Research and development (R&D) encompasses a broad range of policies. In general, these policies focus on moving technologies from the laboratory to the marketplace, on reducing the costs of technologies, and on making technologies more efficient. These goals can be achieved through the following types of R&D support: state laboratories, licensing, research partnerships, grants, patent systems, and training programs.

Targeted State Laboratory Research

Government supported research laboratories are crucial in achieving R&D advances. Government funded laboratories have a special responsibility to work on problems with social significance. They are particularly useful for helping bridge the lab-to-market gap, where many private sector projects fail. Government labs should carefully select which projects to pursue, focusing on projects that have significant potential to be commercialized as a product. This means focusing on projects that can be eventually replicated at large-scale, with high reliability, and at low cost. A review board consisting of experts from the research community, academia, and industry can help guide this process.

Licensing R&D Results

Government labs and research universities should make it easy for interested private companies to license the technology the labs create. The most effective R&D programs have an efficient process for private firms to identify available technologies developed by the laboratory or university and pay for a license to use these technologies in their own products. Unless created as part of a research partnership with a particular company, these licenses should be non-exclusive (multiple companies can license the technology), to promote competition that will drive further innovation.

Research Partnerships

An open flow of communication and sharing of ideas between different scientists and engineers is essential for successful R&D. R&D programs should forge research partnerships between government labs, the private sector, and academia. In addition, private firms can benefit if government laboratories have specialized equipment or highly trained staff members with a specialty for exploring particular areas of science. Given their considerable expertise in many areas, foreign firms should be allowed to participate in these research partnerships.

To avoid conflicts over intellectual property (IP), research partnerships should stipulate how IP generated through the partnership will be handled. Ideally, all IP developed through the partnership will be able to be used freely by all members of the research partnership, as it can be unduly burdensome and difficult to try to attribute particular ideas to particular partners when they are all being combined in a single research effort.

Grants and Outsourcing

The simplest and most straightforward way for the government to increase private sector R&D may be to pay private companies to conduct that R&D. This can be done either under contract (e.g., the government owns the resulting intellectual property) or via grants (e.g., the private company owns the resulting intellectual property). Either way, the government may place conditions on how the money may be used, thus directing the skills of private sector researchers toward projects that address social goals. Government programs should be used to incent research in areas where the resulting technologies are likely to produce societal benefits, but may not produce as many private benefits—these are the technologies that are otherwise likely to be stranded by the private sector.

The government must be careful to award research contracts and grants only to companies that could plausibly be successful. If a recipient company does not already have a robust R&D operation, it should at least have a strong understanding of the current state-of-the-art in its field, and it should be prepared to rapidly develop its in-house R&D expertise.

Because a grants and outsourcing program is expensive relative to other R&D policies and is vulnerable to the government picking the wrong company or research area, it should not be the only mechanism used to support private sector R&D. However, used selectively, it can be very effective at spurring R&D in targeted areas.

An Effective Patent System

A world-class patent system is a crucial enabler of private sector R&D efforts. Companies will regard R&D as a bad investment if there is a high risk that others will copy the new knowledge they create—a robust patent system can help guard against this outcome. However, a system that grants patents too easily can be equally damaging by requiring companies conducting R&D to navigate legal issues around a complex and extensive network of patents. A patent system that is too liberal can empower patent holding companies (also known as “non-practicing entities”), who acquire patents solely to sue other companies for patent infringement and exact licensing fees. An effective patent system will provide the protection that innovators need to make their R&D efforts economically worthwhile without enabling patent holders to stamp out innovation in the same field.

Fund Training Programs

Training programs can help students transition to becoming scientists and engineers at R&D laboratories or private companies. A government-funded internship program available to top math, science, and engineering students can allow them to gain experience in the workplace during or immediately after graduation at no cost to the firms. Such a program provides students with valuable experience and gives companies access to talented, trained students they may hire full-time at the end of the internship period.