R&D in 2018: The FY 2019 Budget Request in Context Matt Hourihan March 12, 2018 For the Research & Development Caucus AAAS R&D Budget and Policy Program https://www.aaas.org/rd

What Do We Know About Interactions Between R&D and the Economy? Technology and R&D: major drivers of productivity and thus growth Most direct association is with business R&D, and university R&D But market and technical risk can be challenging for firms “Large firms appear to be moving away from basic and scientific research and towards more applied and incremental research” – NBER 80% of industry R&D is development (shorter-term, incremental, more certain) What about public research specifically? Sector-specific studies often show variously positive returns Rate of return on the order of 20-40%? Less? More? After a lag? Also effects on patenting activities, follow-on R&D, project initiation/continuation/completion Good evidence that industry draws on academic research (~60% publicly funded), especially in high-tech sectors “Part of the effect of public research on productivity is indirect, flowing through the use of its discoveries by the business sector” (Guellec and van Pottelsberghe 2001)

Public and Private R&D Key question: Does government crowd out industry? Increasingly, it seems the answer is “no” “[T]he general conclusion from the post-2000 empirical evidence must be that [direct] public R&D subsidies succeed in significantly stimulating private R&D investment.” (Becker 2015) Several recent sector- or program-specific studies have found “additionality,” especially with regard to small firms External sources of innovation and collaboration increasingly relevant Advanced economies: small and (especially) large innovative firm cooperation with research institutions (higher educations or otherwise) Industry-university scientific publications: about 24,000 in 2016 Patent sourcing and cited S&E publications

Rising R&D Competition… China's State Council issued a policy blueprint calling for the nation to become the world's primary AI innovation center by 2030, with an AI industry worth $150 billion. Germany’s new coalition government has pledged to boost overall R&D spending from 2.9% to 3.5% of GDP by 2025, moving Germany to a lead spot in research intensity, behind only South Korea and Israel. Canada’s 2018 budget pledges the single largest investment in fundamental research in Canadian history. South Korea just announced plans to double its basic research budget by 2022. The UK’s latest economic growth strategy aims to increase total R&D investment from 1.7% of GDP to 2.4% by 2027, putting the UK on par with other major nations.

R&D in the FY 2019 Budget (?) FY 2017 FY 2019 Change FY 17-19 Actual (budget authority in millions of dollars)   FY 2017 FY 2019 Change FY 17-19 Actual Budget* Amount Percent Total R&D** 128,636 133,948 5,312 4.1% Basic Research 34,050 35,196 1,146 3.4% Applied Research 40,731 38,549 -2,182 -5.4% Development** 51,416 57,151 5,735 11.2% Facilities & Equipment 2,439 3,052 606 24.8% Defense R&D 57,447 65,972 8,525 14.8% Nondefense R&D 71,189 67,976 -3,213 -4.5% *AAAS estimates based on core OMB budget data plus addendum. FY 2017 is based on OMB and agency data. **Using new definition, removing DOD 6.7 (operational systems development) from R&D. 3/9/2018 | AAAS

FY 2019 R&D Budget in a Nutshell The last minute addendum seems to have given a reprieve to basic/discovery/biomedical research programs Altogether friendlier to federal S&T than last year’s budget But still leaves $57 billion on the table for nondefense But many areas are very similar to last year Particular emphasis on reducing and/or eliminating select technology, manufacturing, and climate-related programs I.e. eliminating Sea Grant, Hollings, ARPA-E

Agency Notes: Life Sciences NIH: +3.8% above FY17 before inflation However, most institutes would see a funding reduction per HHS Why? Consolidation of AHRQ, NIOSH, NIDILRR, plus $750 million for opioids $711 million for 21st Century Cures priorities Increases for BRAIN, PMI, Cancer Moonshot No research grant totals (yet) FY16 success rate: 19.2% VA: Medical & Prosthetic Research +8% Precision Medicine: Million Veterans Program surpassed 600,000 donors as of October 2017 Collaboration with DOE on big data/computing CDC: large reductions across the portfolio

What Do We Know About NIH Impacts? Patenting and Citations NBER 2015: every $10 million increase in NIH funding for a particular disease area leads to 3.26 additional patents produced by biotech/pharma. Li, Azoulay, Sampat 2017 (published in Science!): 30.8% of all NIH grants cited in a patent for drug, device, or other med tech Follow-on Funding Toole 2007: “a $1.00 increase in public basic research generated an $8.38 increase in private pharmaceutical R&D investment after 8 years.” New Drugs Toole 2012: “a 1% increase in the stock of public basic research associated with a 1.8% increase in industry new molecular entity (NME) applications after a substantial lag.” Biotech Firm Creation Kolympiris et al 2014: a $1 million increase in the average amount of federal R&D funding is associated with an increase of anywhere from 5–58 percent in new biotech firms after a lag

Agency Notes: Physical Sciences Office of Science: flat from FY17 Exascale prioritized again (as well as construction and user facilities), at the expense of other programs Reductions for fusion research (-20%), climate research and modeling (-40.5%), high-energy physics research (-14.3%) all with sharp reductions Energy Innovation Hubs, Energy Frontier Research Centers preserved ITER increased by 50% above FY17 NSF 10 Big Ideas (long-term research, inclusion, and instrumentation initiative) Success rate for all competitive awards: 22%, down from 23% in FY17; 7% fewer research awards Social Science directorate cut by 9% NIST Lab programs reduced in multiple research areas; Hollings manufacturing program eliminated

Agency Notes: Energy Technology ARPA-E up for termination again Nuclear: Includes 24% increase above FY 2017 for advanced reactor R&D $54 million R&D subprogram n small modular reactor tech 71% reduction for fuel cycle R&D Fossil Energy 80% reduction for CCS 50% increase for coal technology research (costs, efficiency) EERE Every technology program cut by at least 42% below FY 2017 levels Particularly sharp reductions of over 70% for Vehicle, Bioenergy, Advanced Manufacturing, and Buildings New Cybersecurity office; non-security grid-related research cut substantially back

Solar Photovoltaic Cost Curves With and Without DOE Technology Programs (RTI Study)

Agency Notes: Agriculture Agricultural Research Service (ARS): Most core research programs reduced (crop and livestock production, disease research, human nutrition, food safety, sustainability) Recommended closures of 19 labs and research stations in several states National Bio- and Agro-Defense Facility (NBAF) transferred to USDA from DHS when operational (expected 2022) National Institute of Food and Ag (NIFA): Large formula fund programs (i.e. Hatch Act, Evans-Allen) generally flat. Several other smaller research or capacity programs reduced or eliminated. Agriculture and Food Research Initiative (AFRI) flat from FY 2017: increased support for data-driven agricultural, education programs, and system-level sustainability and productivity research. Extension and, especially, integrated activities also reduced or eliminated. Economic Research Service: Discontinues or sharply reduces research and data analysis across the portfolio Forest Service: most research areas scaled back, including wildfire R&D

mhouriha@aaas.org 202-326-6607 https://www.aaas.org/rd For more info… mhouriha@aaas.org 202-326-6607 https://www.aaas.org/rd