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Experts: U.S. Budget Gridlock Threatens R&D—and Long-Term Economic Strength

Political conflict and threats of deep cuts to the federal government’s investment in research and development could jeopardize the United States’ power of innovation, analysts say.

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Political conflict and threats of deep cuts to the federal government’s investment in research and development could jeopardize the United States’ power of innovation, with significant consequences for its long-term economic strength and global research leadership, analysts recently told an American Association for the Advancement of Science (AAAS) audience.

The peril comes from different sources and could unfold over different time-frames, the experts said at the recent AAAS Forum on Science and Technology Policy. In the near-term, across-the-board “sequestration” cuts of 8-10% could be triggered in early 2013 unless lawmakers agree on spending cuts and new revenues of up to $1.2 trillion over the next decade. A 2013 budget passed by the Republican-controlled House of Representatives could slash R&D spending through 2021—by up to 67% for energy research, for example. And the budget vice is likely to tighten in years ahead as lawmakers look for a way to pay for growing entitlements in Social Security, Medicare, and other entitlements.

Taken together, these threats could drain vitality from U.S. R&D at a time other nations are ramping up investments in innovation in order to drive growth and prosperity in an increasingly competitive world.

“It just seems like an incredibly tense moment, where the whole world is watching what we choose to do,” said Maya MacGuineas, a high-level budget adviser who served on the bipartisan Debt Reduction Task Force in 2010. The choices needed to solve the budget problems are difficult, MacGuineas added, but “this is nothing but a self-inflicted wound if we don’t make these choices.”

In a series of talks and panels at the Forum, other speakers shared MacGuineas’ belief that it is still possible to find bipartisan agreement on a range of difficult budget issues. But the nation is accelerating toward a “fiscal cliff” at year’s end, with lawmakers needing to address not only the possibility of sequestration, but expiration of massive tax cuts enacted under President George W. Bush and a payroll tax holiday enacted under President Barack Obama.

Alan I. Leshner, the AAAS CEO and executive publisher of Science, called the prospect of abrupt, dramatic cuts “scary” and said the sequestration would have “very serious consequences” for U.S. research and innovation. Further, he added, the prospect of tight funds long into the future would discourage talented young people from entering research professions.

The 37th annual AAAS Forum convened in Washington, D.C., on 26-27 April, attended by more than 400 government and business leaders, researchers, educators, and journalists. The program was assembled by the AAAS Center of Science, Policy and Society Programs was diverse, exploring such topics as prospects for start-up tech firms, new insights on voter psychology, and science diplomacy.

But the intertwined budget and political crises were front and center.

Innovation Shifting to the Emerging World?

The broad context—a global context, covering a span of centuries—was set by David Rothkopf, CEO and editor-at-large of Foreign Policy magazine and president and CEO of Garten Rothkopf, an international advisory firm.

The developed world, in Rothkopf’s view, is mired in malaise. Prolonged economic crisis and other stresses have caused many developed nations, including the United States, to turn inward. They have no appetite for ambitious projects and are reluctant to lead other nations in addressing challenges. Economic growth will flow less from bold, transformative innovation than from an “austerity boom,” in which money-saving products and services are in high demand.

The emerging world, meanwhile, is dynamic: Twenty years from now, China will have 220 cities of over 1 million people; the number of cities in India with population over 1 million will double. The world’s middle class will double to 2 billion people over the next two decades, and most of that new affluence will be in the developing world. Brazil and other nations are sending thousands of their best students to the best overseas schools for top-quality education.

“Almost all the major economic growth of the next 10 to 20 years is going to happen in the emerging world, where the big infrastructure projects are going to be in these big new cities,” Rothkopf said. And that will allow those cities and those nations to determine the future of transit, modern electricity grids, and communications systems.

But this difference in outlook and energy will create its own set of challenges—in trade policy, for example, or global financial regulation, or climate change. But without leadership, tension and tumult will be the result, Rothkopf said, and neither the developed nor the developing world is prepared for it.

