5.) An invention may result. This may lead to a patent, which then is licensed to a start-up company.

6.) With a monopoly granted by the patent, the company attracts venture capital. If it is successful, the company grows.

7.) Years later, the discovery becomes a therapy for patients.

It takes $28.8 billion, the annual budget of the NIH, to prime this machine. Every year, the money generates an astonishing amount of fundamental knowledge and thousands of biomedical discoveries. With no initial funding, this apparatus stops at Step 1.

With no money, what do the scientists do? They choose other careers. Worse, they leave to do research in other countries.

When scientists abandon their laboratories, a field can vanish. A scientific discipline is designed to grow exponentially. A professor will train a handful of students, some of whom go on to become professors and train more students. Some PhDs enter industry, where they lead projects and hire more trained workers. Funded properly, this collection of specialists becomes a formidable force, building research centers, driving innovation, and creating business sectors. The government front-loads the process; ingenuity and free enterprise takes care of the rest.

Scientists often get quite worked up when scientific knowledge is mispresented in the media, and rightly so. However, it seems that the bar is set quite a bit lower when it comes to the (mis)representation of knowledge from science studies.

An Outsourcing Urban Myth

In today’s New York Times David Leonhardt has a column which debunks the supposed exodus of radiology work to India, finding such claims to be vastly overstated:

A few years ago, stories about a scary new kind of outsourcing began making the rounds. Apparently, hospitals were starting to send their radiology work to India, where doctors who make far less than American radiologists do were reading X-rays, M.R.I.'s and CT scans.

It quickly became a signature example of how globalization was moving up the food chain, threatening not just factory and call center workers but the so-called knowledge workers who were supposed to be immune. If radiologists and their $350,000 average salaries weren't safe from the jobs exodus, who was?

On ABC, George Will said the outsourcing of radiology could make health care affordable again, to which Senator Charles E. Schumer of New York retorted that thousands of American radiologists would lose their jobs. On NPR, an economist said the pay of radiologists was already suffering. At the White House, an adviser to President Bush suggested that fewer medical students would enter the field in the future.

"We're losing radiologists," Representative Sherrod Brown, an Ohio Democrat, said on CNN while Lou Dobbs listened approvingly. "We're losing all kinds of white-collar jobs, all kinds of jobs in addition to manufacturing jobs, which we're losing by the droves in my state."

But up in Boston, Frank Levy, an economist at the Massachusetts Institute of Technology, realized that he still had not heard or read much about actual Indian radiologists. Like the once elusive Snuffleupagus of Sesame Street, they were much discussed but rarely seen. So Mr. Levy began looking. He teamed up with two other M.I.T. researchers, Ari Goelman and Kyoung-Hee Yu, and they dug into the global radiology business.

In the end, they were able to find exactly one company in India that was reading images from American patients. It employs three radiologists. There may be other such radiologists scattered around India, but Mr. Levy says, "I think 20 is an overestimate."
Some exodus.

Nonetheless, Leonhardt suggests that issues related to outsourcing remain:

For now, the practical effect on radiology is small. At its highest levels, the United States health care system may be the best the world has ever known. India doesn't even have many radiologists today, let alone a large number who measure up to American standards.

But that's going to change. Eventually, Indian doctors will be able to do the preliminary diagnoses that are a big part of radiology. Something similar will happen in accounting, architecture, education, engineering and the law, as Mr. Levy and his colleagues suggest in the coming Milken Institute Review.

These fields tend to be regulated already, giving them noble excuses — like certification, client privacy and legal accountability — to put up trade barriers. But the real reason will usually be a simple desire to protect jobs and salaries.

When factory workers have asked for that kind of protection, the country has told them no. So why does the answer change when the request comes from a wealthier, more influential group of workers?

Hoodwinked!

