Investment in Innovation: Lessons Learned from China

Investment in Innovation: Lessons Learned from China

President Obama was right to focus on innovation and job creation in his January 2011 State of the Union speech. There is a need to create and fill new jobs in an increasingly competitive global marketplace, and investments in innova- tion will enable businesses using virtual reality and other healthcare technology to be part of a new, much-needed job creation engine.

If U.S. government funding for innovation and education does not increase, China may eclipse the United States in research and development funding within the next 20 years.1 By August 2010, China’s economy had surpassed that of Ja- pan, positioning it as the second-largest economy behind the United States. Some predict that China’s economy will sur- pass that of the United States as early as 2017.2

The United States has enjoyed dominance in innovation for the past 40 years, but that landscape is changing quickly with the globalization of R&D. Not just China but Korea, India, Russia, and Brazil are all investing in R&D at higher rates than the United States, Germany, and Japan.1 Relatively high labor costs in the European Union presage low R&D invest- ments over the next decade, with southern EU states such as Greece, Italy, and Spain investing at a lower rate than their northern counterparts.

Another result of R&D globalization is a reversal of the flow of funds, now flowing from some less developed to more developed countries. For example, China has made investments outside the country in telecommunications, as has India in pharmaceuticals.1

China’s leaders understand the importance of R&D. ‘‘Eight of the nine members of China’s Standing Committee of the Political Bureau, including China’s current President Hu Jintao, have engineering degrees. Of the 15 U.S. cabinet members, only one, Secretary of Energy Steven Chu, has a technical degree—a doctorate in physics.’’3 Consequently, the Chinese government has an innovation policy designed to encourage Chinese companies to create and own tech- nologies. The policy also encourages technology transfer from abroad and establishment of Chinese R&D facilities in exchange for foreign company access to China’s high- volume markets. As a result, a number of multinational technology and pharmaceutical companies have taken ad- vantage of this policy, some transferring facilities from India.

The Chinese government owns all top-ranked academies, including universities, and has tripled its investment in ed- ucation in the past 12 years.3 Of the five million students graduating per year, about one million are research students.

Furthermore, China’s academicians file more patent appli- cations than those in any other country—16% compared to 4% in the United States.

In addition, the Chinese government plays a direct role in investing in 150 companies, providing 27% of their funding in 2007, the latest year for which data are available.3 Universities partner with industry, and about the half the universities’ R&D funding, primary in technology transfer, comes from industry.

In the United States, a recent survey shows that venture capitalists expect their industry to decline over the next 5 years.4 VCs in France, Israel, and the UK also predict a drop, while those in China, Brazil, and India expect growth. What is most discouraging for U.S. business is that most U.S. VCs expect the available amount of venture capital to decrease by at least 30%.

In the United States, small companies—those most in need of venture capital—perform 19% of the nation’s R&D.5 Over the past 25 years, the most dramatic growth in U.S. federal R&D spending has been in health, which accounted for 52% of nondefense R&D in FY2008.

Given the data cited in this editorial, it should come as no surprise that China, India, and Brazil may surpass the United States in innovative healthcare delivery over the next de- cade.6 The United States has the patient populations neces- sary for research, but the rate of growth in financial support and education of researchers has not kept pace with that of developing countries.

President Obama has declared ‘‘innovation in healthcare’’ one of three national priorities for FY2012. With Congress unlikely to approve any initiative that adds to the federal budget deficit, can he deliver on his promises of increased funds for innovation and education?

 

References
1. Battelle. 2011 Global R&D Funding Forecast. R&D Magazine 2010 (Dec), p. 24. www.rdmag.com/uploadedFiles/RD/ Featured_Articles/2010/12/GFF2010_FINAL_REV_small.pdf (accessed Jan. 30, 2011).
2. Euromonitor International. Top 10 largest economies in 2020. Euromonitor Global Market Research Blog 2010 (Jul 7). http:// blog.euromonitor.com/2010/07/special-report-top-10-largest- economies-in-2020.html (accessed Jan. 30, 2011).
3. Battelle. 2011 Global R&D Funding Forecast. R&D Magazine 2010 (Dec), pp. 27–29. www.rdmag.com/uploadedFiles/RD/ Featured_Articles/2010/12/GFF2010_FINAL_REV_small.pdf (accessed Jan. 30, 2011).
181
182
4. Smith R. Venture capitalists in U.S. expect VC industry, funding to shrink. Local Tech Wire 2010 (Jul 14). http:// localtechwire.com/business/local_tech_wire/opinion/blog post/7959577/ (accessed Jan. 30, 2011).
5. National Science Board. Chapter 4. Research and Develop- ment: National Trends and International Linkages. In Na- tional Science Foundation, Division of Science Resources Statistics, Science and Engineering Indicators: 2010, p. 4-4.
6.
www.nsf.gov/statistics/seind10/pdf/c04.pdf (accessed Jan. 30, 2011). PwC Medical Technology Innovation Scorecard Highlights. www .pwc.com/us/en/health-industries/health-research-institute/ innovation-scorecard/index.jhtml (accessed Jan. 30, 2011).
Brenda K. Wiederhold

Editor-in-Chief

What Are the True Costs of Regulation

What Are the True Costs of Regulation?

