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.