s Dean of the Stanford School of Engineering and as a computer science faculty member with an active research program, funding for graduate students is one of my major concerns. At the School of Engineering, graduate students, particularly doctoral students, are our life blood. Each year we graduate the largest number of graduate engineers in the United States (over 900 master’s students and 200 Ph.Ds in 1997), and our ratio of doctoral students to faculty is one of the highest in the country. As a result, we are highly productive, but highly leveraged. Student support constitutes 27 percent of our annual budget, the largest single budget item.

This leverage puts us at considerable risk. I am often asked how soon I expect federal support levels to decline and how serious a threat this poses to Stanford. After all, universities have been waving this red flag for years. At Stanford and, indeed, across academic research, this threat is real and looming. Let me address recent changes which lead to my sense of urgency.

After World War II, the Defense Department invested heavily in basic and applied research. Its underlying strategy was to fund upstream projects that would benefit both the defense industry and the economy as a whole. This translated into large investments in university research. The development of the high tech industry over the past 40 years is a testament to the success of that strategy. The development of the Internet, originally designed for the Department of Defense, has found commercial applications that have changed the way we communicate, the way we do business, and, indeed, the way we live.

From 1979 through 1988, the U.S. government invested almost $500 million in research projects at the Stanford School of Engineering alone. Twenty years later, those contracts, and the rich research environment they created, yielded technologies that have furthered the defense industry. More important in my mind, however, is the wealth of new technologies that have sprung from this funding. These technologies have also led to a number of new companies. Three companies alone (Cisco, Silicon Graphics, Inc., and SUN Microsystems) have combined revenues of $18 billion and a combined market cap of $87 billion, and employ close to 45,000 people. Now that is value-added, no matter how you measure it!

University research was not the only wellspring of ideas and innovations. Following WWII, industry also invested heavily in their own basic research efforts. Research facilities at IBM, Bell Labs, and Xerox Parc were beacons for highly talented scientists and engineers, and the work they conducted underpins much of the technology we take for granted today. But in industry, the pressure for short-term profitability and share price has forced a shortening of the research horizon; basic research has been replaced by applied research and specific commercially viable product development. The responsibility for basic research—with its higher risk and higher reward—falls to academia.

With the end of the Cold War, the Defense Department’s spending is under intense scrutiny. I am sorry to say that its research budget will likely not keep up with projections. What is more disturbing is that the focus of research monies may shift from basic to project specific technology, focused on military applications. The implications of this shift, when combined with shifts in industrial research funding, are dire. Basic research and its potential to fuel technological and economic growth are at risk. We must fill the gap.

At universities, it is a combination of serendipity, creativity, and clever people working in an open research environment that creates innovation. Very often, the commercial value of the ideas themselves is only realized much later.

Undoubtedly Stanford’s location has helped create our rich environment, just as Stanford has contributed to the growth and innovation in Silicon Valley. A major advantage for the School is that we have firsthand insight into where companies are heading and their problems and opportunities. In addition, the myriad exciting job opportunities in Silicon Valley have contributed to our recruiting power for both Ph.D. and master’s students. And both programs are intimately linked; we could not have the largest M.S. program in the country without a significant Ph.D. program. Our master’s curriculum is driven by the evolution of our research programs and Ph.D. students, and these courses set the standard for engineering curriculum around the world.

Overall, Stanford University is a unique hybrid—a combination of strong graduate and professional schools with an outstanding undergraduate program—all predicated on the quality of the faculty and students we attract and nurture. The beauty of the SGF program is that it goes beyond stabilizing and securing graduate student funding in perpetuity—it gives us a powerful tool for recruiting the very best students in the world to Stanford and it gives them the resources to follow the very best ideas.

Each year when I look at the students of the incoming class, I know that at least one student in each department will do something that will change the world. The Stanford Graduate Fellows are the cream of a very talented crop. Our role is to increase their value and the potential that they will do something truly spectacular.