Introduction to the Problem
The productivity slowdown in recent years has been a topic of concern for many economists and researchers. One of the possible causes of this slowdown is the decrease in public R&D spending. If this is indeed the case, it would mean that the US would be far richer today if it had maintained a higher level of science investment. Moreover, the proposed cuts in science budgets would have a negative impact on US productivity growth over the next seven to 10 years.
The Current State of Public Funding
Public funding of R&D has been in slow decline for decades. Currently, federal funding of science is at its lowest rate in the last 70 years, accounting for only around 0.6% of GDP. On the other hand, business R&D investments have steadily risen, with companies spending far more than the government. In 2023, companies invested about $700 billion in R&D, while the US government spent $172 billion.
The Importance of Publicly Funded Research
Publicly funded research tends to lead to relatively more productivity growth over time because it focuses on fundamental science rather than applied work. A new working paper called "Public R&D Spillovers and Productivity Growth" documents the broad and often large impacts of knowledge spillovers, which are the benefits that flow to others from work done by the original research group. The study found that the spillovers of public-funded R&D have three times more impact on productivity growth across businesses and industries than those from private R&D funding.
The Need for Balance
The findings suggest that the US is underinvesting in fundamental R&D, which is heavily funded by the government. While it is difficult to determine the exact percentage of R&D that needs to be funded by the government or the private sector, it is clear that both are necessary. The current balance is out of whack, with too much emphasis on applied research and not enough on fundamental science.
The Big Question
Getting the balance of funding for fundamental science and applied research right is just one of the big questions that remain around R&D funding. Nonprofit organizations such as Open Philanthropy and the Alfred P. Sloan Foundation are working to answer these questions. They have announced plans to fund a five-year "pop-up journal" that will attempt to define and optimize the ROI of research funding.
Conclusion
In conclusion, the decrease in public R&D spending is a concern that needs to be addressed. The US needs to invest more in fundamental science to drive productivity growth and stay competitive. While it is difficult to determine the exact balance of funding, it is clear that both publicly funded research and private R&D investments are necessary. By understanding the importance of publicly funded research and the need for balance, we can work towards creating a more effective and efficient R&D funding system.
FAQs
Q: What is the current state of public funding for R&D in the US?
A: Public funding of R&D is at its lowest rate in the last 70 years, accounting for only around 0.6% of GDP.
Q: How does publicly funded research contribute to productivity growth?
A: Publicly funded research tends to lead to relatively more productivity growth over time because it focuses on fundamental science rather than applied work.
Q: What is the balance between publicly funded research and private R&D investments?
A: The current balance is out of whack, with too much emphasis on applied research and not enough on fundamental science.
Q: What is being done to address the questions surrounding R&D funding?
A: Nonprofit organizations such as Open Philanthropy and the Alfred P. Sloan Foundation are working to answer these questions through initiatives such as a five-year "pop-up journal".
