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Science, Technology, and Economics

  • Date: 09/26/2008
  • Author: Dr. Luis M. Proenza (President, The University of Akron)
  • Location: Peking University, China
  • Thank you, Professor Wu, for your kind introduction, and I bring you greetings from the United States of America. 

    I am pleased with the opportunity to be with you, as the University of Akron takes its initial steps in hosting a Confucius Institute to promote Chinese language and culture in our region and strengthen our relationship with the Chinese Ministry of Education.

    This visit was made possible because of the good relationship between faculty members at Peking University and our Dean of Polymer Science and Polymer Engineering, Dr. Stephen Cheng.  And may I again offer him congratulations on his election to the U.S. National Academy of Engineering.  And it is good, also, to see some of our former students who now serve as faculty here at Peking University.

    With the Summer Olympics still fresh in everyone's mind, the People's Republic of China can take great pride in the way it showcased its country, its culture and its friendliness to one of the largest global audiences ever.  In fact, the opening and closing ceremonies had a production value that may never be duplicated. 

    You certainly made a positive impression on the world community.  And it is obvious that China is, and will continue to be, a major player in the rapidly evolving global economy as it demonstrated with china's space launch day before yesterday. 

    In fact, China's astonishing economic growth is unparalleled. 

    Today, "China is the United States' 3rd largest trading partner and the fastest growing market for U.S. trade exports."1

    "... (China's) world share of high-technology-manufacturing value added has more than quadrupled during the past decade"... and it "...is the highest ranked high-technology exporter of the six large developing economies.  According to the U.S. National Science Foundation, China was ranked fourth a decade ago, moving to second in 1999 and to first in 2002.2

    In a speech to a China-U.S. Relations Conference last year in Washington, D.C., former U.S. Secretary of Commerce Barbara Hackman Franklin said she believed that "...U.S.-China relationship is the most important bilateral relationship in the world.  We must continue to work to build trust, between our governments, our businesses, our educational institutions, our cultural activities and our people.  Our two countries can be an enormous positive force for economic growth and stability around the world."3

    I think that her statement is important to both of our countries' universities.  Why?  The many transformations taking place worldwide - the "seismic rumbles of change," to use a phrase by Chuck Vest, the President Emeritus of MIT in the United States - are plunging research universities into cross-currents and rapids of change that already are transforming traditional paradigms for research and graduate education - to say nothing about the relationships between academia, industry, and government.

    Indeed, Globalization involves many dimensions - dimensions that involve the vast array of technological change, our movement to a global economy, and the pervasiveness of new information tools ... all creating radically new sets of capabilities and the kind of social adjustments so well articulated by Peter Drucker in his Atlantic Monthly magazine article titled The Age of Social Transformations.4

    Many countries, including the United States, find themselves in somewhat of an economic midlife crisis, partially misunderstood and constantly worrying about the changing nature of the increasingly global economy.

    But even as they worry - the global knowledge economy already is moving toward a global conceptual economy.

    Having served for several years on both the U.S. Council on Competitiveness and the President's Council of Advisors on Science and Technology (PCAST), please allow me to offer some perspectives derived from the recent work we have done.

    These are perspectives on what many of us are beginning to call "a national innovation ecosystem" . . . . that system of loosely interrelating elements that has enabled us to make new discoveries, capture their value in the marketplace, enhance productivity and thereby increase the standard of living.

    Today, I will develop these perspectives along three lines of thought:

    First:  I will describe technological and economic progress in a socio-political context.

    Second:  I will examine technological innovation in a historical context, and

    Third:  I will conclude by sharing some trends from a global economic perspective.

    I.  So, let's begin with the socio/political context.

    The primacy that America has long enjoyed around the world is increasingly being challenged by the very same forces of technological innovation that America itself unleashed. 

    For example, only 6 of the world's 25 most-competitive Information Technology companies are based in the U.S.  . . . 14 are based in Asia.  And, it is no secret that China overtook the United States in 2003 as the top global recipient of foreign direct investment.5

    So, what are the skills that we in higher education need to address to help promote technological and economic progress?

