1. 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

2. 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)

6. 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

10. 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.

12. 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

19. 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

22. 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

24. 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

25. 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

28. 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

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

31. 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

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