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Achieving Balance and Adequacy in Federal Science and Technology Funding

SUMMARY

The complementary goals of balance and adequacy in federal funding for science and technology require both diversity and cohesion in the nation’s R&D system. Diversity fosters creativity, creates competition among people and ideas, brings new perspectives to problems, and fosters linkages among sectors. Cohesion helps ensure that basic research is not squeezed out by more immediate needs and that the highest quality research is supported.

Federal actions that could improve the balance of federal science and technology (FS&T) funding include the following:

  • Create a process in Congress that examines the entire FS&T budget before the total federal budget is aggregated into allocations to appropriations committees and subcommittees.

  • Establish a stronger coordinating and budgeting role for the Office of Science and Technology Policy to promote cohesion among federal R&D agencies.

  • Maintain the diversity of FS&T funding in terms of sources of funding, performers, time horizons, and motivations.

  • Balance funding between basic and applied research and across fields of research to stimulate innovative cross-disciplinary thinking.

This paper summarizes findings and recommendations from a variety of recently published reports and papers as input to the deliberations of the Committee on Prospering in the Global Economy of the 21st Century. Statements in this paper should not be seen as the conclusions of the National Academies or the committee.



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Achieving Balance and Adequacy in Federal Science and Technology Funding SUMMARY The complementary goals of balance and adequacy in federal funding for science and technology require both diversity and cohesion in the nation’s R&D system. Diversity fosters creativity, creates competition among people and ideas, brings new perspectives to problems, and fosters linkages among sectors. Cohesion helps ensure that basic research is not squeezed out by more immediate needs and that the highest quality research is supported. Federal actions that could improve the balance of federal science and technology (FS&T) funding include the following: • Create a process in Congress that examines the entire FS&T budget before the total federal budget is aggregated into allocations to appropria- tions committees and subcommittees. • Establish a stronger coordinating and budgeting role for the Office of Science and Technology Policy to promote cohesion among federal R&D agencies. • Maintain the diversity of FS&T funding in terms of sources of fund- ing, performers, time horizons, and motivations. • Balance funding between basic and applied research and across fields of research to stimulate innovative cross-disciplinary thinking. This paper summarizes findings and recommendations from a variety of recently published reports and papers as input to the deliberations of the Committee on Prospering in the Global Economy of the 21st Century. Statements in this paper should not be seen as the conclusions of the National Academies or the committee. 397

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398 RISING ABOVE THE GATHERING STORM • Protect funding for high-risk research by setting aside a portion of the R&D budgets of federal agencies for this purpose. • Maintain a favorable economic and regulatory environment for capi- talizing on research—for example, by using tax incentives to build stronger partnerships among academe, industry, and government. • Encourage industry to boost its support of research conducted in colleges and universities from 7 to 20% of total academic research over the next 10 years. Two important goals can help policy-makers judge the adequacy of federal funding for FS&T. First, the United States should be among the world leaders in all major areas of science. Second, the United States should maintain clear leadership in some areas of science. The recent doubling of the budget of the National Institutes of Health—and other recent increases in R&D funding—acknowledge the tremendous opportunities and national needs that can be addressed through science and technology. Similar oppor- tunities exist in the physical sciences, engineering, mathematics, computer science, environmental science, and the social and behavioral sciences— fields in which federal funding has been essentially flat for the last 15 years. Among the steps that the federal government could take to ensure that funding for science and technology is adequate across fields are these: • Increase the budget for mathematics, the physical sciences, and engi- neering research by 12% a year for the next 7 years within the research accounts of the Department of Energy, the National Science Foundation, the National Institute for Standards and Technology, and the Department of Defense. • Return federal R&D funding to at least 1% of US gross domestic product. • Make the R&D tax credit permanent to promote private support for research and development, as requested by the Administration in the fiscal year (FY) 2006 budget proposal. Support for a new interdisciplinary field of quantitative science and tech- nology policy studies could shed light on the complex effects that scientific and technologic advances have on economic activities and social change. A Century of Science and Technology In 1945, in his report Science—The Endless Frontier, Vannevar Bush proposed an idea that struck many people as far-fetched.1 He wrote that the 1V. Bush. Science—The Endless Frontier. Washington, DC: US Government Printing Office, 1945.

