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National Academy of Sciences (US) Committee on Criteria for Federal Support of Research and Development. Allocating Federal Funds for Science and Technology. Washington (DC): National Academies Press (US); 1995.

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Allocating Federal Funds for Science and Technology.

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Supplement 1: The Evolution and Impact of Federal Government Support for R&D in Broad Outline

Today, the United States has the strongest research and development system in the world. Measured by the total amount of spending for or the number of persons employed in R&D,1 the U.S. science and technology enterprise is the largest in the world. It is also the most successful. The U.S. garners the lion's share of the Nobel Prizes in physics, chemistry, medicine or physiology, and economics. Our nation sets the world standard for advanced education in nearly every field of science and engineering, and our high-technology firms are responsible for making and commercializing a substantial proportion of the important new technologies of our time.

In contrast, before World War II the United States was not as strong as the advanced countries of Europe in R&D. Private R&D spending was quite limited, university research was supported largely by private foundations and the states, and the federal government financed only about one-fifth of the nation's R&D.2 Annual federal R&D expenditures at the eve of war in 1940 totaled under $70 million,3 or about 1 percent of present-day expenditures, when adjusted for inflation.

Although the remarkable half-century interval from World War II to the present has been discussed in some detail elsewhere,4 it is outlined here to provide some perspective on the historical processes that have shaped the current system of support for U.S. R&D. Study of the record reinforces appreciation of the depth and range of discoveries that continue to touch all aspects of our lives (see Box I.5 in Part I for a brief indication). It demonstrates that the federal role is essential in stimulating necessary new ideas and shows additional influences of federal government policy on U.S. science and technology. Strengths of the system will continue to serve national purposes well in the future.

The Contemporary Federal R&D Portfolio Resulted from Five Decades of Response to National Crises and Opportunities

Prior to World War II, most of the federal funds for R&D supported mission-oriented research in agriculture, national defense, and natural resources carried out by government employees in small government laboratories and experimental stations. Such R&D as was supported by the Army and Navy was done in military arsenals. Universities rarely sought federal funds for R&D, and many leading U.S. scientists obtained their advanced training in European universities. Industry received little government R&D money and looked to universities for technically trained staff and faculty consultants.

The evolution of the current system of support for U.S. science and technology can be outlined in terms of the following stages and events, among others:

Federal support of R&D grew remarkably in size and complexity during World War II.

Federal expenditures for R&D increased by an order of magnitude during World War II, and two important institutional innovations were introduced. First, large numbers of academic researchers were mobilized to work in their own institutions' laboratories on wartime R&D projects, whereas during World War I, scientists working on military projects had been made members of the military. Second, the R&D contract was devised as a mechanism to pay for private performance of work whose approach and outcome—in this case, R&D results—could not be specified precisely in advance. Importantly, the federal government agreed to compensate university and industry performers for the indirect or over-head costs of R&D done under grants and contracts, in addition to paying for direct expenses.

To carry out the vastly increased scale of R&D during World War II, major investments were made in research laboratories. New government laboratories were created and new administrative mechanisms were devised to oversee their work in the face of a shortage of government employees experienced in managing major R&D programs. A sense of mutual obligation emerged in which the R&D institutions could reasonably expect continued funding in return for producing quality efforts and results from government-financed programs.

Federal R&D support was consolidated in the immediate postwar period.

In his July 1945 report, Science—The Endless Frontier,5 Vannevar Bush, who headed the U.S. wartime R&D effort, provided the intellectual rationale for federal support of both basic research and research related to national security, industry, and human health and welfare. He sketched a plan for a national research foundation, to be funded by the federal government and led by scientists from the private sector, that would support basic scientific research and education in areas related to medicine, the natural sciences, and new weapons. His plan contributed to legislation adopted in 1950 that established the National Science Foundation (NSF). By that time, however, the National Institutes of Health (NIH) had established its control over most health-related research, including university-based biomedical research and training; the Office of Naval Research (ONR) had taken on a major role in supporting academic research in the physical sciences; and the new Atomic Energy Commission had been assigned control of R&D on nuclear weapons and nuclear power. NSF's mission thus focused on supporting fundamental research and related educational activities, and its annual budget was less than $10 million until the late 1950s. In contrast, the NIH's annual budget, which had been less than $3 million at the end of the war, grew to more than $50 million by 1950.

