Report to the President — Transformation and Opportunity: The Future of the U.S. Research Enterprise
“In a globalized economy, international competition in the private sector drives structural changes in national economies. If the competitive playing field is level, these changes create greater global economic efficiency and, at least in the short run, greater overall wealth. However, they also have consequences that can affect the trajectories of nations in ways other than economic.
In the global economy, companies that traditionally capitalized on regional U.S. markets must now compete against organizations all over the world. The speed with which products and services can be delivered around the world, from almost anywhere to almost anywhere, diminishes the home-field advantage that used to shield local companies against foreign competitors.
When no single business can capture all the economic benefits that come from a new product, technology, or way of doing business, corporations with obligations to shareholders will tend to underinvest in innovation. When international competition is fierce, private firms will be more interested in R&D investments that give them an immediate competitive advantage and therefore will choose to invest preferentially in low-risk endeavors—those closer to the development and implementation end of the spectrum.
This aspect of globalization has hit basic research done by industry particularly hard. Beginning with the rapid expansion of global competition in the 1990s and the new focus on shareholder value, support by U.S. industry for basic and early applied research (i.e., research with more than a 3-to-5 year time horizon) has stagnated relative to investments in short-term development and also relative to the basic research investments of some of our international competitors.
The great industrial centers of basic research, such as Bell Labs and RCA Labs, flourished in times very different from now. Regulated monopolies, or stable consumer brand preferences, gave these companies strong, predictable cash flows. They were able to take risks, despite the uncertainty of translating basic research into new products. Since the 1990s, the industrial landscape has changed, however. Predictable cash flows and regulated monopolies are largely things of the past, meaning that companies today are far less able to take a long-term view.
Globalization also allows U.S. corporations to perform many aspects of R&D more cost-effectively offshore. Not only is the cost of offshore skilled workers often lower, but the availability of such workers (e.g., trained scientists and engineers) is often higher. The relatively small number of U.S. college graduates with STEM education is a large contributing factor, as is also the scarcity of STEM-enabled technicians with post-secondary certification other than college degrees. Moving R&D offshore is a rational economic choice for the companies themselves, but it has negative long-term consequences for the United States, even when compensated by R&D flows in the other direction.
The United States today has fewer and smaller corporate laboratories than it did just a generation ago. Research by industry now focuses more on development and less on basic and applied research; industry supports a much smaller fraction of basic research than it once did. Fundamental research done with no specific application in mind has especially diminished. As R&D increasingly migrates offshore, it is becoming clear that, unless we act, innovation, in the long run closely paired with production, could migrate with it.”
See also: Science The Endless Frontier