By Her Own Measure - New Jobs - The Plan is a Flop
Hazel O'Leary was in her element.
Wireless microphone clipped to her suit, hands gesturing, the secretary of the U.S. Department of Energy worked the crowd of business executives seated before her like Oprah Winfrey works a television audience.
"Dynamos or Dinosaurs?" was the title of her slide presentation at New York University's Stern School of Business last year, a presentation meant to describe her vision for the 30 federal research laboratories under her control.
With a fearsome Tyrannosaurus rex looming behind her on the screen, O'Leary said many people "have already made up their minds" that the laboratories are a vestige of a bygone era - capable of building bombs and little else.
O'Leary was there to argue a different case. It is one she has been forced to make again and again in recent months, as her entire agency has come under increasing fire from congressional Republicans, who want to abolish the Energy Department.
"Our mission now is economic security," she told her New York audience, members of Business Executives for National Security Inc., a nonprofit organization. The group was sponsoring a day-long conference titled "The National Labs: A Working Asset for American Business?"
The same expertise that kept America secure during the Cold War - science and engineering skills, high-performance computing, advanced manufacturing - would be put to work on behalf of corporate America, O'Leary proclaimed.
Under her leadership, the Department of Energy this year has set aside $1.7 billion to prop up American companies - a big part of the $6 billion the entire government now devotes to that task.
The government calls this technology transfer.
The goal, O'Leary says, is to get innovative technologies developed by government scientists into the hands of American firms, fostering private wealth and creating high-wage jobs. In short, to make America more competitive.
"It's about jobs; it's about creating jobs," O'Leary has said. "If we don't create jobs, then it's a failure."
By O'Leary's own measure then, it's a flop.
Since 1992, the Department of Energy has pumped $5.2 billion into its technology-transfer programs. There is little to show for it.
When asked for evidence the programs are working, Energy Department officials cite the soaring number of agreements with industry - nearly 1,400. They do not list the number of jobs or new companies created. That's not a measure they choose to gauge themselves by - or even compile. They'd rather just keep track of the growing number of deals cut.
Energy's impetus was the same as the rest of the government's:
To convert swords to plowshares - that is, to turn both vast corporations and individual employees who had never worked outside the defense establishment into productive members of the civilian economy. And thus ensure those high-paying jobs O'Leary speaks of for Americans in the 21st century.
And, through such government-industry partnerships, to help the United States catch up with managed economies elsewhere that threatened to outstrip ours.
Washington is trying to create the best of both worlds - a free-market economy shored up by the government's ample, and idle, technological resources.
But what has resulted is a huge chunk of corporate welfare that's not doing anyone but its recipients any good.
Take the program known as Cooperative Research and Development Agreements, or CRADAs, in which government scientists help private companies develop technologies. It is a program common to many federal agencies, as a result of the government's technology push.
The experience at the Energy Department, however, illustrates the difficulty of trying to create private wealth with public money.
The department spent $792 million on CRADAs in fiscal years 1992 through 1995.
A total of 46 new companies were formed, the Energy Department says. And that number isn't firm; it's based on verbal reports from the individual labs to Washington.
Even the Energy Department is puzzled by some of the numbers. "Where that number (of new companies) comes from, I don't know," said Michael Saltzman, a department budget manager. "Whether that's companies created to do CRADAs, or as a result of CRADAs, I don't know."
That's not surprising. Nearly 15 years after legislation was enacted requiring federal laboratories to work more closely with industry, the Department of Energy still has no system for measuring whether its costly efforts are succeeding.
Suppose the department wants to know the number of patents or licenses at one of its 30 labs. Most corporations or institutions would have that information.
Not Energy. Officials have to call the lab. Each and every time they need the information.
"Somebody has to get on the phone. It's really a fire drill. That's not very useful," says Alexander MacLachlan, a deputy energy secretary in charge of industry partnerships. MacLachlan responded for the department on behalf of O'Leary.
The department has repeatedly missed its own deadlines for developing a system for tracking its agreements with industry. MacLachlan says he now expects one will be in place by year's end.