The scope of federal R&D support grew modestly in the decade after World War II.

Several additional federal R&D efforts were launched during the late 1940s and early 1950s. Anxiety over the Cold War, and the loss in 1949 of the U.S. monopoly in nuclear weapons, led to expanded R&D programs in the Army and in the newly established Air Force, and to a continuing buildup in support for nuclear weapons R&D in the Atomic Energy Commission. On the civilian side, R&D programs were established or expanded in fields with direct practical importance, such as aeronautics technology, water desalinization, and atmospheric disturbances and weather. However, appropriations for these new civilian R&D efforts remained relatively limited through the mid-1950s.

Sputnik provided the impetus for a major expansion of federal support for R&D.

The launch of Sputnik by the Soviet Union in 1957 provoked national anxiety about a loss of U.S. technical superiority and led to immediate efforts to expand U.S. R&D, science and engineering education, and technology deployment. Within months, both the National Aeronautics and Space Administration (NASA) and the Advanced Research Projects Agency (ARPA) were established. NASA's core included the aeronautics programs of the National Advisory Committee on Aeronautics and some of the space activities of the Department of Defense (DOD); ARPA's purpose was to enable DOD to conduct advanced R&D to meet military needs and to ensure against future "technological surprise." Federal appropriations for R&D and for mathematics and science education in the NSF and other government agencies rose rapidly over the next decade, often at double-digit rates in real terms.

Growth of federal support for health research accelerated rapidly in the late 1950s.

During the early 1950s, growth in federal funding for health research slowed considerably from its torrid pace in the immediate postwar years. In the late 1950s, however, several factors converged to give renewed impetus to federal support for biomedical research: key congressional committees with responsibility for health-related research were chaired by powerful advocates of increased federal funding. Congress was appealed to by influential citizen advocates of increased funding for research to combat specific diseases. The calls for increased funding were supported by a strong NIH director, who could point to new scientific understanding of disease processes as the basis for anticipating medical breakthroughs. The result was the rapid growth of federal funding for health-related research that has continued nearly unabated to the present as new discoveries, and the rise of new diseases such as AIDS, have led to ever-greater commitments to biomedical research.

In the 1970s, new R&D-intensive agencies addressed environmental and energy issues.

Both the environmental movement and the energy crisis of the 1970s raised some doubts in American society about the wisdom of a national culture committed to consumption and economic growth, and led also to increased public and private spending on environmental and energy R&D. The energy agencies of the federal government were reorganized twice during the decade. In 1975, the Atomic Energy Commission was divided into the Energy Research and Development Administration and a new regulatory agency, the U.S. Nuclear Regulatory Commission. In 1977, the Energy Research and Development Administration and other federal energy-related activities were combined to form the Department of Energy (DOE), which was given major new responsibilities to fund energy-related R&D.

In the 1980s, the competitiveness challenge expanded the federal role in R&D and stimulated a new commitment to cooperation among industry, government, and universities in the conduct of R&D.

By the early 1980s, the industrialized world had largely recovered from the effects of World War II, and key Asian nations were devising new approaches to industrial production. The increasing challenges from competition abroad—in markets for traditional goods as well as a growing list of goods based on advanced technological capabilities—raised new questions regarding the role the federal government should play in assisting U.S. industry to develop and use new technology for competitive purposes. This topic remains under active debate today.

During the 1980s and early 1990s, several programs were initiated to provide financial and other incentives for industrial R&D and for industrially related R&D conducted at universities or federal laboratories (see Box II.1). These included the Small Business Innovation Research program, the NSF Engineering Research Centers, and the Advanced Technology Program and Manufacturing Extension Partnerships at the Department of Commerce. In addition, federal policy changes enabled the creation of the cooperative research and development agreement, or CRADA, a mechanism for joint R&D involving companies and federal laboratories.

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Box II.1

GOVERNMENT-UNIVERSITY-INDUSTRY COOPERATIVE R&D POLICIES. Government support of cooperative R&D involving firms, universities, and federal laboratories has roots in programs begun in the early 1960s—such as the Advanced Research (more...)

Throughout the five decades following World War II, federal funds for R&D were reduced substantially in only one period.

