MIT Reports to the President 1996-97

PRESIDENT

The future is not some place we are going to, but one we are creating. The paths are not to be found, but made, and the activity of making them changes both the maker and the destination.

- John Schaar

As we approach the Twenty-First Century, we will be overwhelmed by the rhetoric of change. Though often overblown, this rhetoric stems from a human tendency to mark passages. Such observances can serve us well if they result in introspection, recognition of new realities, and thoughtful planning for the future. Change, whether or not associated with the approach of the new millennium, is a reality. And change brings with it new opportunities and responsibilities, many derived from advances in science and technology, and from the concomitant globalization of our communications, economies, and politics.

Much of the change we are currently experiencing seems to be bringing with it a substantial rebalancing of social responsibilities among the private and public sectors, especially in the United States. It remains to be seen how deep and long-lived this rebalancing is. To some extent, it is a matter of politics, in the narrow sense of the word, but to a greater extent this rebalancing of responsibilities is likely to flow from the deeper forces bringing about such change in our society.

What do I mean by rebalancing the roles of the private and public sectors? Two major themes of the current decade are economic competition and privatization. There is less trust in governments, and increased trust in business and market efficiency. Central planning generally has been found to fail, crumbling away with the destruction of the Berlin Wall and the Soviet State. Entrepreneurial activity is increasingly valued.

In the United States, with Congress and the Administration having pledged to balance the federal budget, many long-standing federal programs will be reduced or eliminated. For the most part, however, the needs which gave rise to those programs will not disappear, and the private sector will find itself with some new or expanded responsibilities.

Increasingly, industry will be called on to address issues of common good that extend beyond the traditional principles of market-driven efficiency and shareholder value. Industry may need to write with a more visible hand than that memorialized by Adam Smith in the days when pin factories epitomized high technology and the latest in management theory.

Research universities, too, are affected by these changing circumstances. Today, many of our faculty are developing educational and research programs based on a more direct engagement with national and international priorities. More than ever, we in the universities will be called on to create - and share - scientific and technical knowledge for the common good, and to work in new ways with industry and government in so doing.

In this report, I will trace the changing roles of industry, government, and academia in generating and sharing knowledge, particularly as they bear on two areas essential to our future: a vital economy and a healthy environment.

CREATING AND SHARING KNOWLEDGE

Our nation and world are the beneficiaries of an unprecedented reservoir of knowledge about science and technology. This reservoir has been developed and continually replenished largely by two sources - federally supported university research and education, and research conducted in the national and corporate laboratories. Federal support of university research - the keystone of the nation's ability to advance and use new knowledge - is waning, however. Government investment in research in engineering and the physical sciences is being eroded by inflationary pressures, and even increases in the support for biomedical research have slowed to little better than the rate of inflation. There have been significant changes, as well, in the nature of corporate research. Indeed, no more profound change has occurred in large U.S. companies during this decade than the change in their R&D function, and its relation to the creation of products.

Both of these developments have deep implications for education and research in our universities. The new modes of conceiving and producing products and services must be reflected in the education of our students, especially in engineering and management. At the same time, responsibility for fundamental scientific inquiry and basic technological innovation will rest in even larger measure with our research universities.

CHANGES IN CORPORATE RESEARCH AND DEVELOPMENT

For decades, most large U.S. corporations maintained a central corporate laboratory. These usually had a campus-like environment and encouraged wide-ranging thought and exploration. Scientists and engineers in these laboratories were encouraged to play strong roles in professional societies and scientific conferences, and to publish their research findings in the professional journals.
A process essentially like university tenure was followed in selecting and maintaining the senior scientific staff. Most interactions between industry and universities were channeled through the central research laboratories, creating a flow of people and ideas.

Nobel laureate Arno Penzias, then director of Bell Labs, summarized the value of the Labs to AT&T in the early 1980s when he said "Bell Labs' value comes from the fact that we allow enormous freedom of exploration in scientific fields as long as there is a potential application to telecommunications in the long run."

