Summary
We support:
- Federal funding for basic research and development (R&D), particularly where the benefits are broadly shared
- Prioritizing publicly funded research that produces global public goods, such as advances in health, agriculture, and energy
- The use of general tax policies to support private-sector research aimed at improving economic competitiveness
We believe:
- The United States represents a declining share of the global economy, and the benefits of basic research are increasingly shared worldwide
- As a result, publicly funded basic research is less likely to produce a sustained competitive advantage for the U.S.
- Policies intended to enhance competitiveness should focus more on incentives for private-sector innovation than on directing public research toward specific commercial outcomes
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Background
The Economics of Research
The production of knowledge is often described as a “public good,” meaning that once it is created, one person’s use of that knowledge does not reduce its availability to others.
In a purely market-based system, this creates a challenge: individuals and firms may not be able to capture enough of the value of their ideas to justify the cost of developing them. For this reason, governments grant patent and copyright protections to provide temporary exclusive rights, creating incentives for private investment in research and development.
Basic research—research with no immediate or clearly defined commercial application—presents a different challenge. Even with intellectual property protections, too little of it would be undertaken by the private sector alone. As a result, government support for basic research is both common and appropriate.
The Global Nature of Knowledge
A central issue in research policy is that knowledge cannot be contained indefinitely. Once new ideas are developed, they tend to spread—often rapidly—across borders. Economists refer to this as a “free rider” problem, in which others benefit from research without bearing its cost.
This dynamic helps explain why smaller jurisdictions rarely fund large-scale basic research: the benefits are widely shared, while the costs are borne locally.
Historically, the United States was large enough relative to the global economy that this effect could be largely ignored. That is no longer the case. Today, the U.S. represents a smaller share of global economic activity, and the diffusion of technology occurs much more quickly.
Research That Benefits the World
In many areas, the global nature of knowledge is not a drawback—it is a benefit.
Research that improves the prevention and treatment of communicable diseases, increases agricultural productivity, or reduces greenhouse gas emissions creates value that extends well beyond national borders. In these cases, rapid global adoption is desirable.
For example, advances in alternative energy technologies can reduce dependence on unstable sources of energy and contribute to lower global emissions. These outcomes serve both U.S. interests and broader global objectives.
Competitiveness and Private Innovation
The challenge arises when basic research is viewed primarily as a tool for enhancing national economic competitiveness.
In earlier periods, this approach was more effective. The United States was a larger share of the global economy, and the transfer of technology occurred more slowly. Today, publicly funded research is more likely to be adopted globally in a relatively short period of time, limiting its value as a source of sustained competitive advantage.
This does not argue against public support for research. It suggests that competitiveness objectives are better addressed through policies that encourage private-sector innovation.
We support broad-based incentives—such as tax credits for research and development—that allow firms to pursue commercially valuable innovations while retaining greater control over the resulting knowledge. These approaches are more likely to support competitiveness than attempts to direct public research toward specific commercial outcomes.
Conclusion
We support continued public investment in basic research, recognizing its broad and often unpredictable benefits.
At the same time, we believe that research policy should reflect the realities of a globalized economy. Publicly funded research is best directed toward areas where widespread adoption is beneficial, while policies aimed at enhancing national competitiveness should focus on strengthening incentives for private innovation.
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