Overall, the slight increase in the dollars for nondefense R&D was more than surpassed by projected inflation.

This is not to say that budgets cannot contain “fiction,” especially when trying to make the bottom line deficit numbers look nice. Case in point—earlier budgets submitted by President Bush did not contain a full accounting for the war in Iraq, or contained politically unrealistic cuts to health programs. But on the spending side, they do give a sense of priorities.

Last year, the president’s budget for science spending contained “cuts for most areas” but some gains for weapons research, energy, and physical sciences, according to the American Association for the Advancement of Science. Overall, the slight increase in the dollars for nondefense R&D was more than surpassed by projected inflation.

The upcoming budget debates will be of particular interest this year. First, this will be the final submission of a lame-duck president who seems to be determined to reverse the perception (among many conservatives) that he and his allies in congress have let spending run amok. As such, we might very well expect a variety of proposed cuts to domestic programs and services—perhaps including science funding.

Second, the deficit situation has eased a bit recently. In 2008, federal deficits will be around 1.5 percent of GDP, according to Congressional Budget Office projections. Federal deficits of this magnitude are sustainable. Thus, there is an opportunity in the short run to increase commitments to investments in science without breaking the bank.^[1]

This article will explore historical and recent federal funding for science and R&D, to put into context the coming budget submissions by the president and Congress.

Science Funding: Historical

Federal funding for R&D has increased throughout the last half century, albeit at an uneven rate. Figure 1 shows the growth of inflation-adjusted federal R&D expenditures. The growth of this funding fluctuates from year to year, but has generally been positive.

Figure 1

Source: Bureau of Economic Analysis’s Research and Development Satellite Account (1959-2004), AAAS (2005-2007) and author’s calculations.

These expenditures, however, often do not keep pace with overall economic growth. Figure 2 shows the path of federal R&D funding as a share of the economy over the last half century. In the early 1960’s federal investments in R&D totaled around 2 percent of GDP, but are today about half of that.

Figure 2

Source: Bureau of Economic Analysis’s Research and Development Satellite Account, AAAS, and author’s calculations.

Over the last 15 years, federal R&D as a share of the economy has largely stagnated, experiencing a drop in the 1990s and a jump in the early 2000s. The decline in the 1990s reflected, in part, a decline in defense R&D as well as a stong economy. The 2000 increase was largely due to a surge in defense R&D, but was also accompanied by a jump in funding for the National Institute of Health.

Recent Experience

For fiscal year 2008, the federal government has enacted legislation to allocate about $140 billion to R&D. Just under half (42 percent) of this is nondefense R&D. The nondefense component is about 0.4 percent of GDP, or about 2.2 perent of total federal expenditures.

Chart 3 shows the inflation-adjusted growth of R&D by governmental agency from FY2007 to FY2008.^[2] While some programs did see increases after a broad negotiation between Congress and the president, total R&D declined after inflation by about 1.9 percent. While energy research conducted through the department of energy saw a substantial increase, other core, basic science funding (via the National Science Foundation and NIH) will see declines.

Figure 3

Source: AAAS R&D Budget and Policy Program (funding levels), Bureau of Economic Analysis (price data), and author’s calculations.

Outlook for 2009

Between fiscal years 2007 and 2008, budget authority for R&D will decline by about 1.9 percent after adjusting for inflation. The president’s budget proposal submitted in early 2007 contained cuts nearly twice that—about 3.6 percent. Given this history, it is reasonable to expect that the president will again propose after-inflation cuts to overall R&D funding, but will likely include some targeted increases to select programs.

With the Democrats in charge of Congress, however, the President’s budget may not carry much weight, especially in a presidential election. His budget may well be declared “dead on arrival.”

Investments in basic science can lead to breakthroughs that lead to economic spillovers across companies and across economic sectors.

Either way, though, there will probably be prolonged budget negotiations between the president and Congress, and there will certainly be competing priorities for federal resources. This may be especially true this year if the economic downturn is as severe as many predict, in turn placing a further strain on the federal budget.

These factors all seem to point to a “status quo” funding environment across the federal government, including science. Political gridlock in an election year will mean changes on the margin.

Prospects for a large boost in funding may await a renewed call by our leaders, perhaps after the elections later in the year. In particular, candidates on both sides of the political spectrum have talked about science as part of the solution to energy independence. And many are interested in expanded stem cell research. These programs may eventually be a catalyst for more basic research as well.

Conclusion

From an economic perspective, there is a strong case to be made that investments in basic science are essential to maintaining innovation and economic growth. Investments in basic science can lead to breakthroughs that lead to economic spillovers across companies and across economic sectors. As such, the private economy will not engage in an optimal amount of research, necessitating a strong role for federal funding.

As my co-author, Tom Kalil, and I outlined in our recent paper, “A National Innovation Agenda: Progressive Policies for Economic Growth and Opportunity Through Science and Technology”, research does require a federal funding commitment. This funding is essential to maintaining our economic competitiveness and our innovative capacity. While the rhetoric in Washington is usually supportive of science and technology, this support often fails when budget time approaches.

In the upcoming budget debates in Congress, and then amid the back and forth between Congress and the president, policymakers need to commit the funds needed for the future of U.S. science. At the very least, they have to prepare the ground for the next Administration, which will have a unique opportunity to embrace expanded and dedicated federal spending on science as it confronts the challenges of global warming, rising energy costs and the need to revitalize the cutting edges of our national economy.

John Irons is the Research and Policy Director at the Economic Policy Institute and an advisory board member of Science Progress.

Notes

1) Long-term budget challenges still remain. For example, extending the Bush tax changes in their entirety would be very costly: extending the tax bills enacted in 2001 and later would cost the government over $3 trillion in lost revenue including interest expenses. (This estimate also assumes that the alternative minimum tax is adjusted for inflation.)

