An Investment With a Big Return
How has the Senate managed to find a rare area of bipartisan agreement and put together a major bill to finance technology and manufacturing? A brief bit of history helps answer that question.
The U.S. government used to devote a much larger share of the country’s resources to investing in the future. Every year from the 1950s through the ’70s, federal spending on research and development equaled at least 1 percent of G.D.P. The share peaked above 2 percent in the 1960s.
The government made these R. & D. investments because the private sector often did not do so on its own. The investments involved basic science and early commercial development, which tend to be unprofitable for any single company. But the returns for society can be enormous.
The R. & D. boom in the second half of the 20th century led directly to the development of jet airplanes, satellites, semiconductors, the internet, M.R.I.s and lifesaving drugs to treat cancer, heart disease and other illnesses. It helped create world-leading industries, with good-paying jobs, in digital technology, pharmaceuticals, higher education and more.
In recent decades, though, the U.S. has pulled back from making these investments. The reasons are complex, but Americans’ increased cynicism — about the future in general and the role of government in particular — certainly plays a role. Today, the federal government spends less than 0.7 percent of G.D.P. on R. & D.
Some other countries spend significantly more:
The U.S. vs. China
The country at the top of that list has attracted particular attention in Washington. China, the chief economic and geopolitical rival to the U.S., is investing huge sums in R. & D., leading the world in both absolute terms and as a share of G.D.P. The investments are helping several major Chinese industries and raising economic and military concerns in the U.S.
One example is synthetic biology, a field that involves the re-engineering of organisms to give them new abilities. American scientists effectively invented the field — but now seem to trail Chinese scientists.
Concerns like these have led to the new bill, which the Senate appears set to pass this week by a wide margin. “Frankly, I think China has left us no option but to make these investments,” Senator John Cornyn of Texas, a top Republican, said, referring specifically to semiconductors. The bill, which the House would also need to pass, also includes money for artificial intelligence, robotics, quantum computing and other areas.
Still, it does not come close to eliminating the R. & D. gap between the U.S. and China. The bill is significantly smaller than an earlier Senate proposal, largely because Republicans favored a smaller bill. The current version would spend almost $250 billion over five years, some of it on other items, and probably lift annual federal R. & D. spending by only between 0.05 percent and 0.2 percent of G.D.P.
Some critics argue that sum is unacceptably small and that President Biden and Democrats should pass a more ambitious bill without Republican support. “A bill meant to show the U.S. could own China instead proved how dysfunctional the American political system is,” Vox’s German Lopez wrote. And Noah Smith of Bloomberg Opinion lamented: “Democrats were supposed to fix this.”
Other observers are more positive. The Economist magazine has called the bill “a down payment on innovation in America.” Jonathan Gruber, an M.I.T. economist, told me that the bipartisan support increased the chances that a future Congress and president would expand the investments. “It’s a great start,” Gruber said.
‘Too big a nation’
The bill also includes an intriguing program meant to diversify the geography of American innovation. A small number of metropolitan areas now dominate innovation, including Seattle, San Francisco, Boston, New York and Washington. They have all become expensive places to live, where housing capacity grows slowly.
“We are too big a nation to have all of our innovation concentrated on the coasts,” Gruber said. Two years ago, he and Simon Johnson, another M.I.T. economist, published a book, “Jump-Starting America,” that argued for R. & D. spending that was both larger and more geographically diverse. Their research has influenced senators and staff members who worked on the bill.
In the book, Gruber and Johnson identified cities — like Pittsburgh; Cincinnati; Dallas; Tampa; Rochester, N.Y.; and Tucson, Ariz. — that seemed to have the schools, companies and other infrastructure to become innovation hubs. The Senate bill includes a $10 billion competitive program that will finance R. & D. outside the usual locations.
If innovation clusters become less concentrated on the coasts, Gruber told me, it could also expand the coalition in Congress that supports federal R. & D. spending.
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Claire Moses, Ian Prasad Philbrick, Tom Wright-Piersanti and Sanam Yar contributed to The Morning. You can reach the team at email@example.com.
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