It’s a no-brainer that American public policy should aim to significantly increase both government and private-sector R&D investment to boost innovation-driven productivity and economic growth. During the 1960s Space Race, total US R&D spending reached just under three percent of GDP, with government leading at two percent and business at one percent, basically. Today’s R&D is over three percent with those investment shares switched. There’s certainly plenty of room for more federal action, though I would like more public and private investment.
As I write in my 2023 book, The Conservative Futurist: How To Create the Sci-Fi World We Were Promised, R&D investment offers exceptional returns. Economists estimate that each dollar invested can generate $5 in benefits through improved living standards, health outcomes, and productivity gains. What’s more, the unpredictable nature of scientific discovery makes both public and private investment crucial. Consider how Einstein’s relativity theory enabled GPS, which in turn enabled modern ride-share services like Uber. Doubling total R&D spending could raise US productivity growth by 0.5 percentage points annually.
More on the value of public R&D, specifically, can be found in the new NBER working paper “Estimating the Economic and Budgetary Effects of Research Investments” by Theresa Gullo, Benjamin Page, David Weiner, and Heidi L. Williams. The researchers examine how federal agencies, particularly the Congressional Budget Office, can better model and estimate the economic and budgetary effects of R&D investments.
From the paper:
Many US federal agencies model the economic and budgetary effects of research and development (R&D) investments — both public R&D and private R&D — as if R&D were the same as any other form of investment, such as physical capital investment. However, in recent decades a broad base of evidence has developed suggesting that such modeling may result in projections that are not well aligned with the actual economic and budgetary effects of R&D investments. In this paper, we attempt to synthesize the economic evidence relevant to estimating the economic and budgetary effects of R&D, and examine how and where this research literature could potentially be incorporated into the standard projections produced by various federal agencies
The economists conclude, via an economic literature review, that federal agencies significantly underestimate R&D investment impacts. Additionally, federal R&D complements rather than substitutes private investment. Together, these findings suggest Congress often makes R&D funding decisions without understanding the full economic benefits.
Digging deeper: Public funding of basic research creates a pipeline for private sector innovation and commercialization, while also developing human capital through graduate training. Moreover, knowledge spillovers mean companies capture only half the value, with the rest benefiting the broader economy. And rather than crowding out private investment, federal R&D spending actually stimulates additional private sector R&D investment.
More from the paper:
If this research literature had been incorporated into recent policy discussions around the CHIPS and Science Act, it is possible that Congress’s decisions over whether to fully fund the investments authorized in the CHIPS Act would have been different. Given the information that was provided, Congressional appropriations for the federal research agencies in 2023 and 2024 fell below the levels authorized by CHIPS. For example, in fiscal year 2024, the gap between appropriations and authorizations was over $7 billion (Hourihan 2023).
What the above quote is referring to is how the CHIPS and Science Act aimed to boost US science competitiveness by authorizing major funding increases for three research agencies: the National Science Foundation, Department of Energy Office of Science, and National Institute of Standards and Technology. The law authorized $26.8 billion for fiscal year 2024 and $28.8 billion for fiscal year 2025. But actual appropriations, notes the Federation of American Scientists, have fallen drastically short, creating an $8 billion-plus funding gap even as global competitors such as China ramp up R&D investments.