It will include information on patents, royalties, licenses and the number of industry agreements. It will not, however, have timely data on jobs or companies.
That information is too hard to collect, MacLachlan said. Much of the research is long-term and thus will not produce jobs immediately. Some companies consider the information secret.
"What everybody really wants to know is how many jobs you are creating and if you are increasing the industrial output of the country," said MacLachlan. ''I'll tell you that is a very difficult thing to do."
In the meantime, the department is busy signing new agreements, committing millions in federal resources, and touting its soaring number of industry partnerships. It even threw a party to celebrate its 1,000th CRADA.
The Energy Department also measures its success by the number of repeat customers - companies with multiple agreements. Critics say this only shows how addictive government subsidies can become.
Thus, the department is measuring its success by the number of vehicles created, not by whether they go anywhere.
Some supporters of the government-industry partnerships worry further that companies are using taxpayer subsidies as a substitute for their own research, or to do research they'd never fund themselves.
"My quarrel with a lot of CRADAs is that they are . . . marginal things that industry could do, but if they can get the government to go halfers with them, they'll go that way instead," says Richard K. Quisenberry, a former DuPont executive who heads a group of textile firms working with the labs.
Energy Department officials say the agreements are a valuable way to share information and leverage the taxpayers' huge investment in the laboratories.
"In my view, it would be almost a dereliction of duty if we didn't try to use that system to help America become a strong competitor in the global marketplace," says MacLachlan.
That opinion is echoed by Siegfried S. Hecker, director of the Los Alamos National Laboratory in New Mexico.
"Why should DOE play a role?" Hecker asked rhetorically in 1994. "Willie Sutton said he robbed banks because that's where the money is. The government should use the defense labs because that's where the technology is."
Consider these, culled from more than 1,000 agreements examined as part of The Inquirer's year-long study of government technology programs:
Deprenyl Animal Health Inc., a small, publicly traded company in Overland Park, Kan., was looking for a group of dogs on which to test its drug Deprenyl. A deal was struck with the Energy Department.
"We each brought something to the table," said Deprenyl's president, David R. Stevens. "They needed additional funds to maintain their dog colony and we needed a large colony of dogs."
The government research institute contributed about $307,000 for the project, which ended earlier this year. Deprenyl provided $650,000, some of which was spent on dog food.
"I think this was one case where it's fair to say the government got more than its fair share," said Charles H. Hobbs, the toxicology institute's director of technology transfer.
And what technology was transferred?
"Technology transfer is a very broad term when properly defined," Stevens explained. "For example, if they utilized this special resource of the dog colony, even though we paid for it, that is in fact technology transfer."
Costs are high. Many technologies have little market potential.
And bureaucratic obstacles are legion. Some companies say the Energy Department is far from a sweetheart partner cutting them in on the gravy train. In fact, they say, what it brings to the partnership is a quagmire of red tape.
James Schwarz, president of Quatro Inc., approached Los Alamos National Laboratory in the summer of 1989 about licensing a technology to screen auto parts and other devices for defects.
Nearly three years later, the small Albuquerque company finally got the license. In the interim, it had to endure arcane bidding procedures, legal questions, requests for company business plans and staff turnovers in the Industrial Partnership Office at Los Alamos.
"We did start up the company to commercialize the technology. But if that's all we had done, if we had put all of our eggs in that one basket, well, we would have gone out of business," says Schwarz.
"We only survived because we had the stamina and interest to stick around," he said. Even so, he hopes to license other lab technologies.
"The bureaucratic hassles are stupendous," said Albert Migliori, the Los Alamos scientist who invented the technology licensed to Schwarz. "We just had to be so stubborn it was incredible."
He blamed Energy Department rules for most of the delay.
Still, Los Alamos officials consider Quatro a success story. The lab's 50- person public-affairs office highlights the company when asked for examples of technology transfer.
Ten of Quatro's 100 employees work full time on the screening technology, which the company has sold to General Motors and others. Schwarz hopes one day that number will grow. But he doesn't envision it creating a huge number of jobs.
"It's not a real people-intense thing," he said.
