Statement of John H. Gibbons

Director, Office of Science and Technology Policy

before the

> Committee on Small Business

U.S. House of Representatives

May 13, 1993


Mister Chairman, members of the Committee, thank you for this opportunity totestify on the Adm inistration'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 we 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 a matter of fact, Bo Cutter on the National Economic Councilis fond of pointing out that over the last few years, small business hascreated more than 100 percent of all the new jobs created in the private sectorin this country. As many of our Fortune 500 companies undergo majorrestructuring and downsizing, it is all the more cri tical that the smallbusiness sector continues 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 years 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) governmentregulation, and ( 6) technology.

(1) Capital. No business, large or small, can grow without access topatient capital. Unfortunately, in recent years, primarily due to the growingFederal deficit, it has been more and more difficult for companies,partic ularly small companies, to get the capital they need to invest in newequipment, worker training, and R&D. For that reason, the President hasnot only made reducing the deficit a top priority, he has provided a blueprintfor doing so. His April budg et would cut the deficit by $447.5 billion overthe next five years. Some of the cuts he has proposed will be painful, butthey are essential if we are going to get the deficit under control and reduceinterest rates. The Administration's commitment to deficit reduction hasimpressed world money markets and one result has been that interest rates havecome down since November. That means lower mortgage payments for you and meand more money to invest for American business. And that translates into mor ejobs--and better jobs--in the future.

(2) Workforce training. As the President often notes, most Americansentering the workforce today will have more than half a dozen different jobsover the course of their career. In order to keep up with the rapid rate oftechnological change, workers will need retraining programs. TheAdministration's plan contains a number of proposals that will enable Americanworkers to update their skills. We need to invest in people today so Americanbusin ess can compete tomorrow.

(3) Health care. The Administration has made reforming the health caresystem a top priority because if we do not, health care costs for both theprivate sector and the Federal government will continue to soar. T he risingcost of health insurance is a particular burden for small businesses, whichusually must pay higher premiums than large companies. Health care costsaccount for about one-seventh of our GDP. And that figure is growing rapidly;this is an issu e we cannot ignore.

(4) Trade. The Administration has already started to take action toopen more foreign markets to American goods. U.S. companies make top-qualityproducts, but that doesn't matter if foreign customers cannot buy them. Thatis why the Administration is working to conclude negotiations on NAFTA and theUruguay Round of GATT. The Administration also plans to help Americancompanies, particularly small- and medium-sized companies, to find overseasmarkets for their produc ts. The Department of Commerce intends to expand itstrade promotion programs and make them more effective. In recent years,exports have accounted for much of this country's economic growth. We intendto ensure that trend continues.

(5) Gov ernment regulation. Over the years, the regulatory burden onAmerican business has grown steadily. This burden has fallen particularly hardon small business, which is least equipped to deal with it. As part of theNational Performance Review being headed by Vice President Gore, we are lookingat ways to make government work better and work smarter. Part of that meansfinding ways to eliminate unnecessary paperwork and regulations. The NPRreport due September 7 will no doubt include proposals th at could save Americanbusiness and the government billions of dollars by eliminating the need to fillout and process unnecessary paperwork.

(6) Technology. According to Dr. Robert Solow, the Nobel Prize-winningeconomist from MIT, much o f the economic growth in the U.S. since World War IIis attributable to improvements in technology. New technologies generate newproducts and better ways of manufacturing. Breakthroughs such as thetransistor, computers, recombinant DNA, and synthetic materials have createdentire new industries and millions of high-paying jobs. The President madeclear during the campaign that he understands the key role technology plays ineconomic growth and the key role government can play in helping industrydev elop and exploit new technologies. That is the reason more than 500executives from high-tech companies, both large and small, endorsed candidateClinton last September. Although most of them had traditionally votedRepublican, they were willing to swit ch sides to support a candidate able totake the long view and work with industry to ensure that U.S. companies stay atthe leading edge of technology.

I would now like to focus on the Administration's technology policy anddiscuss how it will hel p American companies, especially small businesses.


As you know, on February 22, the President and the Vice President visitedSilicon Valley and released a 36-page technology policy paper entitled"Technolo gy 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 us ing technology to meet a number ofnational goals. To quote the opening paragraph of the document:

Investing in technology is investing in America's future: a growing economywith more high-skill, high-wage jobs for American workers; a cleanere nvironment where energy efficiency increases profits and reduces pollution; astronger, more competitive private sector able to maintain U.S. leadership incritical world markets; an educational system where every student ischallenged; and an inspired sc ientific and technological research communityfocused on ensuring not just our national security but our very quality oflife.

