Where Have You Gone, Bell Labs?

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Tax Incentives Could Help

Consider that the Bell Labs budget peaked at $1.6 billion in 1982 (about $3.6 billion in today's dollars), and $20 billion would fund, say, three large labs and five smaller ones. Split in some ratio between public and private sources, $20 billion is not a large number. As noted earlier, IBM, Microsoft, and HP already spend $17 billion annually on R&D. If leading companies committed 5% to 10% of those R&D budgets to pure research (up from 0% to 5% today), in exchange for a tax credit or a government match, a new innovation ecosystem would quickly begin to build critical mass. From the government's perspective, the money put toward innovation today is the highest-return investment it can make.

Just as a company's success is driven by blockbuster products, the exceptional economic growth of the U.S. has been driven by blockbuster industries—cars and petroleum in the 1920s, movies and radio in the 1930s, defense in the 1940s, appliances and television in the 1950s, pharmaceuticals in the 1960s, aerospace in the 1970s, PCs in the 1980s, the Internet and cellular telephony in the 1990s.

What's next? Biotech, genomics, and life sciences? Alternative energy and synthetic fuels? Preventive medicine and health-care delivery? Each can be the source of millions of high-value jobs. We need them. Soon.

The choice facing the country is to do nothing and risk the inevitable decline of innovation, which will weaken an already sputtering demand engine, or act boldly by reasserting its faith in scientific inquiry and discovery. That will give the U.S. a shot at holding or increasing market share of the highest-value jobs in the world in electronics, biotech, aerospace, energy, nanotechnology, and materials—and at creating 15 to 17 million high-paying new jobs over the next decade.

How to Get Back on Track

We can't do this as a series of half steps that are expensive but ineffectual, that don't reach critical mass or critical rate of change. This middle-road approach might well describe NASA over the past 30 years—not a good model.

The better model is the previous U.S. business model, with a dynamic public-private network of labs and a venture-capital industry waiting downstream to commercialize ideas and turn them into large public companies that create hundreds of thousands of new jobs. Here's what's needed to get that model back on track:
• Clear national goals in two or three key areas, such as carbon-free energy and preventive medicine.
• Government commitment of $10 billion a year above and beyond spending for national agencies to jump-start new industrial research labs
• Government tax credits for corporations that commit to spending 5% to 10% (or more) of R&D on basic research

Government can do a lot by, for example, refocusing DARPA on increasing energy security. But it cannot do it alone. A single page from our economic history, in 1946, might illuminate what needs to happen, and why.

A Lesson from RCA Labs

In 1943, Elmer Engstrom was put in charge of RCA Labs in Princeton, N.J. After the war, as he reflected on the task before him and his team, he came up with a few extraordinary observations. He talked about "the depletion of basic knowledge" resulting from the years of shifting resources away from basic science and towards war-related applications. He said that universities were great institutions, but "you couldn't count on them alone" to close the knowledge gap.

Engstrom believed that is was an obligation, a duty of the great industrial labs, to "rebuild the war-depleted inventory of basic scientific knowledge." He also believed, however, that "by doing work in this field [fundamental research] of a quality which will command the respect of scientific investigators in universities, we will stimulate work there which will, in effect, enlarge the scope of the work done within RCA Laboratories and thus bring about more rapid progress."

Although the causes are different, Engstrom could be providing a precise description and prescription for our situation today. He could be calling out from 1946 to our business leaders today, articulating a challenge and a solution. If only a dozen major companies respond to that challenge they can, in collaboration with the government, solve our jobs problem within a decade. If they don't…

Slywotzky, a partner at management consultants Oliver Wyman, has written several books on profitability and growth.

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