The science community has successfully tricked a major politician into thinking that the U.S. is experiencing a rapid decline in its science and technology standing in the world. In the March issue of the American Physical Society News (link here, subscription required) Congressman Frank Wolf (R-VA), chair the very influential House Appropriations subcommittee with jurisdiction over the major science agencies, writes the following:

In my role as chairman of the House Science-State-Justice-Commerce Appropriations subcommittee, which controls the budget of NASA, the National Science Foundation, the White House Office of Science and Technology policy and NOAA, I have met over the past year with groups that advocate for business, education, and research and development. What I heard from them is that America is facing unprecedented competition from countries such as China and India and our role as the global innovation leader is being challenged. I was alarmed to learn that three key measuring sticks show America on a downward slope: patents awarded to American scientists; papers published by American scientists, and Nobel prizes won by American scientists.

What does the data say? Actually, the opposite:

Patents granted: Not decreasing, but increasing

Papers published: Not decreasing, but increasing

Nobel prizes: Not declining, US dominant, consider:

The United States is by far the leading country in the world since 1951 in awards of Nobel Prizes in Science, which include Chemistry, Physics and Medicine-Physiology. United States scientists received 195 or 56% of the 350 Nobel Prizes in Science awarded from 1951 to 2005. The United States has received a majority of Nobel Prizes in Science each decade from 1951 to 2000. From 1991 to 2005 U.S. scientists earned 59 (57.8%) of the 102 Nobel Prizes awarded in Science.

The solution to this “crisis”? According to Congressman Wolf:

Remembering how the nation was mobilized to compete for the space frontier after the Soviet Union launched Sputnik in the late 1950's, I wrote President Bush last year urging him to embrace this issue. I asked that he dramatically increase our nation's innovation budget–federal basic research and development–over the next decade to ensure U.S. economic leadership in the 21st century.

I wonder if anyone is going to let Congressman Wolf know that he is basing policy on a complete misunderstanding of the “problem”? Don’t count on it. Special interests are especially special when they are yours, and what is a little fudging of the facts when science funding is at stake? The science community plays the crisis card inappropriately at some risk, as policy makers don’t usually like being hoodwinked.

Review of Rising Above the Gathering Storm, Part 3

Part 1 and Part 2 of this series discussed Chapters 1 and 2. This installment focuses on RAGS Chapter 3, which is titled, “How is America doing now in science and technology?” It really should be named, “How is science and technology doing now in America?”

The focus is regrettably not on what S&T can do for the U.S. public, but what the U.S. public can do for the S&T community. According to data that we discussed last month (here) the U.S. has 1.26 million workers who are classified as researchers, which represents roughly about 1% of the U.S> labor market. Given the small size of the R&D part of the workforce, compared to the whole, the most important question for using investments in S&T as a tool of “competitiveness” is: What is the relationship of investments in different areas of S&T and the quality and quantity of jobs in the broader U.S. labor market? This important question goes unasked by RAGS. Read on for details.

Surprsingly, RAGS paints a uniformly rosy picture about the state of R&D in the United States. Consider the following examples from the report:

By most available criteria, the United States is still the undisputed leader in the performance of basic and applied research.

In addition, many international comparisons put the United States as a leader in applying research and innovation to improve economic performance. In the latest IMD World Competitiveness Yearbook, the United States ranks first in economic competitiveness, followed by Hong Kong and Singapore.

Researchers in the United States lead the world in the volume of articles published and in the frequency with which those papers are cited by others. US-based authors were listed on one-third of all scientific articles worldwide in 2001.

The United States also excels in higher education and training. A recent comparison concluded that 38 of the world’s 50 leading research institutions—those that draw the greatest interest of science and technology students—are in the United States.

Since World War II, the United States has been the destination of choice for science and engineering graduate students and for postdoctoral scholars choosing to study abroad. Our nation—about 6% percent of the world’s population—has for decades produced more than 20% of the world’s doctorates in science and engineering.

So then what is the problem? RAGS takes on a slightly jingoistic tone when it points to foreigners as the problem. The report has a positive tone on this development -- “It is no surprise that as the value of research becomes more widely understood, other nations are strengthening their own programs and institutions. If imitation is flattery, we can take pride in watching as other nations eagerly adopt major components of the US innovation model” – but it hints in many places that other countries are “catching up” and thus threatening the U.S. economy.

