Competitive advantage?

MARY REICHARD, HOST: It’s Tuesday the 29th of June, 2021.

Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher. First up today, competing with China.

Earlier this month, the Senate passed the USICA—that’s the U.S. Innovation and Competition Act. It will pump money into research and development in a whole host of industries where Beijing is making its own rapid advancements.

REICHARD: The bill passed on a vote of 68-32—a rare show of bipartisanship this year so far.

That level of agreement must mean the bill is really necessary, right? Well, not necessarily. WORLD intern Josh Schumacher reports.

SCHUMER: When a bill passes 22 to 4 out of one of its major committees and 21 to 1 out of another, it is truly bipartisan.

JOSH SCHUMACHER, CORRESPONDENT: Senate Majority leader Chuck Schumer is a big supporter of the U.S. Innovation and Competition Act. He says it will set the United States on a path to “out-innovate, out-produce, and out-compete the world in the industries of the future.”

SCHUMER: At its core, the U.S. Innovation and Competition Act is about maintaining America’s role as the global economic leader. Few issues could be more important.

The bill allocates more than $200 billion for various research and development projects—also known as “R&D”—with a focus on technology and scientific studies.

But is all that money really necessary?

LINCICOME: The issue is that U.S. R&D spending overall has actually just hit an all time high. Both as a total inflation adjusted dollar amount, and but also as a share of GDP.

Scott Lincicome is a scholar at the Cato Institute, a libertarian think tank. He says U.S. R&D spending hit an “all-time high” in 2019. And that renders the USICA a solution in search of a problem.

LINCICOME: For the first time ever, the United States, collectively private and government, spent 3 percent of our GDP on R&D. Now, that doesn't sound like a ton but also remember we have a massive $21 trillion economy, give or take. So that's a lot of money. So, the underlying premise of the bill, that there has been a collapse in R&D spending, is just not true.

The USICA’s expenditures include $80 billion dollars slated for the National Science Foundation. Nearly $30 billion dollars of that is set aside for the creation of a new Directorate of Technology and Innovation. It’s supposed to support research into areas such as artificial intelligence and quantum science.

The bill also allocates $50 billion for semiconductor development. $10 billion goes to different university research programs. $17 billion goes to the Energy Department. And almost $18 billion is slated for the Pentagon. The department of commerce also receives $10 billion dollars for the creation of regional hubs to diversify research locations throughout the country.

And that’s just for starters.

MILLS: I think that the bill has become something of a it's trying to do many things and I think there are some worries that in doing that it may not do any one of them well.

Tony Mills is a scholar at the American Enterprise Institute. He says the bill doesn’t just suffer from a sort of “existential crisis.” It’s also likely to exacerbate problems that already exist in the U.S. R&D sector.

MILLS: Is our R&D sector currently operating optimally? I think a pretty clear answer to that is no, there are a number of things that we could be doing better. And yet those issues are not really part of the conversation about increasing funding for R&D.

According to Mills, the US R&D system suffers from several systemic issues that the USICA doesn’t address. For example, administrative burdens placed on scientists in recent years have taken away from the time they would otherwise spend on research. He also says the publish-or-perish culture in the scientific community could be incentivizing researchers in problematic ways. He also mentions the problematic use of certain statistical methods.

MILLS: If we don't try to rectify some of these underlying problems, spending a lot more money may not get us what we want, it could actually end up exacerbating, some of the problems that we have.

And Cato’s Scott Linicome says all this new spending could also create some new problems.

LINCICOME: There is a big risk that the new federal funding will not actually supplement private funding but will crowd it out.

Lincicome believes private R&D funding is preferable to government funding. But he says the private sector might leave certain areas of research and development unfunded. Specifically in the area of basic research. That’s because it doesn’t yield clear commercial returns.

AEI’s Tony Mills agrees. He says if the government could compensate for the imbalances created by the private sector, that would yield a stronger R&D system in the long run.

MILLS: I think that there is a danger in trying to beat our foreign competitors at their game. I think one of the things that has made the United States research enterprise so successful has been its, its pluralism, by which I mean, it is composed of an admixture of public, private, nonprofit, governmental institutions, and laboratories, and so forth.

Mills argues that moving toward a largely federally funded R&D system might kill that unique advantage.

MILLS: If we want to be seeing more basic scientific research we're not likely to see a huge significant change on the private sector side, but it’s something the federal government could move the needle on, and I think it would give us a competitive advantage, generally, because that's something historically that we have done. So I worry that this bill won't won't move us in the right direction, in that respect.

House lawmakers have a chance to address some of these concerns in their version of the bill. But it’s not clear that they will. No matter how the details shake out, it seems certain that a large increase in federal R&D spending is on the horizon. Much less certain is whether that will give American innovation a competitive advantage.

Reporting for WORLD, I’m Josh Schumacher.

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