In other words, the best corporate laboratories - Bell, IBM, GE, Xerox, Exxon, and so forth - advanced science and technology, shared most of their discoveries through the scientific literature, and also established technological advances that ultimately manifested themselves in products and processes for the company. Such laboratories gave rise to a remarkable array of transforming innovations, including the transistor, high-temperature superconductivity, the laser printer, and a host of synthetic materials.

Central laboratories also provided in-house consultation for operating divisions, which themselves often undertook research and development, with the clear emphasis on development. Indeed, some laboratories like Bell had different elements that worked directly on product development.

Most of this changed in the late 1980s and early 1990s as corporations adjusted to the new realities of global competition. Increased attention had to be paid to manufacturing processes, which in turn had to be far better integrated with design. More emphasis was placed on reducing costs, addressing customer needs and expectations, reducing product-cycle times, addressing new environmental concerns, and manufacturing and selling on a global basis. The demands of meeting these new realities caused a deeper integration of the work of corporate researchers into the specific, more immediate goals of the company. This interweaving of technical and commercial activities changed the nature of R&D. The corporate laboratory often disappeared or was altered so as to be almost unrecognizable.

These changes have been exciting and productive. New intellectual challenges have been established and met. The integration of researchers into cross-functional teams has created a new style of fast-paced, complex, and challenging work. Product development began to emerge as a new professional discipline. Most R&D that continues to be carried out in industrial laboratories is aimed more directly and strategically at enhancing companies' product lines. New styles of targeted, and very efficient, scientific inquiry began to emerge, notably "discovery science," whereby chemical and pharmaceutical companies, for example, attempt to optimize the search for medicines, reactions, or products with prescribed properties.

No corporation can be competitive today without the kind of focused, integrated R&D described above. However, there may be a price to be paid. Now that many of their problems in manufacturing and product development have been solved, they can compete well. The strong U.S. economy and low unemployment rate presumably stem in part from these changes. Indeed, even the Holy Grail of a balanced federal budget probably owes much more to this improvement of U.S. industries than to federal policies.

But the next round of competition is likely to be won by those who innovate, i.e., those who create new ideas, products and services, those who solve new human problems and create new commerce. There is a danger that wider-ranging research has been cut back too far to sustain industrial leadership in the long run. So much local optimization by individual companies may leave the larger innovation system impoverished by lack of broader-based research whose results are shared broadly.

IMPLICATIONS FOR UNIVERSITIES

In my view, these changes in the corporate world leave universities with dual increases in responsibility. First, we must alter our education in engineering, management and, to a lesser extent, in science as well - in order to prepare our graduates to work and lead in the new industrial world. Second, universities will have an even greater responsibility for conducting broad, basic research. Some might argue that these two responsibilities are incompatible. I do not believe that is the case, however, as long as we draw from our special strengths and work with others to address our common challenges and opportunities.

As we move ahead, I believe that there are a number of features that should be incorporated into our educational programs, particularly (but not exclusively) those in engineering:

All these changes, and others that will follow, require thought and development by dedicated faculty, but they also may require conscious involvement and support on the part of industry.

As noted earlier, the changes in the nature of research within industry will place an even larger responsibility for conducting broad, basic research with our universities. Since we generally do this very well, that is fine. However, who will be our patron? First and foremost, the federal government. There seems to be general agreement on this point across the political spectrum. Indeed, formal statements by large numbers of industry CEOs, chambers of commerce, state governors and legislators, members of Congress, and university leaders seem to indicate an effective national consensus on the importance of strong federal investment in university research. However, despite the committed leadership of key members of Congress on behalf of science and engineering research, that agreement is not translating into the increased levels of support needed to sustain this effort in the long run. Furthermore, many in the government ask the legitimate question: if industry ultimately benefits from university research, then why are they not paying for more of it?

