My three careers have been in business, government and academia. I have found each to be populated with many extremely talented and dedicated individuals. But these key elements of America’s economy seem to have evolved a relationship that resides somewhere between disconnected and adversarial. As a result, the nation finds itself with a competitive machine wherein the whole is less than the sum of its parts. This matters.
How should government, industry and academia interact so as to maximize America’s global competitive posture? One thing is certain: A centrally managed economy is not the answer. Ask the former Soviet Union about that.
America’s free enterprise system, together with its democracy and freedom, over the years have placed the nation in an economic leadership position of such might that people from around the world clamber to enter its borders and share in the American Dream. But our free market system has an Achilles heel. In a global economy, if other governments choose not to play by the classical rules of free enterprise, for example by subsidizing their participants in the marketplace, imposing trade barriers and stealing intellectual property, independent firms seeking to compete against them will almost surely be doomed to failure. Independent companies simply cannot compete with governments: Governments make the rules, interpret the rules and enforce the rules — not to mention print the money.
Two Views: Government-Corporate Partnerships: Yea or nay?
So how, then, does America maintain a competitive economy and all that it supports when facing a rival such as the People’s Republic of China, which openly embraces anti-competitive practices? If one suggests that the U.S. government should become more engaged in the activities of the business sector, the common response is, “Oh, you want the government to pick winners and losers?” One might note that the government has already done that for decades with regard to not insignificant segments of the economy when it allocates its “own” funds. For example, it does so by selecting specific universities for grants and specific companies for contracts. The distinction is that our government generally does not tell individual firms or industries how to spend their resources.
Fortunately, there is a middle ground concerning government’s involvement with business (beyond the obvious functions such as assuring consumer safety and preventing monopolies) that is between total detachment and centralized industrial policy. It is for government, industry and academia to do what each does best.
A number of economic studies show that for a half-century up to 85% of America’s GDP growth (read jobs) has been attributable to advancements in just two closely related fields: science and technology. Foundational to these two fields is basic research, the source of stunning breakthroughs and a pursuit at which our universities are especially proficient — with the glaring exception of providing the necessary financial resources.
In a democracy, one of the roles of government is to underwrite those aspects of public good that the private sector can’t — or won’t — fund. In the past, many U.S. industrial firms maintained extraordinary laboratories performing fundamental research. The canonical example is Bell Laboratories, home of the transistor, the laser and nine Nobel laureates. But over the course of time something changed: Shareholders, instead of holding their stock in companies for an average of eight years, now hold their shares for only about four months — meaning that they have little interest in seeing the firms they own allocate resources to long-term, risky endeavors such as basic research. Case in point: The remnants of Bell Laboratories are now owned by a firm in Finland.
Industry, on the other hand, is highly effective at implementing the results of research (i.e., development and production) and has picked up much of the financial slack created by government disinvestment in these areas in recent decades.
A public/private partnership model that could compete with China would require far more government funding (call it subsidizing, if one must) of basic research conducted at our universities and federal laboratories, the latter focused primarily on very long-term, very high-payoff, usually very high-risk research. Industry could then concentrate on what it does best, development and manufacturing.
But there is a missing link in this model. Fortunately, the research-related element needed to dispense increased government funding is already in place at such organizations as the National Institutes of Health and the National Science Foundation. So too is a strong, albeit threatened, industrial base. What is inadequate (in addition to research funding) is a link capable of rapidly translating new knowledge from the laboratory to prototype demonstration. Important proposals have been made in this latter regard; however, they address only specific technologies such as microelectronics or artificial intelligence. What of other highly promising fields such as quantum science, genomics, autonomy, cyber, microsystems and disciplines not yet known?
I would humbly propose the creation of a new entity to address this problem on a broad scale. Fortunately, there already exist highly successful organizations — such as Defense Advanced Research Projects Agency, In-Q-Tel, Advanced Research Projects Agency–Energy, Intelligence Advanced Research Projects Activity and Semiconductor Manufacturing Technology — that have demonstrated many of the attributes needed by such an organization as is sought here. Call the organization “SPARK” (a contest will be held soon to define the acronym!) and fund it through the federal government. The organization would obey commercial laws and regulations, and individual employees would be expected to remain for no more than about five years. SPARK would operate no laboratories or factories of its own, but instead would competitively provide funds to the private sector through grants, contracts, loans or equity positions designed to move ideas from the laboratory to industry. It would be governed by an independent (non-government) board of directors and measured by its contribution to the growth of the nation’s economy.
America can no longer ride on the investments, accomplishments and methods of years past. A new approach to government/private partnerships is needed if we hope to remain competitive in a world not as we might like it, but as it exists.
Norman R. Augustine is the retired chairman and chief executive officer of the Lockheed Martin Corp., the nation’s largest defense contractor, and a former undersecretary of the Army. He is a former member of the board of directors of ConocoPhillips, Black and Decker, Procter & Gamble and Lockheed Martin, and has served on a number of private company boards. He is a member of the Directors & Boards editorial advisory board.