RAGS notes that the relative advance of other countries has benefits, but also suggests undefined risks: “The global increase in the production of scientific knowledge eventually benefits all countries. Yet trends in publication could be a troubling bellwether about our competitive position in the global science community.” The risks identified include a “global competition for talent” with RAGS suggesting that many scientists and engineers will find other countries more appealing than the United States. The report makes general claims about a downturn in “basic research” conducted by industry, even as industry support for R&D has increased steadily. It expresses concerns about lower wages for professionals in developing countries and how that strains the U.S. economy. No mention is made about the relationship of S&E jobs in other countries and information on unemployment in the U.S. labor market, for instance.

It seems that the core of the argument of this chapter is contained in the section titled “Restraints on Public Funding.” This section begins by decrying the decrease in Cold War funding for military R&D. The section continues by lamenting the pace of increasing federal budgets for R&D,

Public funding for science and engineering rose through the 1990s, but virtually all of the increase went to biomedical research at NIH. Federal spending on the physical sciences remained roughly flat, and increases for mathematics and engineering only slightly surpassed inflation. Funding for important areas of the life sciences—plant science, ecology, environmental research—supported by agencies other than NIH also has leveled off. The lack of new funding for research in the physical sciences, mathematics, and engineering raises concern about the overall health of the science and engineering research enterprise, including that of the health sciences.

These complaints are focused on the inputs to R&D in the form of public money. No mention is made about the outputs much less how variations in the inputs are related to variations in the outputs.

The next section turns to education. RAGS argues,

The rise of new international competitors in science and engineering is forcing the United States to ask whether its education system can meet the demands of the 21st century. The nation faces several areas of challenge: K–12 student preparation in science and mathematics, limited undergraduate interest in science and engineering majors, significant student attrition among science and engineering undergraduate and graduate students, and science and engineering education that in some instances inadequately prepares students to work outside universities.

But there is no discussion here about how those educated in S&E are related to the workforce of 160 million people. Like most everyone, I think improving education is important, but how much of the focus should be on science and engineering versus, say, writing and spoken communication, conflict resolution, ability to work in groups, understanding geopolitics and the U.S. role in a larger world, etc. It is not clear from the arguments presented here how it is that we might prioritize educational deficiencies in the United States. Rather it is assumed that S&E education is the most pressing, and indeed only, area that needs attention.

The analysis in RAGS is sometimes found wanting, for instance, the following sentence probably wouldn’t last long in a paper for Public Policy 101: “Furthermore, many adults with whom students come in contact seemingly take pride in “never understanding” or “never liking” mathematics.” The report presents a collection of comparative data indicating this or that related to how certain other countries produce a greater proportion of scientist and engineering students or that those students fare better on tests of achievement. What the chapter does not explain is that such arguments have been made for almost 50 years, yet over that time frame the U.S. economy has done quite well. The assertions made by RAGS may be correct, but the analysis simply is not present to allow one to follow an argument to the report’s conclusions. One is asked to take the report’s conclusions almost entirely on faith.

This chapter, like the other reviewed so far ends with a restatement of the assumptions that form the backbone of the report:

Because our economic, military, and cultural well-being depends on continued science and engineering leadership, the nation faces a compelling call to action.

Newsweek on Outsourcing

An article about India and concerns about U.S. outsourcing in this week’s Newsweek is relevant to our on going discussion of Rising Above the Gathering Storm and U.S. "competitiveness." It is titled, “Outsourcing: Silicon Valley East Americans once feared their jobs would be shipped to India, but the backlash was overdone. Now everybody's winning,” and can be found here. Here is an excerpt:

Not long ago, what seemed most possible was that India would steal the jobs of American workers. But as George W. Bush visits there this week, he'll find a maturing economy that is no longer all about call centers and basic tech support. Now big American investment banks and drugmakers are joining tech firms on the passage to India. R&D centers are springing up so fast that there's now a shortage of Indian engineers. And the stigma of outsourcing jobs to India is disappearing. American companies once afraid to put their names on the doors of their Indian offices now issue press releases touting their latest investments there. "American firms have gotten over their anxiety about India," says financial-services consultant Harrell Smith of Celent Communications. "Now the new anxiety is if you're not in India."

