Panel on "The Culture of Innovation"

Remarks by Robert C. Cresanti Under Secretary for Technology

Technology Administration, U.S. Department of Commerce

Panel on "The Culture of Innovation: Fundamental Questions about Knowledge and Technology Transfer"

Woodrow Wilson Center Washington D.C. - February 15, 2007

Introduction

I appreciate the kind introduction. I am pleased to have the opportunity to speak to you today, at the outset of this important panel.

The Technology Administration

I work in the Technology Administration, which is an organization that is responsible for nearly a billion dollars in federal government outlays #8211; 3,400 employees, including NIST's scientists, who work with our academic institutions every year, and a significant number of visiting scholars.

I am one of the few Under Secretaries for Technology who have come to this job without a PhD – as Sherrie Boehlert (former Representative Sherwood Boehlert) mentioned in his earlier comments about some Science Committee staffers with PhDs whom he met over the years when he became Chairman of the Committee. I come, however, with a very strong facility and interest in applied science.

As you mentioned, I did bring my Y2K experience with me – I'm a banking and tax lawyer by training and served on the House and Senate Banking Committee staffs for years. As a college student I had a job configuring computers, and gained an understanding of the implications of having the right tools in place when you need them.

I come at science with a very practical perspective; one that has served me well in this job. Which is, how does it contribute at the end of the day to the economy, to the culture, and how does it contribute to the social welfare of our nation? Back to my business and tax training, how does it create businesses in this country and a class of entrepreneurship and risk taking that we want to see encouraged? And very importantly, does it create more good, clean jobs?

At the outset, I've picked out several themes today to highlight.

First, at the Technology Administration we are working on a report to analyze what has been called the Valley of Death, or this disequilibrium between the time when, at the beginning of the Valley, you see science coming together. Someone gets a wonderful idea either at a federal government laboratory, at a university, or in their garage, as we in the United States so often like to refer to the Hewlett-Packard experience. Then, that knowledge catches fire, jumps the transom. The knowledge is transferred out of the lab and into the hands of someone who is motivated to take the risks and move it forward.

That transfer takes place in lots of different ways. Next, you move through what is affectionately known as the FFF financing scheme, which is friends, family, and fools. You run out of their money and hopefully you get closer to a point where you have a prototype developed. Many companies run into this situation that has often been referred to as the Valley of Death. Some believe the Valley of Death is a wonderful thing – that it's Darwinian, where bad ideas go to die, and good ideas, by their very nature, rise to the top and leap forth from the chasm.

What that worldview ignores is that many times you have brilliant scientists or innovators involved in managing these new firms. However, they're not, fundamentally, trained business people. So, there is a nexus or connection that needs to be made that is sometimes missing.

I've been accused of having an interest in paving over the Valley of Death with U.S. taxpayer money. That's not the case at all.

But I do think we have an obligation to create more information that will pave over or bridge that Valley of Death for our scientists, our inventors, and our innovators in the United States. It is, in my opinion, the asymmetry of information that derails too many otherwise successful entrepreneurs.

Our culture is moving ever more toward a system that has been loosely described here today as knowledge-based. As the variety of our research interests shows, the Technology Administration has many responsibilities. One of them, statutorily, is to assess and understand the transfer of technology and moneys from federal labs to the private sector.

Our research shows that more and more of that knowledge is getting transferred every year, but it is getting transferred in ways that are somewhat unconventional. While we are used to seeing professors and scientists taking a patent, participating in the patent, and moving it on, the more I talk to scientists these days in our laboratories, the more I hear them say that that's not always their preferred means of transferring knowledge.

They didn't get into research science, into the basic sciences, for the purposes of becoming wealthy. Oftentimes, they are just there for the betterment and advancement of fundamental science.

I see these phenomena beginning to happen, and I'm told by my staff that we really have a new situation happening in which at many U.S. Government laboratories, very symbiotic relationships have formed between corporations, businesses, and individuals who are very interested in that area of science, that area of metrology, who need this information. They actually integrate the knowledge into the products as the information becomes known through the joint research. That makes it very hard for us to count as we go forward, but it is anecdotally very strong evidence that that relationship has evolved, and that technology is being transferred.