That's true of many of the technologies being subsidized by the government. Even the boosters who are promoting these programs express doubts about their ability to improve the nation's economy.
Asked if Washington had exaggerated the labs' ability to deliver jobs and new industries, one lab official replied, "Without attribution: Yes."
Another lab manager said there is a conflict between industry expectations and public expectations for the taxpayers' $1.7 billion investment in the Energy Department program this year.
"Industry does not view this whole activity as creating jobs. That's not its point. Its point is to be more productive, to gain market share, gain profitability and all the things that industry does," said Warren D. Siemens, director of technology transfer and commercialization at Sandia National Laboratories in Albuquerque.
Nor do the Energy Department's industry partners want to be held to such promises. They have resisted efforts by the department to guarantee that jobs will go to American workers.
Assuming there are any jobs.
Even O'Leary appears to have wavered from earlier comments about job creation. In a June 1994 interview with a trade magazine, she stressed that Congress needed to lower its expectations.
"We need to convince the Congress that it's OK to have a 70 percent, 90 percent failure rate" for CRADAs, she said.
The head of the laboratory with the most industry partnerships also has voiced doubts.
"It is my belief that we will fall short of achieving the desired impact on U.S. economic competitiveness," Albert Narath, director of Sandia National Laboratories, told a congressional committee in 1993.
"We will have failed to make a measurable difference in the outcome of the economic battle in which our nation is engaged," Narath said. "I also do not believe that large-scale joint efforts with individual industrial partners will change that conclusion."
The same lab directors who question their ability to stimulate the economy nevertheless are actively lobbying Congress and the Energy Department for more money.
And Congress and the Energy Department comply.
The number of CRADAs at Energy Department labs had grown to nearly 1,400 by mid-May and is increasing daily. Overall, more than 4,000 companies are participating in technology partnerships run by the agency.
From 1992 through 1995, money for CRADAs at the Energy Department increased more than fourfold - to nearly $317 million, from about $75 million. Estimates for 1996 are $325 million.
The department spent a total of $792 million on CRADAs in this period.
While representing a fraction of the department's total 1995 budget of $17.5 billion, CRADA funds are the fastest-growing portion of the Energy Department's $1.7 billion technology-transfer account.
In 1992, CRADA funds represented 6.7 percent; now they account for 18.5 percent.
"The lab directors aren't stupid. They go whichever way the political winds happen to be blowing," said David Freiwald, a former lab manager now in private business.
"If Congress says it wants them to help industry compete, then they will take up that mantra. It doesn't matter if they believe it. That's called self- preservation."
Lab scientists who have left to launch their own companies, or who have started private businesses on the side, say they have encountered resentment and jealousy from their colleagues and bosses.
In some instances, coworkers have been ordered to shun the would-be entrepreneurs.
The experience of Richard J. Joseph, who has worked as a physicist at Los Alamos for 16 years, illustrates the problem.
For close to 10 years, Joseph had been thinking about starting his own company. Finally, after a reorganization at Los Alamos in which he was passed over for promotion, he and a colleague formed Los Alamos Science Inc. in late 1993 to commercialize a laser technology for inspecting smokestack emissions.
Joseph cut back his hours at the lab so he could work two jobs.
The reaction of lab management?
Joseph said he then learned his name was on a list of people to be laid off, which he attributes to resentment over his outside activities.
"Deep down in this institution, there are people who don't want you to do this," said Joseph, who arranged a transfer to another division at Los Alamos and held onto his job.
At the same time, Los Alamos officials were going through the motions of encouraging lab employees to start companies.
Those who have spent time in both worlds - the labs and the private sector - have an explanation for this conflict.
Working in the labs is the equivalent of "working for the Post Office. Nice benefits, early retirement, no demands," says David Birch, a former lab employee at two Energy Department sites and currently president of Cognetics Inc., an information company in Cambridge, Mass.
"Not that they (lab scientists and managers) are dumb at all. They have the least form of aspiration," Birch said.
Former scientists refer to the high pay and comfortable working lifestyle at the labs as "the fur-lined rut." There are few incentives to leave, they say, and management discourages employees from collaborating with the handful of scientists who venture out.