This is closely related to the question of why doesn't industry itself increase the long-term, basic research it conducts and contribute more to the commonly shared base of scientific and technological knowledge? The answer generally is that, in the short term, the market doesn't demand it. Furthermore, the value derived from such endeavors does not necessarily accrue to the organization that conducts research which is not directly applicable to its product line.

How do we resolve this conundrum? We might start by considering our national innovation system - and how it depends on academia, industry and government working together in new ways to sustain a vital economy.

SUSTAINING AMERICA'S INNOVATION SYSTEM

The health of our economy depends on a vigorous system for supporting innovation. America's innovation system consists of academic, industrial, and governmental institutions working together to support and generate new ideas, to educate the next generation of innovators and entrepreneurs, and to transfer the practical benefits of new scientific and technological knowledge to society.

The great public and private research universities, spread across our land, play an indispensable role in this system. Their faculties conceive and conduct the research that generates a great deal of our new knowledge, and in the process they educate the young men and women who will become the inventors, innovators, industrial leaders, company founders, teachers, and doctors of the future. Their graduate students, carrying new ideas from their research experiences as they enter the workforce, are the primary means of technology transfer from academia to industry.

This has been possible in large measure because of the wise investment by the federal government in higher education and research. Every federal dollar spent to support university research does double duty. Not only does it pay for the conduct of the research, it simultaneously supports the education of graduate students who learn as they work together with faculty on research in science, engineering, medicine, and business.

I believe we must give the highest priority to maintaining our nation's world leadership in science and technology. We must sustain the vitality of university research and education as the foundation of America's innovation system. Beyond this, we must support an innovation system that is not bound by one-size-fits-all government regulations, but thrives on a mixture of creativity, competition, and cooperation.

Meeting such a challenge holds implications for the responsibilities of both the public and private sectors. The private sector will need to take increased responsibility for contributing more to the base of shared knowledge and to better define its role in the long-term sustaining of technological leadership. The public sector must more effectively recognize both the underlying support it must provide for research and education, and its responsibility to provide a business-friendly and research-friendly tax and regulatory environment.

THE IMPORTANCE OF NEW PARTNERSHIPS

Beyond that, we must even more effectively couple university research to industry and business by building partnerships. Yet we must do so without destroying the fundamental values and culture that allow universities to serve society over the centuries, and not just at the moment.

During the last year, the Council on Competitiveness, a nonprofit group of industry, labor, and university leaders, has convened a series of bipartisan, multi-sector meetings across the country. These have brought state governors, CEOs of large corporations, university leaders, representatives of the Congress and the Clinton administration, entrepreneurs, labor leaders, directors of federal laboratories, and venture capitalists together for intense discussions about strengthening and sustaining our innovation system.

One of the most pervasive and widely accepted conclusions of these discussions is that the greatest opportunity to strengthen the U.S. system of innovation lies in an improved synergy among industry, universities, and the federal research apparatus.1 Creating a policy environment that encourages partnerships across sectors seems to be essential. This will require attitudinal changes, mutual respect, a greater degree of openness, and purposeful dialogue. It will work only when projects and programs are seen as mutually beneficial and when all parties are genuinely interested in the problem at hand. This generally argues that such partnerships will deal with moderate to long-term issues, and with sorting out emerging new principles underlying contemporary industrial operations and organizations.

A ground-breaking new partnership of this type is MIT's Center for Innovation in Product Development. The establishment of this center was motivated by the enormous intellectual challenge of identifying the basic principles of effective product development and the need to better educate engineers and managers to undertake the development of new products in today's fast-paced, competitive, and complex and globalized industrial world. The Center's existence was greatly facilitated and accelerated by the National Science Foundation's Engineering Research Center program. In the end, however, without the shared perception of need and opportunity among MIT and several companies, large and small, the Center would not have been possible.