The costs of the Vietnam War squeezed nondefense R&D along with other nondefense discretionary spending. From 1966 to 1975, federal support for nondefense R&D dropped nearly 22 percent in real terms. The successful conclusion of NASA's Apollo program contributed to the decline in federal R&D funding during that period, as did skepticism about the value of advanced technology that was engendered by the Vietnam War and the contemporaneous environmental movement.

Since the mid-1980s, the continuing struggle to control federal budget deficits has put increasing pressure on federal R&D funding. R&D programs have had to compete for money more directly with other federal activities and have also been affected by the various mechanisms adopted to enforce budget deficit reduction, including the Balanced Budget and Emergency Deficit Control Act of 1985 (commonly known as the Gramm-Rudman-Hollings Act) and its amendments as well as the Budget Enforcement Act of 1990.

Budgetary pressure on federal R&D spending is intense today. Federal funds previously appropriated to support R&D during Fiscal Year 1995 have been cut (rescinded) by nearly $2 billion. Furthermore, much larger cuts in federal R&D funding are slated for Fiscal Year 1996, and pressures on federal discretionary spending make further cuts in future years likely.

Key Roles of the Federal Government in U.S. Research and Development

In keeping with national aspirations and the practice of governments of all advanced nations, the federal government provides a substantial proportion of the direct financing for R&D done in this country, and it also offers incentives to private interests to support R&D. Many other federal policies affect the performance of R&D and the use of its results—some policies stimulate such activity, while others create barriers to it.

The federal government invests in building and strengthening the research and development essential to pursuing a variety of national goals.

Much of the federal science and technology investment is intended to help build the base of scientific and technical knowledge and expertise used by government and industry to address important national goals, such as national defense, space exploration, economic growth, and protection of public health and the environment. The federal government has assumed a central responsibility for supporting graduate education in science and engineering because of its critical importance to the continuing vitality of the nation's innovation system. Most of this support is provided by the funding of R&D at universities, which offers students the opportunity to carry out cutting-edge research as an integral part of their education.

Indirect federal financial support encourages a climate of opportunity for R&D in the United States.

In addition to granting funds directly to performers of R&D, the federal government creates incentives for private spending on R&D in industry and academic institutions:

  • Since its inception in 1790, the U.S. patent system, for example, has provided an incentive to inventors to develop and to disclose, use, and profit from their inventions.
  • Since 1954, industry has been able to deduct the full costs of R&D from income before taxes in the year in which they were incurred, while depreciating the costs of facilities and major equipment. Since passage of the Economic Recovery Tax Act of 1981, a series of special tax credits have been offered to firms that increase their R&D spending above previous levels. Individuals and corporations that make charitable contributions in support of research in educational institutions also are eligible for tax savings.
  • The Stevenson-Wydler Technology Innovation Act of 1980 opened the federal laboratories to industry, making available not only specialized and unique facilities, but also opportunities for R&D partnerships with joint funding and the use of federally developed technology for profit-making ventures. That same year, Congress passed the Bayh-Dole Act, which conferred ownership of patent rights to universities, small businesses, and nonprofit organizations, thus providing a strong incentive for commercial development. In 1984, the National Cooperative Research Act amended the antitrust statutes to facilitate cooperative R&D among competing firms.
  • With increasing frequency, the federal government has cost-shared with firms and consortia to underwrite precompetitive technology development projects in such areas as manufacturing technology or technology with a strong potential for application in both defense and commercial arenas (so-called dual-use technology).
  • By formally and informally identifying areas of technological opportunity and by convening experts from a variety of organizations to address technical topics, government leadership helps initiate cooperative R&D ventures that otherwise might not be arranged by competing firms.

Many other federal policies and programs have indirect effects that can foster or impede innovation and affect the environment for R&D.

Policies in many areas can have dramatic, if indirect, effects on private spending on research and development and, hence, innovation. For example, tax code provisions of the kind mentioned above, such as accelerated depreciation, investment tax credits, and capital gains preferences, can reduce the corporate cost of capital for R&D investments and increase the supply of risk capital to commercialize new technologies. Trade policy can open new markets for high-technology goods. Regulation is centrally important for new drugs and agricultural products.