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399 APPENDIX D federal government should fund the research of scientists without knowing exactly what results the research would yield—an idea that flatly contra- vened the US government’s historical practice.2 Despite the misgivings of many policy-makers, the US government even- tually adopted Bush’s idea. The resulting expansion of scientific and techno- logical knowledge helped produce a half-century of unprecedented techno- logic progress and economic growth. New technologies based on increased scientific understanding have enhanced our security, created new industries, advanced the fight against disease, and produced new insights into ourselves and our relationship with the world. If the 20th century was America’s cen- tury, it also was the century of science and technology. Since 1950, the federal government’s annual support for research and development (R&D) has grown from less than $3 billion to more than $130 billion—more than a 10-fold expansion in real terms.3 Today, about 1 in every 7 dollars in the federal discretionary budget goes for R&D. Per- formers of federal R&D include hundreds of colleges and universities and many thousands of private companies, federal laboratories, and other non- profit institutions and laboratories. These institutions produce not only new knowledge but also the new generations of scientists and engineers who are responsible for a substantial portion of the innovation that drives changes in our economy and society. Major priorities within the federal R&D budget have shifted from the space race in the 1960s to energy independence in the 1970s to the defense buildup of the 1980s to biomedical research in the 1990s. In the 1990s, the nation’s R&D system also began to encounter challenges that it had not faced before. The end of the Cold War, an acceleration of economic globalization, the rapid growth of information technologies, new ways of conducting re- search, and very tight federal budgets led to thorough re-evaluations of the goals of federal R&D. Though Vannevar Bush’s vision remains intact, the R&D system today is much more complex, diversified, and integrated into society than would have been imagined 60 years ago. In this decade, the challenges to the R&D system have intensified. In- ternational competitors are now targeting service sectors, including R&D, just as they have targeted manufacturing sectors in the past. Global devel- opment and internationalization, new trade agreements, and the rapid flow of capital are reshaping industries so quickly that policy-makers barely have time to respond. Similarly, workplace technologies and demands change so quickly that workers must be periodically retrained to remain competitive. 2A. H. Dupree. Science in the Federal Government: A History of Policies and Activities, 2nd ed. Baltimore, MD: Johns Hopkins University Press, 1986. 3National Science Foundation, National Science Board. Science and Engineering Indicators 2000. Arlington, VA: National Science Foundation, 2000.

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400 RISING ABOVE THE GATHERING STORM Throughout modern economies, advantages accrue to individuals, govern- ments, and companies that are adaptable, forward-looking, knowledgeable, and innovative. At the beginning of the 21st century, the United States stands at a cross- roads. The only way for this nation to remain a high-wage, high-technology country is to remain at the forefront of innovation. Achieving this goal will require that the nation remain a leader in the scientific and technological research that contributes so heavily to innovation. ACHIEVING BALANCE IN FEDERAL SCIENCE AND TECHNOLOGY FUNDING Federal funding for science and technology in the United States histori- cally has been balanced along several dimensions—between research and development, between defense and nondefense R&D, between academic and nonacademic R&D performers, and so on. Much of this balance arises in a de facto manner from the independent actions of a wide range of array supporters and performers. But some is the consequence of explicit policy decisions by the executive and legislative branches. In the 1995 report Allocating Federal Funds for Science and Technol- ogy, a committee of the National Research Council laid out five broad principles designed in part to help the federal government achieve the proper balance of R&D funding:4 • Make the allocation process more coherent, systematic, and comprehensive. • Determine total federal spending for federal science and technology based on a clear commitment to ensuring US leadership. • Allocate funds to the best projects and people. • Ensure that sound scientific and technical advice guides allocation decisions. • Improve federal management of R&D activities. The report recommended that • The President present an annual comprehensive FS&T budget, in- cluding areas of increased and reduced emphasis. The budget should be sufficient to serve national priorities and foster a world-class scientific and technical enterprise. • Departments and agencies make FS&T allocations based on clearly 4National Research Council, Committee on Criteria for Federal Support of Research and Development. Allocating Federal Funds for Science and Technology. Washington, DC: Na- tional Academy Press, 1995.