Working closely with a consortium of high-level managers from Xerox, Ford, ITT, and other leading corporations, the Center will draw on MIT's unique combination of strengths in both engineering and management to conduct cutting-edge research in such topics as the better matching of technology development to the timing of market opportunities, the alignment of product-development risks with corporate capabilities, and the translation of consumer preferences into technical specifications. The Center will also develop texts and course offerings for both graduate and undergraduate students, and will make these materials available to engineers and managers working in industry.

Other emerging partnerships at MIT involve direct scientific collaboration with companies such as Amgen and Merck. These partnerships involve no federal component. They support mutually agreed-upon basic research problems at the cutting edge of modern biology and biotechnology and encourage intellectual synergy and sustained dialogue among company and academic scientists. They, too, have a strong emphasis on supporting education, at both the graduate and post-doctoral levels.

Finally, any discussion of America's innovation system must recognize the central importance of entrepreneurship and the establishment of small companies. In this era, it is such "start-up" companies that have created expanding employment. It has been the opportunity to be entrepreneurial that has allowed the U.S. economy to rapidly restructure in the wake of corporate downsizing and international pressures. Finding better ways for large companies, the government, and research universities to work with such emerging companies is the key to strong innovation and its translation into economic and social progress.

In the end, however, the single most important contribution of research universities to our innovation system is the education of men and women with an understanding of emerging new science and technologies and the creativity, mindset, and skills to apply them wisely.

A SOUND ENVIRONMENT IN A SOUND ECONOMY

Another domain in which we all have a vital stake and an inescapable responsibility is the global environment. The growth of human population and activity has fouled the air, depleted the soils, diminished the forests, and degraded our fresh waters. The consequences are immense: Three and a half million people die each year from diseases borne by unsanitary water; hunger is a fact of life for countless more; the damage to the ozone layer threatens us all; and we face the annual loss of thousands of species.

Stewarding the earth's environment will require industry, universities, and government to assume new responsibilities and to join forces in new ways.

For the past thirty years or so, environmental concerns in this country have been dominated by a mentality of government regulation and remediation. At its best, this has dramatically improved our health and quality of life. At its worst, it has led to unreasonable legalistic resolutions, adversarial decision processes, and priorities set without sound scientific or economic bases. Perhaps this was inevitable as our understanding of the issues developed within the context of a high-consumption economy and mature industrial infrastructure. Many current industrial processes were developed in an age when resources seemed inexhaustible, and when it seemed incomprehensible that the day might come when humankind's influence might substantially threaten the balance of the global environment.

Today, however, we understand that many resources are finite, that industrial development affects our air and water and perhaps our climate, and that the green revolution in agriculture has its price. What is new in all of this is our awareness of the enormous complexity of the problems and of their possible solutions. Understanding and analysis of environmental issues, and the development of innovative solutions requires a complicated interaction of basic science, engineering, economics, politics, social theory, and education.

I am optimistic that in the long run we will make great progress. Why? Because we all cherish good health and the beauty of our earth, and because this is extraordinarily rich and fertile territory for academic investigation and industry problem solving. Furthermore, many aspects of good environmental stewardship at heart involve increasing efficiency - efficiency of energy conversion, efficiency in the use and processing of materials, efficiency in transporting people and goods, and efficiency in the use of financial resources. Engineers, economists, organizational experts, and managers all value good efficiency on some plane, so working to reduce waste and environmental damage has an innate appeal to many of the key disciplines.

However, there are counter forces:

NEW ROLES AND RESPONSIBILITIES

Industry and academia must play increasingly important and synergistic roles in establishing environmental responsibility and developing effective solutions. We at MIT are working hard to establish this new paradigm - by educating engineers, managers, scientists, economists, and policy experts to analyze environmental issues and synthesize sound solutions. This does not mean only that we need to educate more environmental experts, it means that sound thinking about, and commitment to, sustainable development and environmental stewardship must be an integral part of the education and practice of engineers and managers.

