JONATHAN COHN JULY 1, 2011
[Guest post by Stephen Wunker]
Congressional Republicans keep insisting that deep cuts to government spending will help boost growth, and create jobs, in the short term. But that claim doesn’t make a lot of sense. Most economists think that federal spending on public works and aid to the states kept the recession from being much worse.
What about the future? You wouldn’t know it from the Republican leadership, or their many cheerleaders in the press, but government spending can help bolster the economy in the long term as well. In fact, the surest path to stronger growth in the future is to increase government spending of one particular kind: Financial support for basic scientific research.
During the past two decades, federal funding for basic research into the physical sciences, engineering, and math has been basically flat: Annual allotments come to about $8 billion. The technological spin-offs have kept on coming: new energy storage systems, fuel-saving aircraft engines, and more. But, rest assured, if the money dries up, so will the science.
It can take time before new technologies create new markets, and often that evolution takes place in ways that few imagine when the first prototypes appear. For example, a basic technology behind digital cameras, medical imaging, high-definition television, and a vast array of other fields evolved from systems the government developed many years ago so that space probes and satellites could process digital images and beam those pictures back to Earth.
The economic impact of these emerging markets can be tremendous. Eight percent of today’s U.S. economy stems from industries like wireless communications, satellite television, and data hosting services that barely existed twenty years ago. And the winners in these emerging fields can go on to become huge enterprises. Forty-two of the Fortune 50 firms have gotten their start in new industries. Think Google – or even ExxonMobil. Both started out this way.
Conservatives frequently argue that the private sector will innovate better if it can simply operate free of government interference. But don’t be fooled: The private sector is not about to pick up this kind of slack. Basic research offers long-term, uncertain rewards, and the unpredictable fruits of the work may lie outside a company’s areas of strategic interest. Cumulatively across the entire economy, the private sector’s basic research budget is about $9 billion, a number that has scarcely grown in twenty years and which is half of what the country spends on pet food. Decades ago, private institutions like AT&T’s Bell Labs could churn out inventions like the transistor. Companies have long since slashed those efforts, in no small part because shareholders are not interested in such fickle, long-term ventures.
Rhetorically, President Obama has said the right things about innovation: He has frequently, and accurately, called spending on research a form of “investment.” Yet in his 2012 budget proposal, he called for providing only $900 million more to the National Science Foundation, which supports much of the basic research in physics, chemistry and other non-healthcare related fields. It’s better than nothing, for sure, but it pales when compared to what government spends to develop technologies closer to commercialization such as electric car batteries and pharmaceuticals. (Government spending on health research has been the exception to the flat-lining of science funding. Unfortunately, the resulting innovations have tended to stay confined to the health care sector, without much spillover to the rest of the economy.)
Of course, a big reason Obama and his allies haven’t pushed for even more spending is that the political resistance is so strong. The House Republicans’ recent attempt to cut $60 billion from the remainder of this fiscal year would have generated $350 million of the savings through cuts to the NSF. The relatively small savings those cuts would generate now could forgo millions of future jobs and billions in long-term tax revenues. The proposal was stunningly short-sighted for a party that claims to be looking out for the future.
To be sure, the public sector doesn’t always fund research in the most efficient way. The projects are often mind-bogglingly arcane and easy to poke fun at. Moreover, in a Congressional atmosphere obsessed with short-term politicking, the projects are pointedly long-term, like one titled “Nanoelectronics for 2020 and beyond.”
A better policy would invest more in basic research through the NSF, on the theory that basic knowledge is the most likely to yield future innovation. At least some of the money could come from cancelling poorly-directed subsidies for new technologies. For example, the government spends over $5 billion annually in scattershot subsidies for installing renewable energy systems like rooftop solar cells, even in relatively dark northern climates. The government could also fund more generously the graduate students who will supply the next crop of researchers.
No one in Washington seems to argue that the pace of technological change is slowing, or global economic threats are declining. Yet in an atmosphere when all the talk is about robbing the next generation through deficit spending, few are arguing for laying the groundwork for future growth. If we turn our back on federal support for science, what breakthroughs will we be postponing? At this rate, it may take decades for us to find out.
Stephen Wunker is the Managing Director of New Markets Advisors and the author of Capturing New Markets: How Smart Companies Create Opportunities Others Don’t (McGraw-Hill, June 2011).