"When I left, I was told my former boss actually called the group together and told them not to talk to me," said Peter Clout, a physicist who left Los Alamos in 1988 to start a software firm.
Larry Icerman, a Santa Fe consultant who works with the labs, says their culture is "the antithesis to risk-taking."
"For a scientist, this is like being in heaven. It's the golden-handcuffs syndrome. People come and put in their 20 years," said Icerman. Often their entire career is devoted to a single project.
The ability to do basic research with little interference and, at least until recently, few concerns about money is a powerful lure.
Albert Migliori, probably the most successful inventor at Los Alamos, with numerous patents and licenses, explained why he did not leave to start his own firm.
"What I want to do with my life is do basic research and solid-state physics," he said. "Fortunately, the lab allows me to do that. It works out that once in a while these opportunities (to license a technology) come along and we are able to spin them off."
But that doesn't occur often enough. Business leaders and consultants in New Mexico are dismayed by the paucity of companies started by former lab scientists.
"The business of economic development in New Mexico is creating economic- development agencies," observes Icerman dryly.
There is now a move - funded in part with federal tax dollars - to encourage more spinoffs. Several nonprofit groups have been formed. Martin Marietta, the contractor that runs Sandia National Laboratories for the Energy Department, has incorporated a nonprofit organization to help scientists there start businesses.
That may not be enough, though.
Richard Joseph said Los Alamos recently advertised for scientists interested in making a presentation to venture capitalists. "There were no takers," he said. Why? They are "too comfortable, too complacent."
He also says his high-profile problems with lab management have intimidated others from forming their own companies.
Lab officials do not dispute that they can do a better job - and they say they are trying. They point to training sessions, new programs for improving quality, consultants they have hired to identify and promote technologies with commercial potential, and more generous royalties for scientists.
"We are in the process of building more bridges to industry, trying to increase our knowledge and appreciation of the issues that really impact U.S. industry," says Los Alamos' Peter Lyons.
Lyons arrived nearly 26 years ago after finishing his Ph.D. at California Institute of Technology. He spent his first 15 years working on nuclear testing and other defense projects, and the next 10 years as a manager. He took over the Industrial Partnership Office in late 1993.
"I was an unusual choice for this job because I do not have an industrial background," he said. "I've learned a lot in the last year. I can spell Industrial Partnerships and hopefully talk fairly coherently.
"I denote a lot of enthusiasm among the scientists for working with industry," Lyons said during an interview in his spacious, poster-lined office.
That interest, though, goes only so far.
Not long ago, Los Alamos hired Mohawk Research Corp. of Rockville, Md., to conduct four-day business training sessions for lab scientists at a nearby hotel. Mohawk is paid about $16,000 per session.
"We drop them in a black hole and don't let them out until they write a commercial plan," said Mohawk president Marcia Rorke, referring to the planning sessions.
"So far, between 125 and 150 employees from Los Alamos and several other labs have attended Rorke's course."
How many have departed to form their own companies?
"I may be able to count up to half a dozen who are interested," said Rorke. "But not a one I know has actually left."
This pressure will only increase, as congressional Republicans seek to eliminate the entire Department of Energy. So far, department officials have countered by slashing budgets and searching for other ways to reduce costs.
O'Leary has promised to cut $14.1 billion from the Energy Department budget over the next five years. Last month she announced that 3,788 department jobs - 27 percent of the agency - would be eliminated by 2000.
The days of an open checkbook for research in the labs already had ended.
"When I came in the 1970s, I was given a pot of money and asked to develop proposals for research," said Los Alamos physicist Richard Keller. ''Somewhere in the mid-1980s the mode changed. We were told: If you could find external funds, you could continue to do your research."
So Keller and other scientists looked.
In recent years, Keller has done work for a large pharmaceutical company and a biotech firm. A deal to develop a faster, more precise form of DNA fingerprinting is in the works.
And the Department of Energy continues to cut deals. The $100,000 agreement between Knight's Armament Co. and Oak Ridge National Laboratory in Tennessee is a good example. Each partner pays its own share of the costs.
