Our Future Economic Standing Is on the Line

This week we explore sequestration’s effect on the nation’s future innovation and economic competitiveness, as well as some of the other ways it is affecting communities around the country.

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Scientists Matt Drever and Charlie Holst conduct an experiment at the Pfizer laboratory at the University of California at San Francisco. Sequestration will result in substantial cuts to federal funding for research and development. (AP/ Jeff Chiu)
Scientists Matt Drever and Charlie Holst conduct an experiment at the Pfizer laboratory at the University of California at San Francisco. Sequestration will result in substantial cuts to federal funding for research and development. (AP/ Jeff Chiu)

Author’s note: On Capitol Hill “sequestration” may mean a percentage point or two in lower GDP growth, but beyond the Beltway it is more than an abstract economic concept. It means real pain for real people.

Each week in our “Sequestration Nation” series, we will highlight examples of the many ways in which the federal budget cuts may hurt you and your neighbors. This week we explore sequestration’s effect on the nation’s future innovation and economic competitiveness, as well as some of the other ways it is affecting communities around the country.

Some of the most insidious effects of sequestration are those whose full effect will not be felt for years to come. Such is the case with the $95 billion in federal research and development, or R&D, spending that will be eliminated from the budget between 2013 and 2021. Cutting R&D spending is one of the most glaring examples of the shortsightedness of sequestration because any benefit of deficit reduction accomplished this way could be far outweighed by the negative impacts it will have on future economic growth.

As President Barack Obama described in his 2011 State of the Union address, decreasing R&D spending in order to reduce the deficit is “like lightening an overloaded airplane by removing its engine. It may make you feel like you’re flying high at first, but it won’t take long before you feel the impact.” Sustained economic growth relies upon sustained increases in productivity, and much of the productivity in the U.S. economy stems from consistent technological innovation. According to Alan Leshner, CEO of the American Association for the Advancement of Science, or AAAS, “Over 50 percent of the U.S. economic growth has come from science and technology advances since World War II.”

Sequestration’s R&D cuts will exacerbate an already troubling trend of decreasing R&D spending in the United States. Federal investment in research and development as a share of discretionary spending has fallen from 17 percent in 1962 to 9 percent today. Through 2021 sequestration will reduce federal spending on R&D by $95 billion, resulting in a reduction in GDP of at least $203 billion, according to a report by the Information Technology and Innovation Foundation, or ITIF. According to the same report, another effect of decreased R&D spending could be 800,000 fewer jobs over the next four years.

To make matters worse, the continuing trend of reducing R&D spending is taking place at the same time that economic competitors such as China are increasing their commitment to research and development. Whereas the United States increased R&D expenditure by an average of less than 6 percent per year between 1992 and 2009, China’s annual growth in R&D expenditure was almost 19 percent over the same time period. According to the AAAS, federal funding of research and development already decreased by 18 percent between 2009 and 2012.

While private industry has picked up some of the slack by increasing its share of national R&D spending as the federal government has been decreasing its share, not all research and development is created equally. Private investment in research and development tends to focus narrowly on applied uses and incremental improvements of existing technology, while federal investment—largely conducted in universities and federally funded labs—tends to focus on more long-term basic research. It is this sort of basic research that helped pave the way for groundbreaking developments such as the internet, which began as a Defense Department-funded project, and the human genome project—a joint project of the Department of Energy and the National Institutes of Health, or NIH, that has generated economic output far in excess of the money devoted to it. It is precisely this kind of research that is at risk as a result of sequestration. “To put it kindly, this is an irrational approach to deficit reduction,” said Hunter R. Rawlings, III, president of the Association of American Universities. “To put it not so kindly, it is just plain stupid.”

To be sure, the $12 billion cut in R&D spending in 2013 alone is having significant short-term impacts as well. The University of Texas, Austin, stands to lose $18 million this year in research grants, while the University of North Carolina, Chapel Hill, could lose up to $28 million. For Moffitt Cancer Center CEO Alan List, sequestration “means there will be less money coming in. It means we will have to let people go. … Ultimately, it’s a real problem for the [patients] for whom we’re trying to get closer to new breakthroughs and discoveries.

