Testimony from June 14, 1999

 

Prepared Testimony from Roberta Katz, The Technology Network

The Technology Network and the New Economy
Mr. Chairman, Mr. Vice Chairman and Members of the Committee, Thank you for the opportunity to
testify at this first-ever National Summit on High Technology. I am Roberta Katz, President and CEO of
the Technology Network and I am very pleased to be here today to discuss the New Economy.
The world is changing in fundamental ways. Thanks to the Internet and e-commerce, we have distance
learning, online banking, online books and toy stores, music, cars, airline tickets and even groceries online.
A third of the total growth in U.S. economic production in the last seven years has come from
high-technology industries. This is the New Economy in operation.

The New Economy is a new way of getting work done. It is a new way of thinking and a new way of
communicating. It celebrates ingenuity and innovation, and it is productive. Today, technological progress
is increasingly responsible for the growth of the U.S. economy and is a principal driving force in long-term
prosperity and increased standards of living for Americans.Perhaps most important, the New Economy is
about using technology to improve the quality of our lives, from life-saving drugs to a communications
revolution.

As we participate in such pervasive change, social issues - meaning issues of policy and politics -will
predictably and inevitably arise. And these issues must have the attention of the thinkers who are behind
the New Economy, including the technologists who gave birth to this phenomenon.
That's why The Technology Network, also known as TechNet, was created two years ago. TechNet is a
network, literally, of 140 chief executive officers and senior partners of the nation's leading companies in
the fields of information technology, biotechnology, venture capital, investment banking and law.
TechNet's mission is to engage these business leaders personally in the political process so that they can
build working relationships with the state and national political leaders who arc striving to understand the
social issues related to the New Economy.

Building bridges between the technology industry and our nation's political and policy leaders is a very
new idea. Although our industry's capable associations have worked hard to build relationships and to
create a policy dialogue with Washington, individual technology industry leaders have been reluctant to do
so. The traditional view is that the high-tech community could not care less. After all, who needs politics,
which are messy, ugly and concerned with social issues, in a world defined by the clean elegance orbits
and bytes?

The answer is that the high tech community needs both politics and policy, both of which are increasingly
important to the growth of the New Economy. We as a nation often lose sight of the reality that the
dazzling gadgets and revolutionary improvements in healthcare have their roots in partnerships between
government and industry. Many of the breakthrough products transforming our society and the new drugs
and techniques improving our lives arc in part the result of federal programs, sound regulatory and tax
policy, or even accounting rules that enable and empower America's technology industries to create new
technologies, products and markets.

In short, the New Economy is not an accident. It is the result of sound investments and pro-growth
policies of the past decade. TechNet's mission is to ensure that policy-makers understand the role of the
technology industries in the New Economy so that we can work together to preserve, protect and even
enhance the factors driving the New Economy's extraordinary growth.

TechNet champions fundamental policy issues that drive the growth of the New Economy - policies that
encourage innovation, improve education, foster employee ownership, and stimulate entrepreneurship.
I would like to highlight briefly the policy issues that we see as critical to the continued growth of the New
Economy. This year TechNet's top policy priorities include increasing the federal and corporate
commitment to research and development, preserving accounting rules that recognize the importance of
intangible assets and employee ownership in growing the New Economy, and improving K-12 education
so that American youth will be ready for the challenging jobs being created by the New Economy.
Strengthening America's R&D Agenda: A Sound Investment in the New Economy

The end point of innovation is economic growth and abetter quality of life. We often lose sight of the fact
that its beginning is in research. The single greatest impetus for technological innovation and increased
American productivity is investment in research and development.

TechNet members have unanimously called for a joint commitment by government and industry to: (1)
enact substantial, consistent increases in federal funding for basic science, engineering and technology
research over the next decade; and (2) enact a permanent research and development tax credit to spur
increased corporate investment in long-term R&D.

The federal and private sector roles are complementary, with the government providing the initial, critical
"spark" for innovation, and the private sector building on the federal investment to achieve important
breakthroughs that advance science, engineering and a broad range of national goals. Many of the
discoveries flint are transforming our economy began not from inventors chasing profits but in universities
and laboratories where scientists have sought new knowledge through fundamental research.Numerous
breakthroughs in information technology - including the Internet, the first graphical Web browser,
high-speed networks, artificial intelligence, supercomputers, databases and graphical user interface - have
resulted from government-sponsored research. These innovations have grown into industries that now
employ 7.4 million American workers with average salaries that are more than 60 percent higher than the
average private sector wage. The Internet alone has created hundreds of billions of dollars in new wealth -
vastly exceeding the government's investment in networking research.

