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Manhattan Institute

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Basic Research And The Innovation Frontier: Decentralizing Federal Support and Stimulating Market Solutions

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Basic Research And The Innovation Frontier: Decentralizing Federal Support and Stimulating Market Solutions

February 17, 2015
Energy & EnvironmentOther
EconomicsOther

In the modern era, basic scientific research—a "public good," often involving the pursuit of knowledge for its own sake—has been foundational to innovation and thus, to economic growth and social progress. Fostering yet more open-ended research will give rise to the fundamental breakthroughs needed to revolutionize everything from health care and security to energy and the environment.

But overall, U.S. leadership in basic research is slipping. Funding support, in both absolute and relative terms, has been slowing for decades; in the last few years, this decline has accelerated. The erosion of support for American scientists on the innovation frontier will create a damaging deficit of innovation in the future. And it will only grow worse, with rising congressional pressure to cut "discretionary" spending.

Because the nature of basic research is long-term and indeterminate, it is logical that 90 percent of such funding comes from the federal government. Indeed, barely 5 percent of private R&D spending goes to basic research. Increasingly, too, federal agencies are focused on applied research—which emphasizes near-term problems and projects—competing, in effect, with the private sector, which already spends roughly 400 percent more on applied R&D. This alarming trend represents a de facto conversion of U.S. R&D policy into industrial policy.

Although an array of 29 federal civilian agencies dispense R&D funds, 90 percent of spending decisions are concentrated in just five agencies that are highly susceptible to lobbying and other political pressures. This hyper-concentration has led not only to a decreasing success rate for researchers applying for funds but also to a deeply unproductive bureaucratization of research itself: federally funded researchers now waste nearly half their time performing administrative tasks. Meanwhile, inherently risk-averse federal administrators increasingly focus on funding older, established researchers, leading to a radical decrease in support for young scientists, who constitute a vital part of any intellectually diverse, vibrant, and productive research community.

There is good news: the U.S. still boasts the world's greatest concentration of scientists and leading research universities. What's more, entirely new classes of research tools are emerging: from microscopes that view molecules in real time, to big data analytics that model or emulate reality, to cognitive computing that amplifies scientists' explorations. In addition, private-sector spending on overall R&D—already fourfold greater than federal spending—is rising, although mainly in applied domains. This paper concludes by proposing four high-level policy reforms:

1. Decentralize Federal R&D Spending. Currently, researchers must petition a handful of agencies in Washington, D.C., for funds. Instead, authority for awarding and monitoring the majority of federally funded basic research should be given to the hundreds of extraordinarily capable U.S. research universities and institutions. This would broaden and enliven basic research by leading to more funding for younger researchers, as well as greater variety in the pursuit and administration of the science enterprise.

2. Incentivize More Private Spending on Basic Research. Through tax policies and other means, encourage greater private-sector outlays on basic research in corporate laboratories and (especially) in the nation's universities.

3. De-Bureaucratize Grant Approval and Monitoring. Use modern information tools to radically reduce the crushing nanny-state policing of scientists.

4. Reduce Federal Funding for Industrial-Class Project Development. A boost for federal support for basic research should come by offsetting cuts in spending in industrial-development types of applied research.

Nobel economist Edmund Phelps has pointed out that the very nature of America's culture and capitalist model gives it an inherent advantage in capturing the benefits of scientific advances. Private-sector money and the organizational models and talent in U.S. research universities and institutions are all available. It is time to deploy both toward revitalizing the nation's basic science enterprise.

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