Business Impact

R&D Faces Its Own Fiscal Cliff

The sequester means across-the-board cuts to federal R&D and, barring a grand budget bargain, anemic research budgets in the years ahead.

U.S. Innovation is heavily dependent on federal funding.

U.S. politicians of all stripes are often quick to sing the praises of innovation and the economic benefits of federally funded research. But unless there’s a dramatic turn of events, U.S. government-funded R&D is poised for years of stagnation.

The automatic federal budget cuts, known as sequestration, scheduled to take effect on Friday will trigger significant cuts in research and development. From now until the end of September this year, almost $8.7 billion will need to be removed from research budgets, reducing nondefense spending by 5.1 percent and discretionary defense spending by 7.3 percent, according to an analysis by the American Association for the Advancement of Science (AAAS).

In the short term, the impact will likely be curtailed projects and lost research jobs at universities and national laboratories in the months ahead. But the longer-term implications of the across-the-board cuts are even more profound. “This is going to have an impact on the next generation of scientists and engineers for the future,” says Joanne Carney, the director of government relations at the AAAS. “And it’s only going to get worse because we are going to have to make more cuts in future years.”

The belt-tightening has already begun. The National Institutes for Health has reduced grant levels to 90 percent and will fund fewer of them this year. The National Science Foundation is cutting 1,000 grants this year, resulting in 1,600 fewer graduate students and 200 fewer post-docs. Research and development is particularly vulnerable to the biggest cuts in some agencies. The Department of Defense is more likely to fund pressing concerns, such as a project near completion, whereas long-term research is an “easy area to target,” says Carney.

The research budget picture after this year isn’t pretty, either. Because of the pressure to reduce discretionary funding, which includes federal research, the AAAS projects that $54 billion will be cut from research agencies over five years, or a 7.9 percent reduction. It had been largely flat over the past 10 years, and nondefense R&D started to decline over the last two years.

In an editorial this week in the Financial Times, MIT president Rafael Reif and former Intel CEO Craig Barrett said slashing research and development funding would be akin to jettisoning an aircraft engine to improve flying efficiency. “While R&D accounts for a small share of federal spending, it is disproportionately important in supporting long-term economic growth,” they wrote.

Other countries, meanwhile, are increasing the amount of money dedicated to research. Although the U.S. spends far more in total dollars, South Korea and Japan now spend more as a proportion of GDP, according to the OECD. China, too, is rapidly increasing research spending.

The Information Technology and Innovation Foundation (ITIF), a Washington-based think tank, estimates that the effect of sequestration on research will cost the U.S. economy’s GDP about $200 billion by the year 2021 in lost intellectual property, technology development, and productivity.

Reined-in research plays out at the personal level, too. Individual researchers may change fields or look to work overseas if there are fewer opportunities in the United States.

“With the decline in NIH funding, my department will not be able to support creative young scientists, and a generation of innovators may be missing,” Carol Greider, chair of the Department of Biology Genetics at Johns Hopkins School of Medicine, said during Senate testimony on the sequester last week. John Hopkins receives the most research funding of all U.S. universities and gets nearly $1.9 billion of its $2.1 research budget from the federal government.

The federal cuts could even affect private R&D investments. Often, corporations build off federally funded basic research, says ITIF president Robert Atkinson. For every dollar of federal money spent on research, corporations spend about 30 cents in follow-on investment, he says.

“It’s pretty obvious that the U.S. economy is innovation-driven,” says Atkinson.

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