Don’t Look Back: Science Funding for the Future

The beginning of a new administration and a new Congress provides an opportunity to reassess national science and technology (S&T) policies. A reassessment is badly needed because shifting national priorities and strong pressures to eliminate the federal deficit have reduced the federal budget for research and development (R&D) in real terms over the past several years. The R&D budget will probably continue to decline as long as deficit-reduction plans get most of their savings from the discretionary part of the budget. A smaller federal investment in S&T threatens to reduce the flow of new knowledge that contributes to long-term economic innovation and growth and to many other national goals, and vigorous efforts will have to be made to reverse that trend.

The current budget situation poses two special problems for S&T policy. First, as long as R&D budgets continue to stagnate, special measures must be taken to avoid certain tendencies in budgeting-as-usual that could have unintended but damaging effects on the S&T enterprise. Otherwise, cuts will not be as selective as they should be; existing installations and staff will be maintained even though their programs are shrinking; maintenance and upgrading of infrastructure will be deferred; innovative but risky projects will be avoided; and as a result, the priorities embedded in the historical budget base will be perpetuated.

Second, people facing budget cuts naturally focus on protecting what they have, a state of mind that prevents them from looking ahead to new opportunities. But efforts to defend R&D from further cuts in the annual budget process must not be allowed to obscure the need to respond to larger changes affecting the S&T enterprise and to consider how S&T policies and programs should be revised to meet future needs.

It is natural to hope that S&T will do well despite the federal budget crunch; that it can escape serious cuts because of its self-evident worth to the nation. But so far it has not. Federal investment in S&T has been shrinking for several years, and that trend is likely to continue. In 1997, annual budget authority for R&D will be 7 percent smaller in real terms than it was in 1992 (its historical high point). The federal R&D budget increased slightly from 1996 to 1997 after four years of decline, but that upturn probably does not signal a new period of the kind of sustained growth that R&D experienced during most of the past 50 years. President Clinton’s FY 1998 budget requests a 2.2 percent increase in R&D, which would be a slight cut after inflation. Some science advocates believe that R&D can be sheltered from cuts because it accounts for only 4.3 percent of the federal budget. More relevant is the fact that it constitutes nearly 15 percent of the discretionary part of the federal budget, which the various deficit-reduction plans cite as the main source of the cuts needed to balance the federal budget by 2002. This helps explain why in 1996 both the president and Congress projected cuts in the annual R&D budget reaching about 20 percent by 2002.

Will cuts of that magnitude actually occur? Perhaps not. The Congressional Budget Office recently lowered its deficit forecast because of smaller-than-expected entitlement program costs and larger-than-expected economic growth. Deficit projections will continue to be very sensitive to assumptions about future economic conditions and rates of growth in entitlement programs. Now that the president is in his last term, he may be more willing to advocate politically unpopular measures to reduce the growth of entitlement programs and ease the need to cut the discretionary budget (although he is not doing so in his FY 1998 budget, in which 75 percent of the deficit reduction needed to balance the budget is postponed until 2001 and 2002). Scientists, traditionally loath to lobby, are beginning to mobilize politically and are joining research advocacy groups, which could help improve the position of S&T relative to other discretionary programs. Members of Congress are beginning to propose special legislation favoring research. For example, Sen. Phil Gramm (R.-Tex.), a well-known fiscal conservative, has introduced the National Research Investment Act of 1997 (S. 124). His bill would authorize doubling the budgets for biomedical research at the National Institutes of Health (NIH) and for civilian R&D at 11 other agencies over 10 years.

No one can predict how federal R&D budgets will fare in the future. After a few tight years, R&D budgets may resume the rates of growth they have generally experienced in the postwar period, as they did after R&D budgets fell sharply in the early 1970s. The situation is different and less favorable this time. Entitlements and other mandatory programs constituted 38 percent of federal outlays in l972. Today, they make up 53 percent of federal expenditures, and until their growth rates are changed, there will be increasing downward pressure on all discretionary programs. In the meantime, it seems prudent to consider how to bring the nation’s S&T enterprise into the 21st century within budgets that are likely to be flat at best. We propose a number of measures that would help reshape federal policy to preserve the health of S&T during an extended period of budgetary scarcity.

Pathologies of decremental budgeting

The federal budget process is not a model of rational decisionmaking. Budgeting is largely decentralized and bottom-up, and it is dominated by incrementalism, in which marginal changes in the previous budget of each agency are the focus of attention. Although incremental budgeting is far from perfect, experience shows it to be preferable to comprehensive budgeting schemes, which depend on unrealistic assumptions about costs and benefits and what will happen in the future, as well as the ability to make value comparisons among disparate programs.

