A fire is being lit in the US as Chinese competition comes increasingly to the forefront of the attention of its political leaders.
One battleground coming into view concerns how much the American government is getting by way of jobs and economic development from its federally-funded research and development (R&D) dollars.
As one Beltway veteran insider said: “I would like to highlight what China is doing with my congressional contacts to see if it can light a fire under them to deliver on the $2bn they have been promising for R&D commercialisation.”
The timing could be right to add a spark to the tinder.
A few weeks ago at a National Institute of Standards and Technology (NIST)-convened symposium called Return on Investment, Deborah Wince-Smith, CEO of the US-based Council on Competitiveness, reportedly garnered one of the biggest applauses of the day when, after recounting the perennial nature of technology transfer challenges, she said: “I hope in my lifetime I will come to a meeting like this and not see the chart of the valley of death (the gap between idea generation and startup funding success).”
In this comprehensive review of this symposium and general government plans, the American Institute of Physics (AIP) summarised: “The Trump administration is ramping up a cross-agency effort to review and redesign policies that govern the commercialisation of federally-funded technologies, with the goal of increasing the returns on taxpayer investment in R&D.”
In a keynote address at the April 19 symposium, US Commerce Secretary Wilbur Ross said action was needed given federal technology transfer efforts had “stagnated” and other countries are capitalising on US R&D, according to the AIP report.
AIP added that Ross said universities “seem to be doing far better than the federal labs” in technology commercialisation. Universities received $1.9bn in licensing income from inventions in 2014 while government inventions only garnered $194m the same year.
Ross said this disparity was significant given universities and federal labs receive comparable amounts of R&D funds, $66.5bn and $42bn in 2014, respectively.
Outlining his specific concerns with the current system, AIP noted that Ross said landmark technology transfer laws enacted in the 1980s — namely the Bayh-Dole Act and the Stevenson-Wydler Act — were outdated and had created unintended barriers.
Ross said the laws do not fully protect intellectual property rights of companies that enter into Cooperative Research and Development Agreements (CRADAs) with federal agencies and make it difficult for federal researchers to become entrepreneurs.
More broadly, Ross said that over time “there has been a shift away from technology transfer as an important focus of our R&D enterprise.
“To the directors of federal laboratories … I challenge you to make it clear to your legal, research and administrative staff, that technology transfer must move as rapidly as industry does.”
Ross concluded by calling on the academic and private sector R&D communities to share best practices with the government, AIP said.
As an initial step toward meeting that goal, NIST this week issued a request for input (RFI) on what principles should be protected or changed as the administration works to “refocus federal technology transfer on sound business principles based on private investment”.
Between now and the July 30 comment deadline, NIST is holding four stakeholder engagement events across the US.
Early on in his tenure, Walter Copan, director of NIST, which comes under the Commerce Department, said the time was ripe to conduct a comprehensive review of the practices and policies that underpin the federal technology transfer framework. It is now a cross-agency priority goal to include the White House Office of Science and Technology Policy and NIST as lead agencies.
As well as her wish not to see another valley of death chart, Wince-Smith adroitly observed current anxiety about technological competition with China was strikingly similar to concerns the US government had about Japan in the 1980s, AIP said.
Wince-Smith recalled how that period, during which she worked in OSTP and the Commerce Department, was a time of “policy fermentation and policy innovation” that put in place structures that still exist today, and that now emphasis also needs to be placed on establishing cross-sector, multidisciplinary partnerships to secure leadership in the industries of the future.
And while the stimulus of competition is an exemplary driver of reforms and improvement, fear can be easy to exaggerate.
In a column for the Washington Post this week, Zachary Karabell, author of The Leading Indicators: A Short History of the Numbers That Rule Our World, described how the past half-century is full of moments where fears proved wrong.
One example Karabell gave was how “the 9/11 attacks and the resulting US invasion of Afghanistan focused the world’s attention in late 2001, understandably overshadowing China’s becoming a member of the World Trade Organization in December 2001.
“In many ways, this was the second act to the bolt from the blue in February 1972 when President Richard Nixon and Secretary of State Henry Kissinger flew to Beijing to meet with China’s Chairman Mao Zedong. That opening heralded an end to the Asian Cold War. China’s move into the WTO three decades later completed that process.
“The integration of China into the global system has seen more than a billion people move out of poverty and into the middle class in less than 20 years. Whatever tensions may exist now, that surely has been one of the more positive stories of the past few decades.”
China’s growth has driven US profits and its own economic growth since the Four Modernizations were officially set forth 40 years ago this year by Deng Xiaoping to strengthen the fields of agriculture, industry, national defence, and science and technology in China.
The economic liberalisation has been successful in part because two leading universities, Peking and Tsinghua, had few alternatives than encouraging startups as a strategic necessity given the relative lack of large, private companies and government funding compared to US peers in the 1990s or even the ability to charge high tuition fees.
