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The Gathering Storm that Threatens US Innovation

Republished from IndustryWeek.com June 7, 2015, by Michael Collins, President, MPC Consulting

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Just about everybody from the conservative right to the liberal left believes that innovation is the primary strategy America depends on to compete in the global economy. President Obama, in his State of the Union speech, summed up our competitive challenge when he said, “The only durable strength we have—the only one that can withstand these gale winds—is innovation.” He also said that “maintaining our leadership in research and technology is crucial to America’s success with new investment targets for an array of key science and innovation programs.”

A committee of the National Academies also says that both the future of our economy and our ability to create family wage jobs depends on innovation, which they define as advances in science and engineering.

Robert Solow, a Nobel Prize-winning economist found that “in 60% of GDP growth, technological and related innovation was the dominant factor in the first half of the Twentieth century that could be attributed to advancements in knowledge particularly technology.”

But if innovation is so vital how do we measure it?

A report by the National Academies entitled “Rising Above the Gathering Storm, Revisited: Rapidly Approaching Category 5” assessed America’s competitiveness in a rapidly evolving global economy. This sobering report asks, “how then is America to maintain, or preferably enhance, the future standard of living of its citizenry?” The answer (and seemingly the only answer) is through innovation.

But the “Gathering Storm” in the title means that the U.S. appears to be “on a course that will lead to a declining (not growing) standard of living for our children and grandchildren.” To avoid this grim future, the report concludes that the only answer is “innovation through leading-edge research and world-class engineering.”

There are two types of research that lead to innovation. The first, basic research, is generally conducted by the Federal government; and the second, research and development, is generally completed by private firms. The importance of federal research was proved absolutely vital during the WWII, spawning technological advances in radar, electronics, jet aircraft, and atomic power.

Basic research by the Federal Government differs from private R&D in that the federal basic research is high risk and seldom translates into commercial products in the short term. Private R&D, on the other hand, is driven by shareholders for short-term profits.

Most people are unaware that Federal basic research was the initial research that led to the development of many products seen today, including the Google search engine, the internet, GPS, supercomputers, artificial intelligence, smart phone technology, shale gas, seismic imaging, LED technology, MRI, Human Genome Project and advanced prosthetics, to name just a few.

What this demonstrates is that the best strategy for the future that America can employ is innovation, which comes from research—and government-funded basic research is crucial. Basic government research produces many of the ideas that are eventually commercialized by private R&D.

But the following chart shows the federal government research has declined.

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In the early 1960s, federal research spending was more then half of the total R&D spending; by 2012, it had fallen to 31% of total R&D. The decline of basic federal research is a very bad trend because this research is the lifeblood of all R&D, and most experts believe that declining basic research will eventually lead to declining GDP growth.

In essence, cutting back on Federal research is cutting back on R&D and innovation. This is truly a Gathering Storm that will have dire consequences to the nation, the economy and working individuals.