As Federal R&D Funding Fades, State Efforts Ramp Up

Whether you saw it as a tough ethical choice or pandering to conservative evangelicals, President Bush's decision in August 2001 to ban government funding of new stem cell research was an ominous turn. It marked the beginning of a steady erosion in federal spending on research and development.

If the president's FY 2008 budget is enacted, it will reduce federal R&D spending to pre-2004 levels, a 7.4 percent decline adjusted for inflation, according to a recent report by the American Academy for the Advancement of Science (AAAS). The cutbacks are punishing for small entrepreneurial companies that don't have big R&D budgets and rely on federal funds for help. But, fortunately, wiser heads are prevailing at state and local governments around the nation.

As federal R&D funding for health, science, and even the space program dwindles in the face of budget deficits and the cost of the Iraq war, local governments are ramping up R&D programs. States as diverse as New York, Minnesota, Florida, Pennsylvania, Connecticut, Georgia, and Arizona are on the cutting edge. California, the leader in state R&D funding, has committed $3 billion alone to a 10-year investment in stem cell research, according to a new study by the Pew Center on the States, a division of the Pew Charitable Trusts.

"Governors realize that investments in research and development can spur not only new ideas, new products, and new technologies, but can increase a state's talent pool, economic bottom line, and its success in national and global markets," says Mary Jo Waits, who heads the Pew Center. "Innovation can't be left to chance; every state needs a clear strategy for success that applies lessons learned from their peers and from abroad."

Indeed, federal cutbacks couldn't come at a worse time. The administration is scaling back on research at the same time nations around the globe are boosting their spending, in some cases by as much as 10 percent a year. The administration cutbacks are not only punishing small entrepreneurial startups, but the nation's economy as a whole. And the ramifications could be felt for years to come.

Our own post-industrial economy has been technology-based for years. But today the global economy is increasingly being driven by innovation. As the AAAS notes, federal research investments are the "seed corn" for future technology-based products. Yet the Bush administration's research effort not only fails to match the new global realities, but is threatening to reduce the nation to second-tier status among new technology powerhouses like South Korea and China.

Even more significantly, the nature of federal R&D spending has shifted. Since 2003, government spending on health and science research has been eclipsed by spending on weapons development, according to the AAAS. The trend is a significant departure from the late 1990s, when the Clinton administration, flush with budget surpluses, doubled the research budget of the National Institutes of Health. Since 2004, the NIH research budget has been cut every year.

Right now that means the burden of keeping the nation competitive in the global technology race is falling on state and local governments. I was in on the ground floor of the trend as a young reporter in Montgomery County, Md., in the late 1970s. Then-County Executive Charles Gilchrist created the state's first office of economic development. It was a radical idea for its time, and it paved the way for the blossoming of the I-270 technology corridor in the Washington suburbs. Today, the corridor rivals such technology hotbeds as the Rte. 128 corridor in Boston and even Silicon Valley itself.

Of course, the states had parochial interests at heart. Back then, the nation was transitioning to a post-industrial economy, and local jurisdictions were desperate to attract clean, technology-based companies to replace the loss of high-paying blue-collar jobs in heavy industry. Since then, state and local governments around the country have pulled off similar economic miracles. North Carolina nurtured the Research Triangle's growth in Raleigh-Durham. Pennsylvania leveraged Carnegie Mellon University to create a burgeoning software industry to replace Pittsburgh's aging steel mills. And other regions have done the same.

The world watched as the United States transformed itself into an international leader in technological innovation. And they copied us. Singapore, Finland, and Ireland have demonstrated remarkable prowess at strategically planning for economic growth. Today, India, China, and South Korea are outstripping the United States in R&D spending growth. Meanwhile, technology is evolving so fast, no nation's competitive lead in the world economy is secure, according to the Pew report.

Fortunately, by dint of its sheer size, the U.S. economy is in no immediate danger of being eclipsed. Private spending on research and development is still strong. But much of that effort is focused on short-term product development. Federal spending is more critical to long-term research that has no immediate payoff, yet leads to significant breakthroughs in science, medicine, and other fields. It's also critical to startups that lack significant funding of their own. That's where the U.S. is losing the race. And, in the long run, we'll all be worse off for such short-sightedness.