NOVEMBER 19 CABINET TIME: 1:00 - 2:30 P.M.

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00363R001002290006-6
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 8
• Document Creation Date: December 21, 2016
• Document Release Date: October 1, 2008
• Sequence Number: 6
• Publication Date: November 16, 1982
• Content Type: MEMO

Approved For Release 2008/10/01: CIA-RDP85M00363R001002290006-6
Tab A DCI Talking Points on FY-84
NFIP Budget
Tab B Cabinet Paper on US Research and
Development
Tab C OGI Paper on Foreign Research and
Development
IG
09r &
IC.6 E Tr suv, 9
NSC review completed.
STAT
Approved For Release 2008/10/01: CIA-RDP85M00363R001002290006-6
 Approved For Release 2008/10/01: CIA-RDP85M00363RO01002290006-6
STAT
Approved For Release 2008/10/01: CIA-RDP85M00363RO01002290006-6
 Approved For Release 2008/10/01: CIA-RDP85M00363R001002290006-6
NUMBER: 07760O -
6 82
ll 1 DATE:
. SUBJECT.
19 Cabi Time -P_-'---
November net
ALL CABINET MEMBERS
Vice President
State
Treasury
Defense
Attorney General
Interior
Agriculture
Commerce
Labor
FIRES
lit,'D
Transportation
Energy
Education
Counsellor
O
CUN
USTR
^ Darman (For WH Staffing)
`-' Harper
^ Jenkins
Wheeler ---
? Kudlow
0
0
^
^
^
r-I
^
0
^
0
CCCT/Gunn
CCEAJPorter
CCFA/RO
^
CEQ
OSTP
I CC IR/Carleson
CCLP/C.;lilmann
^ CCMA/Bledsoe
REMARKS:
for Cabinet Affairs .456-2804
456-2823
'T .8 TLI NJ
ericlcr Fri day
Full Cabinet - Budget Review
1 pr., - 2 PM 1) Research & Development (paper attar
2 p~j - 2:30 PM CCCT 2) DISC Alternative -- Treasury is devE-
paper to be,dis
^ Craig L. Fuller Becky Norton un p
RETURN TO: President Director, {lice of
Assistant to the cabinet Affairs
Approved For Release 2008/10/01 CIA-RDP85M00363R001002290006-6
 Approved For Release 2008/10/01: CIA-RDP85M00363RO01002290006-6
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF SCIEN CE AND TECHNOLOGY POLaCY
WASHINGTON, D.C.
U.S. RESEARCH AND DEVELOPMENT
The Issue:
Is.U.S. research and development, both federal and
industrial, adequate in quality, quantity, and direction-
to permit this nation to respond to high--technology
challenges from abroad?
Background: ?
High--technology industries are perceived
increasingly as a major source of economic growth and
new jobs, not only by the United States but by Japan,
Western Europe, and even by many of the developing
nation .' In addition, high-technology is essential to
our defense, traditionally offering us the means to
counter the numerical superiority of Soviet forces..
Prior to the decade of the 1970?s, U.S.
preeminence in science and in its application, technology,
was essentially unchallenged. Recently, competition in
the marketplace for consumer electronics, semiconductor
components, air frames, robots, etc., as well as in
high-technology manufacturing processes challenges our
leadership. The most serious threat comes from Japan,
where high-technology products and processes have fueled
their rapid industrial growth. But Western Europe falls
closely behind with Taiwan and even South Korea promising
to join the front ranks in the future. The success of
the United States in developing, following World War II,
the world?s greatest science enterprise and in applying it
to industry has been an example for other nations to
emulate.
Numerous discussions have focussed upon foreign
industrial and trade policies that threaten free trade
and the ability of nations such as ours, that espouse
free enterprise, to compete successfully. The ability
of the U.S. to respond to the new challenge to many of
our traditionally stronger industries has also been
raised, and the strength and vitality of our research
o1, Approved For Release 2008/10/01: CIA-RDP85M00363RO01002290006-6
 Approved For Release 2008/10/01 : CIA-RDP85M00363RO01002290006-6
and development (R&D) enterprise is an important indicator
of the future competitiveness of our high-technology
industries. Not to be overlooked is the rapid improvement
in Soviet military technology, challenging U.S.. military
capability on the ground, the sea, and in the air.
To retain perspective, overall. U.S. leadership in
R&D cannot be questioned. The total investment in R&D,
both federal and industrial, equals the combined
investment of Japan, West Germany, France, and the U.K.
But as recently as 1970, we invested twice as much as
did those same nations. So the threat arises from the
relative rates of growth as well as from the ability to
benefit from the investment in R&D.
The R&D picture in the United States is also
changing rapidly, in. response to the new competitive
challenge. Although federal, non-military R&D has not
been keeping pace with inflation, industrial R&D has
been growing rapidly, nearly 16% for all U.S. industries
in 1981, in spite of the economic climate. In addition,
military R&D has grown substantially under the Reagan
Administration, benefiting U.S. industry. The growth
in industrial R&D, prompted by the intense international
competition, began before the Reagan Administration and
continues to grow even more rapidly. But to better,
understand the overall position of the U.S. in R&D, it
is necessary to take a careful look at the nature of our
R&D, its strengths as well as its weaknesses.
U.S. Research and Development:
Research and development span basic research, the
pursuit of new knowledge, to development and demonstration,
the pursuit of new products and new manufacturing processes.
Basic research has traditionally been supported almost
entirely by the federal government whereas development and
demonstration are largely the purview of industry, except
where the government is the customer, as in defense.
Between basic research and development lies applied research,
an area whose support is shared by government and industry.
