The Advanced Technology Program: It Works

Elizabeth Downing is pursuing a dream. Her small company, 3D Technology Laboratories, which she started as a graduate student, is developing a radically new three- dimensional visualization and imaging system that may find application in a variety of fields, from internal medicine to national defense. Yet because of the risks involved, startup companies like hers often have a hard time finding private funds to develop their technologies. To Downing, one of the keys to her company’s progress is a government-industry “partnership” award from the federal Advanced Technology Program (ATP). “It is absolutely the best way to go for a small company with high-risk technology,” she says.

High-tech giant IBM also has turned to the ATP for help in partnering on new ideas. “Although IBM is a large and successful company, we never forget that we are engaged in global competition,” says company executive Kathleen Kingscott. “With half of our hardware revenues coming from products developed in the past six months, IBM must bring technology to the marketplace more quickly than ever.” But it is no longer enough simply to have the best idea. “Partnerships are needed to develop new ideas and technologies and to move products to the marketplace,” she says. “That is where the ATP comes in, helping new products with wide benefits come to market. IBM has cooperated with other companies in several ATP projects, and we believe the program works.”

Despite such accolades, however, the ATP is not without critics. Some of the debate centers on the proper role of government in society, in general, and in fostering commercial technologies, in particular. These observers argue that the government should not “pick winners and losers”; that is, government should not try to substitute its judgment for that of the market by selecting among technologies or firms. Critics also argue that government simply does not have the capability to make judgments concerning new technologies or firms. As a result, federal support for the ATP has waxed and waned, creating substantial and continuing uncertainty. The initial fiscal year 2002 budget proposals by the Bush administration and the House of Representatives called for the program to be virtually eliminated; other voices called for renewal.

There is solid evidence that eliminating the program would be a mistake. By a variety of assessments, including some by outside experts, the ATP has proven its ability to help companies in developing and disseminating cutting-edge civilian technologies that hold broad commercial potential and social benefit. Moreover, the program as a whole would benefit if the federal government would act to assure a continuing and steady level of financial support.

Surviving the valley of death

New technologies often face major hurdles. As they move from the laboratory to the marketplace, they often encounter a “valley of death”: a stage between basic research and product development when it is difficult to attract financial support. The ATP is designed to help bridge this gap. Administered by the Department of Commerce’s National Institute of Standards and Technology (NIST), the ATP is one element of the federal government’s efforts to enhance the competitiveness of the nation’s economy by capturing the benefits of U.S. R&D investments. Awards, which are made on a competitive basis, support:

• Technologies facing technical challenges that, if overcome, would contribute to the future development of new and substantially improved products, industrial processes, and services in diverse areas of application.
• Technologies whose development involves complex “systems” problems requiring a collaborative effort by multiple organizations.
• Technologies that, because of their risk or because private firms are unable to fully capture their benefits, are unlikely to be developed by industry or may be developed too slowly to be competitive in rapidly changing world markets.

The ATP makes awards only for technical research, not product development. Unlike in many other publicly supported technology programs, private companies conceive and execute all projects. Importantly, the companies must share a significant portion of the costs. To avoid open-ended commitments of public funds, awards are of fixed duration and involve limited funding. Proposals, which are reviewed by independent experts, are judged on both technical and economic merit. The selection process is designed to encourage collaboration among companies, as well as with universities and federal and independent laboratories.

From its inception in 1990 through the year 2000, the ATP has made 522 awards, for a total of approximately $1.64 billion. Awards went to 1,162 companies and a roughly similar number of subcontractors. In addition, 176 universities have been involved, participating in more than half of the projects, and some 50 projects have included federal laboratories.

The ATP began with bipartisan support. Initially proposed by Sen. Ernest Hollings (D-S.C.) and Rep. George Brown (D-Calif.), the program was established in 1988 under the Reagan administration and first funded in 1990 under the administration of George Bush. From its modest first-year funding of $10 million, the program grew with the support of a Democratic Congress to more than $60 million in the final year of the Bush administration. The Clinton administration proposed and won substantial increases in ATP funding, with the program receiving more than $340 million in 1995. This expansion was met with significant political opposition, however, and funding during the remaining Clinton years leveled off at approximately $200 million annually. Even at this reduced level, political controversy has continued, fueled by the debate about the need for the program and the proper role of government, as well as by the debate over budget priorities.

Lessons from assessment

In response to a mandate from the U.S. Senate, NIST asked the National Research Council’s (NRC’s) Board on Science, Technology, and Economic Policy (STEP) to review the performance of the ATP. The ATP study is being conducted under the guidance of a distinguished steering committee, headed by Intel chairman emeritus Gordon Moore, that includes members from academia, high-technology industries, venture capital firms, and the realm of public policy.

In 1999, the committee released its first report, The Advanced Technology Program: Challenges and Opportunities, which describes the program’s goals and operation, the experiences of its award recipients, and the views of its critics. A second report, The Advanced Technology Program: Assessing Outcomes, was issued in June 2001. This latest report places the ATP in the context of U.S. technology policy, revisits common criticisms of the program, and reviews internal and external assessments by program officials and independent researchers. The bottom line: The ATP is meeting its legislated goals. The report also provides recommendations for potential improvements and new initiatives that will enable the ATP to make even greater contributions.

