Remarks before Committee on Small Business

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Mister Chairman, members of the Committee, thank you for this opportunity totestify on the A dministration's technology policy and how it will helpAmerica's small businesses. The Administration recognizes the unique role thatsmall business has to play in fostering new technologies, in creating new jobs,and in sustaining economic growth, and w e are committed to working with smallbusiness to help them in that role.

According to the statistics, small businesses create most of the new jobs inthis country. As many of our Fortune 500 companies undergo major restructuringand downsizing, it i s all the more critical that the small business sectorcontinues to grow.

Before discussing the Administration's technology policy, I thought I wouldput it in context. As you know, our technology policy is just one piece of thePresident's economic plan released in February. The plan includes a number ofproposals designed to strengthen American companies--particularly smallcompanies--and help them compete better in world markets. These includelong-term investments that will pay dividends for ye ars to come in terms ofmore and better jobs, a better educated workforce, and better health care.This bold plan addresses many of the key concerns of American business: (1)capital, (2) workforce training, (3) health care, (4) trade, (5) governmentreg ulation, and (6) technology.

In my written remarks, I summarize our efforts in each of these areas.However, I would now like to focus on the Administration's technology policyand discuss how it will help American companies, especially small busine sses.

According to Dr. Robert Solow, the Nobel Prize-winning economist from MIT,much of the economic growth in the U.S. since World War II is attributable toimprovements in technology. New technologies generate new products and betterways of manuf acturing. Breakthroughs such as the transistor, computers,recombinant DNA, and synthetic materials have created entire new industries andmillions of high-paying jobs.

As you know, on February 22, the P resident and the Vice President visitedSilicon Valley and released a 36-page technology policy paper entitled"Technology for America's Economic Growth--A New Direction to Build EconomicStrength." I have submitted copies of the paper with my testimony andadditional copies are available from my office. This Technology Initiativeprovides a comprehensive strategy for using technology to meet a number ofnational goals.

(2) A government that is more productive and more responsive to the needs ofits citizens.

(3) A world class education providing leadership in basic science,mathematics, and engineering.

Small business has something to contribute in each of these three areas, butit is clear that it will be most involved in the first--sustaining economicgrowth--and for that reason I will focus on that part of the initiative. As Ioutline how we h ope to meet this goal, I will provide a number of examples ofparticular programs that will help American small businesses develop andexploit technology to improve their bottom line.

The Administration intends to use technology as a catalyst for economic growthby:

(1) direct support for the development, commercialization, and deployment ofnew technology.

Compared to Japan and our other competitors, government support for civiliantechnology development has been minimal in t he United States. Our focus hasbeen on basic research and the development of technologies related to defenseand space exploration, which have only indirectly led to new technologies forthe civilian sector.

That is no longer sufficient. In many hi gh-tech fields, foreign companieshave either matched or surpassed the best American companies. In many cases,most notably in Japan, they have done so by working closely with each other andwith their government to accelerate the development and applic ation of newtechnologies.

Technology Development. The Administration intends to dramatically increasefunding for development of civilian and dual-use technologies over the nextfive years. Much of this new funding will go to small businesses, pa rticularlystart-up companies, which play a key role in developing and commercializingtechnologies. Small, start-up companies represent this country's biggestadvantage when it comes to technology development. They are far more nimbleand innovative th an the large vertically-integrated conglomerates that dominatethe high-tech sector in most developed countries.

Among the programs designed to strengthen industry-government cooperation andto provide more federal support for commercial R&D are :

(1) The Commerce Department's Advanced Technology Program (ATP), which isslated to expand from $68 million in FY93 to almost $750 million by FY97.Created by Congress in 1990, the ATP provides competitive matching grants tocompanies working on "precompetitive" or "generic" technology. According tothe Department of Commerce, during the first three years of the program, over48% of all ATP grants and 24% of the funding went to businesses with less than500 employees. In addition, 30% of the gr ants and 50% of the funding wasawarded to joint ventures, many of which included small businesses.

(2) The Technology Reinvestment Project created by Congress last year willprovide over $500 million to ARPA, NASA, the Commerce Department, the Ene rgyDepartment, and the National Science Foundation to fund innovative technologydevelopment projects at companies--large and small--throughout the country.This program is particularly focussed on helping defense contractors andsubcontractors redirect their resources toward developing civiliantechnologies. In addition, it will create technology extension programs tohelp small- and medium-sized companies throughout the country.

(3) Expand the Small Business Innovation Research (SBIR) Program. As you know,Vice President Gore, when he was a House member, played a key role in creatingthe SBIR program and continues to be a champion for it. Last fall, he and thePresident endorsed the doubling of the SBIR set-aside from 1.25% to 2.5%, andshort ly before it adjourned in October, Congress passed and President Bushsigned legislation for that purpose. The SBIR program has been a real success,helping hundreds of small companies throughout the country take good ideas andturn them into new technol ogies and new products.

(4) The Small Business Technology Transfer (STTR) Program created last year bythis Committee will augment the SBIR Program by setting aside approximately $24million in FY94 for grants that would enable small businesses t o work withuniversities and Federal laboratories to move promising technologies out of thelab and into the marketplace. The five agencies involved in the program--theNational Science Foundation, NASA, and the Departments of Defense, Energy, andHealth and Human Services--are in the process of implementing this program.The legislation provides considerable flexibility and the various agencies areexploring different ways to structure the program.