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401 APPENDIX D articulated criteria that are congruent with those used by the Executive Office of the President and by Congress. • Congress create a process that examines the entire FS&T budget before the total federal budget is disaggregated into allocations to appro- priations committees and subcommittees. • The President and Congress ensure that the FS&T budget is suffi- cient to allow the United States to achieve preeminence in a select number of fields and perform at a world-class level in other major fields. The Executive Branch responded by providing, as part of the President’s budget submission, an analysis of the FS&T budget that encompasses fed- eral funds spent specifically on scientific and technological research pro- grams, the development and maintenance of the necessary research infra- structure, and the education and training of scientists and engineers. In addition, the White House Office of Management and Budget (OMB) and Office of Science and Technology Policy (OSTP) issue a joint budget memo- randum that articulates the President’s goals for the upcoming budget year to aid them in the preparation of agency budgets before submission to OMB. Analysis of this budget reveals trends in the support of scientific and technologic research that the broader category of R&D obscures. For ex- ample, in the president’s FY 2006 budget request, federal R&D would be up 1% from $131.5 billion to $132.3 billion. But FS&T would be down 1%, from $61.7 billion to $60.8 billion (see Figures R&D-1 and R&D-2).5 (The director of OSTP has pointed out that it can be misleading to compare proposed budgets with enacted budgets because the latter can contain funds specified by Congress for research projects that were not included in the President’s budget.6) Congress has not yet adopted a process that entails an overall consider- ation of the scientific and technological research supported by the federal government.7 Subcommittees in both the House and Senate still consider portions of the federal R&D budget separately without deliberations or hearings on the broad objectives of S&T spending. At a minimum, the use of a common budget classification code could allow Congress more easily to address science and technology programs in a unified manner. Overall consideration of the FS&T budget could reiterate the importance of basic research and of diversity among research supporters and performers. 5Office of Management and Budget. Budget of the United States Government, Fiscal Year 2006. Washington, DC: US Government Printing Office, 2005. 6John Marburger, speech to the 20th Annual AAAS Forum on Science and Technology Policy, April 21, 2005. 7J. Bingaman, R. M. Simon, and A. L. Rosenberg. “Needed: A Revitalized National S&T Policy.” Issues in Science and Technology (Spring 2004):21-25.

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2004 2005 2006 Dollar Change: Percent Change: Actual Estimate Proposed 2005 to 2006 2005 to 2006 402 By Agency Defense ...................................................................................................................... 65,462 70,422 70,839 417 1% Health and Human Services ..................................................................................... 28,047 28,752 28,807 55 ........................ NASA ......................................................................................................................... 10,574 10,990 11,527 537 5% Energy ........................................................................................................................ 8,779 8,629 8,528 –101 –1% National Science Foundation .................................................................................... 4,160 4,082 4,194 112 3% Agriculture .................................................................................................................. 2,222 2,415 2,039 –376 –16% Homeland Security .................................................................................................... 1,053 1,185 1,467 282 24% Commerce ................................................................................................................. 1,137 1,134 1,013 –121 –11% Transportation ............................................................................................................ 661 748 808 60 8% Veterans Affairs ......................................................................................................... 866 784 786 2 ........................ Interior ........................................................................................................................ 627 615 582 –33 –5% Environmental Protection Agency ............................................................................. 661 572 569 –3 –1% Other .......................................................................................................................... 1,089 1,243 1,145 –98 –8% Total ...................................................................................................................... 125,338 131,571 132,304 733 1% Basic Research Defense ...................................................................................................................... 1,358 1,513 1,319 –194 –13% Health and Human Services ..................................................................................... 14,780 15,124 15,246 122 1% NASA ......................................................................................................................... 2,473 2,368 2,199 –169 –7% Energy ........................................................................................................................ 2,847 2,887 2,762 –125 –4% National Science Foundation .................................................................................... 3,524 3,432 3,480 48 1% Agriculture .................................................................................................................. 829 851 788 –63 –7% Homeland Security .................................................................................................... 68 85 112 27 32% Commerce ................................................................................................................. 43 58 71 13 22% Transportation ............................................................................................................ 20 38 41 3 8% Veterans Affairs ......................................................................................................... 347 315 315 ...................... ........................ Interior ........................................................................................................................ 37 36 30 –6 –17% Environmental Protection Agency ............................................................................. 113 66 70 4 6% Other .......................................................................................................................... 149 155 175 20 13% Subtotal ................................................................................................................ 26,588 26,928 26,608 –320 –1% FIGURE R&D-1 Federal research and development spending, in millions of dollars, for all R&D and for basic research, by agency, 2004-2006. SOURCE: Executive Office of the President. Budget of the United States Government, Fiscal Year 2006, Part Two: Analytical Perspectives. Washington, DC: US Government Printing Office, 2005. P. 66. Available at: http://www.ostp.gov/html/budge/2006/ FY06RDChapterFinal.pdf.

