October 8, 1996

Corporate Outlays for Basic Research Cut Back Significantly


MURRAY HILL, N.J. -- When Greg Blonder joined Bell Laboratories in 1982 as a physicist just out of Harvard, no one said a word about products or selling. "They asked their usual job interview question," he said. "'What would I work on if I had an empty room and an unlimited amount of money?"' He spent his time measuring the behavior of electrons at 1 degree above absolute zero, which is very cold. "Not many products exist in that situation," he conceded.

But now Blonder, whose two young sons often ask him where they can buy something he has invented, is making a transition from basic to more applied research characteristic of industry everywhere in America. At 41, he has traveled from quantum physics to consumer tastes, emerging as the improbable chief of "Customer Expectations Research," a novel undertaking for the august Bell Labs based in this suburb 30 miles west of New York.

"I am using what I know about science to invent to order," Blonder said. "I am working backward," he added, from what he used to do.

Corporations once spent big sums on basic research, the sort of open-ended inquiry that drew Blonder to physics and that can lead to innovations that spawn new industries and many thousands of well-paying jobs. A lot of basic research goes nowhere, of course, but AT&T, the owner of Bell Labs, knew that Blonder's fresh insights into electron behavior might someday make possible a momentous breakthrough, perhaps a new type of computer chip as revolutionary as the transistor, which came out of Bell Labs in 1947.

In the 1990s, though, corporate outlays for research and development have fallen significantly for the first time, with much of the decline coming out of basic research. The shift in emphasis to near-term development is paying off today as American companies excel at turning a generation of good ideas into profitable products. Yet many corporate executives have decided that basic research for tomorrow is simply too speculative. It should be done, they argue, by university scientists, paid mainly by government.

The problem is that in an era of deficit cutting, federal financing for basic research has suffered, too. As a result, total spending on research in the United States -- basic or applied, whether federally or privately financed -- has stagnated in the 1990s, when adjusted for inflation, according to the National Science Foundation.

The last time the government cut back on research -- in the 1970s when military spending fell sharply -- corporations held their own. But now industrial research has become a victim of downsizing, stiffer competition and the growing corporate view that the return from most research and development spending should come in three years or less.

"We are eating our seed corn," said Paul Romer, a Stanford University economist who argues that industry is still squeezing products from the aging cornucopia of breakthrough technologies that came during and after World War II. "If this continues, we will no longer be the nation that is on the cutting edge of new technologies, new products and new markets. For the moment, we still are, but that can't last."

The shift away from basic research shows up repeatedly in interviews with researchers, government officials and corporate executives like Dr. Edward Scolnick, the tall, courtly, Harvard-trained doctor and scientist who presides over research and development at Merck & Co., the huge pharmaceutical concern. "We haven't the resources to do that work," he said.

Merck, for example, plans to spend $1.5 billion this year on drug research, but very little of that will be devoted to finding the viruses and wayward enzymes that must first be identified before new drugs can be designed to attack them. Tenneco Inc.'s huge auto division spends heavily to develop new features for catalytic converters. But no Tenneco scientist is seeking the next generation of emissions control, perhaps some not-yet-dreamed-of technology. Even Microsoft, which has opened a basic research center -- mainly to seek new ways for people to interact with computers -- still invests nearly 99 percent of its $2 billion research and development budget on elaborations of existing software, or testing.

For now, the focus on immediate results pays dividends. A rash of new products -- another AIDS drug, a better catalytic converter, a new wrinkle on the Internet, a better ATM machine -- are visible evidence of the success of corporate spending on applied research. There have been gains as well from "process R&D," the development of faster, more efficient, more sophisticated ways to manufacture.

By most estimates, 25 percent of corporate research and development spending is now going for process research, such as Tenneco's newly designed machinery for shaping metal pipes as if they were flexible plastic tubes. "We design catalytic converters now taking this new flexibility into account," said Tom Evans, president of Tenneco Automotive's Walker division.

But many experts worry that in 20 years or so a shortfall of new technology could shackle the economy, even though the stock market does not show much concern. "It doesn't reward basic research," said C. Richard Kramlich, managing partner of New Enterprise Associates, a venture capital firm. "It rewards only the products that come out of research soon."

