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Remarks by the Hon. Mike Honda on the Role the Federal Government Can Play in Furthering the Commercialization of Nanotechnology

<em>World Nano-Economic Congress<br> The Fairmont, Washington, D.C.</em>
Sep 9, 2003
Press Release

Rep. Michael M. Honda (D-CA); Click photo to visit his websiteThanks for that kind introduction and for inviting me here to speak today.

I know I'm preaching to the choir here today, and that we all believe nanotechnology will be the "next big thing" to follow the high tech boom of the 1990s.  And you don't need me to tell you that the worldwide nanotechnology market could reach one trillion dollars by 2015.  To reach that point is going to take hard work all around the world, but I think it is essential that America, with its spirit of innovation and entrepreneurship, needs to attain global leadership.

I'm sure people ask you the same question they ask me - "Is this nanotech stuff just the next dot com bust waiting to happen?"

Like you probably do, I start off by telling them that there is actual "stuff" to nanotechnology.  It's small stuff, but that's what makes it so interesting.  Then I tell them what makes nanotechnology special is that it will be an enabling technology, that it can fundamentally change how we make everything, and enable us to make things we haven't even dreamed of yet.

However, there is a downside to this.  History shows that it is difficult for individual companies to invest in enabling technologies.  It's not that they lack the vision to see how great these technologies can be, or that they can't do the necessary R&D work.  It is often a matter of size. Enabling technologies are generic and can be used in so many different ways, but most companies can only make a limited number of products, and so they would miss out on many of the uses of any enabling technologies they develop.  Since they can't directly take advantage of all of the benefits, it just isn't worth it economically for many individual companies to make the major investment that is needed to bring enabling technologies along.  Therefore, bringing enabling technologies along requires some assistance from the Federal Government. Usually it happens with funding for the basic research phase, like we saw in the cases of the Internet and biotechnology.

Think about today's computers and the Internet and what they mean to all of us.  Well, in 1943, Thomas Watson, the Chairman of IBM, uttered a now infamous quote: "I think there is a world market for maybe five computers."  He is joined in infamy by Ken Olson, the founder of Digital Equipment Corporation, who in 1977 said, "There is no reason anyone would want a computer in their home."  The whole concept of many computers sharing information easily was something that even the leading computer makers couldn't imagine.  But an investment in a computer network by the Federal Government led to the revolutionary technology we have today.

The Human Genome Project was beyond the scope of what any single company or researcher could undertake.  But with the support of the Federal Government, it has laid the groundwork that will allow many individual biotechnology companies to develop products to treat any number of human afflictions.

Sure, there are a few companies that are big enough to play in many market sectors, so they can reap more of the benefits of an enabling technology - GE and HP come to mind because of their television commercials about nanotechnology - and some of these companies are investing in nanotech.  But even big firms with great ideas need the help of the Federal Government - some of HP's research in conjunction with university labs receives some federal support.

President Clinton realized that it is important for the Federal Government to invest in nanotech when he created the National Nanotechnology Initiative (the NNI), and President Bush has continued to support this vision.  But as things stand now, the NNI is subject to the shifting political winds and if a president didn't want to support it, it could go away.

To protect the Federal investment in nanotechnology from these whims, I joined with Science Committee Chairman Sherry Boehlert in introducing the H.R. 766, the Nanotechnology Research and Development Act.  This bill enacts the NNI into law and makes some changes to the way it is run in response to recommendations made by the National Research Council.  Although he's not here today I would again like to thank Chairman Boehlert for working with me on this effort.  Most of you probably know this bill passed the House overwhelmingly back in May, reflecting our bipartisan support for nanotechnology.

One of the goals of the bill is to improve the coordination between the Federal agencies participating in the NNI by creating a coordinating office.  I think we need to go even farther than that and improve coordination between the researchers within the agencies, academia, and industry.  This is a daunting task, perhaps as challenging as the nanotechnology R&D itself.

The radical new capabilities offered by nanotechnology require cultivation with equally advanced information technology, such as a web-based collaborative environment dedicated to nanotechnology.  With access to powerful online tools, government labs, large and small businesses, and universities will be able to exchange opportunities, find new partners, and therefore maximize the impact of the funds made available by our bill.

I had also hoped to create an external nanotechnology advisory board with members from industry and academia, but the Bush Administration balked at this and asked to use the existing President's Council of Advisors on Science and Technology (PCAST) for this task.  I believe it is incumbent on all of you here to make sure these advisors hear the industry's perspective on how the NNI efforts and funding can be most effective.

As I said before, our bill passed the House in May, but we are still waiting for Senate action.  It will probably be several weeks before this happens, since same committee that deals with nanotechnology is busy dealing with the recently released Space Shuttle Columbia Accident Investigation Board report.

What will it mean for those of you engaged in the business of nanotechnology when the President signs the bill?

Honestly, I'm not quite sure.  Most of the money is directed to basic research at centers run by Federal agencies or to grant programs that target university faculty.  There is a serious disconnect between funding basic research in academia and what you all care most about.  As Alan Marty told the Science Committee, "with many products in the market and more on the way, we can no longer view nanotechnology as just a science.  Our focus must be widened to include the commercialization of nanotechnology."