What happened to the outsourcing backlash? It has been muted by the fact that India didn't suck Silicon Valley dry after all. Actually, U.S. tech employment is growing. There are 17 percent more tech workers in the United States today than back in the bubble days of 1999, says a new study by the Association for Computing Machinery. And the Bureau of Labor Statistics predicts that the U.S. economy will add 1 million tech jobs over the next decade, a 30 percent increase. "Everyone was worried about the offshoring bogeyman," says Moshe Vardi, an author of the ACM study. "But the big whoosh of jobs to India never happened.'' Indeed, that gush slowed to a steady stream once American companies realized it's tough to set up shop in a country with bad roads and a patchy power grid. Lately, American consulting firms that once predicted runaway growth in outsourcing to India have been slashing their estimates by half or more. Now American companies are hanging on to the high-skilled work that requires face-to-face interaction, while everything that can be done "over the wire" gets shipped offshore.

A Review of Rising Above the Gathering Storm, Part 2

Part 1 of this review focused on Chapter 1 of RAGS. This post focuses on Chapter 2, which is titled, “Why are Science and Technology Critical to America’s Prosperity in the 21st Century?” It seems obvious that science and technology are indeed important to society, and understanding why this is so would be helpful for understanding how to prioritize R&D investments in the context of many other demands on public funds, and the relative desirability different possible R&D portfolios. Unfortunately, this chapter does little more than sandwich reams of information between highly general and simplified assertions of the importance of R&D. RAGS Chapter 2 does very little to answer the question posed in its title. For details, read on.

This chapter begins by simply asserting the answer to the question raised in its title,

The visible products of research, however, are made possible by a large enterprise mostly hidden from public view—fundamental and applied research, an intensively trained workforce, and a national infrastructure that provides risk capital to support the nation’s science and engineering innovation enterprise. All that activity, and its sustaining public support, fuels the steady flow of knowledge and provides the mechanism for converting information into the products and services that create jobs and improve the quality of modern life. Maintaining that vast and complex enterprise during an age of competition and globalization is challenging, but it is essential to the future of the United States.

This series of assertions may seem almost intuitive, and the chapter claims that the relationship of public R&D investments and economic growth are well understood,

“the economic value of investing in science and technology has been thoroughly investigated. Published estimates of return on investment (ROI) for publicly funded R&D range from 20% to 67%.”

However, one of the studies that it cites prominently does not display such confidence or certitude. Scott et al. (2001, available here in PDF) open their report with a telling quote from Georgia Tech’s Barry Bozeman:

In the study of technology transfer, the neophyte and the veteran researcher are easily distinguished. The neophyte is the one who is not confused.

Scott et al. introduce their literature review with a recognition of the challenges faced by scholars trying to understand the complicated relationship of R&D and the economy:

The relationships between public research and innovation are recognised to be an increasingly significant topic in the emerging knowledge economy. However, this is an area beset by high levels of complexity and a surprisingly small amount of empirical research. It is a field where it is easy to be misled by simplistic ideas, or to become confused by such data as do exist and the conflicting interpretations that can be made from them. As this review will show, even now eminent commentators and analysts are grappling with some of the most fundamental dimensions of the relationships between research and innovation, science and technology.

Scott et al. assertion a “small amount of empirical research” does not square with RAGS claim that this area has been “thoroughly investigated.” One might be excused for thinking that RAGS cherrypicked the convenient parts of Scott et al. and ignored the rest. Scott et al. warn the reader that the “intuitive approach” (which RAGS asserts unabashedly) to understanding the role of public R&D in the economy can be misleading:

In the context of limited resources for supporting basic research, and the need to justify the expenditure of these resources, a growing number of policy-makers and academic analysts have become interested in understanding the relationships between basic research and economic activity. Much of this analysis has been underpinned by an attractive intuitive approach to understanding these relationships. This approach is characterised by several logical and sequential steps:

• First, science is mainly seen as a source of new information about how the world works.
• Second, because this information is published openly (as is usual with academic research findings), it is ‘free to all comers’ – a low cost input into economic processes.
• Third, the link between science and technology is obvious: scientific information is used in the creation of new technologies, which are then used in economic activity.
• Finally, given this role of science in the creation of economic returns, it becomes attractive to try to quantify the amount of economic benefit that can be attributed to the basic science elements.

