Don’t Ax Research

It is a national truism: The United States government has money problems. Less recognized, however, is that federal research spending isn’t one of them. Unfortunately, funding for research at universities such as Harvard remains a prime target for slashing in the impending budget battle to resolve the coming sequestration cuts.

Currently, Harvard receives approximately $656 million in federal sponsorship, or 16 percent of the university’s budget. The upcoming federal sequestration, postponed to March 1 by a patchwork New Year’s bill, threatens an 8.2 percent cut in non-defense discretionary spending, although it is unclear precisely how those cuts would fall. In some scenarios, Harvard could lose much more than 8.2 percent, or roughly $55 million, of its funding.

That would be regrettable in multiple respects, not the least of which is that research and development spending is far from a long-term fiscal threat. Federal research and development spending has fallen from 1.08 percent of GDP in 2003 to 0.90 percent in 2012, according to the American Association for the Advancement of Science, during a ten-year period when total federal outlays rose from 19.7 percent of GDP to over 24 percent by 2012.

The logic of sequestration is to present a default alternative detrimental enough to spur a deal for averting it. However, a bipartisan failure to solve the core issues facing long-run U.S. budgets—entitlement spending (especially health-care related) in an upward tailspin; historically low and inefficient revenue collection; a Brobdingnagian defense budget yet to be reined in—has left worthy discretionary programs, like Harvard’s R&D, on the Congressional chopping block. That is a sad, Faustian bargain.

Research and development is an especially potent example of Congressional myopia. While costly in the short run, research is an essential driver of long-term economic growth. According to a study published in the American Economic Review, “increased research intensity” in the United States (plus four other developed countries examined) accounts for approximately half of all economic growth from 1950 to 1993. And it has long been acknowledged that an economy cannot rely solely on private actors for optimal R&D investment. As Nobel laureate economist Kenneth Arrow explained over fifty years ago, “We expect a free enterprise economy to underinvest in invention and research (as compared with an ideal) because it is risky, because the product can be appropriated only to a limited extent, and because of increasing returns in use.” Perhaps most importantly, he noted, “This underinvestment will be greater for more basic research.”

Basic research, as opposed to applied research or development, may be the most crucial in the long term, as it fuels our general advancement of knowledge, yet it operates farthest from the store shelf or the patent office. The need for federal funding is evident empirically. Federal contributions accounted for only 26 percent of total R&D spending in 2008 but funded 57 percent of basic research. In recent months, President Faust has said that Harvard might look to private sources to supplant its federal funding; do not expect replacements to fill the gaps in basic research.

Thus far, the U.S. government has failed to value long-term economic concerns over short-term internecine squabbling. We sincerely hope that a fresh deal can be reached by the end of February: one that attacks economic prosperity’s true threats and leaves its engines of growth unmarred—not the other way around.