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403 APPENDIX D 2004 2005 2006 Dollar Change: Percent Change: Actual Estimate Proposed 2005 to 2006 2005 to 2006 Applied Research Defense ...................................................................................................................... 4,351 4,851 4,139 –712 –15% Health and Human Services ..................................................................................... 13,007 13,274 13,410 136 1% NASA ......................................................................................................................... 3,006 2,497 3,233 736 29% Energy ........................................................................................................................ 2,693 2,760 2,709 –51 –2% National Science Foundation .................................................................................... 266 279 276 –3 –1% Agriculture .................................................................................................................. 1,055 1,093 942 –151 –14% Homeland Security .................................................................................................... 247 346 399 53 15% Commerce ................................................................................................................. 828 825 763 –62 –8% Transportation ............................................................................................................ 349 423 494 71 17% Veterans Affairs ......................................................................................................... 476 430 433 3 1% Interior ........................................................................................................................ 538 530 495 –35 –7% Environmental Protection Agency ............................................................................. 423 365 386 21 6% Other .......................................................................................................................... 599 562 553 –9 –2% Subtotal ................................................................................................................ 27,838 28,235 28,232 –3 ........................ Development Defense ...................................................................................................................... 59,701 63,903 65,331 1,428 2% Health and Human Services ..................................................................................... 41 54 28 –26 –48% NASA ......................................................................................................................... 3,189 3,727 3,511 –216 –6% Energy ........................................................................................................................ 1,992 1,846 1,959 113 6% National Science Foundation .................................................................................... ................ .................... .................... ...................... ........................ Agriculture .................................................................................................................. 159 157 146 –11 –7% Homeland Security .................................................................................................... 481 599 746 147 25% Commerce ................................................................................................................. 152 149 90 –59 –40% Transportation ............................................................................................................ 279 269 254 –15 –6% Veterans Affairs ......................................................................................................... 43 39 38 –1 –3% Interior ........................................................................................................................ 49 46 54 8 17% Environmental Protection Agency ............................................................................. 125 141 113 –28 –20% Other .......................................................................................................................... 324 495 396 –99 –20% Subtotal ................................................................................................................ 66,535 71,425 72,666 1,241 2% Facilities and Equipment Defense ...................................................................................................................... 52 155 50 –105 –68% Health and Human Services ..................................................................................... 219 300 123 –177 –59% NASA ......................................................................................................................... 1,906 2,398 2,584 186 8% Energy ........................................................................................................................ 1,247 1,136 1,098 –38 –3% National Science Foundation .................................................................................... 370 371 438 67 18% Agriculture .................................................................................................................. 179 314 163 –151 –48% Homeland Security .................................................................................................... 257 155 210 55 35% Commerce ................................................................................................................. 114 102 89 –13 –13% Transportation ............................................................................................................ 13 18 19 1 ........................ Veterans Affairs ......................................................................................................... ................ .................... .................... ...................... N/A Interior ........................................................................................................................ 3 3 3 ...................... ........................ Environmental Protection Agency ............................................................................. ................ .................... .................... ...................... N/A Other .......................................................................................................................... 17 31 21 –10 –32% Subtotal ................................................................................................................ 4,377 4,983 4,798 –185 –4% FIGURE R&D-2 Federal research and development spending, in millions of dollars, by agency, for applied research, development, facilities, and equipment, 2004-2006. SOURCE: Executive Office of the President. Budget of the United States Government, Fiscal Year 2006, Part Two: Analytical Perspectives. Washington, DC: US Government Printing Office, 2005. P. 67. Available at: http://www.ostp.gov/html/ budget/2006/FY06RDChapterFinal.pdf. Especially when budgets are tight, basic research can be displaced by the more immediate needs of applied research and technology development. In fact, less than half of all federal R&D funding is allocated for basic and applied research (see Figure R&D-3). The FS&T budget has increased since 2000, but these increases are primarily due to increases in funding of the National Institutes of Health (NIH). Nondefense-related R&D funding has

