The shutdown of the federal government has earned deserved derision from all corners of American society, and the negative impacts of the debacle will be felt by millions even if it only lasts a short time. However, this is just one symptom of a broader illness affecting governmental budgeting that is sabotaging our economic future by severely inhibiting innovation, business development and long-term economic growth.
The continuous budget battles, the brinksmanship over the debt ceiling that led to the downgrading of America’s credit rating last year, and the dangerous, across-the-board spending cuts required by sequestration have hampered both public and private research and development (R&D) investment and reduced the impact and effectiveness of the entire U.S. innovation ecosystem. For example, ITIF has argued that the sequestration cuts in federal R&D could result in a three percent reduction in patents annually while reducing our nation’s gross domestic product (GDP) by a minimum of $203 billion per year through 2021. And while Congress argues over continuing resolutions, our global competitors are ramping up their investments in innovation designed to win in the industries of today and tomorrow.
Every day the shutdown disrupts our innovation engine: furloughed NASA scientists stay home, progress halts on medical breakthroughs funded by the National Institutes of Health, and entrepreneurship loans go unfunded by the Small Business Administration, all while we gamble with our national safety by shutting down disease monitoring programs at the Centers for Disease Control.
But these examples are only a small part of how government drives our innovation economy. Federal investment in basic and applied research and technology development is a critical economic driver, spurring the creation of next generation technologies, enhancing commercialization and augmenting private investment. Numerous examples, from lasers to the Internet to the current surge in natural gas extraction, highlight the central role government support can play in driving economic development, job growth and business investment. And federal money for innovation does not substitute for private investment; in fact, every additional dollar of public research induces an additional 27 cents of private R&D investment.
Unfortunately, over the last two decades, the United States has accumulated a growing investment deficit, defined as the shortfall of investments in the scientific research and new technologies that provide a critical foundation for long-term economic growth. We are now just eighth among OECD countries in R&D as a share of GDP, while federal R&D investment grew in constant dollars at just 0.3 percent per year from 1987 to 2008. In contrast, numerous nations from China to Germany to Great Britain to Sweden are ramping up investments in science and technology even as some of these nations, like Britain, also face large budget deficits.
The U.S. investment deficit has received little attention as the budget fights have gotten more heated. But public and private investment is how we spur innovation, boost productivity and enable competitiveness. Moreover, growing GDP means shrinking deficits as a percent of GDP—the figure that actually matters for debt repayment. As Congress fights over issues like the Afffordable Care Act and raising the debt ceiling, it should remember one key thing: other nations are not sitting still, they want to win the race for global innovation advantage and are making big investments to do so. To say the least, this is most preferable to the U.S. strategy, exemplified by the haphazard, counterproductive budget process and the current shutdown.