How can we deal with this disconnect?  We can do it by helping bridge the funding gap between the lab and the marketplace.  Many small nanotech startups can't get funding from venture capitalists because they aren't close enough to the production stage to deliver the return on investment venture investors demand.  But, their work has advanced beyond the basic research stage, so they can't get funding from the nanotechnology funding pools at NSF or other agencies.  Bridging the gap isn't really a new idea - the Federal Government has done it before.  Under President Nixon we had the New Technology Opportunities Program, under Carter the Industrial Innovation Initiatives program, the establishment of publicly funded joint ventures such as SEMATECH under Reagan, and the Advanced Technology Program (ATP) began under the first President Bush, to name just a few.

Some still exist today - ATP, SBIR, and STTR come to mind - but they are being killed by politics.  The policy makers who control the purse strings think these programs are corporate welfare and interfere with the operation of the market, so they are cutting off their funding.  These people claim that federal support for the commercialization of civilian technology is not justified.  They think that public investments substitute for the investments that private firms would make without government incentives.  And they fear direct subsidies may distort private investment incentives, leading to costly and commercially unsuccessful technology projects.

But we live in the real world, where the investment climate values short-term returns.  Private investors won't support some of the development that is needed to build on the results of basic nanotechnology research.  In many cases, it costs much more for development and application than it did to do the basic research underpinning them, and it takes quite a long time.  In this situation, the financial markets are failing nanotechnology, so the government has a role.

Our rivals around the world agree with me - Taiwan, France, Israel, Japan, the Netherlands, and Canada, among others, are actively investing in commercialization initiatives to bridge the gap between research and development and move technologies into the marketplace.

I'm not naive, though - I don't expect that I'm going to win this philosophical battle.

But if we frame our case for helping with the commercialization of nanotechnology properly, we can win friends and influence people.  Here is how we can do it.

There's been a lot of talk about how the US is losing its edge in manufacturing.  In fact, just last week President Bush created an undersecretary for manufacturing, but it isn't clear that the President has a plan for what this undersecretary is going to do revive the manufacturing sector.  I've heard experts testify about this, and they all agree that what the US needs to do is invest in manufacturing innovations.  As I see it, there will be no greater innovation in manufacturing than manufacturing at the atomic and molecular level.  And perfecting manufacturing techniques will be key to commercializing many of the things we have learned through basic research.

This nanomanufacturing revolution can't be driven by individual companies doing their own R&D because they just simply can't afford to make these investments, because they aren't able to realize all of the financial benefits.  But collaboration between the government and many companies makes the investment reasonable, since different companies can benefit from the results in different ways.  The Federal Government's role would be to help build a national manufacturing infrastructure that will be accessible by all US manufacturers and will benefit all US consumers.  This approach should deflect some of the criticism of "corporate welfare" since the government isn't choosing winners and losers.

What might the mechanics of this look like?

It needs to involve money from both the government and private sources, so that it will respond to private market signals.  And it needs to be insulated from political concerns by having independent experts decide where the funds go.  We could create a venture fund that invests in earlier stage, higher-risk nanotechnology projects in which the federal government and private investors partner to provide the capital.  Overall, the fund might not deliver the returns that venture investors usually demand, but the presence of the Federal Government, which wouldn't have such demands, would bring private investors to the table.

This model has worked on the state level.  For example, the Massachusetts Technology Development Corporation is a venture capital firm that addresses the "capital gap" between startup and expanding companies within Massachusetts.  The corporation has actually become self-supporting based upon returns from previous investments.

We could create a Nanomanufacturing Investment Corporation (NIC) as a private, quasi-governmental institution that provides financial support for middle ground, pre-commercialization R&D in nanotechnology.  The NIC would distribute funds supplied by both the Federal Government and private investors, either by direct investment in firms, on a contract basis, or as loans or loan guarantees.  To avoid politics, the investment decisions made by the NIC would be left to its program administration staff, in consultation with a board of industry, government, and academic advisors.

Of course there will be complicating issues to be dealt with, such as intellectual property rights, that experts in these areas will need to work out, but we shouldn't let this deter us.  Smart minds can envision an arrangement where firms that are receiving assistance from the NIC get to choose certain market sectors in which they want to preserve intellectual property rights.  Other market sectors could be left to the NIC, which can license the new techniques or technology to other firms in order to recover the taxpayer's investment.

This is just one idea, with details that need to be worked out, among many possible future directions for the nanotechnology field.  And I'm not a nanotechnology expert, so I'm not sure where the field is headed.  What I do know is that in the past, the Federal Government has played an important role in helping to commercialize enabling technologies.  And I believe the Federal Government should play a role in the commercialization of nanotechnology.  I also know that in the current political climate, this could be a politically unpopular position.  But if we frame it correctly, nanotechnology could be seen as our nation's savior.

Nanotechnology is exciting because it will enable us to manufacture things in a completely new way, a way that will depend on the innovative, educated, skilled high tech workforce that only America has to offer.  Through the NNI and the Nanotechnology Research and Development Act, we have done well at supporting the basic research that will serve as the foundation of the field.  But there is still work to do to help develop the nanotechnology into the powerful tool that it can be.  Nanotechnology will create new jobs in this country and help us regain our position of manufacturing prominence in the world.  You would be hard pressed to find a politician that doesn't want to support something like that, and so we need to be sure to get this message out to ensure that it becomes a reality.

Thank you for your attention, and I look forward to working with all of you so that the world can experience the benefits of nanotechnology.

108th Congress