Equally important is the emerging role of MIT and some other leading research universities in convening disparate parties for serious dialogue. Such discourse can help identify the key research issues, improve understanding of how governmental and industrial decisions can be informed by scientific knowledge, and make resource distribution more effective.

This approach has been enthusiastically welcomed by the corporate world, which is finding that sound environmentalism and an anticipation of its requirements is good business.

The growing commitment to a healthy environment on the part of both industry and academia is setting the stage for new partnerships between the public and private sectors. Take, for example, the Montreal Protocols on the reduction of chlorofluorocarbons in the atmosphere - in order to halt the damage to the earth's protective ozone layer.

These protocols are based on the fundamental scientific work of MIT's Nobel laureate and Institute Professor Mario Molina and his scientific colleagues, including Sherwood Rowland of the University of California at Irvine and Paul Crutzen of the Max Planck Institute for Chemistry in Germany. It is an agreement that rests not only on sound science, but on determined and thoughtful work across complicated political and geographic boundaries to ensure that all the citizens of the world benefit, whether they reside in rich nations or poor ones. The genealogy of the Protocols begins with atmospheric chemistry research funded by the federal government, which led to a solid understanding among knowledgeable industry leaders, which in turn led to a political will to execute a thoughtful international agreement. In sum, three sectors played appropriate and highly interacting roles that led to improvements for all.

At MIT we are wrestling with various organizational issues to best approach these matters. As is appropriate in our intellectually diverse and entrepreneurial institution, many efforts have grown somewhat independently and are now interacting with each other.

A particularly effective example of this new approach is the MIT Joint Program on the Science and Policy of Global Change. This program has brought together the talents of faculty, research staff, and students from several disciplines, forming an integrated approach to analysis of global climate change. It is sponsored in a consortial manner by a large number of U.S. and international companies aided by governmental research support and governmental and public group participation. Central to the program's mission and effectiveness has been the Global Change Forum, which has become a very well-attended ongoing seminar among high-level scientists, executives, and decision makers from industry and government. It has met 12 times in 7 years, generally alternating between MIT and a location in another country. The Program participants are working from a common understanding and set of goals, proceeding not from the emotion that has driven much of the environmental debate and decision-making in the past, but from a base of mutual learning, research, policy analysis, and public education.

This is not to say that matters of environmental stewardship can or should be approached in a manner devoid of emotion. Emotion has a legitimate role in environmental matters. It is our ability to experience and envision the benefits of a healthy environment that signal to us the importance of environmental stewardship. And it is our ability to envision potential degradation and its effects that leads us to understand the critical necessity for preemptive action. Rational policy analysis, objective science, and sound technology, however, are the extensions of human thought and physical capability that will enable us collectively to establish and accomplish our environmental goals. In other words, mens et manus, MIT's mind and hand philosophy, is precisely what is called for.

Similarly, we cannot progress by ignoring economic and social realities any more than we can ignore scientific and engineering principles and realities. These provide the framework in which the new responsibilities and opportunities for business and industry emerge. On one plane, business exists to create wealth and to provide for the financial advancement of its shareholders. Of course, on a deeper plane, business exists to advance the human condition. These enterprises produce clothing, shelter, and food, and provide healthcare, entertainment, and all manner of services. The markets distribute our wealth, provide incentives for productive activity, and, to a significant extent, influence how we interact with our environment and utilize the resources of the earth.

Unfortunately, markets and businesses, as conceived within the dominant value and social systems, tend to be too dominated by short-term thought and goals to create capital flows from poor to rich and south to north. There arguably is too much local and near-term optimization. But this situation can be improved. Indeed, in my view many leaders of industry are beginning to work toward long-term solutions to environmental and economic problems, and many scholars are working on new constructions that will support this, and that will work with, rather than against, markets.

