The Gathering Storm that Threatens US Innovation

July 7, 2015
Issues crucial to sustaining U.S. innovative competitiveness continue to be ignored.

Just about everybody from the conservative right to the liberal left believes that innovation is the primary strategy America depends on to compete in the global economy. President Obama, in his State of the Union speech, summed up our competitive challenge when he said, "The only durable strength we have—the only one that can withstand these gale winds—is innovation." He also said that "maintaining our leadership in research and technology is crucial to America’s success with new investment targets for an array of key science and innovation programs."

A committee of the National Academies also says that both the future of our economy and our ability to create family wage jobs depends on innovation, which they define as advances in science and engineering.

Robert Solow, a Nobel Prize-winning economist found that "in 60% of GDP growth, technological and related innovation was the dominant factor in the first half of the Twentieth century that could be attributed to advancements in knowledge particularly technology."

But if innovation is so vital how do we measure it?

A report by the National Academies entitled “Rising Above the Gathering Storm, Revisited: Rapidly Approaching Category 5” assessed America’s competitiveness in a rapidly evolving global economy. This sobering report asks, "how then is America to maintain, or preferably enhance, the future standard of living of its citizenry?" The answer (and seemingly the only answer) is through innovation.

But the "Gathering Storm" in the title means that the U.S. appears to be "on a course that will lead to a declining (not growing) standard of living for our children and grandchildren." To avoid this grim future, the report concludes that the only answer is "innovation through leading-edge research and world-class engineering."

There are two types of research that lead to innovation. The first, basic research, is generally conducted by the Federal government; and the second, research and development, is generally completed by private firms. The importance of federal research was proved absolutely vital during the WWII, spawning technological advances in radar, electronics, jet aircraft, and atomic power.

Basic research by the Federal Government differs from private R&D in that the federal basic research is high risk and seldom translates into commercial products in the short term. Private R&D, on the other hand, is driven by shareholders for short-term profits.

Most people are unaware that Federal basic research was the initial research that led to the development of many products seen today, including the Google search engine, the internet, GPS, supercomputers, artificial intelligence, smart phone technology, shale gas, seismic imaging, LED technology, MRI, Human Genome Project and advanced prosthetics, to name just a few.

What this demonstrates is that the best strategy for the future that America can employ is innovation, which comes from research—and government-funded basic research is crucial. Basic government research produces many of the ideas that are eventually commercialized by private R&D.

But the following chart shows the federal government research has declined.

In the early 1960s, federal research spending was more then half of the total R&D spending; by 2012, it had fallen to 31% of total R&D. The decline of basic federal research is a very bad trend because this research is the lifeblood of all R&D, and most experts believe that declining basic research will eventually lead to declining GDP growth.

In essence, cutting back on Federal research is cutting back on R&D and innovation. This is truly a Gathering Storm that will have dire consequences to the nation, the economy and working individuals.

How to Fix the R&D Gap -- and What's at Risk

To fix the problem we must convince Congress that it is vital to re-invest in Federal research at 1965 levels, which means doubling the current federal research budget.

But the Congress is now controlled by Republicans and they argue for cutting almost all of science and R&D programs in a bid to reduce the federal budget deficit. However, these same people would like to increase the defense budget (which also is a federal budget). This austerity approach is the equivalent of eating our seed corn and will perhaps never produce enough growth to pay down the deficit.

If innovation is the strategy that will secure America’s future, how can a policy of austerity improve innovation? Continuing on the path of austerity is really a gathering storm, and I would make the argument that if innovation is truly the strategy for the future, then basic science is now as important to the nation as national security.

We are avoiding investing in basic science research just like we are avoiding investing in our infrastructure. This wait-until-the-bridge-falls strategy of austerity will reveal itself in the long term with lower GDP growth and lower competitiveness.

The Gathering Storm, Revisited: Rapidly Approaching Category 5

The book “Rising Above The Gathering Storm,” published in 2010, revealed some eye-opening weaknesses in America's innovation strategy. Here are a few of their quotes to ponder:

  • IBM’s once promising PC business is now owned by a Chinese company.
  • The legendary Bell Labs is now owned by a French Company.
  • Federally funded research in the physical sciences as a fraction of GDP fell by 54% since 1979. The decline of engineering funding was 51%.
  • The U.S. graduates more visual arts and performing arts majors than engineers.
  • GE has located the majority of its R&D personnel outside the U.S.
  • Roughly half of America’s outstanding public debt is now foreign owned with China the largest holder.
  • Forty-nine percent of U.S. adults do not know how long it takes for the Earth to revolve around the Sun.
  • Nearly 800,000 people worked in the U.S. corrections sector and it is growing.
  • China has now replaced the U.S. as the number one exporter of technology.

Americans have invented but lost fluorescent lighting, LCDs for monitors, TVs, mobile phones, lithium batteries, solar cells, desktop, notebook, and netbook PCs, servers, hard disk drives, routers, robots, advanced composites, advanced ceramics, and integrated circuit packaging.

Manufacturing these new technologies and innovations overseas, simply gives our competitors a method to access our innovation without doing the research. If innovation really is going to be our national strategy, we must find a way to hang onto the research and technology for as long as possible.

The original "Gathering Storm" report in 2005 concluded that the fundamental measure of competitiveness is quality of jobs. Innovation produces high-quality jobs with better wages than the average job and more taxes that could begin to pay down the federal deficit. Depending on the service industries to produce the kind of jobs that we need isn’t happening. We need more innovation and the manufacturing jobs that go with it.

During the 5-year period between reports the “unanimous view of the committee members participating in this report is that our nation’s outlook has worsened." One of their recommendations is to double the federal investment in basic research in mathematics, the physical sciences and engineering over the next 7 years.

Basic federal research is the lifeblood of innovation, but investment has lagged for many years. To avoid the storm we need to invest in the lifeblood of innovation—federal research.

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