2) FY2008 finding levels are adjusted using the GDP deflator for federal non-defense government consumption and investment expenditures, assuming FY2007 inflation of 3.1 percent will be continued in FY2008.

The Importance of Science, Technology, and Innovation

Science, technology, and innovation have long provided the foundation for America’s prosperity. Naturally inquisitive and inventive, the American people have developed new products and technologies that have fueled our economy and improved our quality of life. Consider how different our lives would be without electricity, air travel, antibiotics, computers, and the Internet.

Along the way, myriad new products and services emerged from this shared public and private commitment to science, technology, and innovation, creating entirely new industries and good paying jobs up and down the economic ladder. This creativity still underpins our economy, yet the United States faces intense economic competition in the 21st century and is not adopting the policies that will keep it at the cutting-edge of innovation.

That’s why science, technology, and innovation policy must be a top priority for the next administration and a central component of America’s national economic strategy.

Science, technology, and innovation are critical to America’s future for a variety of reasons. First, innovation—the development of new products, services, and processes—drives economic growth and job creation. Innovation is important not only for high-tech sectors such as advanced manufacturing, aerospace, clean energy, the life sciences, semiconductors, and the Internet. It is also essential for companies that are using technology to develop products more rapidly, harness the “collective IQ” of their customers and employees, and orchestrate sophisticated global supply chains. Innovation is not solely the province of the venture capitalist, the entrepreneur, and the molecular biologist. Innovation can create jobs for workers who are installing broadband networks, retrofitting buildings with energy-efficient technologies, manufacturing biopharmaceuticals, and building a 21st century infrastructure.

Second, even small differences in productivity have a huge impact on America’s long-term standard of living. Our average standard of living will double every 23 years if our productivity growth rate is 3 percent, and every 70 years if it is 1 percent. Furthermore, high productivity growth rates will make it much easier to honor our commitments to older Americans, expand access to healthcare for the uninsured, and increase our investments in infrastructure, education, and worker training.

Third, innovation is currently a source of competitive advantage for the United States in the global economy. We have world-class research universities, an entrepreneurial culture, flexible labor markets, and deep capital markets. Americans are twice as likely as adults in Europe and Japan to be “high expectation” entrepreneurs—that is, to start a business with the intention of growing it rapidly. The United States is also one of the quickest and least expensive places to start a new business. It costs less than 1 percent of per capita income to start a business in the United States, compared to 5.1 percent in Germany and 7.5 percent in Japan.1 The United States can not afford to rest on its laurels, however. Other countries are determined to match and surpass America’s investment in research and development and a skilled workforce. We should have a laser-like focus on strengthening our position as an innovation superpower.

Fourth, innovation can play an important role in meeting many of the most important goals we have as a nation. Innovation is pivotal to providing all Americans with longer, healthier lives, fighting global warming, maintaining a strong defense at home and abroad, expanding access to high-quality education and training, and making government more open and efficient.

Fifth, innovation is important in the civic sector as well as the private sector. A new generation of “social entrepreneurs” is changing the way we educate our children, lift people out of poverty, prevent crime, and build vibrant communities. Innovation in the civic sector has the potential to help address some of our toughest and most persistent societal challenges (see box on page 3).

Finally, advancing the frontiers of human knowledge and increasing our understanding of ourselves and the world around us are worthy goals themselves. We want to understand the ultimate fate of the universe, the nature of matter, the origin of life, and how human consciousness emerges from 100 billion neurons and 100 trillion synapses. We want to know why civilizations rise and fall, and how to foster thriving, multi-cultural societies. It is important to support unfettered inquiry to address these and many other questions.

An Innovation Agenda

This report sets forth an innovation policy agenda that will foster economic growth, create high-wage jobs, and help address the critical challenges we face in the 21st century. This agenda is informed by a set of principles (see box on page 4) and an important but limited role for the government in fostering innovation. It builds on the important work of the Council on Competitiveness and the National Academy of Sciences (particularly the Rising Above the Gathering Storm report)2 but with a greater emphasis on harnessing innovation to help meet key economic and societal goals.

The agenda—outlined here and described in greater detail in the pages below, consists of four sets of policy proposals to:

• Increase federal research funding
• Spur private sector investment in research and innovation
• Build a workforce with world-class science and technology skills
• Restore the integrity of U.S. science and technology policy.

The next administration should provide sustained increases in funding for research and development by boosting the budgets of key science agencies such as the National Science Foundation and the National Institutes of Health. Some of these increases should be targeted to help address some of the key challenges we face in the 21st century, such as fighting global warming and developing more effective technologies for education and training. The impact of these investments should be increased by boosting support for research that is multidisciplinary and offers the potential for revolutionary advances in science and technology.

This increased federal support for research must be complemented by policies that will spark private sector investment in research and innovation, such as a permanent Research and Experimentation tax credit, a commitment to build thriving regional economies, and a strategy for promoting the deployment of broadband networks.

America’s global competitiveness and capacity to innovate, however, ultimately rests on the skills of its workforce. The next administration should increase our nation’s commitment to creating a workforce with world-class skills in science, technology, engineering, and mathematics, while making it easier for the “best and brightest” from all over the world to study here and contribute to our economy.

Finally, the next administration should increase the capacity of the government to understand the forces that are shaping America’s economic competitiveness and restore integrity to U.S. science policy.

These bold policy directions must be embraced by the next president and the Congress if the United States is to remain at the forefront of innovation while leading the world toward a more prosperous and sustainable future. The policy prescriptions that follow constitute a comprehensive blueprint to ensure all Americans benefit from sustained productivity and innovation in this new century. Future work by the Center for American Progress will address additional critical innovation policy issues, such as intellectual property.

• Read the full chapter (pdf)