SUSTAINABLE DEVELOPMENT

The concept of sustainable development is emerging as a framework for these efforts. Much of the original thinking about this concept has come from business leaders, particularly the Swiss industrialist Stephan Schmidheiny. As he wrote in a declaration prepared for the Business Council for Sustainable Development,
"The world is moving toward deregulation, private initiatives, and global markets. This requires corporations to assume more social, economic and environmental responsibility in defining their roles. We must expand our concept of those who have a stake in our operations to include not only employees and shareholders but also suppliers, customers, neighbors, citizens' groups, and others.... Progress toward sustainable development makes good business sense because it can create competitive advantages and new opportunities. But it requires far-reaching shifts in corporate attitudes and new ways of doing business." 2

Sustainable development sets as a goal providing for the needs of the present generation, including the right to advance economically, while minimizing the risk to future generations' abilities to enjoy the same provision and right. It requires of us a more cooperative, interactive approach, a much longer time horizon in our thinking, a responsibility to educate ourselves about risk and efficiency, and an obligation to develop technologies that are more efficient in their overall use of resources.

Is a world of continual economic development absolutely sustainable? In the sense that this implies total and continual renewal of all resources, clearly not. Both the laws of physical nature and of economics deny us that ideal. However, we should strive to understand what levels of sustainability may be achievable, and strive to approach them in our industrial practices.

This leads to the concept of eco-efficiency. Admittedly it is a vague concept, but it is very important, nonetheless. It requires an awareness of how our systems for generating energy, producing food and goods, or transporting people and materials are intimately linked to environmental quality and sound economies. It requires examining the total flow of materials through the processes of production, use, and reuse. Such an approach could lead, for example, to locating industrial plants in such a way that the "waste" or byproducts of one may be used as the resource or raw material of another. Eco-efficiency requires a significant base of research, development, and innovation. Above all, it requires a longer vision and a more integrative style of thought and analysis than we are used to.

This vision and style must be driven not only by concern for our fellow humans, present and future, but by pragmatism and hard-nosed analysis. As environmental awareness and concern become more prevalent, increased efficiency and improvements in "cradle to grave" utilization of natural materials is becoming good business. If the importance of sustainable development becomes increasingly influential in setting our societal goals, sound environmental stewardship will become even better business.

Indeed, I believe that business and industry is likely to lead our movement toward more sustainable development and improved environmental stewardship. We are beginning to see the necessary proactive yet pragmatic business leadership emerging in several global corporations.

Education and understanding are key to setting and effecting such an agenda. If the world's educational institutions, and particularly our research universities, increasingly focus on the issues of sustainability and resource management, we can assure that more knowledge is gathered, developed, and shared about these issues. MIT, the University of Tokyo, and the Swiss Federal Institutes of Technology in Zurich have joined together for just that purpose by forming an Alliance for Global Sustainability. We do so in the conviction that universities around the world can make a profound difference in how their societies think and act on the question of global sustainability. The result will be better business and a better environment.

IN CONCLUSION

Ours is a dynamic society, continually redefining its agenda and the relative roles of its players. But some things are so basic to our welfare as to transcend temporal shifts in priorities. A vital economy and a healthy environment are two such fundamentals. They are not incompatible. Working together, universities, industry, and governments can find ways to sustain a sound environment and economy.

For universities, this is an exciting time - a time of rapidly expanding knowledge, of engaging even more directly with activities that are vital to the common good, and of working in new ways with industry and government to achieve these goals. We are creating new paths as our relative responsibilities come into a new balance, but one thing is clear: we are all stewards of the future.

Charles M. Vest

September 1997

NOTES AND ACKNOWLEDGMENTS

I would like to recognize the work of MIT's Council on Industrial Relationships and Council on the Environment, whose work and interviews with leaders from all sectors have been most helpful in forming my personal views on these subjects.

1. A Call to Action - 1997 Regional Summits on American Innovation, Council on Competitiveness, 1401 H Street, NW, Washington, D.C. 20005.

2. Schmidheiny, Stephan, Changing Course: A Global Business Perspective on Development and the Environment, MIT Press, 1992, page xii.

MIT Reports to the President 1996-97