Industry Briefing on Science, Technology
and the Federal Budget
Old Executive Office Building
August 10, 1995
We are about to embark on an intense debate on the priorities of the Nation for its future. This debate is couched in the debate about the budget, but it is important to recognize that there is one common starting position: The Clinton Administration, like the Republican Congress, is committed to balancing the budget. This is not a debate about balancing the budget; this is a debate about how to balance the budget. And in thinking about how to balance the budget, it is important to keep in mind why one wants to balance the budget in the first place.
This debate is all about the Nation's future growth and prosperity, and that in turn is about the Nation's investment in the foundations of growth and prosperity. So those who want to balance the budget--and we are among them--make the argument that balancing the budget is required to increase investment, and the logic is very simple. If you cut government spending by a dollar, the government borrows less from the private sector; there is more available to the private sector; industry borrows more, invests more, and growth proceeds.
If that's the logic, then how you balance the budget matters a lot, because what you don't want to do in this process is to cut those dollars of government spending that are in themselves investments in the Nation's future growth. And the dollars of government spending on science and technology are-- by all studies and by all experience that this Nation has had for at least 50 years--investments in the Nation's future. So it is shortsighted, and it is inconsistent with the fundamental goal, to cut federal spending on science and technology as a method to get a more prosperous future.
Since World War II, this Nation has had an unwavering bipartisan commitment to U.S. leadership in science and technology and to federal support of science and technology. Technological leadership has continued under the Clinton Administration to be a major ingredient in our economic strategy. It is no accident that industries that grew out of federal investments in science and technology--industries as diverse as agriculture, aeronautics, computers, biotechnology and medical equipment--today dominate the world's markets. Investments by the federal government in support of science and technology led to those and other competitive national industries playing a key role in our living standards today. Economists estimate that over the past 50 years, innovation has been responsible for as much as half of our Nation's economic growth. If we skimp on innovation today in order to balance the budget tomorrow, we will end up poorer tomorrow. We may have a balanced budget tomorrow, but we will not have the prosperity we hoped to see.
Today, under the guise of balancing the budget, the Congressional majority has waged a sharp and ideological attack on federal support of science and technology. To balance the budget, Republicans have vowed to slow federal R&D spending by one third over the next seven years, in ways that will eliminate or severely cripple critical industry-led technology programs that are working to secure America's technological future. At the same time that those proposed cuts are supposed to go into effect, high technology industries and high technology companies are becoming increasingly important to the U.S. economy. They are more productive, they are more profitable, they pay higher wages, their jobs are more secure, they have larger increases in employment, and they are very export intensive. High technology sectors of this economy, and the companies that participate in them, are very important in a variety of ways to our prosperity.
Now some in the Republican majority say, "If the government cuts back on R&D, the private sector will pick it up, so not to worry." But the evidence suggests that is simply not the case. If you look at a review of R&D funding in the U.S. over the past 30 years, you don't get any support for that argument--in fact, the historical record suggests just the opposite. It suggests that, on average, a decrease in federal funding of R&D is followed by a decrease in industry support of R&D.
That's not a big surprise if you think about it. Federal support for R&D spawns ideas and insight and innovation that the private sector then builds upon. Furthermore, the private sector often has to do some of its own R&D in order to compete for federal R&D dollars. If the federal R&D dollars aren't there, then the private sector has less incentive to do the investment it needs to stay in the game. That's the first point; don't expect the private sector to take up the slack.
Secondly, the kind of R&D that the government does is R&D that the private sector will not do an adequate amount of, in any case. It is projects that are very risky, that are quite far from the marketplace, and that therefore have a very long gestation period and very high risk between the time when a dollar is spent and any market return on that dollar. In the world in which we live--where we have an accelerating pace of technological change, ever shorter product cycles, very rapid diffusion of technological information around the world--an individual firm thinking about an R&D project has to say: Will I get my return in time, will I get all my return? The answer is: probably not, because the R&D will diffuse around the world in such a way that competitors will get some of the benefit. And so the risk, the uncertainty, the time lag and the diffusion mean that the incentive for the private firm is attenuated by the realities of the marketplace.
So don't expect the private sector to take up the slack in the kinds of projects that the federal R&D dollar supports. What that means is that those very kinds of basic or generic technological innovations that are likely to benefit a wide number of users and a wide number of industries are precisely the kinds of innovations or breakthroughs that are at risk here, because no individual private investors are likely to support them. They can only be supported with government help.
Now there is a great irony in terms of what is being proposed on Capitol Hill. Republicans seem to be much more sympathetic to projects in which the government puts in 100 percent of the R&D dollars than they are to the projects carried out in partnership with the private sector. The Clinton Administration has pushed the notion of partnership--the 50/50 split in funding civilian technology programs, with the government coming in as a partner--because we want to see the private sector put in some of its own funds, frankly. It is a risk sharing split and a way to make sure that the projects are selected on the basis of merit, and not on the basis of political concerns.
The irony is that those are precisely the kinds of projects that are being subjected to attack. The 100 percent projects, where the government pays for everything--and incidently chooses what the project is about, and where it is located-- that is, which political patrons get the money--are the projects that are being defended.
In an interview last week I was asked, "Why do you think no one supports these technology partnership projects?" Well, I believe that there is a great deal of support. But the fact remains that we designed the programs so well, and they are so insulated from political shenanigans--with projects selected objectively--that they have no patrons. They have no guardian angel, they have no one out there to say that this is my project, I have chosen to invest in this kind of technology and it is in my district. That's not what these projects are about. These are in the national interest, not in the interest of any particular congressman or woman, and that is part of the problem.
Let's ask ourselves a question. Is this the time to do this kind of R&D cutting? I've already indicated a couple of reasons why it isn't. Let me add another one. Look at the U.S. comparatively. Japan consistently invests 35 percent more than the U.S. does on a per-capita basis in civilian technology. Germany invests 30 percent more per capita.
The Congressional majority is proposing to cut that investment drastically--to cut civilian technology by a third--at the same time the Japanese are proposing to double their investment in civilian technology. Every day in the United States and for the past decade at least, Americans have wondered and worried about our relative competitive position vis-a-vis Japan. If we slash our investment in civilian technology support while they double theirs, I think the consequences should be apparent in a relatively short period of time.
Let me add one other point. Congressional attacks on technology do not stop with civilian technology. They threaten public health, public safety, the environment and education. The Republican plan makes extreme cuts in research to insure food safety and to improve air traffic control-- there have been many too many stories in the past few weeks about the dangers of breakdowns in air traffic control. Republicans are slashing research that attempts to interpret environmental change. They are slashing research on educational technology. These are the same people who wish that every student had a computer when they went to grade school; but they are slashing investment in educational technology by nearly 50 percent. So these are cuts that take aim at the lives of ordinary Americans, not just at our international competitiveness.
Finally, let me end by saying that we don't have to do any of this to balance the budget. The President's plan to balance the budget takes a little more time than the Republican plan-- it takes ten years rather than seven. And it is based on credible assumptions. Lest you think that our plan is based on incredible assumptions, I refer you to the most recent Blue Chip economic forecast survey. The Blue Chip Forecasters, the leading private forecasters in the United States, surveyed their members and asked, which economic forecast is more credible over the next seven to ten years: the Administration's or the Congress'? The Administration won.
So the credibility of our plan should not be in question. The Administration has a credible plan to balance the budget over ten years, and it does not require slashing our investment in the Nations's future--its science and technology and its resulting prosperity.
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