The federal investment in basic research is also among the most effective ways of providing hands-on
scientific and technology training to American students in colleges and graduate schools and is crediting
with developing new generations of technology industry leaders.

Significant pressures on federal research spending are expected in future years due to congressional
budget caps that limit overall discretionary spending, however, and the future of federal support for basic
research is unclear. In short, we cannot afford to take for granted the fact that the federal research budget
will grow; we must have a concerted national agenda for fostering critical investments in basic, scientific
research.

A strengthened federal commitment to basic research must be met by a renewed commitment to R&D by
corporate America Since 1981, the R&D tax credit has provided a powerful incentive for increased
research by American industry.

Although the credit has been effective, its history of repeated, limited extensions has prevented it from
achieving its full incentive effect.

An R&D credit that requires constant renewals, that suffers from gaps in coverage and retroactive
enactment serves not as a bridge to the 21st Century, but as a drawbridge that impedes the progress of
innovation. The uncertainty of a credit which must be renewed annually and which has the potential to
expire makes it impossible for firms to factor the credit into their valuation of long-term research
investments.Numerous studies support the credit's effectiveness in encouraging corporate research
expenditures above and beyond previous levels. The result has been new and innovative technologies,
medicines, products and services that benefit all Americans.

Preserving Sound Accounting for Intangible Assets and Employee Ownership
Today's New Economy differs significantly from the traditional manufacturing and service-based
economy. A defining feature of the New Economy - and a key to its tremendous growth - is the increased
importance of knowledge and intangible assets, including R&D, employee talent, brands and knowledge.
Accounting standards should recognize the role that intangibles and knowledge-based assets play in the
new economy, The Financial Accounting Standards Board's review of accounting rules for business combinations and stock compensation threaten to undermine the factors driving the New Economy: employee ownership, innovation, research and development, capital formation and efficiency enhancing mergers, among other issues. TechNet supports financial accounting standards that accurately describe the values of, corporate assets and liabilities without impeding the unprecedented economic growth and global competitiveness of the knowledge-based New Economy.

The ability of high-tech companies to growth and acquire new technologies through mergers and
acquisitions and to compensate the employees through stock options are important factors driving the
U.S. economic expansion - economic growth that is the envy of the world. Before the adoption of new
rules that may have a significant effect on economic growth in the technology industry and economy, we
should be certain that the impacts of these rules are fully understood and that there are perceived
problems with existing accounting standards that justify such changes.

Improving America's Education System
Since its inception, TechNet has made the improvement of K-12 education a top priority. Our members
believe strongly in the need to ensure that America's students are prepared for the New Economy and
can compete in the fast-changing, global environment. We are fighting hand to create a world-class
education system by eliminating bureaucracy, removing barriers to student and leacher excellence, and
expanding the resources available to our schools.

After more than a decade of attempts to reform California's public charter school system, last year
TechNet spearheaded a successful legislative effort to greatly expand the number of public charter schools
in the state. The law signaled a new commitment to innovation in California's public schools.
Every child in America needs a strong education to enjoy a high standard of living in the future. Our
failure to provide that education is unfair to our children and to our society. Our strategy for improving
K-12 education is to insist on the establishment of high educational standards and the deregulation of
public education. Performance against the standards should be rigorously measured. Schools should be
forced to compete, and parents should be able to choose the best public school for their children. We
should invest in education so that future generations in California and America continue to prosper and to
share in the benefits of the New Economy.

Conclusion
TechNet is working to build the bridges that must be built between the old economy and the New
Economy. Building those bridges imposes a responsibility on those who have helped bring the New
Economy into being. TechNet's members believe that we must be personally involved in communicating
what the New Economy is about if we expect policy makers to understand the world of high tech.
Through this dialogue and an ongoing, two-way education process, government and industry can together
ensure that the partnerships that so effectively fostered technological progress and economic growth in the
past will continue into the future.