In university and federally funded research labs across the country, research directors are concerned that sequestration will create a “generational gap,” according to Elias Zerhouni, former director of NIH. A decrease in grants to universities and federal laboratories means that some projects that are midstream may be suspended, some projects may never begin, and some researchers may have to find new lines of work. “We’re driving a bunch of young people out of science,” said Jonathan Chernoff, chief scientific officer for Fox Chase Cancer Center. Moreover, the lack of consistent federal support for research and development could lead future science and technology graduates, particularly those who come from abroad to obtain a university education, to take their talents elsewhere to countries that display more of a commitment to scientific innovation.

In order for deficit reduction to truly benefit the country, it must not hamper the nation’s prospects for long-term economic growth and global economic competitiveness. Sequestration cuts to research and development, however, do just that.

Elsewhere around the country, sequestration continues to affect the lives of Americans. Below are just a few of the many examples from the past week.

Canton, Ohio

For Deborah Flowers and nearly 20 other dialysis patients around Canton, Ohio, sequestration means the end of the medical transport service that these patients rely on to get to and from their weekly treatments. Due to federal funding cuts to Asset-Based Community Development, Inc., or ABCD, which runs the service around Stark County, Ohio, patients such as Flowers will be forced to find other means to make it to their treatment. Getting to and from treatment is not optional for these Ohio residents—it’s mandatory. “It is life or death,” said Flowers, “Even missing one or two treatment forces your body to start to shut down.” Will Dent, CEO of the nonprofit, noted the overlooked irony of last week’s fix to Federal Aviation Administration cuts that left other critical services suffering. When it came to air-traffic controllers’ furloughs, “people thought ‘oh, we need to make an exception,’ but for dialysis patients, the transportation means life or death.”

How is sequestration affecting you and your community? Make your voice heard by contacting us at [email protected] with your stories about the effects of federal budget cuts.

Newport News, Virginia

While many agree that the nation’s defense budget could stand to be trimmed, the unintended local effect of Defense Department cuts can go overlooked by national media. For the Hampton Roads region of Virginia, home to one of the world’s largest naval ports and largest air stations, sequestration’s effect on the area’s economy is coming into focus. The civilian-contractor furloughs and cuts to Defense Department programs could result in a loss of almost 7,000 local jobs in 2013, according to Gary Wagner, an economics professor at Old Dominion University. The secondary effects of decreased spending on restaurants, hotels, and other businesses are estimated to result in a loss of $799 million to the region’s economy this year. “It’s going to have this ripple effect all throughout the community,” said Wagner.

San Francisco, California

As a result of cuts to the Department of Homeland Security, the Coast Guard is cutting back on its patrols in the San Francisco Bay. “What they’re not going to be able to do is some of the preventative searches and that’s a little disturbing,” said Monique Moyer, San Francisco port director. According to the local ABC News affiliate, the local police and fire departments have been asked to take up some of the slack by increasing their patrols—a cost that will have to be borne by state and local governments.

Orlando, Florida

Beverly Hougland, CEO of the Osceola County Council on Aging, refuses to let elderly residents in her community go hungry as a result of sequestration. “I’m not going to tell some 90-year-old, ‘We aren’t feeding you today.’ That’s not going to happen,” said Hougland. Nevertheless, due to federal cuts in funding to community programs that provide senior services, cuts will have to be made in other services. In Seminole County, for example, Meals on Wheels Etc. is making up for a $63,000 cut by eliminating housekeeping services for elderly residents. For 80-year-old double amputee Willie Bryant, this means finding another way to get household chores such as dishes and laundry done despite being confined to a wheelchair.

Columbia, Missouri

According to the local ABC News affiliate, “Central Missouri Community Action [or CMCA] is making extreme changes to its Head Start program,” in order to deal with the loss of $300,000 in federal funding. In addition to eliminating 105 Head Start slots, the organization will be laying off 20 employees and changing some centers to half-day schedules. “Without assistance programs like Head Start, I do worry that those [children] aren’t going to be ready for school,” said Darin Preis of CMCA. Preis fears that with poverty on the rise in Columbia, cuts to the area’s Head Start program will only make the problem worse. “[Poverty has] gone up over the last ten years, it hasn’t gone down and it just seems like the wrong time to cut programs and services that are designed to help those people in poverty,” he said.

Kwame Boadi is a Policy Analyst at the Center for American Progress.

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Kwame Boadi

Policy Analyst

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