"Gathering Storm" Threatens U.S. Competitiveness

A new National Academies report released last week confirms what many concerned with U.S. economic competitiveness have warily suspected: America's competitive standing in the 21st century global economy has deteriorated markedly in the last five years.

The report, Rising Above the Gathering Storm, Revisited: Rapidly Approaching Category Five, is an update to a landmark 2005 report that warned of urgent competitiveness challenges ahead and led to the passage of the America COMPETES Act of 2007--an effort to strengthen the nation's science and technology-based capabilities.

The outlook has only worsened since the publication of the original report, according to the Gathering Storm committee, which includes leading academics, CEOs, and science and technology experts. For those concerned about America's ability to create lasting, high-paying, high-quality jobs in a time of economic distress, the report's conclusion is disheartening:
 

"America's competitive position in the world now faces even greater challenges, exacerbated by the economic turmoil of the last few years and by the rapid and persistent worldwide advanced of education, knowledge, innovation, investment, and industrial infrastructure. Indeed the governments of many other countries in Europe and Asia have themselves acknowledged and aggressively pursued many of the key recommendations of Rising Above the Gathering Storm, often more vigorously than has the U.S."

The report attributes declining U.S. competitiveness to major underinvestment in scientific research and education as other nations make progress on key competitiveness indicators, affecting America's relative ability to compete for new factories, research facilities, and jobs.

Federal government funding of R&D as a percentage of GDP has declined by 60 percent in 40 years, and the United States has fallen to 8th among nations in R&D investment on a per-GDP basis. Overall, U.S. R&D investment declined at an annual rate of 0.5 percent from 2001 to 2007. In priority sectors like energy, R&D spending has languished at low levels for decades. By 2008, public investment in energy R&D was less than half of what it was three decades ago. Today, U.S. consumers spend significantly more on potato chips than the federal government commits to R&D, according to the report.

Meanwhile, China has increased its R&D investment as a fraction of GDP at an annual rate of 5.7 percent from 2001 to 2007, which, along with a greater number of students educated in science and engineering disciplines, is allowing the country to attract a greater share of private research investment and create a greater number of high-tech jobs. Indeed, China has now replaced the United States as the world's largest high-tech exporter, with 20 percent of global high-tech exports.

Reductions in federal funding for research, coupled with increasing strains on the budgets of America's universities--which perform a large share of the nation's research--can be expected to make U.S. universities and research facilities less attractive as partners for private sector firms. Overall, the National Science Foundation finds that U.S.-based firms now have 23 percent of their R&D employment located abroad, an increasing trend that is likely to continue. The iconic American firm GE now locates the majority of its R&D personnel outside of the United States. In another high-profile example, Silicon Valley firm Applied Materials recently constructed the world's largest non-governmental solar energy R&D facility in China.

Sustained Public Investment is Critical to Averting Competitiveness Crisis

Stemming the dramatic decline in U.S. economic competitiveness and maintaining national capabilities to create high-tech, high-paying jobs in the 21st century will require a major commitment to investment in technology, education, and innovation, suggests the report.

The authors warn that while the U.S. stimulus legislation provided much-needed investments in long-term research infrastructure, those investments will soon expire, and do not represent the kind of sustained investment necessary to keep the country competitive.

The report notes that federal investments formed the basis for America's relative technological preeminence in past decades--such as the GI Bill and the Apollo program--by motivating young people to pursue careers in science and engineering and laying the foundation for generations of economic prosperity. In today's 21st century knowledge economy, such investments are even more critical to economic success. Indeed, many other countries have copied this American model with great results.

Today, however, a wave of anti-government ideology threatens to erode support for the public-private investment paradigm that drove economic growth throughout the 20th century and will be critical to restoring American competitiveness in the future.

The authors conclude, "the United States appears to be on a course that will lead to a declining, not growing, standard of living for our children and grandchildren." Without a renewed commitment to investment in innovation, that course may become all the more difficult to reverse.

Update, 9/30/10

Lead author of the new report, Norm Augustine, appears on CNBC to discuss the report here:

Hat tip to Andrew Revkin of DotEarth, who delves into the report's implications as well here, discussing the findings with Augustine via email.

Asked by Revkin what the most important actions or new investments would be to avert this gathering storm, Mr. Augustine responded:
 

Everybody is concerned about a double-dip recession but I'm more concerned that what recovery we've seen so far is a "dead-cat bounce" where we get stuck in an era of perpetually high unemployment because we're not addressing long-term challenges. Also, by focusing so much on short-term bursts of spending, we're not paying enough attention to core problems like quality of teaching and the need for scientific research investments that could pay huge dividends in the long term. We're in a marathon, not a sprint.