We Need More State Capacity on Innovation

Eric Schmidt is right we need more R&D investment to beat China. But we also need more capacity to assess its efficiency and efficacy.

Defense Innovation Board chairman and former Google CEO Eric Schmidt has an excellent op-ed today in the New York Times (disclosure: Lincoln is a grantee of his foundation) making the case for a stronger role in Federal R&D investment to counter China. He writes:

Important trends are not in our favor….A recent study that considered more than 100 metrics found that the United States is well ahead of China today but will fall behind in five to 10 years. China also has almost twice as many supercomputers and about 15 times as many deployed 5G base stations as the United States. If current trends continue, China’s overall investments in research and development are expected to surpass those of the United States within 10 years, around the same time its economy is projected to become larger than ours.

Adding that:

Ultimately, the Chinese are competing to become the world’s leading innovators, and the United States is not playing to win. A bold, bipartisan initiative can extend our country’s technology advantage beyond what many experts predict. Success matters for more than our companies’ bottom line and our military’s battlefield edge. We must show that these new technologies can advance individual liberty and strengthen free societies. For the American model to win, the American government must lead.

He’s right. But that’s also not the whole story.

As I’ve previously discussed, federal R&D investment has directly and indirectly led to some of the most important technological innovations in America, such as GPS and the Internet. The recipe for creating Silicon Valley isn’t just garage inventors plus deregulation. California’s regulatory regime wasn’t designed by the Cato Institute. And there are lots of garages across America. While entrepreneurial talent was a key factor, much of Silicon Valley’s success was also born out of defense acquisitions, investments from DARPA and the National Science Foundation, and talent development through the Bay Area’s strong university ecosystem.

But expanding on this success isn’t just a matter of dumping more money into our existing institutions (that have more or less been on autopilot, and are often too incremental). We need new targeted investments like what Schmidt and the White House have proposed, but we also need greater capacity for oversight and assessment of current R&D efficiency and outcomes. Building this capacity will also help bring greater support from conservatives who may be skeptical of increasing spending against the backdrop of our growing national debt and uncertain economy.

One important place where this capacity is already being built is the Government Accountability Office’s Science, Technology Assessment, and Analytics (STAA) team. This research unit, created in 2019, has a growing staff and capacity to undertake evaluations of federal science and technology programs beyond the scope of GAO’s traditional performance audits and evaluations. Like the former Office of Technology Assessment which it is modeled on, policymakers should start to utilize STAA for strategic in-depth evaluations of our R&D portfolio.

Growing STAA is part of GAO’s FY 2021 budget request, which is seeking a $76 million overall increase. While this sounds like a lot, it’s a good investment. GAO reports a savings of $338 for every dollar of its budget. Nonetheless, given the legislative branch’s historically constrained funding environment, the future of STAA is uncertain.

A key challenge in keeping the U.S. ahead of China on innovation will be Republicans getting over their skittishness about investing in state capacity and R&D. They’ll also have to increase their tolerance for failures, sometimes taking a VC-style portfolio approach over risk-averse incrementalism. This debate is already happening within the right, as my colleague Marshall Kosloff highlights. Hopefully it happens in time to chart the right path forward.

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