The Vero Beach, Fla., firearms manufacturer sells handguns and silencers to the military and public. It has a contract to build a silencer for pistols used by the elite Seals and Rangers Corps of the U.S. Special Operations Command.
Knight's president, C. Reed Knight Jr., said his company wanted to use quieter, more heat-resistent materials in its silencers. Oak Ridge scientists had expertise in that area.
"We basically went on from there."
The CRADA was signed in January 1994. Knight's Armament supplied some materials and weapons for testing. Oak Ridge scientists performed the tests and provided other materials. It has since ended.
"I would say it's not going to be something that is earth-shattering or revolutionary," Knight said. "But we have gained a lot of understanding, a lot of good help."
One problem that developed, he said, was that Oak Ridge scientists selected materials without regard for cost.
"They would ask themselves: Can we do it that way? I would say: You can. But I can do it a different way at half the cost."
Knight said he thinks "the real benefit in this (CRADA) is an unknown. What did Oak Ridge learn?"
And what about jobs - the primary purpose of the agreement?
"I would say I can't see an immediate impact."
"The labs have been studied to death," observes MIT professor Harvey M. Sapolsky.
He should know. Sapolsky was a member of the most recent panel, assembled by O'Leary in 1994 and headed by Robert Galvin, a former chairman of Motorola Corp. For 10 months, the commission evaluated the workings of the labs.
Its conclusion, last February, was blunt: The labs should focus on the Energy Department's core mission - energy - and forsake the gospel O'Leary has been preaching.
"The laboratories are not now, nor will they become, cornucopias of relevant technology for a broad range of industries. . . . There are only a relatively few instances in which the laboratories have technology that is vital to industry and that is uniquely available at the laboratories," the group's report said.
The commission also stressed that it was "unrealistic" for the labs to retain their current level of funding by laying claim to new missions. "It appears that each laboratory is attempting to keep its options open in all fields," Galvin told the audience gathered to hear the results of the panel's work.
But the task force sidestepped the more difficult issue of whether any of those labs should be closed. That decision was handed back to O'Leary, who took the job in 1993 declaring, "I intend to be an advocate for the labs."
Following release of the Galvin report, O'Leary told reporters: "I read the report as saying they're too fat and too heavy and too costly." But she said there are no immediate plans to close any of the weapons labs.
"There's no fire sale at these labs."
Today - perhaps because of the Republican landslide - Energy Department officials are stepping back from their earlier aggressive stance on industry partnerships.
Helping U.S. companies still is important to the labs, but it is no longer the primary mission, they say. And the nature of recent partnerships reflects this.
"We want them to have economic value, but we believe they also must have value to the lab mission," said Alexander MacLachlan, deputy energy secretary.
MacLachlan, a former senior vice president at DuPont Co., said this was not made clear in the department's early technology-transfer programs. "It was not clearly articulated," he said. "I don't think there were any good written policies out there."
"It has a history of incompetence and refusing to deal with its problems," said one former congressional staff member.
Seventeen years after the Department of Energy's creation, the nation still has no coherent energy policy, and it imports more oil than in the early '70s.
Even more than most bureaucracies, the department has been chastised in dozens of scathing audits and reviews in the last decade for excessive costs and poor management.
Efforts to institute wholesale reforms in the agency have consistently failed. Energy insiders blame that on the historically short tenure of most secretaries of energy. That has fostered what's known as the "we be" syndrome, as in, "we be here before he came and we be here after he leaves."
Energy labs have come in for heavy criticism. More than 50 recent audits have identified problems of mismangement, inadequate financial and cost controls, huge legal fees, excessive overtime, fraud and abuse.
In the late 1980s, Adm. James D. Watkins, then the secretary of energy,
sent out investigators, known as Tiger Teams, to weed out safety problems at the labs. At Argonne National Laboratory, near Chicago, the inspection team identified 11,000 violations.
"The reason I had Tiger Teams . . . is that I didn't know what truth was anymore and neither did the field (field offices)," Watkins said in a June 1993 interview for an Energy Department oral-history project. "And they weren't trying to be deceitful. They didn't know - they'd lost control."