The world is “in one of those transitional moments,” he said, “where neither our view of the world nor the institutions that we have in place for dealing with the world’s problems, or fulfilling the terms of the social contract, are actually aligned with the reality that we face.

“If everyone looks inward, the prospects for international cooperation, for getting alignment on issues, go down.” The likely result, he added, is a policy culture “where global issues like climate don’t get addressed, where things get postponed, where the path of least resistance is taken.”

Rothkopf reserved particularly harsh assessment for the United States and the Baby Boom generation, which is now in its prime. While other nations are investing aggressively in research and development, he argued, many U.S. leaders are stuck in the past—sometimes the distant past.

That’s especially clear in public education.

The classroom model that features a teacher lecturing students is more than a thousand years old, he said. The schedule for an average public school was shaped to fit the needs of a 19th century agricultural society. Teachers are poorly paid. But rather than pursue fundamental improvements, elected officials are preoccupied with issues like teaching creationism and intelligent design in public school science classes.

“We’re having a debate in the United States on the future of education,” he said, “where presidential candidates, in the past month, have argued that we should cut back on public education... [and] have tried to argue that we shouldn’t teach science as science in the schools, that we should teach made-up stories and say they’re alternative theories.

“It’s a social catastrophe for the United States of America to have this kind of nonsensical 15th century discussion in the early years of the 21st century.”

The U.S. Federal Budget: Troubling Trends

Where Rothkopf offered a big picture look at the changing world, budget analyst Matt Hourihan brought the discussion down to fiscal nuts and bolts. Hourihan is the director of the AAAS R&D Budget and Policy Program, and in his presentation to the Forum, he spelled out the cumulative risks to R&D.

The United States retains the world’s dominant center of research and development, he stressed. But three trends have help to put that status in jeopardy:

  • Public sector R&D “has been pretty much in a state of decline for the past 30 or 40 years” relative to the broader economy, Hourihan said. In 1976, it was 1.27% of gross domestic product. Today, it is 0.87% of GDP. Meanwhile, “research intensity” in other nations is increasing, in some cases rapidly.
  • Between 1975 and 2003, federal R&D grew steadily. But since 2003, that has changed. While some areas have shown real gains, R&D investment overall has flattened out.
  • Because Social Security, Medicare, and other entitlement programs have grown sharply, R&D now has a proportionately smaller place in the budget. Under President Barack Obama’s proposed 2013 budget, R&D would fall to its smallest portion of the total federal budget in over 50 years. Said Hourihan: “This could be seen as a pretty troubling trend.”

Obama’s proposed 2013 budget sets innovation as a top priority. While the overall R&D budget would remain essentially flat, there would be significant increases in areas such as advanced manufacturing, clean energy, general science, and science-related education. Some of those areas have been big winners over the past decade, as well. For example, energy research has increased by 56.3% in real dollars since 2003.

But already, the president’s spending plan faces intense challenges.

The threat of sequestration—likely to dominate headlines in months to come—is one. Under terms of a 2011 agreement to raise the federal debt ceiling, lawmakers must find new revenues, reduced spending, or some combination of those to close a budget gap of up to $1.2 trillion over the next decade. Failing that, sequestration in January 2013 will impose automatic cuts of 8-10%, split between defense and non-defense discretionary spending.

“Many in the administration and elsewhere have referred to these cuts as pretty catastrophic,” Hourihan noted. “I think that’s a fair assessment.”

Republicans in the U.S. House of Representatives this month have approved modest increases for 2013 appropriations to the National Science Foundation and NASA, and a 14% increase for National Institute of Standards and Technology.

But in March, the House Republicans approved a budget resolution that would set tough standards for future spending—and its implications for R&D could be severe. While the House resolution would reduce discretionary spending by $19 billion below the president’s request, it also proposed protecting military funding from the sequestration by shifting the onus of additional cuts onto nondefense spending, creating an even worse worst-case scenario for science.