    In the U.S., those of us in higher education often ask for feedback from the private sector on the kind of skills that employers want us to instill in our students, and we mostly hear the usual litany - give us communications skills, writing and quantitative skills, interpersonal skills suitable to working in a team environment, and the like.

    But recently, a new request is being heard:  "Give us emotional resiliency."

    Think of it - emotional resiliency as a job skill!

    What executives of high-tech start-ups in the U.S. are increasingly telling us is that their employees need to be prepared for failure, to be prepared to adapt to the fast pace of technical innovation, and to be prepared for changing careers three, five or more times during their lifetimes, if not even more.

    Because, whether as individuals or as a society, we prepare ourselves best for change by continuously developing our skills in keeping with the changing requirements of business. 

    That is why we say that opportunity favors the prepared mind!

    Indeed, today we all must operate in an Age of Globalization where it is abundantly clear that the peoples of the world are moving increasingly toward one another. 

    And, in this global, Internet-driven economy, the issue is no longer just a matter of simple competition, it is one of a capacity to innovate and thereby continue to have economic growth. 

    II.  So, let us now turn to examine some aspects of technological innovation in a historical context.

    I submit that the future has always been predicted by the technologies that created it. 

    One-thousand-eight-years ago, at the turn of the last millennium, the world had no organized industries.

    At the turn of the last century, in 1899, some of the dominant industries were hardware, bicycles, and telegraphy.  And in the U.S., more than half of all Americans still were living on farms and involved in production agriculture.

    Today, in 2008, less than two percent of the U.S. population is involved in agriculture, and our dominant industries involve robotics, biotechnology, and wireless telecommunications.

    Entirely new industries are products of 20th century innovation . . . from the airline industry, to microelectronics, biotechnology and many more.

    It was research that enabled the agricultural and industrial revolutions at the turn of the last century.  And during World War II, research that was initially vital to the war effort laid the groundwork for technological leaps in medicine, aviation, energy and electronics - developments that today affect virtually every realm of our human endeavors.

    And with the development of transistors, the era of microelectronics began and sowed the first seeds of the Silicon Valley.  From such modest beginnings, we are now immersed in the information age.

    The research related to the space race not only resulted in Americans walking on the moon, but also gave rise to the space industry and enabled new technologies in satellite communications, computer science, robotics and miniaturization.

    As recently as 1970, a single discovery in molecular biology initiated the new industry of biotechnology, an industry from which we are now seeing dramatic advances in medical science and the introduction of effective new technologies such as the production of human insulin by factories of microorganisms.

    These are just a few examples of technological innovation as an engine for economic development . . . each effectively demonstrating that new knowledge builds new capacities just as surely as new materials build new structures, and each demonstrating that our nation's investments in education and research have built very real assets that have yielded very real returns on those investments.

    Indeed, the social return on research and education investments has been estimated to be consistently at between 30 and 50 percent per year.

    Economists agree that creation of new technological knowledge through research is our most direct economic avenue for acquiring added value.

    When that new knowledge is quantified in a market environment, it creates fuller employment, capital formation, growing profits, and surpluses for reinvestment.

    In other words, it is from research that new companies are born, that new jobs are created.

    It is from research that the economy expands and new wealth is created. To give you just one example, think of what has become known as Moore's Law - named after Gordon Moore, co-founder of Intel.

    Gordon Moore predicted in 1965 that processing power would double every 18 months (with corresponding price decreases), and with increasing power, we went from mainframes to PCs and to PDAs.

    Along the way, with smaller and more powerful computers, Cisco and other companies have brought us networks, linkages among networks and the Internet. 

    And that, according to Robert Metcalf - a pioneer of computer networking - creates new value.

    How much new value?

    According to Metcalf's Law, the value of networks grows with the square of the number of users. 

    Mike Ruettgers, senior advisor and retired chairman of EMC Corporation, quantified the successive growth in market capitalization that has occurred in the IT industry as new technologies have overtaken older ones.

