America may no longer be able to boast, “We’re No. 1!” In their 2011 bestseller “That Used To Be Us,” Thomas Friedman and Michael Mandelbaum compellingly suggested the mantra no longer applies. And about a year ago, the International Monetary Fund (IMF) made it official: China has overtaken us as the world’s largest economy.
China is not only flexing its economic muscle but also extending its military might, as recent activities in the South China Sea demonstrate. Most significantly, China is investing heavily in research and development to solidify its No. 1 economic ranking. So far, the American response has been feeble, especially to the challenge in science and technology that underpins our economy. We cannot afford to dither: The threat is too great. It’s time to establish a self-sustaining research investment — a dramatically new approach to help fund scientific research.
If China were a reliable, democratic ally, we might shrug off our second-place economic standing. But China today, under new leadership and with increasing disregard for freedom and human rights, is a global competitor. And if China claims first place in science and technology, the entire democratic world will be far less secure.
Our European allies took action by establishing Horizon 2020, a seven-year, €80 billion research and innovation program aimed at keeping EU nations globally competitive. However, we’ve rested on our past laurels. Partisan bickering has blinded us to the threat to our technological superiority, which extends to our economy and our national security.
Waiting for the budget dysfunction in Washington to subside is a risk we cannot afford. It’s time to establish an American Research Investment Fund capitalized with repatriated corporate tax dollars. Without such investment, by 2020, the U.S. may not have a single large-scale research facility that can lay claim to being the best in the world.
To see how far our nation has fallen, consider where we rank globally in innovation. According to INSEAD, one of the most-respected business schools in Europe and Asia, the U.S. places sixth worldwide. Moreover, our nation has fallen from first to a dismal 10th in research and development intensity (R&D investment as a percent of gross domestic product). And if current trends continue, before the end of this decade, China will have passed us in R&D intensity, too.
We should be worried about our decline not only because of external threats, but also because various economic studies have attributed more than 50 percent of our GDP growth since World War II to advances in science and technology. Some studies suggest that today the number exceeds 85 percent.
We also have problems with the future of the high-tech workforce. The latest (2012) results of the Program for International Student Assessment (PISA) are sobering: The U.S. is in 28th place worldwide in science and 36th in mathematics, continuing a declining trend during the past half century.
How did we get into this fix?
In brief, Wall Street’s demand for instant gratification and executive compensation tied to stock prices have all but eliminated industrial support of long-term research. The demise of Bell Labs, home to eight Nobel Prizes, is Exhibit A. In the federal government, discretionary budget constraints — largely driven by “autopilot” spending increases in nondiscretionary spending on Medicare, Medicaid and other entitlement programs — combined with hyper-partisanship and gridlock have made long-term federal commitments to science and technology difficult to achieve. Additionally, failing K-12 schools and extraordinarily high childhood poverty rates (which have nearly doubled during the past 50 years to nearly 30 percent by some measures) have also contributed to our downward slide.
Transformational discoveries require patient capital, acceptance of risk and world-class intellectual talent. Today, all three are in short supply in the U.S.
How do we get out of this fix? Solving such problems overnight is impossible. But we can begin repairing our innovation engine by creating an American Research Investment Fund, capitalized initially with federal corporate-tax dollars currently held overseas and at present likely to be spent overseas to strengthen other nations’ economies, and managed as a self-sustaining endowment principally by private-sector directors. An extraordinary window of opportunity exists now.
Bipartisanship has been a rarity in Washington for years. But many members of both parties agree that corporate tax policies must be overhauled. Lowering the rate for businesses while closing loopholes that allow some companies to reduce their tax burden or avoid paying taxes will make all American firms more globally competitive. As part of a revenue-neutral reset, American companies that collectively have more than $2.1 trillion currently parked overseas would be induced to repatriate those funds at a low tax rate, say 10 percent — which is, of course, on top of the taxes already paid abroad.
We believe we should use that likely repatriated revenue — at least $100 billion of it — to capitalize the American Research Investment Fund. The one-shot capitalization would be a legacy endowment. And if it invested wisely, it would generate on average $4 billion to $5 billion annually, after taking into account the need for reinvestment to keep pace with inflation. Throughout the years, the nonprofit entity could build its endowment by soliciting contributions from foundations and philanthropists and, possibly, from shared revenue on licenses and patents resulting from research it sponsors.
The investment fund would help fill the gap in high-risk/high-payoff basic research funding that federal budgetary strictures and long-term corporate constraints have created.
With American industry largely out of the basic research picture and states across the country severely disinvesting in higher education, the burden of supporting long-term research has fallen to the federal government. And the historic payoff of that research has been remarkable: MRI machines, cancer treatments, semiconductors, the human genome, the Internet, the laser, vaccines, smartphones — the list is long.
Today, the federal government spends about $65 billion on research (basic and applied). But the amount is far from adequate. For example, 40 years ago, federal support of research amounted to 0.43 percent of the U.S.’s GDP. Today, it is down to 0.35 percent. Current funding boils down to a dangerously low 56 cents per citizen per day.
During the aforementioned 40-year period, the National Institutes of Health saw its ability to fund research proposals drop from two-in-five to fewer than one-in-five. And in the last 15 years, the National Science Foundation has seen the fraction of opportunities it can fund slide from one in three to just over one in five. These low rates drive talented young scientists out of research and discourage others from entering the field.
A $5 billion annual infusion of money from a research investment fund won’t be a cure-all, but it could help reverse the dangerous trend, especially if the fund’s directors hold out some of its resources as matching funds to entice congressional appropriators to up the federal science ante. The fund could also jump-start large projects in need of the initial capital investment that flat federal budgets preclude. The fund could commit resources to crucial, long-term applied research that exceeds industry’s time-horizon. Finally, it could support high-payoff/high-risk projects that often go by the wayside.
An American Research Investment Fund could play a significant role in keeping our innovation engine humming, creating jobs and growing the economy. Policymakers in both parties should get behind it, and so should corporate America. Businesses, large and small, American voters and their children will be the beneficiaries.