Unfortunately, the virtues of incremental budgeting are far more apparent when budgets are increasing than in a period of decremental budgeting such as we are experiencing now. Although the annual time horizon of incremental budgeting may seem short, especially for S&Tscience and technology programs, it nevertheless has allowed the government to adapt reasonably well to changing opportunities and needs in periods of growth. Each program receives more or less what it got the year before, but those addressing current problems tend to get the largest part of the annual increment, and over time they grow relative to activities that have become less important or obsolete. This process reduces political conflict by avoiding explicit trade-offs, but there is a price. The continuing budget base, which is typically 95 percent of the total each year, largely reflects accumulated history rather than present and future priorities. The R&D budget comes to contain programs, organizations, and facilities that are no longer as productive, cutting-edge, or high-priority.

A declining budget is far more difficult to manage because policymakers do not have annual funding increments to direct to new or expanding opportunities. Decrementalism is not the inverse of incrementalism. As each agency mobilizes to protect its base, a number of pathologies of decremental budgeting will develop.

Spreading cuts across the board. As appropriations shrink and budget pressures continue, funders and performers of R&D will seek the least painful solutions. The normal reaction will be to spread cuts evenly, distributing them among every agency and performer. It is much harder to target cuts at agencies with the lowest-priority missions or on performers in the least productive research areas or, even if productive, in areas of less potential relevance to current national goals. The tendency to distribute the pain of budget cuts leads to the biggest problem with decremental budgeting: its perpetuation of the historical base of missions and programs, which restricts the capacity of the S&T enterprise to respond to new research needs or opportunities. This problem is made worse in a period of great change, such as the one we are in now.

The end of the Cold War is an opportunity to reorient the national research agenda away from an expensive technological arms and space race and toward emerging domestic and foreign policy goals. For example, the globalization of economic activity continues apace, which affects U.S. competitiveness; the emerging information age promises to transform everything in unpredictable ways; and science itself is being changed in scale and modes of organization, communication, and funding. Support for initiatives that respond to these developments will have to be carved out of existing programs.

Deepening suboptimization. Although incremental budgeting is suboptimal because each agency makes its decisions without regard to the impact on the total enterprise, such problems tend to work themselves out in successive budgets because neglected areas of research find support, perhaps in unexpected places. An investigator whose good idea is turned down by one agency can often find another one that will provide support. If the overall funding of a scientific field or research area is deemed inadequate, decisionmakers at the agency, executive office, or congressional level can add an increment to agency appropriations. Suboptimization is much less benign in decremental budgeting, however, because negative decisions by one agency cannot easily be made up by another. For example, the Department of Defense (DOD) was an early and generous supporter of research in fields such as physics, electrical engineering, computer sciences, materials science and engineering, and oceanography, which have had broad payoffs for the economy and the environment as well as for science. As DOD reduces R&D spending, which has already declined by more than 16 percent since 1990, it is shifting away from some areas of basic research with lower priority in terms of its current mission without regard to the impact on the government’s overall investment in those areas. For example, DOD provided 33 percent of federal funding for university basic oceanographic research in 1994, down from a high point of 41 percent in 1991. Although that makes sense for DOD, it may not be optimum for the nation, which could lose some of the benefits that come from oceanography’s important role in understanding long-range weather trends and climate-change dynamics.

Protecting facilities and people. Within agencies there are already strong pressures on decisionmakers to keep all programs and facilities going rather than to consider more fundamental restructuring, such as consolidating, downsizing, or eliminating some activities in order to keep others at full strength or expand them. There is an eternal hope that funding will eventually go back up and a fear that it might be impossible to restart terminated activities or reopen closed installations. Even when the need to close facilities is acknowledged, the tough decisions are delayed. National Aeronautics and Space Administration (NASA) director Daniel Goldin, for example, has pledged to give preference to core programs over infrastructure (facilities, jobs, and administrative overhead) as the agency downsizes substantially to meet a lower budget future, but he has not moved to consolidate or close any NASA centers. Similarly, although the National Science and Technology Council’s (NSTC) task forces on the federal laboratories found excessive duplication of capabilities as well as excess capacity to meet reduced missions in a post-Cold War world and concluded that measures short of closing labs were unlikely to result in adequate budget savings, NSTC did not recommend closing any federal laboratories.

