science research—“doing something just because you wanted to understand it better,” said John Tully, professor of chemistry at Yale, who spent 25 years at Bell Labs. “One of the key things was excitement. It was really contagious.” The process was made much easier because “funding was automatic. You didn’t have to put out a lot of paper as you do when a grant is running down and you have to apply for a new grant.”
However, with the breakup of the original AT&T in the 1980s and the increasing pressure of quarterly performance from the investment community, the “headlights” for corporate research have been foreshortened. Basic research was seen as less relevant to the pressing near-term needs of most companies. Or, as former Undersecretary of Energy Raymond Orbach put it, the “patience scale was diminished” in the private sector. Over time, most of the big corporate labs disappeared. Bell Labs was progressively slimmed down. “You had to justify your work over shorter time periods,” said Tully. In 2008 Bell Labs’ new owner, Alcatel-Lucent, said it was going out of the basic research business altogether.3
With the decline in corporate research, the basic science and R&D endeavor has increasingly been driven by what has over the last 70 years been the largest engine of scientific advance, and the biggest funder—the U.S. government.
THE PRIME DRIVER
If there is one thing that venture capital is clearly not about, it is scientific experimentation. Yet those “science experiments” are essential to progress. “Experiment” is what Energy Secretary Steve Chu, at his Nobel award ceremony, called “the ultimate arbitrator”; for research and development is the foundation, crucial to everything else. For the most part, the government is today the primary generator of basic R&D in the United States, not only for energy but, with the exception of pharmaceuticals, for most everything else as well.4
The federal government’s role in stimulating innovation, going back to the beginning of the republic, was often directly for national defense. In 1794 George Washington, unhappy with the performance of muskets, established a group of national armories, thus launching what was the first R&D initiative by the U.S. government. The objective was to replace rifles that were laboriously handmade by individual craftsmen with ones that were produced with interchangeable parts, thus greatly simplifying and speeding up the manufacturing of rifles. This innovation in interchangeable parts became known as the American system of manufacturing and was critical to America’s rise as an industrial power.5
But it was only after World War II that the government took on a much broader responsibility for supporting basic research and the whole R&D system.
THE PUBLIC GOOD
Spending on R&D has generally been recognized as a government responsibility because it is a public good. Beyond what the private investor can expect, R&D provides benefits in the form of higher economic growth, improved quality of life, and national security. When receiving the Nobel Prize in economics, MIT economist Robert Solow emphasized the central importance of innovation—the transfer of technology “from laboratory to factory”—to economic growth. Energy R&D is required to meet the more specific challenges of energy supply, usage, security, environmental impact—and, increasingly, climate change. The time horizons for energy innovation are often far longer than can be sustained either by companies, under quarterly-profit pressure, or by investment funds, which aim to exit an investment within five years. For instance, it took four decades and four generations of technology to get the scrubbers right for removing SO2 from coal plants. It took 15 years of research and demonstration before coal bed methane became viable. Such long-term horizons make volatility, uncertainty, and stop-and-go in funding so disruptive and so expensive in terms of lost opportunity.6
The U.S. Department of Energy supports a sprawling R&D enterprise that extends from national laboratories like Los Alamos and Oak Ridge and the National Renewable Energy Laboratory to university scientists, private contractors, and companies. The DOE’s 17 national laboratories alone employ over 12,000 Ph.D. scientists full time, making it the largest employer of scientists in the world. Overall the DOE is also the “ministry of science” for the physical sciences, supporting almost half of all the physical sciences research in the United States, including over time the work of 111 Nobel Prize winners.7
The level of U.S. government spending on energy R&D has fluctuated often in rough parallel with oil prices. Funding spiked during the Carter years, around the second oil shock, and then declined in the 1980s as energy prices came down. In the aftermath of the 1991 Gulf War, worries about