At the Brookings Institution last week, Larry Summers, former head of the National Economic Council, and Eric Lander, co-chair of the President’s Council of Advisors on Science and Technology (PCAST), discussed the role of government in fostering innovation — as well as the impact of science and technology R&D on the economy.

Among the highlights, Lander discussed the long lead time in basic R&D investments:

So current productivity is a lagging indicator of good investments made 25 years ago, perhaps. Where does, say, the information technology productivity that we celebrate today come from? You’re going to trace that all the way back to DARPA — to the DoD in the 1950s with the decision to pump-prime the microprocessor industry that itself wouldn’t have really economically gotten going but for that pump-priming. You’ll trace it to creation of the Internet in the 1960s. You’ll trace it to investments in digital libraries in the 1970s by the NSF. All of which are now paying off for you. So you say, “I don’t have a problem right now.” Well, I’m not sure you can draw that conclusion.

 

The United States has been the master of basic research funding and — although we don’t acknowledge it — this kind of innovation policy where the public sector does recognize that it makes those investments in the transitional stage. What I’m worried about is that maybe we’re not doing it so well, and maybe other countries are catching on to what we did so well, and maybe they are going to get … advantages with respect to new industries [or] new technologies that arise. And maybe 30 years from now we’re going to be sitting around and [asking] why didn’t we make those kinds of catalytic investments — well, because we were so worried about our budget and all that in the short term — and it’s going to be pretty late to fix that.

Summers mentioned the role of fundamental R&D in the innovation ecosystem:

I think the other question that is very much worthy of study — though I don’t know how one would answer it — is, if you say America has led the world in information technology and that has been a phenomenal thing, there are at least three … competing parts of how we’ve done it. One is that, over the relevant interval, we led in the relevant kinds of basic research. We drew John von Neumann into America [and] we provided an infrastructure where a zillion people like him could think and create in peace… The second is we had … DARPA, and DARPA needed researchers to communicate… And the third is we had a culture of venture capital and entrepreneurs, and the ability to raise your first hundred million dollars before you bought your first suit that was unique in the world. And all three of those things are elements, and the question is what their relative importance is.

 

I think there is a tendency to run to number two as being of dominant importance. And I wouldn’t dispute at all that number two is an important part of the story. But I would, in thinking about innovation policy, put at least equal weight on the number one stuff — being the place that all the best researchers come, with the greatest universities, and all that — and on a set of things around number three — and venture capital and support for entrepreneurship and the like… And notice that neither number one nor number three has an intrinsic base political constituency, whereas there’s all kinds of political constituencies for support for the solar power industry. And so just as I think about what the role of people like us in the system is, I think carrying the torch hard for number one and number three — which don’t have alternative torch-bearers — needs to be a large part of where we are.

And Lander stressed the importance of STEM education:

Why doesn’t Apple produce its iPods and iPads in the United States instead of employing three-quarters of a million people in China?…  The most consistent reason was that we can’t find the types of workers we need. It’s not low wages because, in fact, for many of these products, the wage is a relatively small part of the overall cost of the product… Getting the kind of factory floor engineers — not a fancy engineering degree, but the ability to be quantitative and increase the factory’s efficiency by 1%, getting workers who can run computer/numerical-controlled devices, things like that — was again and again cited as a frustration with doing business in the United States. So it goes back to things like STEM education in this country. There are right now somewhere between 1 and 2 million jobs available — even in this recession with lots of unemployment — [going unfilled] because of a lack of people with those types of skills.

Watch the entire hour-long session here.

(Contributed by Erwin Gianchandani, CCC Director)