The case for publicly funded research and development

The Biden administration is prioritizing research and development, and that's good news

President Joe Biden made an important point in remarks in Pittsburgh on Friday: We don’t invest enough in research and development (R&D) in America, and that is reducing our prosperity. He said:

“When the federal government invests in innovation, it powers up the private sector to do what it does best: creating incredible new technologies and new industries and, most importantly, new jobs — good-paying jobs…

“Decades ago, we used to invest 2 percent of our gross domestic product in research and development here in America. Let me emphasize that: research and development. Today, we invest less than 1 percent.

“The United States of America used to be ranked number one in the world in investing in the future. Now we rank number nine in research and development. China was number eight three decades ago; today, it’s number two. And other countries are catching up fast. 

“But we can and we must change that trajectory. We have an opportunity ahead of us right now. The House and Senate — the United States Congress and the United States Senate are working out a bill that’s going to provide an extra $90 billion for research and development, manufacturing all the elements of the supply chain needed to produce the end products.”

Biden is referring to the U.S. Innovation and Competition Act of 2021, which the Senate passed on a bipartisan basis in June 2021. The bill would invest in the domestic production of semiconductors; invest in research on artificial intelligence (AI), robots, biotechnology, and wireless technology; overhaul the National Science Foundation and give it more funding; and invest in new technology hubs outside of Silicon Valley. The bill has stalled in the House, where some Republicans and progressives have criticized it. It’s a top priority for the Biden administration and Senate Majority Leader Chuck Schumer.

This legislation has echoes from MIT economists Jonathan Gruber and Simon Johnson’s 2019 book Jump-Starting America. In the book, Gruber and Johnson outline the case for more public investment in R&D and for more investment in technology hubs outside of Silicon Valley. They show that new ideas often stem from government-funded research—including the GPS, the internet, airplane wing designs, digital camera sensors, and many pharmaceutical drugs. They argue that the private sector underinvests in research because there’s a high risk of failure and it can benefit competitors more than the companies conducting the research, since competitors can free-ride off of their discoveries. Basic research in particular is underfunded.

In her book The Entrepreneurial State, economist Mariana Mazzucato demonstrates how publicly funded research made the iPhone possible. She makes the case that we need government funding of research because private investment is more risk-averse than government funding.

It’s refreshing that Biden is making research and development such a high priority. There is a lot of worthwhile basic research that the private sector is unwilling to fund. But it’s also important for the government to try to make science less bureaucratic. By some estimates, scientists spend about half of their time on administrative work like writing grant proposals. As the percentage of grant applications that get approved by the government has fallen, researchers have become more risk-averse, choosing areas of research that are safe and fundable rather than what is high-risk and high-reward, including interdisciplinary research. Another problem is the short-term orientation of funding, when many scientific problems take a long time to solve. One potential solution is to fund specific people and labs rather than specific projects, which the new Arc Institute in Palo Alto is doing. The government needs to approach its role as a funder of science more like a venture capitalist, where it’s fine to take risk because a few big winners make up for all of the losers.

We need more science funding, but we also need to fix how science is funded. If we can fund more science and do it effectively, the resulting innovation will lead to higher living standards for us all.