    He tells us that in each successive wave, there has been a tenfold increase in wealth creation, from $80 billion in the mainframe era, to $800 billion in the wave of the personal computer, to what is now rapidly approaching $8 trillion.6

    That is the power of innovation!

    And just as technological innovation creates new wealth, it also impacts the speed and productivity of how we go about creating new value. 

    Here, I will not discuss productivity other than to note that the same changes we, in the United States, saw for employment shifts in agriculture in the first half of the 20th century may now be happening for manufacturing in the first half of the 21st century. 

    Moreover, large sectors of the U.S. economy - healthcare and education, for example - have yet to see major productivity changes, as they must if they are not to consume increasingly larger, and thus unsustainable, fractions of our resources as a nation.

    Whether in value, speed or productivity, we humans are forced to "construct artful analogies" because that is the only way to "comprehend the explosive acceleration of speed and capacity" of our technology.

    Consider these analogies from the Washington Post

    "If the airplane had advanced as far and as fast as the computer, today's jumbo jet would carry one hundred thousand passengers, and it would fly them to the moon and back for $12.50 at 23,400 miles per hour."

    What if the automobile had advanced at the same rate as the computer?  "We could today buy a Rolls Royce for a dollar and drive around the world on a gallon of gas."

    And, here is my favorite of all!  What if education also had advanced as far and as fast as the computer?

    ". . . a (U.S.) high school or college education - which still takes twelve and four years, respectively, to complete at an average cost for either of about $60,000 - could today be completed in less than 10 minutes for about 5 cents!"

    Indeed, as we move further into the 21st century, we already can glimpse new technologies and new industries.

    III.  Finally, let me turn to some economic trends from a global, international perspective.

    Basic science has always been an international enterprise.  Scientist-to-scientist collaborations and major internationally funded projects generally have dominated the nature of scientific collaborations throughout most of the 19th and 20th centuries. 

    Beginning in the 1970s, however, the more rapid pace in which new discoveries from basic science became quantified in the asset ledgers of corporations ensured that investment funds also began to closely track the flows of intellectual property developments around the world.  And this is indicative of the growing interdependencies of the science and technology activities of nations.

    Whether in the acquisition of "patent families" by the bundling of related patents one-by-one, or in the garnering of unique competitive advantages through Research & Development, the globalization of markets are signaling new dimensions in how science is funded and how it is practiced.

    In short, Science & Technology is now clearly part of the economic development strategies of many nations.

    Consider this: "Of the 100 largest economies in the world, 51 are now global corporations; only 49 are countries.  Everything is global, and everything is competitive."7

    And, we should remember that the environment for Research & Development is a complex and interactive one.

    It is shaped not only by the quantity and by sources of funds available to support research activities, but also by the talent pool and capabilities of the scientists and engineers who conduct research, and by the settings in which that research is conducted, that is, its "infrastructure" - in the sense of its facilities, its institutional cultures and those other related attributes governed by geographical location and interrelating organizations and facilities, many of which are increasingly global and devoid of boundaries!

    This, in the more recent work of PCAST and the Council on Competitiveness in the United States, is what is meant by an "innovation ecosystem."  And this ecosystem, we should remember, also is shaped by prevailing public attitudes about the importance and usefulness of research in the broader context of societal pressures and economic opportunity.  In fact, one perspective that is often overlooked is the sheer size of the innovation economy. 

    It can be argued that the global innovation economy IS the global economy; however, for the purposes of this discussion, I am going to focus on the global R&D economy.

    So, what is the size and shape of the research economy - the research marketplace, if you will?

    Globally, the R&D marketplace is now approaching a trillion dollars - which is a sizable industry by any standard.

    Presently about 75% of global R&D is done by the 30 OECD countries, of which 83% is dominated by only seven countries, including 45% (approximately $340 billion) by the U.S. alone. However, I hasten to add that the U.S. share of the world's R&D has been declining, just as other dimensions of U.S. dominance in science and engineering:

    In this context, China is emerging as a world leader in science and technology:

    After nearly quadrupling both R&D and basic research expenditures between 1987 and 1996, China further increased total R&D expenditures from $15.3 billion in 2001 to nearly $44 billion in 2006.  Simultaneously, basic research funding nearly tripled (going from $683 million to more than $2 billion).

