The Perils of Complacency

The Perils of Complacency

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New Models for U.S. Science and Technology Policy

Some observers, not unreasonably, ask why the government should fund R&D, particularly when industrial firms (and their stockholders, customers, and employees) are significant beneficiaries. In fact, industry now funds about two-thirds of the nation’s R&D and the government funds nearly one-fourth – a complete reversal of shares since the mid-1960s. Accompanying this shift, however, has been a transition in industry investment practice, wherein the highest priority is placed on D (development) rather than R (research). As a result, most of America’s great corporate research institutions have declined or been shuttered. The canonical example, Bell Laboratories, the home of nine Nobel Prizes and 15 Nobel laureates, along with the laser and transistor, is now owned by the Finnish company Nokia.42 Overall support for basic research, which has the potential to be the most transformative research in the long term, has suffered in the United States and is now much more dependent on government or other (nonbusiness) sources of funding such as private philanthropy.

With regard to the translation of research results into marketable products and services, the United States has benefited from a robust private equity market that has made very substantial amounts of capital available to start-up firms. Venture capital investment in U.S. companies was estimated to be over $100 billion in 2018 alone.43 However, the financial markets upon which innovators depend for resources are also increasingly seeking near-term returns. In the case of corporate equity, shareholders now hold their shares for only about four months rather than the eight years of a few decades ago.44 In the case of day traders and arbitrageurs, the holding period can frequently be measured in nanoseconds.45 In such an environment, the government becomes the funder of only resort, the default funder for long-term, high-risk/high-payoff endeavors – such as basic research – that serve the citizenry as a whole but do not necessarily immediately reward the investor or researcher.

China has addressed this issue by establishing sizable government funds to support innovation and making substantial investments in promising American firms that have been unable to obtain domestic funding. In the first half of 2018, China, for the first time, raised more money for venture capital than America.46 China is investing tens of billions of dollars in arguably the most important enabling element of the ongoing technological revolution, the semiconductor integrated circuit, through the recent establishment of its Integrated Circuit Investment Fund.47

China is, of course, not without its internal challenges. These include large groups of restive citizens in several areas of the country, including dissent in Hong Kong, backlash over constraints on everyday life, gender imbalance, COVID-19, an aging population, an environmental crisis, and slowing economic growth. But the nation’s performance over recent decades in innovation through science and technology cannot be denied, and the Chinese government has given no indication that it plans to alter its growth strategy for R&D. In fact, it continues to publicly state its intentions of dominance – and is providing the funds to achieve it. For the United States to embrace an R&D investment strategy that depends on China imploding seems fanciful at best.

The competitive position of the United States in the world is thus poised to shift rapidly in the next several years. Given the enormous scale and rate of progress of Asia, particularly China, the United States will find that reversing its own downward slide will be very difficult. In the world of R&D and innovation, change occurs rapidly. As but one example, Apple’s omnipresent iPhone (the quintessential smartphone) has been on the market for only 13 years.

Developments at home and abroad have placed the United States at a precarious “tipping point” regarding its future global competitiveness. America’s creation of jobs, its healthcare, national security, and overall quality of life may well hang in the balance. And, with the increased attention being paid to science and technology and rapid growth in R&D funding in other countries, especially China, the urgency is increasing for the United States to respond . . . and respond decisively. The future of the nation depends on taking action to assure a vibrant and productive R&D enterprise. If we ignore this issue, declines in the economic well-being of our citizenry and our ability to influence world affairs will be inevitable.