R&D: Two Letters America Can't Afford to Skimp on

Research-and-development investment is crucial to competitiveness

AS a budget-minded Congress sets priorities, bent upon cutting nonessential programs and closing tax loopholes, various scientific groups are voicing legitimate concern about preserving the nation's competitive research-and-development (R&D) base. The latest example: The American Association for the Advancement of Science recently warned of the harmful long-term effects of reduced federal financing of nonmilitary scientific research.

To be sure, the importance of R&D to America's fundamental economic growth encompasses both the public and private sectors. This nation's ''Top 8'' research-based industries, for instance, pay for 70 percent of all industrial R&D conducted in the United States and provide an annual net trade surplus of more than $50 billion. These high-tech industries, along with federal and university laboratories, are vital mainstays for this country's global competitiveness, quality jobs, good wages, balance of trade, and standard of living.

The Institute for the Future's just-released study on the health of this nation's R&D community should give everyone serious pause. ''The Future of America's Research-Intensive Industries'' - which examined the top eight US research-based sectors as well as government's role in basic research - concludes that US economic leadership and millions of jobs are in jeopardy. The reason is that our companies and our government no longer can invest in R&D as they once did.

The cycle of innovation

The report ominously concludes that our rate of R&D investment has significantly declined in recent years, from 3 percent of gross domestic product to 2.6 percent. This is a decline of $25 billion in real dollars. And it threatens the future of America's growth.

Research is being undervalued at a time when it is needed most. If the cycle of innovation stalls, the United States will face new risks.

The importance of R&D to fundamental economic growth cannot be overemphasized. America's research-intensive industries employ 5.2 million people, pay $244.6 billion in compensation, add $418.9 billion to the national GDP, and produce $866.2 billion of total industry output.

Research and development has affected all Americans in multiple ways. Thanks to defense R&D, we won the cold war. Thanks to chemical R&D, the ''green revolution'' has dramatically increased the amount of food we produce and export. Thanks to computer R&D, we're leading the world in the information age.

In short, our global economic leadership, standard of living, and the ''American way of life'' - envied and emulated throughout the world - are the fruits of the commitment made to and the investment in science and technical R&D by our country decades ago.

But the inevitability of this kind of success continuing into the future is being sharply questioned.

An increasingly competitive global economy and mounting domestic demands on government are threatening the ability of research-intensive industries to continue advancing the nation's standard of living. If prompt actions are not taken to recharge our R&D battery, the United States risks jeopardizing itself with serious long-term underperformance.

Fierce global competition is forcing many firms to cut costs to stay competitive. As a result, many of the research-intensive industries that we rely on to bring us new and improved products and services - and jobs - are cutting R&D investment.

It's alarming that R&D spending rates in four of the ''Top 8'' research-intensive industries - aerospace, chemicals, scientific instruments, and semiconductors and electrical components - have fallen during the last five years. In just the last year, six of the 10 largest R&D spending firms in the United States have cut real R&D spending.

By contrast, our main economic competitors, Japan and Germany, are spending a higher percentage of their GDPs on R&D. Historically, we have done more. We cannot now afford to do less.

The institute's report is emphatic: Public policies must encourage research.

If we don't pay now for research and development, our posterity will pay later in lost economic and social improvements. The report urges that overall federal investment continue at a rate of 1 percent of GDP, with a greater emphasis on basic research that is more smartly focused. It also recommends federal policy changes that will encourage private investment to increase to 2 percent of gross domestic product from the current 1.6 percent.

Give companies incentives

Achieving this goal would not require massive changes in our roles or public-spending levels, but rather shifts in our incentive system.

To start with, the report suggests, the government should make the R&D tax credit permanent and substantial, and lower the capital-gains tax to encourage higher levels of private investment in long-term R&D.

The report also urges tort reform that would establish national standards for product liability and reduce the risk of litigation for innovative firms that invest capital in R&D ventures.

And the report calls on the government to strictly enforce intellectual-property rights in our rapidly developing world.

The basic assumptions upon which the United States has based its R&D decisions for the past 50 years are in a state of rapid transition. With tomorrow's jobs and living standard at stake, America cannot afford the recent slackening of its competitive pace. If the decreasing trend in overall US research-and-development investment is not reversed quickly, American society may rue that decision and its consequences for years to come.

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