Without the cold war, a prime engine for basic research, the Pentagon, has cut back. And neither Democrats nor Republicans, eyeing the deficit, have filled the gap with more civilian research. "President Clinton asked Congress for increases," said Mary Good, the Commerce Department's under secretary for technology, "and if he had not asked, the cuts would have been greater."

Caught in these crosscurrents is Blonder, an energetic, optimistic man who decorates his office with the sunny crayon drawings of his sons, 10 and 7. The split-up this year of AT&T into three companies also cut up Bell Labs. And soon Blonder will leave Bell's old home here, with its landmark pyramid copper roof, and move to a building leased on Exxon's nearby campus, once a larger research center.

Left behind will be colleagues with whom Blonder once interacted daily who will now work for Lucent Technologies, the spinoff from AT&T's old equipment manufacturing arm. It keeps the Bell Labs name. "We had 20 projects going," Blonder said, "and four had to be abandoned because they relied on a synergy between our software and their hardware people."

More than anything, Blonder and his 40-member team are in a race to create a yet-to-be-designed, portable device that may someday instantly convert speech to text, or perhaps English to Japanese, and vice versa.

"How do people understand what they hear, how do computers understand grammar?" Blonder said. "And then you have to find out, in techniques that are a little fancier than focus groups, why they would want such a device. This is what basic research is for me now. When I joined Bell Labs we were at the tail of the more abstract decades."

The cutback in old-style basic research reflects a historic transition from a system that blossomed in the Eisenhower administration, fathered by Vannevar Bush, the science czar then. Bush sought to encourage among scientists "the free play of intellects working on subjects of their own choice, in the manner dictated by their own curiosity." Such research was nurtured in huge corporate or federal laboratories with heavy government spending to keep ahead of the Soviet Union.

Nylon came out of this system. So did the silicon chip, the laser, cellular phones, color television, modern gene technology, fiber optics and other breakthroughs that eventually created new industries, which in turn helped to expand the national economy at a rapid pace. Much of the effort was concentrated in world famous laboratories at AT&T, IBM, Eastman Kodak, Xerox, General Electric, Du Pont and other giants that dominated their markets and could afford the costly, drawn-out research. That world has been turned upside down by deregulation and new competitors.

"We are moving now toward a more practical Japanese or German model," said Gavin Wright, a Stanford University economic historian. "That might not give us world leadership in technology in the future. But it is more realistic."

Indeed, in some ways the new approach is more efficient. The pharmaceutical industry, for instance, has found a way to make and test in a given week thousands of chemical compounds as potential prescription drugs, a far cry from the two or three a day that was the upper limit only a short time ago. That's the focus of scientists at Merck like Paula Fitzgerald, a biophysicist.

Occupying one of the many narrow offices off a long, gray corridor at Merck's laboratory in Rahway, Fitzgerald models the interaction of enzymes identified by university scientists and chemical compounds generated by Merck. She is seeking to determine what mixture might block a disease-causing enzyme. The enzyme and chemicals appear as blue, red and green filaments floating intricately in three-dimensional depth on her ink-black computer screen.

"You draw the compounds that you model and test from a computerized library," she said. "Before you had to actually mix the chemicals to see how a compound worked."

In the new emphasis on profitable products, research is being decentralized. The once mighty laboratories are losing their independence, forcing scientists who inhabit them to answer not just to profit-oriented operating units but even directly to customers. "It is very common to walk in the halls today and come across numerous outsiders," said Bernard Meyerson, a top executive at IBM's research center in Yorktown Heights, N.Y., once renowned for its ivory tower approach. "We had much less of this in the early 1980s, when I arrived."

Corporations are also encouraging their scientists to monitor basic research by others, here and abroad, in lieu of attempting the research themselves. In this spirit, American companies have increased their research and development spending overseas threefold since 1980, the Commerce Department reports, while foreign companies operate 645 research offices in the United States, up from 250 in 1992.

A chunk of current research spending shows up in numerous cooperative arrangements. Some are among companies to avoid costly duplication. Others are between companies and university researchers, or the small start-up ventures often set up to commercialize some discovery made on campus.

Merck, like many other high-tech giants, has agreements with a dozen small companies. "As funds are cut back, people are finding ingenious ways to carry through basic research," said John Kozarich, Merck's director of biochemistry. "We might not notice the impact for a couple of decades."

Copyright 1996 The New York Times Company

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