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404 RISING ABOVE THE GATHERING STORM Federal R&D Spending Including Facilities and Equipment $123 Billion Research $54 Billion Federal Science 80% and Technology Budget $59 Billion 10% 10% Non-R&D FIGURE R&D-3 Funding concepts in FY 2004 budget proposal. SOURCE: National Science Board. Science and Engineering Indicators 2004. NSB 04-01. Arlington, VA: National Science Foundation, 2004. Figure 4-12. 60 50 DHS Nondefense 40 NIH 30 20 Nondefense, R&D Minus NIH, DHS 10 0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 FIGURE R&D-4 Selected trends in nondefense R&D, FY 1976-FY 2006, in billions of constant FY 2005 dollars. SOURCE: American Association for the Advancement of Science. Chart: Selected Trends in Nondefense R&D: FY 1976-2006. Washington, DC: American Association for the Advancement of Science, 2005. Available at: http://www.aaas.org/spp/rd/ trnon06c.pdf.

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405 APPENDIX D been stagnant in recent years (see Figure R&D-4). Recently, the FS&T bud- get has been declining since the charge to double NIH funding has been com- pleted (see Figure R&D-5). Recent Department of Defense (DOD) budgets offer another example—ever the last decade, the resources provided for basic research by the DOD have declined substantially.8 Recent trends show that while defense R&D budgets have been increasing overall, the amount of re- sources allocated to science research in DOD is decreasing (see Figures R&D- 6A and B). This lack of support for basic research could have major conse- quences for the development of necessary future military capabilities. Allocating Federal Funds for Science and Technology also recom- mended that: • R&D conducted in federal laboratories focus on the objectives of the sponsoring agency and not expand beyond the assigned missions of the laboratories. The size and activities of each laboratory should correspond to changes in mission requirements. • FS&T funding generally favor academic institutions because of their flexibility and inherent quality control and because they link research to education and training in science and engineering. • FS&T budget decisions give preference to funding projects and people rather than institutions. That approach will increase the flexibility in responding to new opportunities and changing conditions. • Competitive merit review, especially that involving external review- ers, be the preferred way to make awards, because competition for funding is vital to maintain the high quality of FS&T programs. • Evaluations of R&D programs and of those performing and spon- soring the work also incorporate the views of outside evaluators. • R&D be well managed and accountable but not micromanaged or hobbled by rules and regulations that have little social benefit. Diversity cannot be an excuse for mediocrity. People, projects, and in- stitutions need to be reviewed to ensure that they are meeting national needs in science and technology. Open competition involving evaluation of merit by peers is the best-known mechanism to maintain support for the highest- quality projects and people. Quality also can be maintained by knowledge- able program managers who have established external scientific and techni- cal advisory groups to help assess quality and to help monitor whether agency needs are being met. Possible actions for the federal government to maintain the diversity 8National Research Council, Committee on Department of Defense Basic Research. Assess- ment of Department of Defense Basic Research. Washington, DC: The National Academies Press, 2005.

