R&D; and Changing U.S. Priorities

W ith this column, Murray Weidenbaum rejoins the Times Board of Economists after an eight-year absence that began with his appointment by President Reagan to chair the Council of Economic Advisers. Weidenbaum, an economist who received his doctorate from Princeton University, served on the council in 1981-82 before returning to Washington University in St. Louis, where he is director of the Center for the Study of American Business. This academic year, he is on leave while serving as distinguished scholar at the Center for Strategic and International Studies in Washington. He is the author of numerous articles and books, the latest of which is “Rendezvous With Reality: The American Economy After Reagan.”

In this period of necessary concentration on reducing federal deficit spending, there is great danger that, inadvertently, support for science and technology will be downgraded. Scientific research and technological development make vital contributions to economic progress, national security, international commerce and other key aspects of national life--including the ability to bear the burdens of a large national security establishment. However, little attention is being given to these linkages in the current public debate on the budget.

Public and private decision makers rarely make conscious decisions to finance research and development, aside from comparatively modest support of basic research. In the case of the public sector--which sponsors and pays for half of all the R&D; performed in this country--most R&D; support results from spending money on specific program areas.

Thus, the really large governmental outlays for science and technology flow from decisions to strengthen the national defense, to promote energy independence, to seek cures for diseases and to explore outer space. The entire budget of the National Science Foundation--the one agency devoted to promoting research and development per se--is less than 3% of total federal outlays for R&D.;

The R&D; intensity of individual federal agencies varies greatly. NASA devotes more than 45% of its budget to research and development, while the ratio is less than 1% in the case of the Veterans Administration. Over 42% of the Energy Department’s budget is allocated to R&D; less than 2% is budgeted for R&D; at the Agriculture Department. The implications of these differences are profound.

A shift in budgetary priorities from NASA to Agriculture or from Energy to the VA represents a de facto (though unintended) commitment for the federal government to spend less on R&D; and more on other activities.

Two inconsistent trends are now in evidence. First, the United States is increasingly reliant on the fruits of scientific and technological activity to maintain its basic strength. We attain our military strength not by having the largest army or navy or air force. Rather, we rely on the most technically sophisticated and up-to-date arsenal of weapons.

Similarly, high-tech companies experience a favorable balance of trade, while low-tech companies have suffered most severely from foreign competition. R&D-intensive; industries experience greater increases in productivity than the less R&D-intensive; ones. Clearly, outlays for science and technology are a key to the continuation of this country’s military and economic power.

However, the second trend is adverse to this relationship. Most of the R&D-oriented; departments and agencies of the federal government are experiencing substantial budget squeezes, notably Defense, Energy and NASA. Simultaneously, the “entitlements” (ranging from Social Security payments to farm subsidies to veterans’ pensions) are continuing to grow rapidly. These latter agencies devote insignificant portions of their resources to R&D.;

At the same time, we are now witnessing a slowdown in private outlays for the support of R&D.; Hostile takeovers are resulting in many companies cutting back discretionary expenditures, no matter how valuable, in order to maximize short-term cash flow. Moreover, companies that have taken on staggering debt loads--either as part of a change in corporate control or to head it off--often are forced to cut back outlays that do not generate an immediate return on the investment.

Moreover, there is a complex set of relationships between public sector-financed R&D; and that sponsored by the private sector. Major defense contractors both perform R&D; under government contracts and sponsor their own research and development, a portion of which may be charged to the government as overhead on defense procurement contracts. At a time when the entire military budget is under pressure, there is a natural tendency for the Department of Defense to cut back on the company-initiated R&D; that will be reimbursed as overhead on government contracts.

This reduction in “independent” R&D; reimbursements is likely to force high-tech companies to avoid new high-risk ventures. They will increasingly focus their funds on more modest extensions of current product lines. Such a strategy may be safe for an individual company, but it reduces the effectiveness of the total U.S. effort on R&D.;

Many nations with which the United States competes have been devoting rising shares of their gross national product to research and development. Moreover, far larger proportions are assigned to commercial projects than is the case in this country.

Setting national policy on research and development is especially difficult because so many seemingly unrelated factors are involved. A rise in corporate takeovers or a bailout of insolvent thrift institutions--by squeezing budgets for other purposes--can exert far more influence on the availability of funds for R&D; than an enhanced budget for the National Science Foundation.

What can and should be done? Decision makers, in both the public and private sectors, need to focus more directly on the important role of R&D; in making their plans and voting on budgets for what they consider to be broader purposes.

Unfortunately, senior officials involved in economic and budgetary decision-making rarely have adequate understanding of the substantive issues involved in determining the amount and allocation of funds for research and development.

In some past presidential administrations, a science adviser was appointed who also served, at least informally, as representative of the science community. At times, the adviser became a public spokesman for the administration in office, but that is not the basic function of the position. The fundamental point is that decision-making on key national issues should be more fully informed of their scientific and technological aspects.

Simultaneously, we should not neglect the one-half of R&D; sponsored and paid for by the private sector. It is not a lack of government money but rather a traditional attitude that forces American companies to assign less of their engineering talent to production than do the Japanese. By devoting more of their professional work force to detailed product design and quality control, Japanese firms often enjoy quicker responsiveness to market opportunities, lower costs, and better quality output.

Some American scientific leaders contend that the striking competitiveness of Japanese industry is due not so much to the magnitude of the R&D; resources that are available to them but to their more effective use by the private sector. Thus, much of the time, the line between high-powered research laboratories and enhanced competitiveness may not go through Washington at all--but through the corporate offices of American industry.