 

Many researchers and clinicians working in cybertherapy create their own businesses, which allow them to protect their intellectual property. In the United States, small businesses create the majority of jobs but bear proportionally more of the cost burden of implementing laws and regulations than do larger companies. This is true primarily because larger companies enjoy economies of scale. However, estimates of the true costs of regulation vary widely.

A new study* found that companies with fewer than 20 employees pay 42% more per employee than companies with between 20 and 499 employees, and 36% more than companies with 500 or more employees. For small businesses, the average cost per employee was $10,585 compared to $7,454 for medium-sized and $7,755 for large businesses.

According to the study, environmental regulations cost 364% more in small versus large companies, and tax compliance
is 206% higher. Occupational safety and health and homeland security are other top cost drivers.

The researchers calculated that some types of industry pay more than others. For example, small manufacturers (such as small manufacturers of medical devices) pay 110% more for compliance than medium-sized manufacturers and 125% more than large manufacturers. Small health-care firms (such as cybertherapy clinics) pay 45% more than medium firms and 28% more than large firms.

The authors say the total cost of regulation is $1.75 trillion, and note that businesses must close shop, reallocate activity, absorb the cost, or pass on the costs to customers. They estimate the per-household cost of federal regulation and taxes at $37,962.

The report notes, ‘‘If federal regulations place a differentially large cost on small business, this potentially causes inefficiencies in the structure of American enterprises and the relocation of production facilities to less regulated countries, and adversely affects the international competitiveness of domestically produced American products and services.’’

Some say that the above numbers are inflated and the study methodology is questionable, pointing to the annual report of the Office of Management and Budget (OMB) on the costs and benefits of regulation for a truer picture of the cost of regulation.

The OMB report notes that ‘‘The estimated annual benefits of major Federal regulations reviewed by OMB from October 1, 1999, to September 30, 2009, for which agencies estimated and monetized both benefits and costs, are in the aggregate between $128 billion and $616 billion, while the estimated annual costs are in the aggregate between $43 billion and $55 billion,’’ and that ‘‘Most rules have net benefits, but some rules have net costs.’’

Regardless of which of these estimates is closer to the true cost of regulation, the truth is that many regulatory costs are fixed: they are the same whether a company has 20 employees or 20,000. And the 89% of U.S. companies that have fewer than 20 employees produce a significant number of innovations. As President Obama has said, ‘‘Small businesses are the heart of the American economy.’’

In fall 2010, President Obama signed the Small Business Jobs Act, designed to help small businesses have easier access to credit and to provide more tax breaks. While a worthy effort, it does nothing to stem the tide of ever more regulation coming out of Washington.

Regulation per se is neither good nor bad. Rather, regulation in which the benefit outweighs the cost is good; regulation in which the cost outweighs the benefit is bad. Not all benefits can be quantified, which further complicates the picture.

It is time to start a serious dialog about the true cost of regulation, one that uses methodologically sound benefit–cost ratios as a starting point. I encourage readers to become involved in commenting on proposed regulations, so that only those regulations that pass the benefit–cost test are implemented. It is important to do so: the very future of innovation in health technology is at stake.

                                                                                                                                                                                                         Brenda K. Wiederhold

                                                                                                                                                                                                                      Editor-in-Chief

PTSD Threatens Global Economies

Recent news reports reveal the tip of an iceberg that is threatening to sink the ship of state in countries worldwide— the iceberg known as posttraumatic stress disorder (PTSD). PTSD increasingly threatens to swamp health systems and social support systems, even as some of these budgets are cut for lack of funds as a result of the global economic crisis. The human toll is even more devastating.

  • On May 12, 2009, the Associated Press (AP) reported that a 44-year-old U.S. sergeant, nearing the end of his third tour in Iraq, was so angry at the Army he opened fire in the combat-stress clinic in Baghdad, killing five people.
  • On May 22, 2009, AP related the story of a 24-year-old ex-soldier on trial in Kentucky for raping a 14-year-old Iraqi girl and murdering her parents and sister while on duty in Iraq. The jury cannot agree whether or not to sentence him to death.