This way of seeing science-technology-economy linkages is so intuitively obvious that for a long time it was simply assumed to be a valid approach. Unfortunately, it contains within it a series of misleading and incomplete ‘mindsets and myths’, the limitations of which have only become apparent through more in-depth investigations in recent years.

Scott et al. are decidedly less sanguine that studies focused on quantifying economic rates of return to research are a useful basis for specific science policy decisions,

Studies that use productivity growth as an indicator of social returns to research investments have a number of problems. In adopting a high level of aggregation in their analysis they rarely control for inter-industry differences in technological opportunity and appropriability. Furthermore, such studies do not reveal how the economic returns are realised and thus do not enable a comparison of the productivity impact of research in different scientific disciplines. A further point to keep in mind is that most measures estimate average rates of return, while marginal rates of return are required for the purposes of resource allocation decisions.

A similar critique can be found in Boskin and Lau (1995). Scott et al. do suggest that R&D provides many benefits to the economy, perhaps even more significantly than narrow studies of economic activity would suggest, through the many “channels” of interconnection between science and the rest of society. They suggest that the management of the relationship of science and society through these channels can be a more useful approach to science policy than by seeking to modulate macro-economic effects in an input-output manner. What is clear from Scott et al. however is that understandings of the relationship of science policy decisions and societal outcomes remain quite murky, unlike the assertions found in RAGS.

RAGS plays fast and loose with the voluminous data that it presents. For instance, RAGS asserts that increasing life expectancy in the United States provides a good indicator of the value of basic research. But this assertion would seem to be countered by the fact that the United States is not even close to first place globally in life expectancy, while countries with longer life expectancy invest far less in health research (and healthcare). The story of life expectancy illustrates the many complexities involved in the relationship of science, technology, and societal outcomes. RAGS presents a large amount of statistical information about how health indicators have improved in the United States over the past century, with the suggestion that these trends were a direct or indirect result of public investments in R&D. This may indeed be the case, but this argument is not developed or made here.

Further, as interesting as it is to see ratios of horses to cars in 1900 versus 1997, it is not clear the relevant of such trivia to the underlying analysis. The most telling conclusion I draw from the various graphs presented about technological progress and market penetration is how spectacularly uncorrelated such trends are with public funding of science and technology. Important questions are raised by thee data, but they are not even touched upon here.

Based on its collection of upward sloping graphs, RAGS takes a page from Bjorn Lomborg’s The Skeptical Environmentalist and Gregg Easterbrook’s The Progress Paradox when it makes the claim that environmental and social indicators are almost universally getting better. It then reiterates its core assumption to explain why we see these improvements:

The science and technology research community and the industries that rely on that research are critical to the quality of life in the United States. Only by continuing investment in advancing technology—through the education of our children, the development of the science and engineering workforce, and the provision of an environment conducive to the transformation of research results into practical applications—can the full innovative capacity of the United States be harnessed and the full promise of a high quality of life realized.

What RAGS has yet to do through Chapter 2 is make an argument in support of this repeated assertion about the importance of R&D. Let me underscore that I also believe that R&D is important, but science policy decision making can and should be based on more than general statements of value. For instance, how might we judge the relative value of one possible R&D portfolio to another? Perhaps RAGS answers this in a subsequent chapter.

A Review of Rising Above the Gathering Storm, Part 1

Given the recent attention to competitiveness by the White House and Congress, I thought that it might be useful to dig into the intellectual foundation that lies underneath. This post is the first in a series and offers a perspective on the recent NRC report, Rising Above the Gathering Storm (RAGS), all 543 pages of it, chapter-by-chapter. I start the review with this post focused on Chapter 1, titled “A Disturbing Mosaic.” We provided an overview of the executive summary of RAGS here.