The Technology Initiative lays out three broad goals:

(1) Long term economic growth that creates jobs and protec ts theenvironment.

(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 hope 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.

(2) fiscal and regulatory policies that indirectly promote these activities.

(3) investment in education and training.

(4) support for critical transportation a nd information infrastructure.

Technology Development, Commercialization, and Use

Compared to Japan and our other competitors, government support for civiliantechnology development has been minimal in the United States. Our focus h asbeen 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 high-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 application of newtechnologie s.

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, particularlystart-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 than the large vertica lly-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 grants and 50% of the funding wasawarded to joint ventures, many of which included small businesses.

(2) The Defense Advanced Research Projects Agency (DARPA) has been renamed theAdvanced Research Projects Agency (ARPA) and will devote more of its resourcesto dua l-use technologies with both defense and civilian applications.

(3) The Technology Reinvestment Project created by Congress last year willprovide over $500 million to ARPA, NASA, the Commerce Department, the EnergyDepartment, and the National Sci ence 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 ci viliantechnologies. In addition, it will create technology extension programs tohelp small- and medium-sized companies throughout the country.

(4) Federal laboratories run by the Department of Energy, NASA, and otheragencies will devote a growi ng percentage of their budget to R&Dpartnerships with industry. These partnerships will be designed and partiallyfunded by industry in order to ensure that they lead to technology that will beutilized to develop new products and processes.

(5) 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 endorse d the doubling of the SBIR set-aside from 1.25% to 2.5%, andshortly 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 thr oughout the country take good ideas andturn them into new technologies and new products.

(6) 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 to 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 Fo undation, 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 th e program.

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

(1) Regio nal Technology Alliances, funded by the Defense Department, to promotethe commercialization and application of critical technologies by bringingtogether firms and research institutions in a particular region to exchangeinformation, share and develop te chnology, and develop new products andmarkets. Such alliances will be particularly helpful to small companies whichlack the technological breadth of larger companies.

(2) Manufacturing Extension Centers. Existing state and federal manufacturing extension 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 extens ion 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, almost $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 loc al 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 impo rtant, 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 investmen tin 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 hasbee n 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 busines ses, will be reluctant to make such commitmentswithout a permanent R&E tax credit.

(2) Reforming procurement policies to encourage the Federal government topurchase new products rather than using those based on yesterday'stechnologies. In m any areas, Federal procurement regulations make it difficultfor agencies to buy the most modern equipment and supplies. Becausespecifications are often written with existing products in mind, agenciescannot purchase a newer, superior product. This is particularly true forcomputer and communications equipment. As part of the National PerformanceReview, the Administration is looking at ways to be a better customer and thusencourage American industry to develop and market new technologies.

(3 ) Patient capital. There are recurring concerns about the lack of patientcapital for investment in new technologies. Partly in response to thoseconcerns, last year the Congress passed legislation to restructure the SmallBusiness Investment Company (S BIC) 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, incl udes provisions for loanguarantees and a Federal venture capital fund. The National Academy ofSciences has proposed creating a publicly-funded, privately-run CivilianTechnology Corporation. The private-sector Council on Competitiveness recentlypropo sed a sweeping set of reforms to encourage long-term corporate investment.All these proposals and others are presently being carefully considered by amulti-agency group working under the aegis of the National Economic Council.

Education and Tr aining

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 iscommitte d 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 bei ng usedto improve education and training. Unfortunately, many companies, especiallysmall companies, have not been able to take advantage of these technologies.The Clinton Administration feels that the Federal government needs to do morewith the devel opment and application of cost effective technologies. For thatreason, we intend to:

(1) Expand access to the Internet computer network to connect moreuniversities, community colleges, and high schools to each other and to a broadrange of infor mation resources. This will enable teachers at one college toteach courses at schools and colleges throughout the country. In addition,companies that connect to the Internet will be able to take advantage ofeducation and training programs offered ove r the Internet as well. They willalso be able to locate and use training software for their in-house trainingprograms.

