Op-Eds

William Gladstone, when chancellor of the exchequer in the 1850s, is said to have asked Michael Faraday, the great scientist, whether a new discovery called electricity would ever have practical value. Faraday replied: “Why, sir, there is every possibility that you will soon be able to tax it!”

Scientific discovery improves life and creates wealth like nothing else. But that notion has essentially been on trial in the US for decades. According to the National Science Foundation, federal spending for research and development grew at just 1.3 per cent annually from 1989 to 2009, while gross domestic product rose 2.4 per cent. That is bad news – but may be about to get worse.

The US is poised to allow across-the-board cuts to federally funded research from Friday, as part of the automatic budget cutting known as sequestration. This would be a big mistake. It would further weaken the most powerful stimulant of economic growth ever devised.

Since the second world war, universities and companies have transformed discoveries into industries: fully 75 per cent of postwar growth is tied to technological innovation, according to the commerce department. Our model is well understood: countries everywhere are pursuing their own innovation-led growth.

In the US, the focus on the federal deficit threatens to blind leaders in Washington to an essential truth about our economy: we have a growth problem. The US is climbing out of a recession, but our annual growth rate is only about 2 per cent.

To slash America’s R&D capability in the name of fiscal responsibility would be akin to seeking greater efficiency for an aircraft by jettisoning the engines. While R&D accounts for a small share of federal spending, it is disproportionately important in supporting long-term economic growth.

Yes: the US needs to cut spending, but it should do so intelligently, after assessing what is critical and committing to invest in it. If Congress allows sequestration, federally funded R&D will be reduced across every R&D funding agency by 5.1 to 7.3 per cent in 2013; cuts and stagnation would continue through 2021.

A report by the non-partisan Information Technology & Innovation Foundation estimates that over those nine years, such cuts would reduce GDP by $200bn – and that estimate compares sequestration to a scenario where R&D merely remains at the 2011 rate. If in those nine years the US instead kept R&D spending constant as a proportion of output, the economy would be $565bn bigger. And if it invested in R&D at the same rate as China, that gap would grow to $860bn.

Over the next three years alone, sequestration-induced R&D cuts would result in the projected loss of 600,000 jobs. What that figure does not capture is the number of brilliant young scientists and engineers who, stymied by lack of funding, would walk away from research. We would lose a generation of transformational ideas.

Were the US to commit to investing the same share of its GDP in R&D as it did in the 1980s, we would not be talking about cuts, but instead about increasing the annual R&D budget by $110bn. The US now ranks eighth among OECD countries in R&D as a share of GDP.

The last great wave of commercialised US innovation took place in the 1990s, when discoveries in computer science reached the point where reliably increasing computing power and the development of the internet spawned huge opportunities for companies such as Cisco, Intel and Google. The US then built on this IT revolution with a biotech revolution.

Both broad sets of advances emerged from breakthroughs funded by the federal government. In the late 1990s, sharp economic growth triggered in part by IT gave the US an increase in tax revenues sufficient to create a federal budget surplus.

In the computing and biotech revolutions, as in other significant scientific advances, the most useful role that federally funded researchers could play was to think big. In the decades leading to the launch of the internet, no one investigating the possibilities of computers could have known exactly where things were headed. Enabled by federal grants, researchers set the stage for industry to create products that lifted the entire economy. The government wisely addressed a classic market failure: the private sector cannot justify the high risk associated with foundational research.

The US is still home to most of the world’s best research universities and innovative companies. If it recommits itself to investments that fuel these engines of growth, it can retain its long-held competitive advantage and generate growth that will reduce its budget deficit. This is not a leap of faith: it is an old American practice that has served the nation exceedingly well.