The development of modern electronics may serve to exemplify
these essential distinctions. Breakthroughs in the funda-
mental understanding of the nature of solids, and semi---
conducting metals in particular, occurred through
federally funded basic research carried outover many
years in U.S. universities and federal laboratories. It
Approved For Release 2008/10/01: CIA-RDP85M00363RO01002290006-6
 Approved For Release 2008/10/01: CIA-RDP85M00363RO01002290006-6
prompted the invention, at Bell Laboratories, of the
transistor. In turn, this application of knowledge to
a new. technology led to the computer as well as a vast
scope of consumer, industrial, and defense related
electronics.
Since World War II, the majority of the new
knowledge that.has served. as. the fuel for high--technology
and technology--dependent industries was discovered in the
United States. In addition to examples such as the
transistor, laser, and the-new biotechnology, further
testimony to U.S. preeminence in basic science can. be
found in the distribution of Nobel Prizes; in the 1970's,
nearly- 70% of all Nobel award winning research was performed.
in the U.S.. But our competitors have become better and
better at introducing the fruits of new knowledge to the
marketplace and, perhaps even more important, in improving
the product and the processes for manufacturing it. In
many areas of high-technology, considerations of product
quality and price offer foreign industries an advantage.
If today our source of new knowledge remains strong
but our ability to apply it challenged, then what avenues
for improvement are available? The Cabinet Council on
Commerce and Trade is examining trade policy, tax policy,
and anti-trust and patent policies to identify unilateral;
burdens, if they exist, as well as. potential federal
stimuli to increased private sector investment in R&D.
In particular, cooperative industrial R&D ventures, may,
well need to be less constrained to permit diverse U.S.
industries to compete with foreign government-industrial
partnerships. Tax incentives, introduced under the
Economic Recovery Tax Act (ERTA) have proved to benefit
capital-intensive industries through provisions for
accelerated capital depreciation while the benefit to
high-technology industries has not yet been clearly
demonstrated.
The intrinsic leverage of direct, federal R&D, also
needs careful scrutiny. In the post-Sputnik era. the
federal. R&D investment grew markedly but its ability to
serve clearly defined national needs has waned as
priorities have changed and direction from government
has languished. An intensive effort to address U.S.
energy security following the 1973 Arab oil embargo
served to further exacerbate the situation., A strong
consensus exists, both in government and industry, that
closer direction and better utilization of the federally
W. . Approved For Release 2008/10/01 : CIA-RDP85M00363RO01002290006-6
 Approved For Release 2008/10/01: CIA-RDP85M00363RO01002290006-6
supported talent and facilities must be accomplished in
order to meet the new challenges to our industry and
defense.
In the first half of the Reagan Administration,
action was taken to encourage.industrial R&D, e.g. the
ERTA, patent and.anti-trust policies, and to work more
closely with industry in directing and carrying out
federal R&D. Efforts to create stronger industry-
university partnerships and to force research in federal
laboratories into better alignment with the needs of
industry have begun, but are by no means accomplished...
The objective has been to add the "pull" of industry to
the "push" of government. There exists strong evidence
that this movement is accele"rating". For example,
industrial.... investment in academic rese ,r_ch will likely
double in 1982 and 1983 over previous years. In addition
to better., direction, the Re _agaan Adm istration__haa sought
to emphasize __basic research, the source o _ne-w-f
as well a-s._ new engineers and s_cientists_, hi.1.e_r_eauci.ng
government involvement -irx th'e marketpla.ce through
development and demonstration activities, such as in
synthetic fuel demonstration plants.
As the FY-84 federal budget evolves, the pressing
question pertaining to the allocation of funds to R&D
is whether existing policy should be maintained,
accelerated, or altered to respond to new public emphasis
on R&D, as espoused by the "Atari Democrats," who
suggest massive increases in federal R&D to support
eanomic growth and new jobs.
The U.S. R&D enterprise leads the world in both
quality and quantity, but this leadership is facing a
new challenge. Trade, tax, as well as anti-trust and
patent policies are being examined for their ability to
stimulate more private sector investment in R&D. U.S.
industrial investment in R&D is growing rapidly, nearly
16% in 1981, and exceeded the federal investment for
the first time in 1980. Efforts to direct the federal.
R&D investment to serve better the long-term needs of
industry and defense are underway. Among the means
being used are promotion of stronger industry-university
partnerships and redirection of research ir-federal
laboratories. In allocating public funds, emphasis has
Approved For Release 2008/10/01 : CIA-RDP85M00363RO01002290006-6
 Approved For Release 2008/10/01: CIA-RDP85M00363RO01002290006-6
been placed upon basic research, the source of new
knowledge and new talent, while funds for
dev~a near-term
lopment and demonstration, where industry's
investment is expanding rapidly, has been diminished.
While basic and defense rebated research has been
increasing modestly, the overall federal investment in
non-military R&D has been decreasing relative to
.inflation. Although demands of the market appear to be
stimulating applied research and development in U.S..
industry, basic research remains nearly totally in the
hands of the-federal government. This traditional
bastion of the U.S. R&D enterprise, consuming slightly,
more thimi 25% of the total federal investment in non-
military-R&D, has long been the source of our qualitative
superiority.
Options.
The basic options that axe under consideration during
preparation of the FY-84-budget will include:
1. Maintaining modest growth. in basic research,
while continuing to reduce support for
development and near-term applied research
activities.
2. Introducing substantial increases (5-10%
real growth) in basic research, emphasizing
those disciplines most likely to benefit
industry and defense as well as the training
of new scientists and engineers, while
continuing to reduce support for development
and near-term applied research.
3. Substantially increasing all civilian R&D,
encompassing basic and applied research as
well as development, to assist U.S. industry
in meeting the challenge from abroad in
high-technology.
,, . ~ . , Approved For Release 2008/10/01: CIA-RDP85M00363RO01002290006-6