to take risks. They do not love invention. "This is the problem with our technology. We have people at the top who don't appreciate it-it's like having museums run by business people. I shudder at the thought of having a great museum run by a man who looks at the bottom line and says, 'We're doing well because we had more attendance this year than last. But I don't know anything about the paintings.' This would be tragic. In the long run the museum would go down the drain. "The size itself changes the game. You go to a company with sales of two billion dollars and you say, 'I've got a million-dollar invention,' and they look at you and start laughing. They say, "That's one two-thousandths of our sales!'"That kind of thinking, Rabinow feels, is killing American ingenuity. And ingenuity, he insists, is America's last great resource. Whenever he can, Rabinow delivers that lecture to congressional committees, or provides them with blunt technological advice (a proposed solarpower satellite "is a fake, it should not be permitted"). When he can spare the time, he takes his wife to the theater. He plays tennis four times a week, reads, and putters about his house. And, of course, he invents. His laboratory overflows with drawings and models: a road reflector that sits flush with the highway, safe from snowplow blades; a camera that accepts four rolls of film ("It's annoying to run out of film at the wrong time"); a lock whose keyhole is too small for a pick (lock manufacturers have told Rabinow that the idea is brilliant, cheaper-but different: no sale). Although he received the Inventor of the Year award in September from the journal Industrial Research and Devel opment, Rabinow is a bit discouraged. In some ways he is like a poet whose work remains unpublished and who be gins to wonder whether the effort is worth the struggle. "I have 216 patents," he reflects. "A friend says he'll give me a big party when I reach 250. I don't think I will. I'm slowing down." But if that were so, it would take a gadget designed by Rabinow to detect it. Every week he devours the federal patent Gazette, a 400-page catalogue of the latest inventions. He spends three mornings a week at the National Bureau of Standards, reviewing ideas submitted to the Office of Energy Related Ir.ventions. "In the past two years we have received 15,000 inventions. Only 150 were worth federal support. Perpetual motion machines, crazy machines with God involved. They'll tell you that God came to them and gave them this idea yesterday and they want money for it! This comes up all the time. Inventors are often fanatics." Not so Rabinow, who is perhaps as much an artist as an inventor. In his living room, he ruminates about the process of invention. "I love it. People should do beautiful things, and science is beautiful for those who appreciate it. Invention is an art. It is a unique product of the human brain, and it is not predictable any more than the poetry of Keats is predictable. You can have all the rules in the world, and Keats will write his poetry and Beethoven his music. You play with words, you play with notes, you play with paints, and you play with mechanical ideas. And what comes out is surprising to the inventor and to the artist and to the public." There is a short pause. Rabinow excuses himself, and returns to his lab to tinker with his poetry. Senator NELSON. Senator Stewart? Senator STEWART. I would like to make a comment at his point: I think what he said is very relevant. I would like to have your thoughts and your ideas. I think the idea that bigger is better has received a lot of play in this country and I do not mean any disrespect to the Senator over here to my left, but you were talking about how large-size concerns have to become more productive. In the steel industry in the South, with which I have beome pretty familiar because of some of the difficulties United States Steel has had in my State, I had found that some of the smaller steel companies in the South have innovated, Conner Steel from my own home State for instance. They are competitive and they are meeting the foreign competition where the large-size concerns are not. But, one of the problems with the large-size concerns is that they are acquiring other areas of activity and a lot of their efforts are expended in that particular area rather then innovating like they should. Dr. RABINOW. I would like to make two more comments on large business: First of all, you must realize that the larger you are, the more difficult it is to innovate. When went to control data, President Norris, who is a very innovative guy, and said I would like to change one of our reading machines. I was head of the laboratory that developed it. He said, we must spent $3 or $4 million to get your last machine on the market; we have got the whole world trained; we have got the salespeople trained, the service people trained, the customers trained, the suppliers trained. We brought everybody to Washington to teach them this and now you want to change it completely? And I said, yes, sir; the new is better. He says, I believe that it is better; but you are out of your dash-dash mind if you want to change it now. We changed eventually, but he was right; when you are a very large company, innovation is very, very difficult. And, the larger you are, the more difficult it is. There is no question about that. And the difference between us and Japan is that in Japan the manager knows that he is going to be there for the rest of his life and this changes his point of view. This is like the old-time manager who runs a company and he is going to leave it to his kids. In America, this is not true. If you do well, you move to another job. Senator SCHMITT. What if he owned a piece of the action? What if he had some kind of ownership ties to the companies? Dr. RABINOW. If he was sure that when he retires, his present actions will still be important, he would have a different point of view. But, many of our managers know that the best way to make money is the short-term; as was said earlier. And, unless you change that, by law or some other way, unless you make sure that his