Deferring infrastructure and other investments. While trying to keep the existing structure going at reduced levels of funding and personnel, agency decisionmakers will find it easier to defer certain types of expenditures, especially maintenance and modernization of facilities, equipment, and instruments in the hope that funding will turn up later. Putting money into infrastructure during a funding crunch, when the number of research grants would have to be reduced, is notoriously difficult, but it must be done to maintain the health of the system, especially if the poor budget climate is likely to continue.

Increasing cost-sharing. There will be added pressures to impose or increase cost-sharing, simply to make federal dollars go further. Historically, cost-sharing has been an important programmatic tool in S&T policy. It has given federal decisionmakers confidence that institutions and individuals will deliver performance and that federal investments will leverage other funds for research. Research institutions have already complained that some cost-sharing requirements amount to cost-shifting. Decremental budgeting will increase the pressure to expand cost-sharing and hold down overhead rates.

Avoiding risks in peer review. The historical “drag” of incremental budgeting on the ability of S&T agencies to respond to changing needs and opportunities has been mitigated by distributing some funds directly as competitive short-term project grants rather than through intramural laboratories or institutional grants. Each year, if the budget has gone up only a few percent or even if it is declining, a quarter or third of the funding can be awarded to new and risky research ideas. When funding is tight, however, the project grant system becomes conservative. Those who review and recommend research proposals tend to favor safe proposals — i.e., proposals using proven techniques, and research in areas that have been productive in the past and from researchers with proven track records. More innovative but inherently riskier proposals that may result in radical breakthroughs or insights are less likely to be funded when budgets are shrinking than when they are expanding, unless special steps are taken to set aside funding for them, as some agencies have done. At the National Science Foundation (NSF), for example, the Mathematical and Physical Sciences directorate created a special office to fund innovative interdisciplinary proposals. NIH is currently considering dealing with this problem by making “creativity/innovation” a separate top-level criterion in peer review ratings.

Resorting to “silver bullet” policy fixes. The pressures of decrementalism will trigger policy proposals to “solve” the problem in ways that would be detrimental in the long run. A notorious example is the pork barrel approach of earmarking appropriations for research facilities that bypass normal executive branch and congressional review procedures. Recently, there have been suggestions that R&D should be a fixed percentage of gross domestic product or grow at a specified rate that would double it within 5 or 10 years. Formulas for taking R&D, or parts of it, “off line” into trust funds will be tempting. Attractive as these ideas may be, they are poor public policy. R&D programs funded through formulas mandating specific percentages of appropriations or trust fund arrangements would become entitlements. Guaranteed funding would reduce the competition for funding that helps ensure quality. It would also limit the flexibility to shift support to new R&D priorities. Moreover, advocates of trust funds should know that they can be and have been frozen to help balance the budget or tapped to fund unrelated activities. And even though scientific pork barreling declined in the last Congress, there will be strong pressures to resort to this silver bullet by those who feel that there is no other recourse. Appropriations that bypass established executive and congressional review processes are poor public policy, however lofty the intended purpose.

Adapting to the post-Cold War world

As yet, there is no agreement on an overarching new rationale for federal R&D funding to replace the Cold War consensus forged around national security. Such a consensus seems unlikely to emerge in the foreseeable future and, from a policy perspective, choosing a new rationale to drive S&T policy might be a premature, and therefore unwise, course.

Some argue that economic competitiveness should be the guiding rationale for post-Cold War S&T policy and funding. Although the long-term contributions of S&T to the overall competitive strength of the nation will continue to be critical, there are at least three problems with that argument. First, inadequate S&T was not the cause of the poor performance of U.S. industry, and indeed, U.S. companies have rebounded strongly in recent years by strengthening their business management. Second, federal involvement in providing technological assistance to companies or even industrial sectors is politically controversial, and consensus on what is effective or appropriate is not likely to emerge soon (and is not necessary if inadequate S&T is not the primary problem to begin with). Third, and most important, focusing on economic competitiveness as the driving rationale for S&T funding is too narrow. On the one hand, S&T serves a range of national goals beyond economic growth per se. On the other hand, the nature of the post-Cold War world and its implications for S&T policy are still very uncertain.

Others believe that health research should replace national security as the main rationale for S&T funding. Biomedical research is very popular and its benefits cannot be denied. Sen. Gramm’s bill emphasizes biomedical research, and Sen. Connie Mack’s (R-Fla.) Biomedical Research Commitment Resolution (S.R. 15) is even more ambitious, calling for a doubling of the NIH budget in five years. Biomedical research already receives a very large share of federal funding of basic research (nearly half). In the absence of a general and substantial rise in S&T funding, would it be wise to make biomedical research even more of a centerpiece for federal support of basic science?