The summary of my critique of the RAGS report so far is that there is a disconnect between the statement of the problem and the proposed solution. It is a truism that science and technology underpin modern society. And it is also true that the world economy has been transformed by economic globalization. But it does not clearly follow from these initial conditions that a policy focused on increasing investments in basic research in the physical sciences, mathematics, and engineering, and the number of scientists and engineers, will improve U.S. “competitiveness” much less counter the negative effects of globalization. While there are a suite of other policy recommendations to be found in RAGS, the focus is mostly on government funding for science and the production of PhD scientists and engineers. My interpretation of Chapter 1 in RAGS is that its arguments are largely faith-based rather than built on a foundation of policy analysis, but perhaps that is to come in future chapters. Read on for details.

RAGS has been cited as the intellectual foundation for the focus in President Bush’s State of the Union address on “keeping America competitive.” It also has been cited as the basis for a suite of proposed legislative actions now in various stages of development in Congress, most notable the so-called trifecta of PACE bills – Protecting America’s Competitive Edge.

RAGS defines the policy problem to be addressed consistent with the thesis of Thomas Friedman’s book, The World is Flat, which argues that the world in more economically competitive that ever before. RAGS summarizes Friedman’s concerns as follows:

Friedman asks rhetorically whether his own country is proving its readiness by “investing in our future and preparing our children the way we need to for the race ahead”. Friedman’s answer, not surprisingly, is no.

RAGS takes Friedman’s concern as its central focus:

This report addresses the possibility that our lack of preparation will reduce the ability of the United States to compete in such a world. Many underlying issues are technical; some are not. Some are “political”—not in the sense of partisan politics, but in the sense of “bringing the rest of the body politic along”. Scientists and engineers often avoid such discussions, but the stakes are too high to keep silent any longer. Friedman’s term quiet crisis, which others have called a “creeping crisis”, is reminiscent of the folk tale about boiling a frog. If a frog is dropped into boiling water, it will immediately jump out and survive. But a frog placed in cool water that is heated slowly until it boils won’t respond until it is too late. Our crisis is not the result of a one-dimensional change; it is more than a simple increase in water temperature. And we have no single awakening event, such as Sputnik. The United States is instead facing problems that are developing slowly but surely, each like a tile in a mosaic. None by itself seems sufficient to provoke action. But the collection of problems reveals a disturbing picture a recurring pattern of abundant short-term thinking and insufficient longterm investment.

The RAGS focus on “competitiveness” reminds me of a statement by Charles L. Schultze, writing in a book edited by B. L R. Smith and C. Barfield (Technology, R&D, and the Economy, Brookings, 1996), who suggested some principles for thinking about R&D in the economy

First, do not specify the target as increasing competitiveness. Competitiveness is a virtually meaningless, if widely used, word. It can – and has been – used to justify virtually anything.

RAGS then identifies three “clusters” of problems:

*Tilted jobs in the global economy
*Disinvestment in the future
*Reactions to 9/11

Let’s consider each in turn.

“Tilted jobs in the global economy” refers to the reality that companies have access to an employment market that goes well beyond national borders. Far from being a problem, RAGS seems to make the case that the flattening of the global economy is a good thing, both for the U.S. and other countries:

Most economists believe that [David] Ricardo is still correct—that there will be gains for all such nations. They acknowledge that there might be a transition phase in which wages for lower skilled workers in a rich country like the United States will fall. Some say that there is, however, no reason to believe that wages for highly skilled workers will fall in either the short run or the long run. Economist Paul Romer argues that technological change continues to increase the demand for workers with high levels of education. As a result, wages for US workers with at least a college education continue to rise faster than wages for other workers. The low wages for highly skilled workers seen in such countries as China and India are not a sign that the worldwide supply of highly skilled workers is so large that worldwide wages are now falling or are about to fall, says Romer. In those economies, wages for skilled workers are low because these workers were previously cut off from the deep and rapidly growing pool of technological knowledge that existed outside their borders. As they have opened up their economies so that this knowledge can now flow in, wages for highly skilled workers have grown rapidly.”

In spite of this seeming optimism based on the consensus view of economists RAGS then presents a conclusion that I can only conclude must be based entirely on assumptions:

It has also been argued that in a period of tectonic change such as the one that the global community is now undergoing, there will inevitably be nations and individuals that are winners or losers. It is the view of this committee that the determining factors in such outcomes are the extent of a nation’s commitment to get out and compete in the global marketplace. New generations of US scientists and engineers, assisted by progressive government policies, could lead the way to US leadership in the new, flatter world—as long as US workers remain among the best educated, hardest-working, best trained, and most productive in the world.

