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Notes from Attending the Senate Hearing May 26th, 2005, titled
"An Assessment of Federal Funding for Private Research and Development"
Senate Homeland Secuity Subcommittee
Chairman: Senator Tom Coburn, R-OK
Other Senators attending included Sen Carper, D-DE, Sen Lieberman, D-DE and Sen Levin, D-MI
NOTE: This article is written by Jim Hurd, Director, NanoScience Exchange, who was an attendee at the hearing. These are notes taken by Jim Hurd and are not intended to be a verbatim report of what was said.
Sen Coburn started the meeting with a brief opening statement. He mentioned that $20 billion is invested
every year by venture capitalists. He also said that the U.S. has not had a real surplus since 1973, and
that this year the U.S. is running a deficit of $620 billion. Basically he was saying that the U.S. has to tighten its belt and that this program, ATP, may be one to stop funding.
Next, the opening testimony was given by Charles Wessner, from the National Research Council at the
National Academy of Sciences (NAS). Charles talked about the NAS review of ATP - an in-depth study
done by highly respected experts. He said that over 70% of ATP's funds goes to small business - to drive
innovation and employment.
Mr Wessner described how, in his interviews with leading venture capitalists, that they
made it clear that they are not trying to develop the U.S. economy - they are charged with making money
for their investors.
The problem the U.S. faces is how to cross the "Valley of Death" - from where technologies emerge out of
basic research and need to be developed enough to become products that build the U.S. economy and job market.
"For example, if other countries have an Air Force, we need to have a really top-notch Air Force as well" in order to compete globally.
As regards to spending on R&D in the U.S. versus abroad, Finland spends $540 million for a country of 5 million
people. Belgium spends $157 million.
ATP has developed technologies for Homeland Security. For example, an x-ray technology for examining shipping containers.
In closing, Mr Wessner pointed out that he is not a part of the ATP program, "We are not friendly to ATP, we are objective."
Next, Robin Nazzaro from GAO gave her testimony. She commented that these are high risk technologies. During the period from 1990 to 2004 768 projects were funded and $2.3 billion was spent.
In the case of handwriting recognition software, ATP provided $1.2 million to develop a system to recognize cursive handwriting for pen-based computer input. GAO identified several private firms that were conducting similar research on handwriting recognition at approximately the same time the ATP project was funded...
Two inherent factors in ATP's current award selection process - the need to guard against conflicts of interest and the need to protect proprietary information - make it unlikely that ATP can avoid funding research already being pursued by the private sector in the same time period...
As a result, it may be impossible for the program to ensure that it is consistently not funding existing or planned research that would be conducted in the same time period in the absence of ATP financial assistance.
GAO made no recommendations in its 2000 report.
Next, Mike Reidl of the Heritage Foundation gave his testimony. Below are excerpts from his statement:
"Given the nation's budgetary challenges, ATP remains one of the least justifiable programs. The President and the House of Representatives both support ATP's abolition. The Senate should join them.
ATP was created in 1988, supposedly to provide research and development grants to help small businesses develop profitable technologies. In reality, ATP funnels taxpayer dollars to Fotune 500 companies...
(Author's note here - ATP program was changed in 1996 to provide less money to larger corporations - so a higher amount of dollars went to larger corporations between 1988 and 1996 and a much lower percentage of dollars has gone to larger corporations since then. The purpose of the program, where most of the time, small companies develop products with a larger corporation, so that products get into wide distribution faster. The statement made by Mr. Riedl did not seem to reflect this change in percentage of dollars awarded to larger corporations since 1996.)
Not only is ATP a give-away for wealthy companies that merely subsidize existing research, but evidence shows that Uncle Sam is a poor investor. Only one in every three ATP projects ever brings a new product to the market.
...Too many companies see ATP as an ATM machine to finance projects they would never spend their
own money on. With federal spending growing uncontrollably, ATP should be the first target for
lawmakers seeking savings."
There was a response by Mr. Wessner of NAS:
Mr. Wessner pointed out that there was a selection bias to Mr. Riedl's comments. Two-thirds of ATP's funding goes to small business firms. Co-operation with large companies, which was how the ATP program was designed, is good for small companies.
Mr. Wessner also pointed out that the success rate quoted by Mr. Riedl of one out of every three is actually quite good in providing funding to early stage companies. Venture capitalists are pleased if two out of twenty are successful.
In response to Robin Nazzaro's statement from GAO, the handwriting recognition software was belatedly successful, becoming the handwriting recognition software used in the Palm OS.
Referring to the two large posters which were displayed to the right of Senator Coburn, DOE and DOD do not publish publicly their failed programs. ATP has failures and it is rigorous in examining and publishing them for all to see.
Mr. Wessner commented that a Dutch delegation was visiting the NAS that day - they are interested to adopt our SBIR and ATP programs - they feel they are so successful.
How measure success at ATP? Perhaps through measuring successful patent licenses and perhaps through measuring successful sales.
Some examples of how ATP has made a difference:
- Intel has adopted the UV lithography work that our grant helped to develop - although it was three years later. Nonetheless, this research has now made an important contribution.
- Affymetrix is a highly visible success story from the ATP program
- microturbines and fuel cells have helped the U.S. be more fuel efficient due to new energy technologies developed by ATP.
