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Stimulus Winners and Losers
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Tim Studt
Editor in Chief
| According to a recent report, “Investing in Innovation for Long-Term Growth,” by the Organization for Economic Cooperation and Development (OECD), the global economic downturn has begun to affect innovation as measured by reduced industrial investment in R&D and a smaller number of recent patent filings. The June 2009 report notes, however, that the downturn can “magnify the competitive advantage of research-intense firms who seize the opportunity to reinforce market leadership through increased spending on innovation and R&D.”
Many of today’s leading firms, such as Microsoft and Nokia, were transformed in the “creative destruction” of economic downturns, according to the report. China also follows this concept with strong investments (exceeding 20% increases) in its science and technology (S&T) spending, funded through continued economic strength with a recently revised upward forecast of more than 7% GDP growth in 2009. An analyst returning from China a few weeks ago noted that “all the lab-related organizations that I know and work with tell me they suddenly have as much money as they could possibly need to modernize and operate on a higher level.”
While increasing at a dramatic pace, China’s science spending needs to be put into context with those in the U.S., which overall are nearly three times larger. Much of China’s investments are also targeted at short-term applied research and little at longer-term basic research, while U.S. investments in basic research are substantially greater.
Still, sensing an economic and competitive threat, the 2009 American Recovery and Reinvestment Act (ARRA) injected more than $18 billion (of the total $780 billion ARRA) into the U.S. R&D community, despite the more than $140 billion of FY2009 federal R&D commitments. Most of these investments went to government agencies directly, academia indirectly, and industry to a smaller degree. For example, 57% of the ARRA R&D stimulus funds are targeted to the NIH, bringing its current budget in line with previous long-term growth plans. About a third of the stimulus funds will also be targeted at basic research.
The OECD report states that virtually all OECD countries (and non-OECD countries like China, Brazil, and Russia) have put discretionary measures in place, such as the ARRA, in response to the economic downturn. These measures amount to about 3.5% of the area-wide GDP over the 2008-2010 period, with most occurring in 2009. While most of these measures focus on short-term responses like tax cuts, infrastructure, and energy programs, many also have longer-term policy programs that include science, R&D, and innovation investments as part of their stimulus packages.
Many researchers have already voiced concerns about the sustainability of some stimulus-supported S&T programs once the temporary funding is gone. Research managers are not accustomed to large short-term infusions, and their organizations could suffer when those incentives are removed and economic realities return. The stimulus-supported $40 billion NIH FY2009 budget that will likely be cut to $30 billion in the FY2010 budget is a prime example. Using the stimulus funds to build infrastructure, like purchasing instruments or building new labs with staying power for use in out-years, is a useful way to use these funds. Many funds, however, are already tied to classical grant projects that could be terminated when the funds expire.
Additionally, since most S&T-based stimulus funds go to government and academia, they don’t effectively offset reduced S&T investments by industry—gains in one area aren’t exactly equitable with losses in another.
The OECD report concludes with a recommendation to monitor and assess the impact of the economic recovery measures. However, the speed with which these measures were implemented has provided little time for monitoring or evaluation. As a result, the measures aren’t likely to provide the fullest value they were meant to provide or the long-term improvement in capabilities they could have provided.
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