An economic engine overlooked

Research and development (R&D) funding may have the dubious distinction of being New England's most overlooked economic driver. Though New England scientific research has created thousands of entrepreneurial ventures and countless jobs-as well as such transformative technologies as the Internet-the profound role of R&D in New England is a well-kept secret. Indeed, when the New England Board of Higher Education (NEBHE) recently asked 1,000 New England "opinion leaders" to rank pressing policy issues, only Maine and Rhode Island leaders ranked "maintaining research & development funding" among the five policy issues most in need of attention.

As New England continues its transition from a manufacturing-based economy to a knowledge-based economy, the strategic importance of R&D and its ripple effects will become more pronounced.

A POWERHOUSE?

The story of New England's once-peerless research universities is by now familiar. Those institutions conducted nearly $2 billion in R&D in 1997, according to the most recent academic R&D data available from the National Science Foundation (NSF). But their share of all U.S. university research declined from 10.1 percent of the U.S. total in 1983 to 8.3 percent in 1997-still significant for a region that boasts less than 5 percent of the U.S. population.

Universities account for less than half the total R&D performed in New England. The region's businesses, government labs and teaching hospitals are also research powerhouses. Taken together, these New England entities now perform approximately $17 billion in R&D annually, according to a new NEBHE analysis of unpublished NSF data. (See table.)

Moreover, Massachusetts is among just a half dozen states that together account for fully half of the nation's total R&D, according to the NSF.

As R&D investment funds new ideas and technological advances, it also bolsters long-term economic health. At least 50 percent of the nation's economic growth derives from R&D investments.

One often-cited example of how R&D activity creates spillover effects in New England is the 1997 BankBoston study showing that alumni and others associated with a single, powerful research institution, the Massachusetts Institute of Technology, had founded more than 4,000 firms responsible for 1.1 million jobs and $232 billion in sales. Massachusetts alone could claim 125,000 MIT-related jobs.

BE VIGILANT

If New England is to maintain and enhance its position in R&D, the region needs to be vigilant-particularly in Washington, D.C.

New England's universities, businesses, government labs and teaching hospitals receive about $5 billion annually in federal R&D funds alone, most of it from the Department of Defense, which funded $2.8 billion in New England R&D during fiscal 1997, and the National Institutes of Health (NIH), which funded about $1.6 billion in the region, primarily at teaching hospitals. Moreover, the federal government funds a whopping 69 percent of R&D at New England universities, compared with 60 percent nationally, according to the NEBHE analysis of NSF data.

The New England Council, founded in 1925 as many New England companies were leaving the region in search of lower operating costs, has included R&D funding among its top priorities for many years. The council's alliance of large and small businesses, educational institutions and nonprofits have consistently placed R&D near the top of a regional agenda because they know R&D investments promote productivity and create new products and new businesses. The health, biotech and software companies now driving New England's economy are thriving as the direct result of technologies developed with R&D funding.

Four years ago, a proposed 30 percent cut in the federal R&D budget was narrowly averted. Last year, R&D funding was threatened again. Though the Clinton administration recommended significant growth in federal R&D spending, the increase would be paid for by proceeds from the passage of a tobacco bill. When that legislation died, the outlook for federal R&D appeared bleak.

In June 1998, New England's entire House delegation signed onto a New England Council letter demanding that no cuts be directed at R&D funding. The cochairs of the New England Congressional Caucus at the time, U.S. Reps. Richard Neal (D-Mass.) and Nancy Johnson (RConn.) kept up the pressure, and in the closing hours of the 105th Congress, federal R&D funding was preserved and, in many cases, increased.

Among the key changes in the federal R&D budget:

The NIH R&D budget rose by $2 billion to nearly $16 billion in fiscal 1999-a 15 percent increase over 1998. With its wealth of medical schools and teaching hospitals, New England has historically benefited disproportionately from federal health research funding.

The NSF's R&D budget rose to $2.8 billion in fiscal 1999, up $216 million or 8 percent over 1998. NSF is second only to NIH in funding basic research awards and university R&D, and New England's rich network of educational institutions captures a significant share of NSF grants.

Defense basic research rose to $1.1 billion in fiscal 1999-a 7 percent increase over 1998. The hike, the first since 1993, exceeded the increase requested by the president. Defense basic research is performed mostly by universities, but also supports such major New England businesses as Raytheon and General Electric.

Indeed, federal funding of civilian R&D has increased for seven straight years, and support for basic research has grown by 36 percent since 1993. But these funding levels are not maintained or increased in a vacuum. Congress increasingly debates budget allocations more from a geographic perspective than along partisan lines. It is imperative then that New England's voice be heard on Capitol Hill.

President Clinton has proposed a 1.7 percent decrease in total R&D funding for fiscal 2000, with outyear R&D budgets flat through fiscal 2004. Modest increases are proposed for some areas of R&D, including a rise of 2 percent for NIH, 7 percent for NSF and 6 percent for the Department of Energy. The budget proposal also addresses some critical education issues, including a collaborative Education Research Initiative, in which the NSF and the Department of Education are developing new approaches to research on education.

R&D not only inspires innovation and creates new business. By enabling undergraduates and graduate students to work side-by-side with leading scientists from academia and industry, R&D activity also provides the region's future scientific and engineering talent with the skills and knowledge needed for work in the 21st century. The knowledge created in New England university research labs is passed down through education at all levels. This function of R&D will only become more critical. Neal Lane, the president's assistant for science and technology, has estimated that by the year 2020, 60 percent of new jobs will require skills possessed by only 22 percent of today's workers.

While New England needs to encourage national leaders to maintain the federal commitment to R&D, the region also needs to strengthen investment from other sources. The federal government funds about one-third of the more than $200 billion spent on R&D nationally, with industry supporting most of the balance, according to the NEBHE analysis of NSF data.

Tax credits offer one incentive for more nonfederal investment in R&D. A temporary federal R&D tax credit, enacted in 1981 and renewed nine times since, provides businesses with a tax credit for incremental increases in annual R&D expenditures. A bill introduced in Congress this year would extend the credit for five years-the longest continuation yet. A permanent federal tax credit for businesses that invest in R&D would be even more beneficial.

In short, R&D advances knowledge and enhances education as it fuels New England's economy. That's a lot to overlook.

James T. Brett is president and CEO of the New England Council.

Copyright New England Board of Higher Education Summer 1999
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