Commercialization and Use. The Technology Init iative includes a number ofdifferent programs to accelerate the commercialization and use of newtechnologies. Of particular interest to the small business community are:

(1) Manufacturing Extension Centers. Existing state and federal manufactur ingextension centers managed through the Department of Commerce help small- andmedium-sized businesses evaluate and adopt new, advanced manufacturing methodsand technology. These extension centers work in much the same way as the U.S.agricultural ext ension programs. To date the Commerce Department has been ableto fund only seven Manufacturing Technology Centers, which can reach only asmall fraction of the firms that could benefit from their testing facilitiesand training programs. However, almo st $90 million in FY93 funding wasprovided to support these types of programs as part of the defense conversionprogram established by Congress last year. The Administration is committed tobuilding upon these programs and plans to work with state and local governmentsand universities to create a national network of over 100 extension centers.

Fiscal and regulatory policies that promote innovation and private sectorinvestment

While Federal technology programs are i mportant, they cannot succeedunless they are coupled with government policies that encourage Americanbusinesses to develop and apply new technologies. Unfortunately, many of ourcurrent fiscal and regulatory policies stymie rather than encourage invest mentin new technologies and new products. The Administration intends to changethat by:

(1) Making the Research and Experimentation (R&E) Tax Credit permanent. Inthe past, the effectiveness of this credit has been undermined because it has been extended only six or nine months at a time. This means that companiescannot accurately project the real costs of a given R&D project. Researchand development, by it nature, requires long-term investment and businesses,particularly small busi nesses, will be reluctant to make such commitmentswithout a permanent R&E tax credit.

(2) Patient capital. There are recurring concerns about the lack of patientcapital for investment in new technologies. Partly in response to thoseconcern s, last year the Congress passed legislation to restructure the SmallBusiness Investment Company (SBIC) Program. The Administration is implementingthat legislation and is exploring a number of other ways to provide low-costcapital to enable both large and small companies to invest in new technologies.H.R. 820, the National Competitiveness Act, includes provisions for loanguarantees and a Federal venture capital fund. The National Academy ofSciences has proposed creating a publicly-funded, privatel y-run CivilianTechnology Corporation. The private-sector Council on Competitiveness recentlyproposed a sweeping set of reforms to encourage long-term corporate investment.All these proposals and others are presently being carefully considered by amul ti-agency group working under the aegis of the National Economic Council.

Any businessperson will tell you their company's most importantresource is their people. Productivity and profits depend upon havingwell-educated, well-trained employees. For that reason, the Administration iscommitted to helping all Americans have access to a world-class education andworker training programs.

Technology has a key role to play in this area. Computer software, computernetworks, and distance learning are just a few of the tools that are being usedto improve education and training. Unfortunately, many companies, especiallysmall companies, have not been able to take advantage of these techno logies.The Clinton Administration feels that the Federal government needs to do morewith the development and application of cost effective technologies. In orderto do this, the Administration has created an interagency task force to (i)establish soft ware and communications standards for education and training,(ii) coordinate the development of critical software elements, (iii) supportinnovative software packages and (iv) collect information resources in astandardized format and make them available to schools and teaching centersthrough the nation using communications networks.

During the campaign, the President repeatedly emphasized the need to improvethis country's infrastructure. Today, that means not only roads and bridgesand airports, but also high-speed telecommunications networks and computersystems that form a "National Information Infrastructure". This NationalInformation Infrastructure will soon provide almost all Americans with access to unprecedented amounts of information, when they want it, where they want it.Using fiber-optic networks, wireless communications, and other technologies,this infrastructure will transmit two-way video as easily as the phone systemcarries voice and fa x today. We will have access to thousands of movies orchannels of HDTV programming, video-conferencing at our desks, and the abilityto retrieve huge volumes of electronic information from "digital libraries"connected to the network.

Without this information infrastructure, American business, especiallyfor small business, will find it hard to compete in the 21st Century. Othercountries are moving ahead aggressively to deploy high-speed telecommunicationsnetworks. Our companies need to h ave faster, better access to information,which will enable them to make higher-quality products and provide superiorservice. Development of a national, public network is particularly importantfor small businesses, which unlike many Fortune 500 corpora tions, do not runtheir own private networks. As high-speed networks are deployed, smallbusinesses will be able to use them to collaborate with other companies, bothlarge and small, as part of "virtual corporations" in order to provide productsand ser vices that no one company could provide. Thus, the informationinfrastructure will create more opportunities for small businesses to competewith large companies and with their foreign competitors.

The information infrastructure will, for the most p art be built and run by theprivate sector. But the government has a key role to play in: (1) working withindustry to develop and demonstrate the technology needed for the informationinfrastructure and (2) formulating forward-looking telecommunications andinformation policies that promote competition and investment while ensuringthat the information infrastructure benefits all Americans.

As you can see, the Administration has a comprehensive, pro-active technologypolicy tha t will provide huge benefits to American business--especially smallbusiness. And by doing so, it will provide huge benefits to all Americans--interms of new, high-paying jobs, a cleaner environment, and a higher quality oflife for all of us and our ch ildren.

I look forward to working with this Committee to ensure that our technologyprograms meet the needs of small business. Particularly in the area oftechnology, small business men and women have a key role to play. They are theinnovators and the risk takers. Without them and without government policiesthat encourage them, we cannot hope to meet the ambitious goals we have set.

Thank you again for this opportunity to testify. I would be happy to answerany questions.