(2) Create an interagency task force to (i) establish software andcommunications standards for education and training, (ii) c oordinate thedevelopment of critical software elements, (iii) support innovative softwarepackages and (iv) collect information resources in a standardized format andmake them available to schools and teaching centers through the nation usingcommunicat ions networks.

(3) Transfer some of the education and training technology developed by themilitary to the civilian sector so that it can be used in our schools,factories, and offices. Last year, the Navy Training Systems Center and theArmy Simu lation, Training, and Instrumentation Command together spent about $1billion on training systems. The same technology they have developed to trainengine mechanics could be used to train factory workers as well.

Information Infrastructure< p>

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 accessto unprecedented amounts of information, when they want it, where they want it.Using fiber-optic networks, wireless com munications, and other technologies,this infrastructure will transmit two-way video as easily as the phone systemcarries voice and fax today. We will have access to thousands of movies orchannels of HDTV programming, video-conferencing at our desks, a nd the abilityto retrieve huge volumes of electronic information from "digital libraries"connected to the network.

This infrastructure will enable dramatic improvements in education, healthcare, education, entertainment, and other sectors of th e economy. Forinstance, using advanced networking technology, a doctor who needs a secondopinion could transmit a patient's entire medical record--x-rays and ultrasoundscans included--to a colleague thousands of miles away, in less time than ittakes to send a fax today. A school child in a small town could come home andthrough a personal computer, reach into an electronic Library ofCongress--thousands of books, records, videos, and photographs, all storedelectronically.

< /u>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 have 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 5 00 corporations, 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 produc tsand services 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 part 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 tele communications andinformation policies that promote competition and investment while ensuringthat the information infrastructure benefits all Americans.

The Administration has made a number of proposals to do this, including:

(1) The High -Performance Computing and Communications Program established bythe High-Performance Computing Act of 1991. Research and development funded bythis program is creating (1) more powerful supercomputers, (2) faster computernetworks, and (3) more sophisti cated software, needed to build the NationalInformation Infrastructure. The Congress appropriated almost $803 million infunding for FY93 and the Administration is requesting a total of $1.000 billionfor FY94.)

(2) An Information Infrastructure Technology and Applications Program todevelop the hardware and software needed to fully apply advanced computing andnetworking technology in manufacturing, in health care, in life-long learning,and in libraries. This multi-agency program will involve the National ScienceFoundation, NASA, the National Institutes of Health, the National Institute ofStandards and Technology, and other agencies. (The Administration requested$96 million for FY94 for this effort.)

(3) Networking pilot projects th rough the National Telecommunications andInformation Administration (NTIA) of the Department of Commerce. NTIA's PublicTelecommunications Facilities Program will provide matching grants to states,school districts, libraries, and other non-profit entit ies so that they canpurchase the computers and networking connections needed for distance educationand for hooking into computer networks like the Internet. These pilot projectswill demonstrate the benefits of networking to the educational and library communities. (The Administration has requested $51 million for FY94.)

(4) Promote dissemination of Federal information. Every year, the Federalgovernment spends billions of dollars collecting and processing information(e.g. economic data, envi ronmental data, and technical information).Unfortunately, while much of this information is very valuable, many potentialusers either do not know that it exists or do not know how to access it. TheClinton Administration is committed to using new compu ter and networkingtechnology to make this information more available to the taxpayers who paidfor it. This will require upgrading computer systems at dozens of Federalagencies as well as at the Government Printing Office and the NationalTechnical Inf ormation Service, which have key roles in disseminating governmentinformation. In addition, it will develop consistent Federal informationpolicies designed to ensure that Federal information is made available at afair price to as many users as possibl e.

(5) Reforming Telecommunications Policy. Government telecommunication policyhas struggled to keep pace with new developments in telecommunications andcomputer technology. As a result, government regulations have tended toinhibit competiti on and delay deployment of new technology. Without aconsistent, stable regulatory environment, the private sector will be hesitantto invest the hundreds of billions of dollars needed to build the high-speednational telecommunications network that this country needs to competesuccessfully in the 21st Century. To create a consistent Federaltelecommunications policy, the Clinton Administration will create a high-levelinter-agency White House task force which will work with Congress and theprivate se ctor to find consensus on issues like the Modified Final Judgment,spectrum reallocation, the cable television regulation, and the evolution ofthe Internet.


As you can see, the Administration has a comprehensive, pro-active te chnologypolicy that 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 a ll of us and our children.

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 qu