    • Those monetary gains were accompanied by increases in personnel during the same period-a 134% in technical staff, 143% in R&D staff and 137% in scientists and engineers.
    • As a result, China now is second only to the United States in the number of scientific research papers produced annually.5   
    • This year, expenditures for basic research and high technology in mainland China reached $2.15 billion, and National Natural Science Foundation distributions reached $907 million.
    • And the percentage of Gross Domestic Product spent on R&D grew from less than 1% in 2001 to nearly 1.5% in 2006, with a strategic goal of the National Program for Medium-to-Long-Term Scientific and Technological Development being to increase that percentage to 2.0 by 2010 and more than 2.5% by 2020. 
    • In contrast, the United States has seen its percentage of GDP decrease from 2.76 in 2001 to 2.62% in 2006.

    If we examine R&D expenditures in the U.S., we see that 62% of R&D expenditures ($224 billion) are derived from industry, 30% ($94 billion) from the federal government and 7% ($23 billion) from foundations, states and our own research universities. The trend is comparable in China, where business invests nearly three times as much as government in R&D.

    In terms of traditional R&D terminology, the U.S. performs about $60 billion of basic research (18%), $75 billion of applied research (22%) and $204 billion of development (60%). Colleges and universities perform nearly three-fourths of the country's basic research, but only a nominal percentage of development. Industry alone performs about $184 billion of the nation's $204 billion of development.?

    Unfortunately, detailed information and data for the portfolio of research areas that are funded are severely limited, so that we know little more than the fact that about 70 percent of all funding spent for research goes to life sciences and about 30 percent to physical sciences and engineering.

    R&D portfolios outside the U.S. are more evenly balanced between the physical and biomedical sciences, and the America's Compete Act, as a result of PCAST recommendations, attempts to better balance the U.S. portfolio, without diminishing our present investment in health-related research. The other six federal agencies provide just 3% of the remaining R&D support, so you can understand why we perhaps have so little in the way of evidence-based education.  It is notable, however, that funding is somewhat more balanced in countries outside the U.S.?

    Now, let's drill down to universities as performers of federally-supported R&D: Within the U.S. academic performers garnered about $47 billion, or 14% of the $340 billion U.S. total, in 2006, which is not too different from China where universities obtain 18.9% of government R&D funds. Of special concern is the fact that industry-supported university research in the U.S. has dropped to below 5% of all university research.9 Universities in China obtain a much larger fraction of government-supported R&D, 18.9%.

    The 14% academic "market share" for the United States is, of course, distributed among many of the nation's 4,314 degree-granting colleges and universities. In 1995, the number of universities participating in the U.S. research economy was 875, although the top 100 captured 80% of all available funds.

    Likewise, a few universities enjoy better than 5% R&D support from industry, but - on the whole - they are largely disconnected from industry support and this explains why they remain so far apart on many issues.

    With so many performers of R&D, what will be the academic equivalent of mergers and acquisitions, of re-engineering, of managed health care plans, and of the emerging private-practice corporations?

    What comparative and competitive advantages will be expressed as the new generation of research universities in the United States emerges in the years ahead, as indeed it surely will?

    I suggest that key among the issues that will drive such radical changes, is the concept of "strategic intent".

    In their classic book, Competing for the Future, Gary Hamel and C.K. Prahalad define "strategic intent" as "an ambitious and compelling ... dream that energizes a company ... that provides the emotional and intellectual energy for the journey ... to the future".10

    Thus, "strategic intent" conveys "a sense of direction ... a sense of discovery ... (and) a sense of destiny .... It implies a significant stretch for the organization."11

    But what are we to make of all of this in a practical sense?

