Federal Funding of Innovation and Technology

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Federal Funding of Innovation and Technology

PART ONE — FUNDING TRENDS

Federal funding for R&D dropped by -6.80% in 2017, increased in 2018 by 17.67%, fell again in 2019 by -17.78%, and has grown in 2020 by 8.43%. The full spreadsheet with calculations by department by year is available in tab #1 "By Department 2016-2020" on this spreadsheet.

Federal Funding for Innovation and Research

PART TWO — DEMOGRAPHICS

Six states received over $5 billion in funding in 2018, with the largest percentage going to industry. Between 45-46% of post-doctoral researchers are American citizens.

Location

  • The states/areas with the most federally funded R&D from the National Science Foundation (over $5 billion in 2018) were California, District of Columbia, Maryland, Massachusetts, New York, and Virginia.

Organization Type

  • Of the R&D funds distributed, they were distributed as follows:

Researchers

PART THREE — IMPACTS

The economic impact of federally funded R&D is declining, which is resulting in "stagnant productivity growth, lagging competitiveness and reduced innovation". Meanwhile, the political impact is significant globally but primarily unrecognized at the local level.

Economic Impact

  • Two-thirds of the most momentous and far-reaching technologies of the last 50 years were funded "by federal R&D at national laboratories and universities." Personalized medicine, smartphones, autonomous vehicles, and other transformational innovations grew from critical technical components to public R&D.
  • Economic theory also defines a broader reason for public investment in research. When a firm invests in knowledge creation, it is difficult to capture all the economic benefits of that knowledge. It is less risky for firms to apply knowledge created elsewhere.
  • Because of competitive pressures in modern markets, there is an underinvestment in research by private sources, and what is funded tends to focus on short-term, low-risk development. Nearly 80% of every private dollar spent is targeted to the development of a profit-making product or service.
  • Economist Joseph Stiglitz wrote, "Knowledge can be viewed as a public good, and the private provision of a public good is essentially never optimal."
  • At a 2014 National Academies panel on the American research enterprise, the members discussed, "Increasingly, the government is called upon to fund high-risk, long-term research and some types of applied research, particularly proof-of-concept research, at least to the point where the risks of an investment in such research are reduced to attract private-sector funding." In other words, the government funds research that is even too risky for venture capitalists.
  • Almost all federal R&D funding is found within the discretionary part of the federal budget. Mandatory spending is primarily composed of major social safety nets like social security, medicare, and Medicaid. As these costs rise, driven by rising health care costs and an aging population, the percentage of discretionary funds available for R&D decreases.
  • For example, during the space race in the sixties, R&D made up 17.4% of discretionary spending. Since the early eighties, the rate has fluctuated between 11 — 13%.
  • In the future, the Congressional Budget Office predicts discretionary spending will decline as mandatory spending increases.

Political Impact

  • R&D, as a percentage of GDP, is called "R&D intensity" is a standard metric used to determine a nation's innovative capacity. By 2016, US R&D spending declined to roughly 0.81% of the GDP. In the meantime, industry now constitutes the vast majority of U.S. R&D, with universities also growing their share of research dollars.
  • In the meantime, global spending on R&D is showing a significant upward trajectory. Total global spending on R&D has doubled since 2000. In 2000, the U.S. accounted for 39% of global R&D, but by 2016 it was only 28%.
  • Five East Asian economies of China, Japan, Singapore, South Korea, and Taiwan collectively increased their share of global R&D from 23.4% in the year 2000 to 41% in 2016. The U.S. National Science Board projected that China would spend more on R&D funding in 2019 than the U.S.
  • While the U.S. continues to spend more than any other country on defense, the funds for agriculture, environment, and energy are lower than any other OECD country. These figures are a clear demonstration of the erosion of U.S. political power.
  • According to the Brookings institute, there is little political impact inside the U.S. government. " State legislators, mayors, governors, and members of Congress rally when the possibility of a military base closure threatens jobs, but they are silent or perhaps clueless when cuts in research funds for the national laboratories and universities within their jurisdiction undermine regional innovation, jobs, and growth."
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