It is probable we will see more headlines like these in the next 6 months because the U.S. Army will not be able to give soldiers adequate time at home between tours of duty until the end of 2010. Since 2001, the U.S. has deployed nearly 1 million soldiers to Iraq and Afghanistan, and more than 300,000 of them have served multiple tours. About 20% of these soldiers return with psychological damage, most commonly PTSD and depression. At least half of PTSD sufferers smoke, and others become dependent on alcohol or prescription drugs. PTSD increases risk of cardiovascular disease, and multiple traumas have a deleterious effect on many aspects of physical health. Overall, the U.S. Army’s suicide rate reached an all-time high in 2008. For those who survive, lifetime benefits for a U.S. service member permanently disabled because of PTSD may top $1 million. Finally, the most recent estimate of the annual cost of anxiety disorders in the United States, with PTSD ranking highest in terms of per-person health care expenditures, was $42.3 billion in mental and physical health services alone.

In Europe, about 41 million people have anxiety disorders, and PTSD may occur in up to 37% of those exposed to trauma such as combat, sexual and physical assault, being held hostage or imprisoned, terrorism, torture, natural and manmade disasters, accidents, and receiving a diagnosis of a life-threatening illness.

Because PTSD has such varied symptoms, a combination of treatments is often necessary. Anxiety-reducing medications, antidepressants, support from friends and family, and cognitive-behavioral therapy (CBT) involving exposure can help with recovery. However, these types of traditional therapies do not have acceptable recovery rates. Front-line antidepressant medications for the disorder—such as selective serotonin reuptake inhibitors—rarely yield better than a 40% reduction in symptoms. Traditional psychotherapy fares only slightly better, with only 44% of all those entering treatment classified as improved at the end of the treatment period.

Fortunately, we live in a time when advances in medical technology abound. A recent Google search of ‘‘PTSD technology issues 2009’’ revealed that two of the five top links addressed the value of virtual reality (VR) therapy for PTSD.

A panel of experts has published a consensus opinion that exposure therapy is the most appropriate therapy for PTSD. Prior to the availability of VR therapy applications, the existing standard of care for PTSD was imaginal exposure therapy in which patients ‘‘relive’’ the traumatic event in a graded and repeated process. Exposure therapy is based on emotional processing theory (EPT). Applying EPT to PTSD, fear memories are stored as a ‘‘fear structure’’ and include psychological and physiological information about stimuli, meaning, and responses. Once accessed and emotionally engaged, the structure is open to modification through CBT, and over time, treatment will result in extinction of the fear response.

Although exposure therapy has been shown to be effective, one hallmark of PTSD is avoiding reminders of the trauma. Because of this, many patients are unable or unwilling to visualize the traumatic event during imaginal therapy. In studies that address treatment nonresponders, failure to engage emotionally or visualize well enough to elicit an emotional response are cited as most predictive of nonresponse to treatment, since the fear structure is not accessed during therapy and is therefore not open to change.

This is where VR can step in to enhance treatment. In recent years, VR has been shown to improve treatment efficacy for PTSD in survivors of many types of trauma, including motor vehicle accidents, war, earthquake, and terrorism such as the 9=11 World Trade Center attacks. By being placed in an environment where a trauma has occurred (in war veterans, it could be a virtual combat setting; in armed conflict survivors, a virtual countryside under attack), and then slowly experiencing that situation in a controlled way, patients may begin to habituate to the PTSD symptoms and come to reappraise the instigating situation. This allows emotional processing to occur and may free PTSD sufferers from their intrusive memories and disturbing symptoms. Unlike in vivo therapy, which takes the patient into real-world scenarios (which is not practical or even possible with war veterans), VR permits the patient to interact with anxiety-inducing scenarios in the safety and confidentiality of the therapy room. Early results indicate response rates as high as 80% with VR exposure therapy.

In Europe and America, decision makers are beginning to focus attention on technology solutions to this problem. A NATO-supported advanced research workshop, Wounds of War: Addressing Posttraumatic Stress Disorder (PTSD) in Peacekeeping and Combat Troops, organized by the Interactive Media Institute and also supported by the U.S. Army’s Military Operational Medicine Research Program, brought together experts from 14 countries in October 2009 in St. Kanzian, Klopeiner See, Su¨dka¨rnten, Austria.

The American Recovery and Reinvestment Act (ARRA) of 2009 provides the U.S. Department of Veterans Affairs (VA) with $1.4 billion, most of which is to be spent on facilities upgrades, health information technology, and other programs designed to create jobs. The U.S. Department of Defense will receive $7.4 billion under ARRA, most of which will be used in a similar fashion. ARRA requires an unprecedented level of accountability and transparency, so world citizens can track the projects completed with these funds. At this, just one third of ARRA funds have been released.

If one of the aims of ARRA funding is, as DoD states, to ‘‘care for U.S. Service members and their families,’’ surely some of these funds can be directed to large-scale research studies designed to prove the efficacy and cost effectiveness of VR therapy for current and former service members with PTSD. While a growing number of Veterans Administration facilities are using VR therapy in controlled studies that allow veterans to receive this most effective treatment, only when governments consider it a priority to mainstream such therapy can we avoid our ships of state becoming the next Titanic.

Editor-in-Chief Brenda K. Wiederhold