Given the broad range of problems facing the nation and the world today and the uncertainties about which research will pay off and in which areas, we suggest that the nation’s S&T portfolio be diversified among research areas and not be dominated by any one purpose. Even if one cares only about health, diversification makes sense. Progress in nonbiological fields such as physics and chemistry have made critical contributions to the development of genetic engineering and biotechnology, not to mention to the widespread use of lasers, nuclear magnetic resonance imagers, and other tools in medical research and treatment today. Similarly, the best way for the federal government to bolster the nation’s economic competitiveness (besides maintaining suitable fiscal, tax, regulatory, and other policies) is not to focus on particular technologies but to maintain a broad base of S&T activities, especially those the private sector needs but does not support.

Addressing the challenges of the future

Talk about the “end of science” and other fin-de-siecle laments have become fashionable. Given the advances in all fields, such despair seems very premature. The United States and the world enter the 21st century facing a wide range of problems with which S&T could help. They include environmental restoration and protection, managing economic development for sustainability, improving health in industrializing and industrial nations, social and engineering issues arising from concentrations of populations in mega-cities, new sources of energy and improved energy efficiency, improved educational quality in the United States and education in industrializing nations, improved natural disaster warnings and hazard prediction, coping with global climate change, national security, and competitive strength in a technology- and knowledge-based global economy. These and many other societal issues will benefit from steady scientific progress in many disciplines, and from a focusing of science and engineering knowledge in goal-oriented ways to help solve problems confronting the United States and all humankind. In restructuring federal S&T policy, it should be possible to excite the electorate, elected officials, and the science and engineering communities with a vision that ties the work of the S&T enterprise to a more promising future.

This promise was the underlying and still-relevant theme of the postwar charter for federal support of S&T: Science: The Endless Frontier. The many academic and governmental policy discussions triggered by the 50th anniversary of Vannevar Bush’s report have focused too much on internal government-of-science issues instead of the larger question of how S&T could further national goals. With the end of the Cold War-a period that focused S&T goals, funding, human resources, and institutions too greatly on a single S&T objective-we have an opportunity to refocus the S&T enterprise on a broader set of issues. The crisis of the budget deficit is both a help and a hindrance. The immediate effect of the budget squeeze has been to mobilize people and institutions to defend what they have, but as budget scarcity continues, pressures will build for more fundamental changes among and within institutions and practices.

Guiding S&T in a time of change

Unfortunately for working scientists and engineers and for policymakers, there is no easy answer to uncertainty; no major threat to the nation that unambiguously order R&D priorities and justifies increased funding. But federal officials have a number of means and tools to manage and reorient the S&T system in the next few years while the deficit reduction issue is sorted out. These tools can be deployed while maintaining the positive aspects of the present decentralized system of federal S&T support.

The main objective is to seize the great opportunity that has been provided by the policy-liberating aspects of the Cold War’s end. In policy, incremental and annual actions and funding decisions count greatly. Although the power of presidential pronouncements and legislated goals cannot be denied, future policy directions will be greatly influenced by annual budget decisions. The leaders of government and the S&T community can move the S&T enterprise forward in this period by actively managing change. Here are some proposals:

Adopt a federal S&T budget. The National Academies of Sciences and Engineering, the Institute of Medicine, and the National Research Council (NRC), in their report Allocating Federal Funds for Science and Technology, recommended the development and use of a federal science and technology (FS&T) budget. The FS&T budget is the part of the total R&D budget that is devoted to expanding fundamental knowledge and creating new knowledge; it excludes the substantial and important funding directed to production-engineering, testing, and upgrading large weapons systems. An annual analysis of the FS&T budget would provide a look at budgetary details that are important in understanding the cumulative impacts of decremental budgeting. For example, looking at the federal budget in FS&T terms shows that DOD’s downsizing is already resulting in significant reductions in important fields. Other agencies will be ill-prepared to pick up the slack. Not all the suboptimization effects in the various individual budgets can be remedied. But in critical areas of science, adjustments could be made when agency cuts create national-level imbalances or gaps in research investment. The Office of Science and Technology Policy (OSTP) and the Office of Management and Budget (OMB) should implement an annual FS&T analysis as a part of the normal budget review and be prepared to take actions warranted. We believe that use of the FS&T budget will help ensure that there is adequate funding of the most productive programs despite tight budgets. At the same time, it will help strengthen the case for making larger investments in R&D relative to other types of expenditures.