Among the evidence that the committee considered were results of the ATP’s own assessment efforts, which were judged to be thorough and reliable. ATP’s Economic Assessment Office tracks progress during and after the performance of each project, analyzing such factors as its goals and expected commercial advantage, timing and scope of activities, risk level, strategies for commercialization, ability to attract outside investors, and the collaborative activities and experiences of its members. Active projects that are judged to be failing are terminated, another feature of the ATP that makes it stand out among federal programs. A study of the outcomes of the ATP’s first 50 completed projects found that, as might be expected for high-risk R&D, some of them (16 percent) were strong performers and some (26 percent) were weak performers, while the remainder (58 percent) fell somewhere in the middle. Yet the expected net benefits from the strong performers alone proved more than enough to yield a robust performance for the group as a whole. Among all the projects, 72 percent completed their research, 52 percent published technical results, 54 percent were awarded patents, and 80 percent had products on the market or expected them shortly.

Concerned about the possibility that the ATP funds could be “crowding out” private research spending, the committee also examined the results of a number of independent assessments. In a Johns Hopkins University study, for example, researchers surveyed the firms that applied for ATP awards in 1998. Among its results, the survey indicated that most of the nonwinners did not proceed with any aspect of their proposed R&D project, and, of those that did, most did so on a smaller scale than initially proposed. To the researchers, this suggests that ATP funding is not displacing private capital but is encouraging firms to undertake potentially high-payoff research that they would not undertake on their own. The survey also found that the ATP awards often create a “halo effect” for recipients, increasing their success in attracting funding from other sources, an effect also documented by several earlier studies. Most of the applicants, winners and nonwinners alike, considered the ATP’s application process to be fair and rational.

A U.S. tradition

The committee was not charged with making judgments about the appropriateness of government involvement in partnerships; that is, whether it is proper for government to engage in activities that may play a role in picking technological winners and losers. But some of the committee’s observations are illuminating. The appeal of arguments against an activist federal role is grounded in the popular perception of the U.S. economy as regularly transformed by the initiatives of individual entrepreneurs and investors acting alone. Although this view is in some ways correct, it overlooks the government’s historic role in nurturing a host of new technologies. To carry out its missions in defense, health, transportation, or the environment, the government must make choices and allocate resources to promising technologies. Often it does this well, as the impact of the telegraph, hybrid seeds, jet engines, computers, genomics research, and the Internet attest.

Indeed, from the nation’s earliest days, government-industry cooperation has played a key role in fostering economic development. In 1798, for example, the government contracted with the inventor Eli Whitney to produce interchangeable musket parts, thus laying the foundation for the machine tool industry. A few decades later, a hesitant Congress appropriated funds to demonstrate the feasibility of Samuel Morse’s telegraph, marking the first step on the road to today’s networked planet.

Throughout the 20th century, the government had an enormous impact on the structure and composition of the economy through regulation, procurement, and a vast array of policies to support industrial and agricultural development. The requirements of World War II generated a huge increase in government support for high-technology industries, with collaborative initiatives leading to major advances in pharmaceutical manufacturing, computing, petrochemicals, and many other areas. After the war, the government continued to make unprecedented investments in computer technology, as commercial firms remained reluctant to invest large sums in what they considered to be risky R&D projects with uncertain markets.

Entering the new millennium, the evolution of the U.S. economy continues to be profoundly marked by government-funded research is such areas as microelectronics, robotics, biotechnology and genomics, and communications. Rising development costs for new technologies, the dispersal of technological expertise across firms, and the growing importance of regulatory and environmental issues now provide additional incentives for public-private cooperation in many high-technology industries. Today, many federal cooperative programs are under way, but few have been subject to the same careful review as the ATP.

Continued U.S. leadership in technological progress remains essential for the long-term growth of the domestic economy for a rising standard of living for all Americans, and for national defense. Substantial investment in R&D, both public and private, is a prerequisite for sustaining the competitive success and technological leadership of U.S. industry in the expanding global marketplace. Governments around the world have shown a great deal of imagination in their choices of mechanisms to support high-technology industries. Such activities are not limited to our traditional competitors in high-technology industry. Finland, for example, has developed a program that brings together key elements of the nation’s technology strategy under a single organization, and parts of this program bear substantial similarities to the ATP.

Signs of success

Overall, then, the committee has determined that the ATP is doing well the job it was assigned. Among its specific conclusions:

• The criteria that the ATP uses for making awards enables it to meet broad national needs and to ensure that the benefits of successful projects extend across firms and industries. The program’s cost-shared, industry-driven approach to funding has shown considerable success in advancing technologies that can contribute to meeting important social goals. ATP awards have supported technologies focused on improving health diagnostics, developing tools for capitalizing on the wealth of basic knowledge being generated regarding the human genome, and improving the efficiency and competitiveness of U.S. manufacturing. For example, as a result of an ATP award, a new and more cost-effective mammography diagnostic instrument, using an amorphous silicon detector, is now providing higher-quality images for the detection of breast cancer.
• The ATP’s project selection process, by relying on independent peer review and taking into full account each proposal’s technical feasibility and commercial potential, supports the program’s goal of helping to advance promising new technologies that are unlikely to be funded through the normal operation of the capital markets.
• The ATP has set a high standard for assessment, involving internal and independent external review. Indeed, few other federal technology programs have embraced this level and intensity of assessment or have sought to apply its results as diligently as the ATP. The quality of this assessment effort lends credence to the program’s own evaluation of its accomplishments.