Second, there is a fundamental issue that has gone on in the business world as well, where we see, as the Congressmen mentioned earlier, an increasing withdrawal of big business in the United States from owning major laboratories and doing basic research and development themselves, and then early stage applied research and development, to a point where many of the scientists have now left, and they have some very thriving practices of their own, sometimes using even university and government facilities innovating, creating, and taking all the risks themselves.

As these companies become more tested, and prototypes become developed, we see them being acquired in classic merger and acquisition style as they are still very early in the process. Companies are adding innovation in that stream.

We, in this country, want to encourage a continuous rollout of innovation. We believe that research and development funding is essential, and the Administration has been pushing very hard on this. We also want to encourage any public policy that basically supports the commercial exploitation of the new knowledge that we're developing with taxpayer money. I think that, at the very core of what we do, we have to make sure that our policies do not damage in the United States in any significant way the ability, the interest, and the culture of risk-taking.

In a recent trip to Berlin, I met with a group of German politicians of all the different parties. We had a long, rigorous discussion over breakfast about risk-taking, and the cultural stigmas that are attached to it in the United States. Having been brought up in Germany, I share many of the same concerns that were brought forward by the Members, which is, the risk of failure is just so very high. How can you possibly do this, they asked?

When you look at these innovators and these entrepreneurs, you have to be struck by the risks that they take. They often have families, like the rest of us. They have a certain social standing in their community, just like the rest of us, and while it is an exaggeration, as one of the politicians said to me, that in the United States the more times you fail, the more likely you are to get a bank loan the next time. After all, they know you're not going to make those mistakes again.

It may be a slight exaggeration, but it is true that in this country, in this culture, you're not irretrievably damaged by failure. We don't need to look any farther than all of the quotes of Mr. Edison about trying and failing, and succeeding.

One of my German colleagues said to me yesterday at lunch that Edison believed he never made a mistake, but there were just 2,000 steps in the process to getting to where he wanted to go.

That's the kind of culture we need to encourage in this country.

My third point is getting and keeping the policy environment right. It is essential to our future success. I think it 's the same lesson for Germany. Nations with the most competitive technology-based economies will be those whose policies promote innovation, support entrepreneurship, and make sustained investments in scientific research and talent.

Getting all the levers right is the task of the national leadership with the long-term view – not a short-term view – and one which will need continuing input from industry, educators, and the research community. That's what we have to strive for. America's historical success, as I said before, in leading the world in technology, innovation, and development arises from the effects of some of these farsighted policies.

You have heard of many of them – Bayh-Dole, Stevenson-Wydler, and the SBIR and STTR programs that we discussed today.

Conclusion

I want to leave you with one other thought: that we in this country are really blessed – and here's my banking card coming out again – with a unique system of capital, particularly in the technology space. The deep, rich capital pools that have been able to be formed and the confidence that the rest of the world has expressed by helping deliver those capital pools to the shores of the United States – enabling investments in our companies and in our industries over these many years – is not a God-given right, and we have to be very careful about maintaining the world's trust.

But from angel capital investors who take risks every day with people and their small companies, to the venture capitalists, to the investment banks, and other big financing organizations in the United States, and yes, even to credit cards, we owe a great debt of gratitude, because they enable so many of the entrepreneurs to do the things that they've done to make this country great.

Thank you very much. I would be happy to answer your questions.

But from angel capital investors who take risks every day with people and their small companies, to the venture capitalists, to the investment banks, and other big financing organizations in the United States, and yes, even to credit cards, we owe a great debt of gratitude, because they enable so many of the entrepreneurs to do the things that they've done to make this country great.

Thank you very much. I would be happy to answer your questions.

For technical questions concerning the Office of Technology Partnerships, contact us:
Office of Technology Partnerships, NIST, 100 Bureau Drive, Stop 2200, Gaithersburg, MD 20899-2200
Phone: (301) 975-3084, Fax: (301) 975-3482, Email: otp [at] nist.gov (otp[at]nist[dot]gov)

Created: November 19, 2007