Keeping Our Edge: Restoring Federal Funding for Research and Development

This post is based on some of the findings of the CFR-sponsored task force, Innovation and National Security: Keeping Our Edge, which was released September 18, 2019.

The United States has led the world in innovation, research, and technology development since World War II, but that leadership is now at risk because of a decades-long stagnation in federal support and funding for research and development (R&D).

Many of the technology breakthroughs underlying the United States’ economic and military strength—GPS, internet, AI, genomics—have drawn on federally funded R&D, with work carried out in federal laboratories, universities, and industry. But despite its importance to the nation’s innovation base, federal spending on R&D as a percentage of the overall economy has declined since the end of the Cold War.

Sufficient federal investment in research is vital to advancing national goals in the areas of health, defense, and the economy. While the private sector has significantly increased its investment in R&D, from $70 billion in 1980 to $300 billion in 2016, the United States cannot rely on its private sector to make the type of investments in large-scale, risky research projects that lead to new discoveries and breakthroughs in science and engineering.

The decline in U.S. federal spending on R&D is even more apparent in comparison to China, which increased its R&D expenditure thirtyfold between 1991 and 2015. China has set ambitious targets for the development of critical technology through strategic, government-funded industrial policies, aiming to surpass the United States and become the leading technological power. And with the rising importance of dual-use technologies to national security, China is working to bridge the gap between the civilian industrial base and the military. Addressing the challenge from China and other rising science powers will require an ambitious plan of national investment in science and technology.

To ensure the United States’ continued technological, military, and economic edge, the White House and Congress should first restore funding for R&D to its historical average. This would mean increasing funding from 0.7 percent to 1.1 percent of GDP annually, or from $146 billion to about $230 billion (in 2018 dollars). Funding also needs to be protected from political and budget instability. The sustainability of funding for basic research over predictable time spans is as important as raising the total amounts of support.

The federal and state governments should also make an additional strategic investment in universities. These investments, up to $20 billion a year for five years, should support cross-disciplinary work in areas of pressing economic and national security interest and sustained programs that support fundamental research targeted at critical technologies.

Often, the U.S. policy default is to unleash the private sector through tax reform and deregulation. Deregulatory actions are certainly required in many sectors. The United States ranks fifteenth in the OECD in terms of the frequency in which it updates its regulations, and seventeenth in regulatory quality by the Global Innovation Index. Patchwork regulations, high compliance costs, and regulatory complexity slow, for example, the development and deployment of autonomous vehicles, blockchain and financial technology, and commercial drones. But deregulation itself cannot cope with the scale of disruption and intensity of the challenge from other countries, particularly China.  

The United States should not replicate the Chinese model, but the current policy approach is too narrow in scale, uncoordinated, and incremental. The White House should announce moonshot approaches to industrial policy that address society-wide national security problems. This would support innovation in foundational and general-purpose technologies, including AI and data science, advanced battery storage, advanced semiconductors, genomics and synthetic biology, 5G, quantum information systems, and robotics. Special interagency subcommittees representing a number of government agencies and working with academia and the private sector should be organized to coordinate the selection, development, and execution of R&D programs that address pressing issues such as threat detection networks; commercial, gate-based quantum computers; and carbon-capture technologies.

Faced with the rise of China as a strategic and technological competitor, the United States must once again heavily invest in its scientific base. By increasing federal funding for R&D, the United States can ensure that there is sufficient funding and talent available to make scientific breakthroughs that will ensure continued economic success and national security.