point of view is focused on what will happen 20 years from now, he is going to take the short-point view. Senator SCHMITT. The Senator from Alabama suggested that I was here defending big business over small. I just need to correct the record. I think that there is a role in this society for both big and smalland medium-size businesses. Dr. RABINOW. Absolutely. Senator SCHMITT. And, that we have to recognize that the Government has screwed it up for everybody. I think you will find most big business people will agree with me on this. Dr. RABINOW. Well, you people are the Government. How come you screwed it up? Senator SCHMITT. I would suggest that you direct that question to some of my colleagues on my right. Dr. RABINOW. I've been in Washington since 1938; I did not notice that the Republican or Democratic administration's screwing up was particularly different. Senator SCHMITT. I think you will notice that the tax laws have become increasingly onerous on all sectors of business and that the regulatory laws are becoming inreasingly onerous on all sectors. Senator STEWART. I demand equal time to answer. Senator NELSON. If you senatorial witnesses are through, we will move on. Thank you very much. We appreciate your very thoughtul testimony. Dr. RABINOW. Thank you very much for your time; thank you. Senator NELSON. Our next two witnesses will be Dr. Jerry Plunkett from the Montana Energy and MHD and the R. & D. Institute at Butte. Also with us is Prof. Grant Tate, the executive-in-residence and associate professor, College of Engineering, University of New Mexico, Albuquerque, N. Mex. You can both come up at the same time. It is nice to see you again, Dr. Plunkett. Do you each have a prepared statement or are you talking—— Dr. PLUNKETT. We are talking from notes here. Senator NELSON. Fine. Go ahead and present your testimony as you desire. STATEMENT OF DR. JERRY PLUNKETT, MONTANA ENERGY AND MHD, R. & D. INSTITUTE, INC., BUTTE, MONT. Dr. PLUNKETT. Thank you very much, Senator, and Mr. Chairman. It is, indeed, an honor to be here today and I first of all want to recognize your contribution to the legislative process by your introduction of Senate bill S. 414 which provides that small business and individuals can retain patent rights for Government supported research and development. I think this is a breakthrough; I think it is very important, and while Mr. Rabinow has taken certain exceptions to it, I think those are only refinements. It is important to press on with that legislation in the same way as with Senate bill 1860. The United States is in a period of crises. The economy cannot support the demands upon it, particularly due to the high price of oil. However, the increasing cost of raw materials is going to occur in other sectors, particularly metals, and therefore, the demands for the increase in productivity to offset these costs is going to be essential. We can only achieve increased productivity in three ways: by working longer, by working harder, or by working smarter. And, in point of fact, innovation is probably the best of these three in the sense that it is another way of saying, we will work smarter. However, innovation in the United States is lagging. Despite the huge research and development outlays, now totaling $50 billion a year, we are not achieving the kind of productivity increases that our society needs to maintain its competitive position with other parts of the world. It is true that in part the other parts of the world are only coming up to our level and, in fact, this closing of the gap is a good thing because it means that the rest of the world is getting more productive and richer. And, we cannot be upset at that at all. In fact, we should encourage it and we do encourage it through the distribution of knowledge, basic fundamental knowledge to other parts of the world. However, I would point out to you that despite the fact that we have an energy crises which is pressing upon us more and more and it will get more and more severe until we address it successfully, nonetheless, the percentage of the gross national product that has been spent for research and development is declining. No other industry has suffered a decline in the last 15 years that research and development has suffered. Senator Nelson. Are you talking about both the private and Government sectors? Dr. Plunkett. Yes, sir; that total, both. We have sufferedSenator NELSON. You are talking about all research-both research, and applied research? Dr. PLUNKETT. All types of research lumped together. We are now up to the $50 billion level; that is only-that is less than 2 percent of the GNP- Senator NELSON. $50 billion counts both? Senator NELSON. In what year? Dr. PLUNKETT. That is for the current year. Senator NELSON. And, what is that, about $30 billion Federal, $20 billion private sector? Dr. PLUNKETT. Approxmiately, sir. That is very close. That is a 25 percent reduction over the last 14 years and there are many of us who believe that technological problems facing our society are increasing. We do not say all problems are technological in nature; they are not. There are many other problems. However, there are real technological problems. And the fact is despite those increasing problems, we are suffering a decline in research and development funding in absolute dollars; at least in terms of GNP. We hear a great deal about the problems of the railroads, and they certainly have suffered in many respects. And, yet their percentage of decline in the GNP has only been 1 to 2 percent of their portion of the GNP. So, in fact, research and development has suffered a decline of greater than 10 times that of the railroads; so, if the railroads look like they are in disrepair, I would suggest to you that research and development is increasingly going to be in disrepair and in fact, I do not believe it is sufficient to address the national needs of this country. That is the macro situation. Now, I would like to go ahead and discuss the business of title I of the Senate bill 1860, the requirements which are to incrementally increase 1 percent a year the funding that is set aside for small |