A few things should be pointed out. First, the United States is by any measure a global economic winner and has been for decades and longer. Second, this part of the report provides no data and no argument to make the case that the “tilting” of the global is in anyway problematic from a national perspective, and the evidence that it does provide suggests that this tilting is instead beneficial. The transition from a description of the realities of globalization to the call for progressive government policies and education of scientists and engineers is abrupt. It may very well be that such actions are needed, but the case has not yet been made thus far in RAGS. Let’s move on.

The second cluster of problems is “disinvestment in the future.” This section starts by citing a public opinion poll to make the case that education is suffering in the United States. It then presents familiar statistics on the average performance of U.S. K-12 students when compared to their OECD counterparts. The chapter then argues that more of the costs of education are being placed upon individuals, rather than the public. RAGS asserts that this has the effect of limiting the access to higher education among low-income students. I would agree that this is indeed a problem. But lets be clear, it is a problem of equity and access, and no connection is made here to the larger thesis of the chapter focused on economic competitiveness.

The section next claims that “the increasing pressure on corporations for short-term results has made investments in research highly problematic.” This section could have been a bit more substantive, and perhaps later in the report we will see such substance. But according to data gathered by the NSF SRS, industry has a long-term trend of increasing investments in research and development, with the NSF’s most recent issue brief noting, “Companies spent $204 billion in current-year dollars on research and development (R&D) performed in the United States during 2003 compared with $193.9 billion in 2002.” Industry outspends the federal government on R&D by about 50%. It is not at all clear that there is a problem in industry related to R&D investments. There is certainly no evidence of “disinvestment.”

The next section asserts that “funding for research in most physical sciences, mathematics, and engineering has declined or remained relatively flat—in real purchasing power—for several decades.” Why does this matter? According to RAGS, there are two reasons. The first is that health care advances depend on such research, “Many medical devices and procedures—such as endoscopic surgery, “smart” pacemakers, kidney dialysis, and magnetic resonance imaging—are the result of R&D in the physical sciences, engineering, and mathematics.” RAGS does acknowledge the meteoric rise in funding for health research over he past decade, but that apparently is insufficient. The second reason why RAGS argues that flat funding for the physical sciences, mathematics, and engineering matters is that it creates incentives for less-risky research, “Many believe that federal funding agencies—perhaps influenced by the stagnation of funding levels in the physical sciences, mathematics and engineering—have become increasingly risk-averse and focused on short-term results.” It is not clear either what this means or why it matters. A focus on high-risk research is a function of research policies and not necessarily the consequence of overall funding levels. For example, one way to encourage “riskier” research in NSF would be to do away with the second review criterion focused on broader societal impacts and focus narrowly on scientific merit. Funding is neither here nor there. Again, there is no evidence of a “disinvestments.”

Let’s now turn to the third problem cluster, “Reactions to 9/11.” RAGS takes issue with three specific areas of U.S. science policy put into place follow 9/11, “visa policies, export controls, and the treatment of “sensitive but unclassified” information.” These are of concern to scientists because of the limitations that each policy places upon the ability to recruit and train foreign students and conduct research alongside foreign colleagues.
Because I work in a university and see the effects of these policies, I am in general agreement with RAGS that they are problematic from the standpoint of fettering research. But at the same time these policies have been put in place as a reaction to the threat of terrorism. Have such policies gone too far? Perhaps. But of course scientists want research to be unfettered by restrictions. So far however RAGS has not provided evidence for understanding the effects of national security policies in a way that would allow for a sense of the tradeoffs involved. Perhaps this is to come in a subsequent chapter.

The chapter ends by asserting – not arguing – its conclusion: “Well-paying jobs, accessible health care, and high-quality education require the discovery, application, and dissemination of information and techniques … This report emphasizes the need for world-class science and engineering—not simply as an end in itself but as the principal means of creating new jobs for our citizenry as a whole as it seeks to prosper in the global marketplace of the 21st century.” That modern society is built upon science and technology is obvious. But the important questions about science and technology are not yet raised by RAGS, much less answered – What information is it that we need? What techniques? How should we think about priorities among different areas of knowledge? How does world-class science and engineering relate to jobs? Perhaps the answers to these questions will be revealed in subsequent chapters.