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70,000 406 60,000 50,000 Other Departments Dept of Agriculture 40,000 Dept of Defense Dept of Energy NSF 30,000 Total Budget NASA (millions of dollars) NIH 20,000 10,000 0 2000 2001 2002 2003 2004 2005 2006 actual actual actual actual actual estimate proposed FIGURE R&D-5 Federal science and technology (FS&T) budget, in millions of dollars, FY 2000-FY 2006. SOURCE: Based on data in several editions of Executive Office of the President. Budget of the United States Government, Part Two: Analytical Perspectives. Washington, DC: US Government Printing Office, 2005. Chapter 5. For research and development in the FY 2006 budget, see Table 5-3. Available at: http://www.gpoaccess.gov/usbudget.fy06/browse.html.

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407 APPENDIX D 80 Billions of Constant FY 2005 Dollars 70 DHS Defense R&D 60 50 DOE Defense R&D 40 Other DOD R&D 6.4- 30 20 DOD S&T 6.1-6.3 10 0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 FIGURE R&D-6A Trends in defense R&D, FY 1976-FY 2006, in billions of constant fiscal year (FY) 2005 dollars, by agency. SOURCE: American Association for the Advancement of Science. Chart: Trends in Defense R&D: FY 1976-2006. Washington, DC: American Association for the Advancement of Science, February 2005. Available at: http://www.aaas.org/spp/rd/ trdef06c.pdf. DOD 6.1 Expenditures 20 1,600 6.1 Percentage of Total DOD Budget 6.1 Percentage of DOD S&T Budget 18 1,400 Millions of Constant 2004 Dollars 16 1,200 14 1,000 12 Percent 800 10 8 600 6 400 4 200 2 0 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 FIGURE R&D-6B Trends in Department of Defense (DOD) 6.1 R&D, FY 1994- FY 2005, in millions of constant FY 2004 dollars. SOURCE: National Science Board. Science and Engineering Indicators 2004. NSB 04-01. Arlington, VA: National Science Foundation, 2004.

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408 RISING ABOVE THE GATHERING STORM and balance of federal funding for science and technology include the following: • Create a process in Congress that examines the entire FS&T budget before the total federal budget is aggregated into allocations to appropria- tions committees and subcommittees.9 • Establish a stronger coordinating and budgeting role for OSTP to promote cohesion among federal R&D agencies.10 • Maintain the diversity of FS&T funding in terms of sources of fund- ing, performers, time horizons, and motivations.11 • Balance funding between basic and applied research and across fields of research to stimulate innovative cross-disciplinary thinking.12 • Protect funding for high-risk research by setting aside a portion of the R&D budgets of federal agencies for this purpose.13 • Maintain a favorable economic and regulatory environment for capi- talizing on research—for example, by using tax incentives to build stronger partnerships among academe, industry, and government.14 • Encourage industry to boost its support of research conducted in colleges and universities from 7 to 20% of total academic research over the next 10 years.15 ACHIEVING ADEQUACY IN FEDERAL SCIENCE AND TECHNOLOGY FUNDING Given the importance of maintaining balance and diversity in the FS&T budget, the next logical question is, What is the appropriate magnitude of federal support for science and technology? In 1993, the Committee on Science, Engineering, and Public Policy 9Committee on Criteria for Federal Support of Research and Development, 1995. 10National Research Council, Board on Science, Technology, and Economic Policy. Trends in Federal Support of Research and Graduate Education. Washington, DC: National Academy Press, 2001. 11NAS/NAE/IOM. Capitalizing on Investments in Science and Technology. Washington, DC: National Academy Press, 1999. 12National Academy of Engineering, Committee on the Impact of Academic Research on Industrial Performance. The Impact of Academic Research on Industrial Performance. Wash- ington, DC: The National Academies Press, 2003. 13Council on Competitiveness. Innovate America. Washington, DC: Council on Competi- tiveness, 2004. 14NAS/NAE/IOM. Capitalizing on Investments in Science and Technology. Washington, DC: National Academy Press, 1999. 15National Research Council, Office of Special Projects. Harnessing Science and Technology for America’s Economic Future: National and Regional Priorities. Washington, DC: National Academy Press, 1999.