Some public policies, however, can hinder the conduct of R&D in universities, industry, and other private institutions, even though that is not their aim. Adopted in pursuit of important societal purposes, some, for example, raise the direct and indirect costs of conducting R&D. Private performers of R&D must comply with a host of laws and regulations intended to affect conduct generally, in such areas as antitrust, labor relations, equal opportunity, consumer safety, and environmental protection. Nongovernmental recipients of public R&D funds must comply with additional rules and regulations regarding the procurement process, financial accountability, nondiscrimination and affirmative action, preferences for small and minority-owned businesses, ''Buy American" requirements, maintaining a drug-free workplace, and so on.

Results of 50 Years of Federal R&D Support

Investment in R&D has become an essential element of contemporary governance.

A history of successful experiences in mobilizing scientific and technical resources to meet important national needs has contributed to a sense of confidence that U.S. scientific and technical institutions can rise to nearly any occasion and help address important national problems with dispatch. Congress, the Executive Branch, and the American people have come to believe that investment in R&D is a cost-effective mechanism for responding to important national needs. R&D helps ensure our national security, strengthens the performance of our economy, and enhances our quality of life.

The United States is not alone in this belief—during the twentieth century every industrialized country has made major investments in the foundations of its scientific and technological capabilities through support for R&D and related activities. In fact, support for R&D is now one of the primary tools used by modern governments everywhere to achieve public purposes.

The breadth of the federal investments in R&D provides the scientific and technical capital to respond to new opportunities and crises, which often are unexpected and sometimes are urgent.

U.S. strength in a wide range of fields has enabled both creative and pragmatic problem solving on diverse fronts: rapid understanding of the factors related to the onset of AIDS, responses to new forms of warfare, and identification of major environmental problems such as losses in stratospheric ozone.

Diversity, both in funding sources and in the institutions that do the work, is a great strength of our national science and technology enterprise.

Research and development supported by ONR, NSF, NASA, and the U.S. Geological Survey has led to a revolution in our understanding of Earth's structure, its resources, and the impact of geological forces. Similarly, U.S. strength in information technology has been fostered through the work of DOD, NSF, DOE, and other agencies. Often several agencies have collaborated to create a successful program.

The support and policies of DOD and NSF, for example, led to the creation of the Internet; several agencies have contributed to the U.S. strength in the optical sciences.

At the same time, one agency may be the primary, if not sole, patron of a field of national importance; for example, DOE is the largest supporter of academic research in nuclear physics. DOD's support of computer science and engineering and materials science and engineering enabled the creation of Silicon Valley, and support by NIH facilitated the emergence of modern biotechnology.

The federal budget allocation process allows for this diversity of approach in which budgeting is handled mainly by agencies who know well the purpose and content of R&D projects and need their results. Budget decisions are thus specific to programs rather than generalized and across the board, and good science can find sustenance wherever it first arises.

Stable and thoughtful research investments can contribute to controlling federal costs.

Continuing technological superiority enables the United States to maintain a reduced but highly effective military force without compromising national security; new nondestructive testing techniques reduce the costs of maintaining highways; and information technologies help federal agencies, such as the Social Security Administration and the Internal Revenue Service, control the costs of serving very large populations. Through prevention of disease and development of new therapies, biomedical research has the potential to reduce significantly the costs of disease, injury, and health care.

Major advances in technology often are based on research whose eventual outcomes and applications could not have been predicted.

The de facto postwar policy of ''poised to pounce"—that is, the readiness to respond made possible with support across a wide spectrum of the sciences, complemented by funding targeted to particular opportunities and priorities as they become apparent—has worked. Major advances have come from unexpected sources. For example, fundamental work on atomic clocks led to the concept and development of the global positioning system (Box II.2); work on the microwave spectrum of ammonia enabled the development of lasers; and studies of magnetic moments and nuclear spin were the basis for the development of magnetic resonance imaging and dramatic new forms of medical diagnosis. Research on the genetics of bacterial viruses and harmless bacteria that live in the human gut contributed to advances in biotechnology, and the study of large biological molecules by x-ray diffraction has greatly aided the effort to design new drugs.

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Box II.2

ORIGINS OF THE GLOBAL POSITIONING SYSTEM. The global positioning system (GPS), a satellite-based system enabling remarkably precise pinpointing of one's location on Earth, is a contemporary product of a diverse R&D system. GPS evolved from postwar (more...)