Under the House budget levels, if sequestration’s automatic cuts went into effect entirely on nondefense spending, health and agriculture research could be cut by 22% by 2021, compared to levels proposed in the White House plan, Hourihan reported. Transportation and natural resources could be cut by about a third. Energy R&D could be slashed 67%.

The Senate is not likely to approve such a draconian spending plan, he said, but it sets a troubling baseline for negotiations in the months ahead. Similar proposals to protect the military and cut nondefense spending have emerged with support regularly.

In Budget Drama, What Role for Researchers?

Already, pundits are predicting that no 2013 budget will be in place for the start of the new fiscal year on 1 October. And, they say, sequestration may not be addressed until after the November election, leaving less than two months to address momentous budget decisions. Meanwhile, lawmakers also must figure out how to deal with the expiration of the George W. Bush tax cuts; the resumption of the payroll tax, which could impede job creation; and another round of voting to raise the nation’s debt ceiling.

The debt itself and related interest payments are an enormous threat to long-term economic health. And lawmakers are racing toward this fiscal cliff during a presidential and congressional election campaign. No doubt a turbulent time lies ahead.

Taken together, the various points of gridlock and conflict signal a fundamental breakdown in the federal budgeting process, speakers said at one Forum panel. All of the speakers were long-time budget and R&D insiders; all have been accustomed to working with Republican and Democrats in the give-and-take of policymaking. The challenges are not new, they said, but the level of dysfunction is greater than at any time in memory.

“The budget is broken,” said economist Alice Rivlin, former director of the Congressional Budget Office and, under President Bill Clinton, director of the Office of Management and Budget.

“The budget process clearly doesn’t work,” added MacGuineas, president of the non-partisan Committee for a Responsible Federal Budget. “The amount of instability it adds—nobody knows what to expect. If you run an agency or a department or depend on the federal government [for funding], you can’t have any sense of how to plan because you don’t know what your appropriation is going to be.”

The main challenge, panelists said, is clear: Address the cost of entitlements—especially Social Security and Medicare. It is “a perfectly ordinary problem,” said Rivlin. “We have... a very large generation of people—we’ve known about them for 65 years—who are retiring and claiming benefits under programs that both parties have supported for generations. That’s going to cost a lot. We don’t have enough revenues to pay for it. We’ve got to decide what to do.”

Because that challenge has paralyzed government, the problems have been taken up by a series of budget commissions. Rivlin has served on two of them: the Bipartisan Policy Center named her and former U.S. Senator Pete Domenici (R-New Mexico) to chair the 2010 Debt Reduction Task Force, sponsored by the Bipartisan Policy Center. The same year, she was named to Obama’s National Commission on Fiscal Responsibility and Reform, chaired by former U.S. Senator Alan K. Simpson, (R-Wyoming) and former White House Chief of Staff Erskine Bowles.

Both panels came up with bipartisan plans that relied on both reduced spending and increased revenues to control costs.

“At a minimum, in order to stabilize the debt so that it’s not growing faster than the economy, you need to save about $5 trillion over the next 10 years,” said MacGuineas, who served on the Rivlin-Domenici panel. “There’s just not that many ways you can do that—health care costs, aging population costs, and more revenues through fundamental tax reform so it helps the economy grow, or at least doesn’t hinder the economy.”

The idea that the problem can be fixed entirely by cutting spending or purely by raising revenue “is completely misplaced,” she said. “The problem is just too large.”

Scientists and engineers, and their professional organizations, have typically been cautious about engaging in highly partisan political processes. But panel speakers said the current environment warrants their involvement in support of practical solutions—based on both reduced spending and increased revenues—that will help assure the strength of R&D that is important to the nation’s future.

The current election campaign could be an opportunity for such constructive, non-partisan engagement, MacGuineas said. “I still believe it’s a moment where they [voters] would respond really well to people putting it out there. Because everyone knows that something has to change.... It’ll be tough, but I think it’s possible that we could turn the election into that.”