Phoenix Center Releases Study of 'Valley of Death' in R&D Technology Investments

Government Likely to See Larger Economic Returns from Basic R&D Investments if
Follows Through with Intermediate Stage Commercialization Policies

WASHINGTON, Feb. 12 /PRNewswire-USNewswire/ -- According to a new Phoenix
Center study, government funding of basic technology research and development
efforts and limited support for latter stage research can contribute to a
"Valley of Death" or "funding gap" in the intermediate stage of product
development that limits the economic benefit and commercial potential of
discoveries from basic R&D investments. As a result, the Phoenix Center's
research indicates that the government is likely to see a larger economic
return on basic technology R&D investments if government officials follow up
those basic investments with policies that focus upon turning basic research
into commercial products and surveys.

"Policymakers of both parties support government investment in research and
development, but economic growth from that investment can only happen if
research results in commercial products and services," says Lawrence J.
Spiwak, President of the Phoenix Center and study co-author. "The
unavailability of funding for intermediate stage technology R&D projects that
convert knowledge to commercial products has been widely observed by
researchers and innovators for years."

Specifically, the paper notes that while the government's support of R&D has
been targeted at early stage, basic research, "the road between a discovery
generated from basic research to a commercial product or process is long and,
according to some, rife with significant roadblocks." The Phoenix Center notes
that a Valley of Death at an intermediate stage of this process, between basic
research and commercialization of a new product, "may have a significant
impact on the productivity of government-supported R&D efforts." Hence, the
paper suggests that there should be a deliberate "policy focus on government's
decision as to how to apportion its support for technology R&D-which has an
important social value-between early-stage and intermediate-stage R&D
projects."

"While several hypotheses for this Valley of Death have been suggested, the
typical explanations only rationalize a shortfall of research investment and
do not predict a valley in the innovation sequence," said Phoenix Center Chief
Economist George S. Ford, co-author of the study. "Our economic analysis
suggests that this funding gap is likely the product of R&D investments in
basic research that are made without much regard to private investment
decisions that must occur later in the innovation process for basic
discoveries to become useful commercial products and services. In essence, the
private sector may not be ready for the handoff from publicly-financed
research, which then appears to cut off the innovation process."

"The United States competes in a global economy, and incorporating innovation
and new discoveries into our products is important to maintaining our
competitiveness," said Tom Koutsky, Phoenix Center Resident Scholar and
co-author. "While there are important reasons for the government to support
R&D efforts, it would be a mistake for government to largely limit its
activity to basic research. Attention needs to be paid to intermediate stage,
applied research or the government would see diminishing returns on the
billions of dollars that it invests in R&D through direct spending and tax
credits."

According to former Undersecretary of Commerce for Technology Policy Robert C.
Cresanti, "The Phoenix Center's study makes clear that policymakers need to
better understand how we can best allocate our substantial investments in
basic research so that we can produce the most economic benefits for U.S.
taxpayers."

Funding for the Phoenix Center's research was provided by the United States
Department of Commerce, Technology Administration, under Study Contract No.
SB1341-05-0023, administered by KT Consulting, Inc. A full copy of the Report,
A Valley of Death in the Innovation Sequence: An Economic Investigation, may
be downloaded free from the Department of Commerce's web page at:
http://www.ntis.gov/ta_reports/ValleyofDeathFinal.pdf. The views expressed in
these report are those of the authors alone, however, and do not reflect the
views of the Department of Commerce or the United States Government.

The Phoenix Center is an international, non-profit 501(c)(3) organization that
studies broad public-policy issues related to governance, social and economic
conditions, with a particular emphasis on the law and economics of
telecommunications and high-tech industries.

SOURCE Phoenix Center for Advanced Legal & Economic Public Policy Studies

Lawrence J. Spiwak of the Phoenix Center for Advanced Legal & Economic Public
Policy Studies, +1-202-274-0235