Roosevelt Institute | Cornell University

Funding Innovation in the United States

By Jordan RogaPublished November 9, 2014

Innovation has been an extremely important asset for growth in the United States economy. Concerns have emerged that we may lose our scientific edge as science is funded less. The sequester may further result in less scientific funding. Low funding of basic research, in particular, which drives the industrial research that has come to dominate spending, may ultimately hinder our industrial growth. As other countries further their support of basic research, the possibility of the United States losing a technological edge has become more real. Despite a low likelihood of large scale funding changes in the near future, the impact of this possibility on United States economics has begun to catch the attention of United States legislators and the President of the United States. The economic benefits of basic research and scientific research in general should be considered in forming future budgets, if the United States expects to maintain exponential growth.
By Jordan Roga, 11/9/14

The innovations of Thomas Edison, the Wright brothers, Henry Ford, and Tim Berners Lee have all had a positive impact on people's quality of life. Their innovations have another thing in common: they are all American. Innovation has had a tendency to create jobs, new industries and products, and facilitate macroeconomic growth. Economic growth can be explained apart from traditional factors of production such as land, labor, and capital, as majorly due to technological progress. Additionally, technological progress paves the way for more technological progress and enables exponential growth. The wheel gave birth to the carriage and car, and NASA's development of robotic limbs has produced innovation in human prostheses. In order to secure strong macroeconomic growth, American budget pressures should reflect the economic benefits conferred by innovative pursuit.

The NIH, which accounts for about half of federal science spending, saw cuts in funding due to the sequester in 2013. These budget cuts have been suspended for the 2014 and 2015 fiscal years, but future cuts may exacerbate what has been dubbed the 'innovation deficit'. The innovation deficit is the term used to indicate that investment in research and development has fallen behind what is necessary for the United States to maintain high levels of innovation compared to competitors.

Sequestration and budget cuts in the United States may cause a sharp drop in spending on research and development. China, South Korea, and Australia, however, have seen rapid increases in federal spending towards research and development as a percentage of GDP. Concerns have emerged about the greater share of research happening elsewhere with United States technology firms shifting overseas and the development of a trade deficit in high technology goods. President Obama has expressed concerns about maintaining our innovative edge, stating, "The key to our success — as it has always been — will be to compete by [...] maintaining our role as the world's engine of scientific discovery and technological innovation." He has developed a strategy for fostering and maintaining American innovation through catalyzing breakthroughs in technology, promoting market based solutions, and investing further in American education. This plan seeks to lay the foundations for building new technologies and enable the pursuit of projects that can offer economic benefit.

Over the past fifty years, the total funding of research and development in the United States has remained largely constant as a percentage of GDP and has remained consistent with economic growth. The breakthroughs in science and technology that facilitate innovation have, however, seen less of that investment as the percentage of total investment in research and development has been increasingly sourced from industry, and less basic research is conducted. More alarmingly, the total investment from industry has remained stagnant from 1990 to 2007 while government investment in research and technology has remained largely flat since 2003. Stagnant investment in basic research due to fixed government spending has meant less of an ability for corporations to grow from that basic research. The United States may suffer from a loss of the positive feedback loop conferred through basic research while other countries build developments in industry from the new discoveries of their basic research investments. Another unfortunate possibility may arise in the future­ a tragedy of the commons wherein few countries foot the bill for basic research and continue to build industry around old technologies leading to little global growth in an already difficult global economy. Low quality patents and journals may suggest that fears of China overtaking the United States in science and technology may be unfounded, though the investment of money into basic research in these countries may eventually lead towards the exponential growth that the United States has seen and may lose.

Legislation has begun to reflect the concerns that the United States may move towards spending too little on basic research. Senator Tom Harkin and Rosa DeLauro have sponsored legislation that would boost the authorized budget of NIH "by 10% annually in 2015 and 2016 and 5% for each of the next five years" and Richard Durbin has proposed alternative legislation for budget increases. Unfortunately, these bills stand little likelihood of being passed and even less so with a Republican Senate.

Though legislation stands little likelihood of being passed, that concerns of basic science spending have been considered as "emergency spending" and that the President has recognized the importance of basic science are steps forward in securing United States dominance in scientific research. The concerns surrounding declining basic science funding have become ever more real with the incoming budget cuts and the rise of similar budgets in other countries. These concerns have justly begun to reflect not only the intellectual pursuit of science as a country but its role in maintaining our economic growth.