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409 APPENDIX D (COSEPUP) of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine established two broad goals to guide federal investments in science and technology:16 • The United States should be among the world leaders in all major areas of science. Achieving this goal would allow this nation quickly to apply and extend advances in science wherever they occur. • The United States should maintain clear leadership in some areas of science. The decision to select a field for leadership would be based on national objectives and other criteria external to the field of research. These goals provide a way of assessing the adequacy of federal funding for science and technology. Being world class across fields requires that the United States have the funding, infrastructure, and human resources for researchers to work at the frontiers of research. Preeminence in fields rel- evant to national priorities requires that policy-makers choose specific ar- eas in which to invest additional resources. An important way of measuring leadership and preeminence in fields and subfields of research is benchmarking of US research efforts against those in other countries. Experiments with benchmarking have demon- strated that data can be gathered fairly readily for analysis.17 Benchmarking analyses then can be converted into funding guidance that takes into ac- count the activities of other research performers (including industry and other countries) and the inherent uncertainties of research. Responding to abundant opportunities and national priorities in science and technology, the federal government has increased R&D funding sub- stantially in recent years. From 1990 to 2002, inflation-adjusted investment by the federal government in academic research went up 66%.18 Increases in total R&D have been especially dramatic in the last few years because of increases for defense weapons development, the creation of homeland- security R&D programs, and the effort to double the budget of NIH. However, as a percentage of gross domestic product (GDP), R&D has fallen from 1.25% in 1985 to about 0.75% today, and a continuation of current trends will extend this decline into the future (see Figure R&D-7). Compared with the European Union, the Organisation for Economic Co- operation and Development, and Japan, US federal R&D expenditures as a 16NAS/NAE/IOM. Science, Technology, and the Federal Government: National Goals for a New Era. Washington, DC: National Academy Press, 1993. 17NAS/NAE/IOM. Experiments in International Benchmarking of US Research Fields. Washington, DC: National Academy Press, 2000. 18National Science Board. Science and Engineering Indicators 2004. NSB 04-01. Arlington, VA: National Science Foundation, 2004.

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410 FIGURE R&D-7 R&D share of GDP, 1953-2002. SOURCE: National Science Board. Science and Engineering Indicators 2004. NSB 04-01. Arlington, VA: National Science Foundation, 2004. Figures 4-3 and 4-5.

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411 APPENDIX D share of GDP are declining (see Figure R&D-8). Sweden, Finland, Japan, and Korea all invest a larger percentage of their GDP in R&D than the United States (see Figure R&D-9). In the president’s FY 2006 budget re- quest, most R&D programs would drop in real terms, and overall expendi- tures for R&D would fail to keep pace with inflation for the first time in more than a decade.19 Funding for all three multiagency R&D initiatives— Networking and Information Technology R&D, the National Nanotech- nology Initiative, and the Climate Change Science Program—would drop in FY 2006. Furthermore, with record-breaking budget deficits and new federal obligations ranging from the war in Iraq to the expansion of Medi- care to pay for prescription drugs, prospects for outyear increases in R&D are dim. The doubling of the NIH budget from 1998 to 2003 implicitly acknowl- edged that the rate of return on additional federal investments in science and technology is very high. Similar opportunities exist in the physical sci- ences, engineering, mathematics, computer science, environmental science, and the social and behavioral sciences—fields in which federal funding has been essentially flat for the last 15 years (see Figure R&D-10). Microelec- tronics, biotechnology, information technology, systems analysis, alterna- tive fuels, robotics, nanotechnology, and many other research areas all have the potential to transform entire industries. Even such seemingly esoteric fields as cosmology and elementary particle physics could reveal new as- pects of matter that not only could have practical implications but will inspire future generations of scientists, engineers, and mathematicians. In addition, increases in funding of fields outside the biomedical sci- ences can pay dividends by complementing the tremendous advances occur- ring in molecular biology. Much of the recent progress in the health sci- ences has been underpinned by earlier achievements in mathematics, the physical sciences, and engineering. Deciphering the human genome, for ex- ample, was heavily dependent on advancements in robotics and computers. The development of modern imaging machines was made possible to a great extent by advances in engineering and mathematics. The federal government could take several steps to ensure that funding for science and technology is adequate across fields: • Increase the budget for mathematics, the physical sciences, and engi- neering research by 12% a year for the next 7 years in the research accounts of the Department of Energy, the National Science Foundation, the National Institute for Standards and Technology, and the Department of Defense.20 19American Association for the Advancement of Science. AAAS Analysis of R&D in the FY 2006 Budget. Washington, DC: American Association for the Advancement of Science, 2006. 20Alliance for Science & Technology Research in America. “Basic Research: Investing in America’s Innovation Future.” Presentation for the House Republican High-Tech Working Group, March 31, 2004.

