President’s Economic Advisors Defend Technology Policies
The President’s Council of Economic Advisors has just released a 16-page paper defending the Administration’s science and technology policies. The paper, “Supporting Research and Development to Promote Economic Growth: The Federal Government’s Role,” warns that the congressional budget resolution, passed in June, could result in “a real cut of about 30 percent in Federal support of non-defense R&D by the year 2002.” It also points out that, based on enactment of the budget resolution, “by 1997, Japan will overtake the United States in government support of non-defense R&D -- in total dollars, not just as a share of GDP.”
The paper argues that investment in R&D increases growth and productivity, which lead to a higher standard of living. The Council cites numerous studies demonstrating that “investments in R&D yield high returns to investors and even higher returns to society.” While private industry funds the majority of R&D, the Council finds underinvestment in some fields. In these areas, the returns to society may be large, but the returns to the individual or private company may not be sufficient to encourage investment. The consequences of this “spillover effect,” the paper says, are that “private firms will not invest enough in R&D from a national perspective.” The Administration’s science and technology programs are designed to correct this problem. However, the technology programs, in particular, are under attack by congressional Republicans.
Corporate “underinvestment will be particularly severe for R&D with large spillovers and for research that yields results only far in the future or is extremely risky,” the Council states. It adds that “the government’s role does not end with funding basic research.... Some types of pre-commercial research may be extremely risky or have an especially large gap between private and social returns.”
Since World War II, much government-sponsored pre-commercial technology was the result of military R&D. In today’s post-Cold War era, however, the demand for military technologies has decreased, and U.S. companies face greater competition from abroad. “Accordingly,” the paper says, “the Administration’s technology initiatives are shifting the composition of Federal R&D from military to civilian concerns.” The U.S. technology programs are designed to be industry-led, cost-shared, and peer-reviewed to increase the chances of success, but the paper notes that “in the final analysis, the returns to government-funded R&D depend upon the returns to the successful projects outweighing the losses from the unsuccessful ones.” The Council cites examples of where government investment has led to broad societal benefits, including the aircraft industry, the Global Positioning System, and the Information Superhighway.
The report also notes that, historically, when the Federal government reduces its investments in R&D, the private sector follows suit. The Council concludes that “Government has a vital role in sustaining this infrastructure -- from supporting scientists and engineers, to promoting basic research, to assisting in the development of new, high-risk technologies with significant spillovers.... Now is the time to renew our commitment to these advances and to continuing the adaption of our system to the changing world.” A copy of the paper can be obtained by calling 202-395-5084.
