US underinvestment in STEM leaves cash on the table, new paper argues

The current pissing contest among spacebound billionaires offers a chance to reexamine an old question: Where should ambitious tech and science funding come from, the public sector or private sector?

According to an Aspen Economic Strategy Group (AESG) paper released this morning, both are important, but the US government can and shouldbe spending a lot more on science and tech R&D.

The argument: The US government underinvests in science and tech compared to other countries like Germany and South Korea, and increasing investment would more than pay for itself. For every $1 that is invested in R&D, society earns—conservatively—an average return of $5, per the paper. These returns come in the form of everything from standard of living increases to greater competitiveness on the global market.

• In 2018, the US’ public R&D expenditure as a share of GDP was 0.66%, about $135 billion in dollar terms, down from 1.18 % three decades ago, and near its lowest level in 60 years.

“We're just basically leaving money on the table—it’s like we have this incredible return machine, [but] we just don't invest in it,” Benjamin F. Jones, a professor at Northwestern University's Kellogg School of Management and the paper's author, told Emerging Tech Brew.

Revving up the money machine

Those in favor of the status quo (i.e., comparatively low public science/tech funding) argue that R&D efforts regularly fail and that scientists produce abstract rather than practical knowledge.

On the contrary...Jones points out that private investors also regularly swing and miss (ahem, SoftBank), and that they’re better suited for less capital-intensive investments like software, versus huge societal bets, like nuclear fusion. The paper also shows that, over time, research that initially seemed abstract becomes the foundation of commercial services and products. One example:

• “Uber, Lyft, or anything else on your mobile phone that relies on your location is using GPS satellites, for the most part,” Jones said. “And in fact they work by comparing very accurate clock signals that have to be adjusted according to Einstein’s equations of general and special relativity.”

Private investors play an important role in R&D, but because 1) they don’t have as much money as the US government and 2) have profit incentives, they’re poorly positioned to invest in research that lacks immediate commercial value.

“[R&D is] one of these areas where private incentives, free markets, left to their own devices, will tend to underinvest,” Jones said. “That's going to be especially true for science...because science is really targeting a deeper understanding of nature and the immediate marketplace application of science might be zero.”

Policy prescriptions

In the AESG paper, Jones identifies three levers for improving the US’s R&D investment: spending more money, bolstering both the long- and short-term STEM talent pools through investment in education and looser immigration policies, and diversifying scientific bets to boost the chances of success.

On the last point, Jones noted that we don’t know the exact investment allocation that will maximize the ROI of R&D spending—it’s unclear if a dollar given to the National Science Foundation goes further than a dollar given to DARPA, for instance—but that shouldn’t stop the US from doing more.

• “We don't really need to answer that question to really reap a lot of enormous rewards,” Jones said, but added, “If we can figure out exactly how to balance the allocation across these different entities, it might be even more back per dollar.”

In June, a bipartisan bill that would inject $90 billion into US tech and science research over five years passed the Senate. This is a step in the direction Jones is arguing for, but a far smaller increase than what he thinks is appropriate—a 0.1 percentage point bump, per his calculations in the paper, compared to 1+ percentage points.

Big picture: Silicon Valley is often portrayed as a place willed into existence by a handful of Randian heroes, but the reality is that it’s founded on a sturdy foundation of government R&D dollars. Jones’s AESG paper argues for a revitalization of that foundation.