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412 RISING ABOVE THE GATHERING STORM Japan United States EU25 OECD 3.5 GERD as a Percentage of GDP 3.0 2.5 2.0 1.5 1.0 1996 1997 1998 1999 2000 2001 2002 2003 FIGURE R&D-8 Trends in R&D intensity, in United States, Japan, OECD, and EU, 1996-2003. R&D intensity is the gross domestic expenditure on R&D (GERD) as a percentage of GDP. SOURCE: Organisation for Economic Co-operation and Development. Main Science and Technology Indicators 2004. Paris: OECD, June 2004. 2003 1995 4.5 4.0 Gross Expenditure on R&D as 3.5 Percentage of GDP 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Sweden Finland Japan Korea United States Total OECD EU25 Australia China New Zealand Mexico FIGURE R&D-9 Gross expenditure on R&D investments as a percentage of GDP, for select countries, OECD, and EU, 1995 and 2003. SOURCE: Organisation for Economic Co-operation and Development. Main Science and Technology Indicators 2005. Paris: OECD, June 2005. Available at: http:// www.oecd.org/document/26/0,2340,en_2649_34451_1901082_1_1_1_1,00.html.

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413 APPENDIX D Obligations in Billions of Constant FY 2001 Dollars 30 Life Sciences 25 Engineering Physical Sciences 20 Environmental Sciences 15 Math/Computer Sciences Social Sciences 10 Psychology 5 Other* 0 * Other includes research 1970 1975 1980 1985 1990 1995 2000 not classified (includes basic research and applied research; excludes development and R&D facilities). FIGURE R&D-10 Trends in federal research by field, FY 1970-FY 2004, in obligations of billions of constant FY 2004 dollars. SOURCE: American Association for the Advancement of Science. Chart: Trends in Federal Research by Discipline: FY 1970-2004. Washington, DC: American Association for the Advancement of Science, February 2005. Available at: http:// www.aaas.org/spp/rd/discip04.pdf. • Return federal R&D funding to at least 1% of the US GDP.21 • Minimize earmarks in science and technology funding because these types of research requests diminish the funding available for competitive merit-reviewed research.22 • Provide a tax credit to corporations that fund basic research in sci- ence and technology at our nation’s universities. • Make the R&D tax credit permanent to promote private support of R&D, as requested by the Administration in the FY 2006 budget proposal. LEARNING MORE ABOUT THE EFFECTS OF RESEARCH Innovation has become more important than capital or labor in boost- ing economic productivity, but the course and effects of innovation are much harder to predict and understand. New technologies can spread rap- 21Council on Competitiveness. Innovate America. Washington, DC: Council on Competi- tiveness, 2004. 22NAS/NAE/IOM, 2003.

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414 RISING ABOVE THE GATHERING STORM idly through a society, transforming multiple areas of economic activity and in turn triggering further innovations. The prime example is information technology, which has had a dramatic and accelerating influence on manu- facturing, the provision of services, and other economic activities. Intensive study of innovation as an engine of economic growth and social change in an extremely complex social context could provide guid- ance for policy-makers and other leaders. For example, is the current fed- eral support of science and technology appropriately balanced across fields? What would be the effects if federal R&D were returned to its historical high as a share of GDP? Another important topic for research is the organization of the federal agencies that support R&D. New organizational models could be explored, performance metrics developed, and approaches tested. Options for the federal government include the following: • Support the development of a new interdisciplinary field of quantita- tive science and technology-policy studies that could work to predict the effect of specific science and technology projects on the world’s economies and workforces.23 • Support research to examine the organization models of R&D agen- cies and potential changes in practices and structures. 23Marburger, 2005.