President's Economic Advisors Defend Technology Policies

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Publication date: 
7 November 1995

The President's Council of Economic Advisors has just released a
16-page paper defending the Administration's science and technology
policies.  The paper, "Supporting Research and Development to
Promote Economic Growth: The Federal Government's Role," warns that
the congressional budget resolution, passed in June, could result
in "a real cut of about 30 percent in Federal support of
non-defense R&D by the year 2002."  It also points out that, based
on enactment of the budget resolution, "by 1997, Japan will
overtake the United States in government support of non-defense R&D
-- in total dollars, not just as a share of GDP."

The paper argues that investment in R&D increases growth and
productivity, which lead to a higher standard of living.  The
Council cites numerous studies demonstrating that "investments in
R&D yield high returns to investors and even higher returns to
society."  While private industry funds the majority of R&D, the
Council finds underinvestment in some fields.  In these areas, the
returns to society may be large, but the returns to the individual
or private company may not be sufficient to encourage investment.
The consequences of this "spillover effect," the paper says, are
that "private firms will not invest enough in R&D from a national
perspective."  The Administration's science and technology programs
are designed to correct this problem.  However, the technology
programs, in particular, are under attack by congressional

Corporate "underinvestment will be particularly severe for R&D with
large spillovers and for research that yields results only far in
the future or is extremely risky," the Council states.  It adds
that "the government's role does not end with funding basic
research....  Some types of pre-commercial research may be
extremely risky or have an especially large gap between private and
social returns."

Since World War II, much government-sponsored pre-commercial
technology was the result of military R&D.  In today's post-Cold
War era, however, the demand for military technologies has
decreased, and U.S. companies face greater competition from abroad.
"Accordingly," the paper says, "the Administration's technology
initiatives are shifting the composition of Federal R&D from
military to civilian concerns."  The U.S. technology programs are
designed to be industry-led, cost-shared, and peer-reviewed to
increase the chances of success, but the paper notes that "in the
final analysis, the returns to government-funded R&D depend upon
the returns to the successful projects outweighing the losses from
the unsuccessful ones."  The Council cites examples of where
government investment has led to broad societal benefits, including
the aircraft industry, the Global Positioning System, and the
Information Superhighway.

The report also notes that, historically, when the Federal
government reduces its investments in R&D, the private sector
follows suit.  The Council concludes that "Government has a vital
role in sustaining this infrastructure -- from supporting
scientists and engineers, to promoting basic research, to assisting
in the development of new, high-risk technologies with significant
spillovers....  Now is the time to renew our commitment to these
advances and to continuing the adaption of our system to the
changing world."  A copy of the paper can be obtained by calling

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