Last year saw more than 1.5 million students from 2,241 universities and colleges take part in the China College Students’ Internet Plus Innovation and Entrepreneurship Competition.
The number of students starting businesses right after graduation rose from 1.6% in 2011 to 3% in 2017, according to a report by MyCOS Research and the Chinese Academy of Social Sciences. This means that more than 200,000 out of 7.95 million college graduates in 2017 became entrepreneurs.
Both Peking and Tsinghua universities are now enormous asset managers and supporters for entrepreneurs and increasingly global, with Tsinghua setting up an accelerator in the UK last year.
The soft power risk for the US could be for authorities to take too literally Ross’s concern that other countries are capitalising on US R&D and retreat more inwardly. China’s economic genie is out of the bottle but Wince-Smith’s “cross-sector, multidisciplinary partnerships” could also mean international agreements where the best R&D can be done and in turn commercialised.
This would chime with two of what Harvard Business Review has regarded as the most disruptive and important insights it has seen since the millennium – reverse innovation from emerging markets to the US, co-authored by then-GE CEO and chairman Jeff Immelt in 2009, and open innovation, coined by Henry Chesbrough in 2003.
Venture investors regard a business model innovation as potentially more disruptive than any single piece of technology, and the rapid and widespread adoption of open innovation including corporate venturing has arguably been unprecedented among theores in how quickly it has been demonstrated and adopted.
Corporations were involved in more than 2,000 venture rounds in 2017 worth an aggregate $109bn according to GCV Analytics. This corporate venture capital activity represented about a fifth of all venture rounds and two-thirds of the $163bn of aggregate rounds, according to data provider Pitchbook.
However, corporations have struggled to sift and find all the university IP and startups and spinouts that meet their strategic and business needs. This is even true at a time when about 1,000 US university spinouts are being launched each year, let alone with a proposed increase to 10,000 or more under plans circulated by the Washington DC-based National Council for Entrepreneurial Tech Transfer (NCET2).
At its annual conference and demo day for corporations this week, NCET2* laid out a new startup development model that asks corporations to pull in the intellectual property (IP) and technology developed under startups formed out of university faculty and student research rather than have it pushed at them by the universities.
This chimes with the success of the US National Science Foundation and National Institutes of Health’s I-Corps programs developed by academic Steve Blank which require putative startups to conduct about 100 customer interviews as market validation of the idea and strategy.
So while the concern is evident in Washington DC at China’s rapid and successful economic development and long-term focus on strategic priorities through its five-year plans allied to commercial entrepreneurship and regulatory grey areas to test new markets, the US’s starting point is already strong.
A 2015 study by Millennial Branding and Internships.com found 61% of US high school students wanted to start their own business right out of college, compared to the about 20% of the graduates who started one while in college the year before, according to a separate survey by legal service provider CT Corporation in 2014.
Taking this latent entrepreneurial demand and bringing strategic focus for university and public research institutions to support and aid them will, to tweak a Chinese phrase used by chairman Mao Zedong, let far more than 100 flowers bloom. And it is already clear US universities are moving their priorities towards entrepreneurialism as a strategy.
Dennis Whyte, head of nuclear science and engineering at Massachusetts Institute of Technology (MIT), whose research helped conceive Commonwealth Fusion Systems (CFS), an energy startup that this year raised $50m from Italy-based energy group ENI, said in a call before his expected talk at the Venture Houston* conference in November that it was increasingly clear universities had to look beyond government funding, which would be cut by more than 50% over the next decade – which he called a “seismic change” – but their role was more vital for fundamental research than in trying to pick winners, such as solar energy company Solyndra, whose bankruptcy after government grants still looms large.
CFS will join MIT to carry out rapid, staged research leading to a new generation of fusion experiments and power plants based on advances in high-temperature superconductors — work made possible by decades of federal government funding for basic research, it said in a release. Using ENI and others’ money CFS will fund fusion research at MIT as part of this collaboration.
Given fusion energy already powers the Earth, perhaps the fire has already been lit, but the fear of Chinese competition is certainly adding fuel to efforts to improve tech commercialisation and economic development in the US.
*Disclosure: NCET2 also this week announced a partnership with Mawsonia, a global publisher of trade papers including Global Corporate Venturing and Global University Venturing, to develop a best practices conference in Houston, Texas, on November 8-9, 2018 – http://www.venture-houston.com/
The partnership will continue the best practices conferences held annually by NCET2 under Global Corporate Venturing (GCV) and Global University Venturing leadership as NCET2 focuses on the development of its unique IP2Startups program.
The Houston conference will bring the state and other corporations together alongside a best practices conference for universities’ startups and venture funds.