    In this changing environment, many American "universities already have moved to increase funding links, technology transfer, and collaborative research activities with industry and government agencies."12 

    According to data from the National Science Foundation in the United States, "...numerous strategic research and technology alliances have been created over the past two decades, many involving international partners." 

    In this regard, the April 2005 issue of MIT's Technology Review magazine nicely captures the differences in how seven countries are using science and technology, and it is telling how aggressively some are pursuing S&T strategies-and how tightly coupled some of these strategies are to the needs or strengths of some of those countries.

    Undeniably, we do live amidst a complex and dynamically changing environment for R&D.

    What conclusions can be drawn?

    All of the indicators that I see on the horizon make me optimistic about the future of academic R&D, although not necessarily as we now know it.

    Other opportunities abound when we focus on the special role of universities.

    I believe opportunities exist for universities to create greater differentiation among themselves, either as individual institutions or through creative alliances that shape new dimensions of competitive and comparative advantages. 

    Focus and differentiation are respected elements of competitive strategy, and no university can afford to be truly comprehensive in today's environment.

    Opportunity also exists in the very business that we are in, mainly education, if looked at from a research perspective. 


    Educational R&D is an infinitesimally small fraction of educational expenditures, and in the United States, we have not advanced the science of education nearly enough.  (STEM)

    We now see that other countries are effectively solving policy disjunctions within their national boundaries and that even the new European Union is going beyond the U.S. in integrating its science and technology policies and strategies across its individual "states."

    In summary, today I have shared some perspectives on how technology operates in a socio-political context, how it creates the opportunity for economic growth (along with increasing productivity and demands for speed), and how technology is also shaping how we do science in an increasingly global economy.

    The growing consensus emerging in the United States from PCAST and the Council on Competitiveness, quite simply, is that we must focus on innovation - that it must address issues of talent, investment and infrastructure; and that we are perhaps most vulnerable in the area of talent, where our educational systems are lagging and where student interest in science, technology, mathematics and engineering is hugely behind that seen in other nations.

    The simplest message of the Innovate America Report out of the Council on Competitiveness is this:

    "Where once we optimized our organizations for efficiency and quality, today we must focus our entire society on innovation."13 

    Ladies and gentlemen, success in the new global economy will belong to those countries that create and nurture the human resources of intellectual capital - the people that create new knowledge and new technologies and quickly translate research discoveries into marketable products and services.

    To succeed globally, all universities, businesses, industries and governments must work in partnership to support clusters of innovation that will ensure an increasingly stronger and larger source of human capital.

    So, let us be cheerful and plunge ahead-our common future depends on it.

    Thank you!

    ******

    References

    1. (Hackman Franklin, Barbara, former U.S. Secretary of Commerce, speaking at the George H.W. Bush China-U.S. Relations Conference, October 2007, Vital Speeches of the Day, September 2008)
    2. (Science and Engineering Indicators 2008, Chapter 6 (Industry, Technology and the Global Marketplace, National Science Foundation)
    3. (Hackman Franklin, Barbara, Ibid)
    4. Atlantic Monthly, The Age of Social Transformations, 1994
    5. "Innovate America," Council on Competitiveness National Innovation Initiative Summit and Report, 2005, p. 38
    6. Ruettgers, Mike, "Information Infrastructure: The New Business Accelerator," presented at the workshop on Transitioning Into the New Economy, Cleveland, Ohio, October 31, 2000
    7. Foster, Chris, chief scientist and deputy secretary of the Maryland Department of Development, as reported at the 2004 SSTI conference in Philadelphia
    8. Arunachalam, Subbiah, "China: Emerging World Leader in Science," University World News, June 2008
    9. National Science Board's (NSB) 2008 Science and Engineering Indicators
    10. Hamel, Gary and C.K. Prahalad, Competing For the Future, Harvard Business School Press, 1994
    11. Hamel, Ibid
    12. National Science Board (NSB), Science and Engineering Indicators 2002 [Arlington, Va, National]
    13. Council on Competitiveness, "Innovate America," National Innovation Initiative Report, [Dec. 2004]
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