Opportunities for action

The committee identified several operational improvements that can make the ATP even more successful, as well as measures that can extend the program’s benefits to other national initiatives and to state-level technology programs. These steps include:

• Extending the window for award applications and accelerating the decisionmaking process. New technologies often are time-sensitive. Providing firms with more flexibility in when they may apply and shortening the time they must wait for a decision may increase the program’s attractiveness, especially for new or small firms. Faster decisionmaking also would enhance the debriefing process that is now provided, and should be continued, for unsuccessful applicants.
• Concentrating a significant proportion of the awards in selected thematic areas. One of the key features of the ATP is its use of general competitions, which are open to proposals involving all areas of technology. Although these general competitions should be maintained, they could be successfully supplemented by allocating some funds to particular areas where the current technological opportunities are particularly promising for broad economic or social benefits.
• Speeding up the release of outside assessments to the research community in order to facilitate the dissemination of the research results.
• Stabilizing funding. For a program that relies on the formulation of proposals by private firms, often organized in joint ventures, the uncertainty about the availability of funding, for either new programs or existing commitments, has been a major problem. Policy debates and political maneuvering that have characterized the program’s annual authorization have been a source of substantial uncertainty that is incompatible with long-term R&D efforts.
• Continuing to focus on small business. More than 60 percent of the ATP’s funds are awarded to small firms, which have unique capabilities as a source of low-overhead innovation. The substantial size of the awards and their multiyear disbursement, coupled with the opportunity to collaborate with universities and larger companies, make ATP funding particularly attractive to small firms.
• Retaining joint ventures and the involvement of large companies. Large firms bring unique resources and capabilities to the development of new technologies, and they can be valuable partners for technologically innovative firms that are new to the market. The participation of larger companies also can ensure better access to downstream markets for the small firms with which they collaborate. The current requirement that large companies cover 60 percent of a project’s cost should be retained, though not significantly increased.
• Coordinating the ATP with the Small Business Innovation Research (SBIR) program. Although these programs are different in important ways, they can be viewed as separate steps on a national innovation ladder. In cases where applicants to the ATP have sound technologies but lack sufficiently developed business plans, they might well be automatically remanded to an appropriate SBIR program.
• Increasing collaboration on national initiatives. The ATP has established a “core competency” in its ability to select, monitor, and assess projects of technological and commercial promise. Thus, it would be a valuable partner to research agencies and SBIR programs by working with them to develop high-risk technologies that result from their investments in such areas as health and environmental remediation. For example, the National Institutes of Health (NIH) has shown unparalleled capability in the funding of basic health-related research and has made enormous progress in such areas as the sequencing of the human genome. However, NIH investments tend to be focused on the generation and demonstration of new research ideas. The ATP may offer funding and advice that help stimulate specific industrial sectors and companies to develop these new ideas as commercial products.
• Encouraging states to provide matching grants. In some states, firms that receive ATP awards also qualify for grants from the state government; other states should be encouraged to develop similar policies. Also, NIST should establish a regular outreach program to coordinate the granting of ATP awards with state development programs. Making awards in parallel with state governments offers a number of advantages. For example, parallel awards would increase the “certification impact” of the ATP award by raising the firm’s profile in its community, and such increased recognition might attract additional investors by reducing uncertainty concerning the quality and potential commercial applications of the firm’s technology. Parallel awards also might enable the ATP to reduce the size of its base awards to firms, thereby expanding the reach of the program at no additional cost. In addition, expanded cooperation with state programs would effectively extend the ATP’s expertise in selection and assessment and help improve the quality of the state selection process.

The program’s prospects

Since the NRC’s latest report, a number of individuals and organizations have expressed strong support for the ATP. Notably, the National Association of Manufacturers sent a letter in July 2001 to Sen. Hollings and Sen. Judd Gregg (R-N.H.), as chairman and ranking minority member, respectively, of the Senate Appropriations Committee, stating that “the substantive debate on the program’s merits and existence has reached an end” and that “the time has come to leave behind the annual debates about ATP.” The letter went on to call for “a stable funding level to continue promising works in progress and promote a spirited annual competition that will attract high-potential but high-risk projects.”

The Senate, for its part, appears to have solidifed its support of the ATP. Senate appropriators have proposed $204 million in funding for fiscal year 2002, countering proposals by the administration and the House to reduce funding to less than $13 million in 2002 and eliminate funding the following year. Given Sen. Hollings past success in winning funding for the ATP, many of the program’s supporters remain upbeat. But the key is to take the opportunity presented by the new administration and the new Senate majority to establish a strong bipartisan base of support for a program that effectively addresses a real need in our economy and that is clearly delivering real benefits to the nation.