Watkins said it was necessary to "hammer" the nonprofit and private contractors that operated the labs for the Energy Department.
"There weren't any accountability programs set up for auditing. And we lost 5,000, more than 5,000, people out of DOE, and yet our budget was going up to where it was in the early '80s."
In April 1994, department inspectors visiting Sandia discovered large quantities of computers, printers and other sophisticated equipment sitting out in the desert sun. Some had never been removed from their cartons. Others had been in storage for years.
"These valuable government assets, worth millions of dollars, are becoming technologically obsolete," the report concluded.
The problem of lost or stolen equipment is apparently common to the Energy Department labs. A 1993 audit at Los Alamos was ordered after "$11 million in property had been already determined to be lost or stolen and removed from the contractors' inventory records."
In 1993, an audit at Oak Ridge National Laboratory disclosed that foreign
scientists visiting the lab had charged the government for thousands of
dollars in calls they made to Russia, Israel, South Korea, China, South Africa, Libya, Iran, Iraq and other home bases.
A lab official protested that there was nothing "sinister" about these calls. But the investigator noted that the laboratory lacked detailed guidelines covering overseas calls.
Lab scientists complain that they have been inundated by Energy Department auditors and swamped by government paperwork. "It's just a natural tendency of all bureaucracies to become more bureaucratic," says Hecker, Los Alamos' director.
In 1991 alone, Energy Department contractors were subjected to 1,630 reviews involving 87,758 staff days by headquarters and field office personnel. Many involved routine record-keeping. At the same time, some essential audits of lab finances lagged more than 10 years behind schedule.
The agency's inconsistent management has been the subject of any number of congressional hearings. One, in 1993, had to do with a department practice of awarding fees and bonuses to contractors that it later fined for poor performance.
"Anyone who has ever trained a dog will tell you that rewarding and punishing that dog for the very same behavior will result in a very confused animal; yet that is exactly what the government was doing to its contractors," an exasperated Rep. Dan Schaefer (R., Colo.) chided the agency.
Consider the case of Canberra Instruments Inc. of Meriden, Conn. Its experience demonstrates the risky nature of the technology sweepstakes.
In the late 1980s, the Energy Department adopted stricter standards for monitoring the amount of airborne plutonium particles at its nuclear plants and research laboratories. None of the monitors then in use was sensitive enough to meet the new standards.
One of the affected labs was Los Alamos, where researchers commonly dealt with plutonium in weapons work. The lab put out a request for new monitors but rejected as inadequate the devices that were offered.
It then signed a CRADA with Canberra, which has a nuclear-instruments division, to refine a monitor that Los Alamos had begun making on its own. The federal share of the CRADA amounted to $522,000.
Canberra executives envisoned a market for thousands of monitors at Energy Department research labs. They also figured they would have an inside track for those sales as a result of their CRADA.
Wrong on both counts.
With the collapse of the Soviet Union, the focus shifted from building nuclear weapons to reducing the stockpile. That meant less defense work and less need for plutonium.
It also meant fewer monitors.
"Peace broke out," said Canberra manager Kenneth Borowski. "There was no expansion of those facilities. Now many of those facilities are actually downsizing."
Canberra had expected a large sale at Los Alamos that didn't materialize. It also had bid on providing 465 monitors at the department's Rocky Flats weapons facility near Denver - and lost, based on design and cost.
An independent analysis found Canberra's monitors and competitors' were essentially equal in quality, said John Rodgers, the Los Alamos scientist assigned to the project.
The defeat was especially bitter for Canberra executives.
"We were stunned by it, absolutely stunned," Borowski said.
"One of the things that disappointed us is that DOE would go through such a long CRADA process but then not make a firm commitment. We started out this venture with the expectation there would be business," Borowski said.
The company is trying to develop markets overseas. The prospects are not great.
"Right now we're manufacturing on demand," Borowski said. "We'll go through a month here or there and then nothing."
And the number of jobs resulting from the Canberra CRADA?
"We probably have one person who goes in and probably spends part time working on monitors."
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