Thus far, the story is about an ill-defined problem with a crystal-clear solution: more investment in research and development.

United States Competitiveness

It looks like science policy issues might be increasing at the focus of policy makers attention in the near term. Chemical & Engineering News reported late last week,

“A bipartisan group of senators plans to introduce a package of legislation next week aimed at boosting U.S. competitiveness in science and technology by doubling federal funding for basic research and establishing a new science agency within the Department of Energy. The bills will be collectively titled the Protect America's Competitive Edge Act. They would implement 20 recommendations contained in an October 2005 report by the National Academy of Sciences (NAS) that outlined a series of steps the U.S. should take to maintain its global economic competitiveness. The legislation would establish an agency at DOE called the Advanced Research Projects Agency—Energy (ARPA-E) that would provide grants for "high-risk" research and development programs in the energy sector.”

The 20 recommendations referred to are from the NAS report “Rising Above The Gathering Storm: Energizing and Employing America for a Brighter Economic Future”. The report was in response to a request from Congress that asked:

(1) What are the top 10 actions, in priority order, that federal policy-makers could take to enhance the science and technology enterprise so that the United States can successfully compete, prosper, and be secure in the global community of the 21st Century?

2) What strategy, with several concrete steps, could be used to implement each of those actions?

Like kids in a candy store, the NAS committee was unable to limit itself to just 10 and came up with a list of 20 recommendations. Here are the recommendations:

Annually recruit 10,000 science and mathematics teachers by awarding 4-year scholarships and thereby educating 10 million minds.

Strengthen the skills of 250,000 teachers through training and education programs at summer institutes, in master’s programs, and Advanced Placement and International Baccalaureate training programs and thus inspire students every day.

Enlarge the pipeline by increasing the number of students who take AP and IB science and mathematics courses.

Increase the federal investment in long-term basic research by 10% a year over the next 7 years.

Provide new research grants of $500,000 each annually, payable over 5 years, to 200 of our most outstanding early-career scientists.

Institute a National Coordination Office for Research Infrastructure to manage a centralized research-infrastructure fund of $500 million per year over the next 5 years.

Allocate at least 8% of the budgets of federal research agencies to discretionary funding.

Create in the Department of Energy and organization like the Defense Advanced Research Projects Office called the Advanced Research Projects Agency-Energy.

Institute a Presidential Innovation Award to stimulate scientific and engineering advances in the national interest.

Increase the number and proportion of US citizens who earn physical-sciences, life-sciences, engineering, and mathematics bachelor’s degrees by providing 25,000 new 4-year competitive undergraduate scholarships each year to US citizens attending US institutions.

Increase the number of US citizens pursuing graduate study in “areas of national need” by funding 5,000 new graduate fellowships each year.

Provide a federal tax credit to encourage employers to make continuing education available (either internally or through colleges and universities) to practicing scientists and engineers.

Continue to improve visa processing for international students and scholars.

Provide a 1-year automatic visa extension to international students who receive doctorates or the equivalent in science, technology, engineering, mathematics, or other fields of national need at qualified US institutions to remain in the United States to seek employment. If these students are offered jobs by United States-based employers and pass a security screening test. They should be provided automatic work permits and expedited residence status.

Institute a new skills-based, preferential immigration option.

Reform the current system of “deemed exports.”

Enhance intellectual-property protection for the 21st century global economy.

Enact a stronger research and development tax credit to encourage private investment in innovation

Provide tax incentives for US-based innovation

Ensure ubiquitous broadband internet access.

Depending upon how this is financed it looks to me like a $5 to $10 billion price tag for all this annually, maybe more. Since both parties are strong supporters of both R&D and U.S. competitiveness, it will be interesting to see how this issue develops. One question that seems to be unasked is, will implementing these 20 recommendations actually lead to the desired results? That is, will they address the issue of US competitiveness? What is the problem anyway?