Decades of separate lines of work in biology, psychology, linguistics, and anatomy have converged to create neuroscience, in which fundamental work holds the potential for enormous rewards—from better treatments for mental illnesses to improved ways of teaching and learning to the design of radical new computer architectures. The Decade of the Brain, a 10-year federal commitment to exploit the advances of many facets of brain research conducted through multiple departments and agencies, is inherently interdisciplinary. The program has several specific goals that encompass diverse areas of science, and it incorporates a wide range of technologies used in brain imaging, molecular genetics, and computer analysis of complex biological structures.6

Scientists and engineers whose education and training have included opportunities to conduct research in universities have served the nation well.

Linking federally funded research and development to the education of scientists and engineers has powerfully enhanced both. Universities are the core strength of the U.S. R&D system. They are by far the most important source of men and women educated and trained in advanced science and engineering. Such people, as they establish their own university careers, join industry, or start their own companies, are the most effective and efficient agents of technology transfer. Experience demonstrates that the excellence of the next generation of researchers and leaders depends directly on the excellence of graduate education that includes first-hand participation in innovative research and development. Over the last several decades, federal support for academic research has been crucial to maintaining that linkage.

The existing U.S. research and development system works well in periods of continued expansion in missions and funding but is not as appropriate in periods of static or declining budgets.

The U.S. R&D system is largely the creation of a period of unprecedented growth in private economic activity and government programs in the United States. The current federal R&D budgeting process evolved to accommodate new missions, and the performing institutions grew to meet the challenge of growing federal expectations and increased appropriations. Flexibility was achieved mainly by building new structures, not by devising means to change old ones. The research and development system is conditioned on growth and is now challenged by the new environment that requires downsizing of both missions and budgets.

Scientists and engineers can respond fairly quickly to new research opportunities and changes in funding emphases. Similar flexibility is more difficult for large research institutions to manage.

The U.S. research and development system is changing in response to changing national circumstances. DOD has combined a number of its R&D facilities and has closed others. Many major firms have refocused their corporate long-range R&D laboratories on more immediate business needs and opportunities. Such changes reflect shifts in the federal research portfolio, which has changed dramatically over the decades since the onset of World War II, both in launching new programs, such as planetary exploration, and in reducing others, such as the breeder reactor program. But flexibility of project funding in some areas has not been matched by flexibility in large R&D institutions and facilities. The nation now carries an excess of facilities, many established during World War II and the Cold War, whose missions may no longer be appropriate or whose programs may not be as competitive as others. Their continued support will detract from more effective or more important programs, inhibiting a vigorous research enterprise in an era of limited resources.

Footnotes

1

National Science Board, Science and Engineering Indicators, 1993, NSB 93-1 (Washington, D.C.: National Science Foundation, 1993), pp. 328, 337.

2

Vannevar Bush, Science—The Endless Frontier, Appendix 3, "Report of the Committee on Science and the Public Welfare" (Washington, D.C.: U.S. Government Printing Office, 1945).

3

Bush, Science—The Endless Frontier, 1945.

4

See, for example, Bruce L.R. Smith, American Science Policy Since World War II (Washington, D.C.: The Brookings Institution, 1990); Jeffrey K. Stine, A History of Science Policy in the United States, 1940–1985, Science Policy Background Report No. 1 prepared for the Task Force on Science Policy, Committee on Science and Technology, U.S. House of Representatives (Washington, D.C.: U.S. Government Printing Office, September 1986).

5

Bush, Science—The Endless Frontier, 1945.

6

The Dana Alliance for Brain Initiatives, Delivering Results: A Progress Report on Brain Research (New York: The Charles A. Dana Foundation, 1995); Sandra Ackerman for the Institute of Medicine, Discovering the Brain (Washington, D.C.: National Academy Press, 1992); Office of Science and Technology Policy, Maximizing Human Potential. Decade of the Brain 1990–2000 (Washington, D.C.: Federal Coordinating Council for Science, Engineering, and Technology, Executive Office of the President, 1991); Constance Pechura and Joseph B, Martin, eds., Mapping the Brain and Its Functions (Washington, D.C.: National Academy Press, 1991).

Copyright © 1995, National Academy of Sciences.
Bookshelf ID: NBK45556

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