- in nanotechnology, Zyvex Corporation out of Dallas, TX, has been very successful in working with ATP
- for breast cancer imaging, GE and a small company collaborated to come out with an important new technology for noticeably higher accuracy in breast cancer detection
Mr. Wessner said, "Which rung in the ladder can we take away and still be able to climb the ladder? You can take one rung away and still climb, but if you take two rungs it can become impossible."
Sen Coburn said, "Regarding x-ray technologies at GE, GE would have spent the money anyway - they have digitized everything. Is ATP funding projects that would have been funded anyway?"
Senator Lieberman made his opening statement.
The Senator said that out of $2.7 billion in government spending, that spending $140 million or so seemed like a very small amount for a program that had made so many contributions. Senator Lieberman said, "I am an unabashed fan of ATP"
He said, "There are 59 semiconductor fabs in the world today and only sixteen are in the U.S. Are we losing the economic impact of technologies we create but other countries commercialize in this global economy? The hare beats the tortoise."
Senator Leiberman concluded by saying, "ATP is one of the best examples of public private partnerships that make the U.S. the great country it is today. The program helps to spur demand and create jobs. Overall ATP has spent $2 billion on 800 projects and created $17 billion in benefits. ATP is a success story. We are facing competition from abroad. Other countries are spending as much or more than the U.S. on nanotechnology. I really hope that we will sustain this organization.
Charles Wessner followed up a question about whether there are other programs that could pick up the slack if ATP funding is not renewed, by replying, "Tthere isn't a program like ATP. There would not be an immediate disaster, but areas like health care, semiconductor and the war on terrorism need new technologies for the U.S. to stay strong. I like you worry how will are compete globally.
Senator Coburn said, "The hearing today is about whether there are other ways to fund R&D - through programs like NIH and the National Science Institute."
Senator Lieberman said, "ATP fills a space uniquely. We will lose our R&D edge. On health care, at NIH, we are working to do what is known as "translational research" - how to take the clinical breakthroughs and get them to the bedside more effectively."
Senator Levin made his opening statement:
"Mr. Riedl, you referred in your statement to a waitress in Flint, MI. We live with the loss of manufacturing jobs in Michigan. We are trying, through this program, to keep jobs in the U.S. that could otherwise go overseas.
For example, Rapt Industries in Pennsylvania says, "but for the support of ATP our company would not have been successful"
The government funding for nanotechnology around the world is increasing. Japan is funding nanotechnology with $800 million this year. The U.S. government is spending $773 billion.
We pick winners and losers all the time - for oil exploration, for ethanol production."
Senator Levin asked Mr Riedl if his organization, the Heritage Foundation, supported other types of R&D being assisted by government funding, including biotech. Mr. Riedl answered that his organization was not in favor of assitance by government funding in these areas as well. Senator Levin commented that this is about philosphical differences, not about the value that ATP is delivering.
Senator Levin talked about the federal program in providing tax credits for consumers who put in energy saving windows. These are examples of important programs the government provides. You can't just let the market play out all the time. In some cases, the government needs to assist in transitioning to better long term solutions for the U.S.
There is a Dept of Commerce report of 2004 which cites that of 41 companies that received ATP funding, which is just 6% of the portfolio, that it created $17 billion in economic value, which is more that 8 times what was spent.
Senator Coburn said, "There appears to be no science behind this figure of $17 billion."
There was extensive discussion on how this figure of $17 billion was arrived at - and whether this figure was reliable or not.
It was pointed out that companies that received ATP funding had a higher rate of investment, due to investors perception that by going through the ATP process and being one of the winners - only 12% of proposals are funded through the tough selection process.
Mr Wessner also pointed out that ATP is not welfare. It is not given away. It is like a scholarship which is applied for, and that there are tough criteria to receiving it, and duties that must be performed for receiving these monies.
Mr Wessner also pointed out that there is no documenation to the repeated statements by Senator Coburn that these technologies would have been funded by corporations anyway - if ATP had not funded them.
Senator Coburn said, "Why shouldn't the government get some ownership in these companies? What is wrong with getting some equity?
Mr Riedl said, "We don't need to fund a fund that has such an abysmal track record. Of the companies that are rejected by ATP, only one half get outside funding. The other half tend to re-apply until they get monies.
There was discussion about how meritorious the companies who applied for ATP funding were - and whether they were able to get funding from elsewhere after being rejected. The gist of the questions were twofold:
- whether companies were overly relying on ATP's monies and did not look for other investors, but instead reapplied when rejected one time
- whether companies would have gotten monies elsewhere anyway in a fairly quick time frame from other investment sources if ATP had not provided them monies
Senator Coburn said,
"Every person in America owes $36,000 and the interest on that is $1,800 a year.
This kind of spending cuts the legs out from under our children - forcing them to live in a reduced standard of
living in the future.
Why are there no reports on ATP's performance for the years 1992, 1994 and 1997? Why is this?
There has been a marked improvement in ATP since 1996.
I would rather we cut all programs by 5% instead of cutting some programs entirely, but cutting
all programs by 5% does appear to be workable."
The hearing started at 2.30 pm.
I had to leave at 3.45 pm, while the hearing was winding down.