Use an R&D portfolio approach in planning. In addition to using the FS&T budget to monitor imbalances and gaps, there should be a positive conceptual framework for reviewing and adjusting FS&T policies and programs at the various decision points in our decentralized decisionmaking system-from the level of the individual research program; to the department and agency level; to the president and Congress, who must reach final agreement on R&D programs at the national level. We have proposed elsewhere use of a portfolio concept analogous to the one used by financial investors. This approach to decisionmaking under uncertainty about which research projects will pay off, or when and how, places great emphasis on managing risk through diversification. Those seeking budget approval would be judged on how diversified their program was, in terms of research topics and mechanisms. Their portfolios would be evaluated for the balance between shorter-term research related to their missions and longer-term investments that would be important in future years. As the overall budget is assembled, decisionmakers at the national level should compare the pluralistic R&D program that emerges with overall national goals. Is it enough? Is it complete? Are FS&T budgets balanced internally in terms of research areas and externally with respect to agency missions? Are the necessary factors for long-run success there, such as an up-to-date infrastructure, well-trained personnel, and so on? OMB has been treating R&D expenditures as an investment for two decades. Without greatly changing current budget procedures, the investment concept could easily be extended to include the portfolio idea. The key is for OMB and OSTP to make it clear to the agencies that those with appropriate portfolios, including a certain amount of high-risk research diversified among areas and approaches and supported by adequate infrastructure, would be favorably viewed in the budget process.

Put research in the most flexible settings. Some policies provide greater flexibility than others in time of stress. Reliance on nonfederal institutions makes an agency less dependent on permanent government employees and federal facilities. NSF and NIH, for example, have relied heavily on extramural laboratories and facilities to carry out research, and over the years they have been able to adjust relatively easily to shifting research opportunities and to maintain high quality by choosing the best among competing performers. Current programs across the government as well as new initiatives should be examined periodically to see if more research could be performed extramurally rather than in-house. For example, the National Oceanic and Atmospheric Administration, which operates large, heavily manned, and costly-to-operate research ships, could reduce operating costs by increasing its use of smaller, more cost-effective private vessels under contractual arrangements. It is not that federal employees and facilities are of lower quality; the issue is that government rules and the political system make them harder to downsize or shift as research goals and opportunities change. With advice and assistance from OSTP, OMB should make it clear through memoranda and circulars that it would favor moving research to more flexible settings.

Close laboratories and facilities. Like it or not, the S&T enterprise contains many laboratory facilities that were created to meet past needs, such as the Cold War and the modernization of agriculture earlier in the century. So far, with some exceptions, the reviews of laboratories and facilities (such as those conducted for the NSTC) have shied away from recommendations to close down facilities. DOD, the Department of Energy, and NASA especially, but also the Departments of Commerce, Interior, and Agriculture, have laboratories and facilities that could be closed to free up resources for newer, higher-priority work during a period of declining or at best flat R&D budgets. Facility closing will be controversial and unpopular, to be sure, and may only be accomplished through the device of a base-closing commission to absorb the political heat. DOD has shown that a base-closing commission can be used effectively by a downsizing agency, and we suggest that it be used by other agencies.

Prevent bad S&T policy. In times of stress, there is a natural tendency to preserve budget share by resorting to questionable policies, such as mandates, formula programs, and pork-barrel support. The considerable number of tools available to the executive (such as budget recissions) should be used to thwart appropriations that have not had normal congressional committee review. Egregious silver-bullet policies, formula-funding schemes for R&D, and pork-barrel projects should be identified and blocked. The line-item veto power recently granted to the president could be an important new public policy tool in this respect.

Use the right policy model of contemporary S&T. A new mental model of the S&T enterprise that accurately represents today’s interrelationships between discovery and application, various ways of conducting research from the individual investigator to the virtual team, the interplay of disciplines, and the enormously important impact of advances in technology on the ability to undertake frontier science, would do a great deal to increase public support for U.S. S&T. The dual objectives-meeting national goals and maintaining freedom of fundamental inquiry-should be stated in the model, because a mature and powerful S&T enterprise should be able to take credit for helping to achieve national social and economic goals without worrying that the autonomy of fundamental scientific research will be compromised. The assistant to the president for science and technology could assign the task of reaching consensus on a new model of S&T to the President’s Committee of Advisors on Science and Technology, the National Science Board, or the NRC.

Focus on current and future S&T issues in the budget process. In recent years, thoughtful reports from the Carnegie Commission on Science, Technology, and Government; the NRC; the Council on Competitiveness; and other organizations have identified current and future societal problems that S&T could help resolve. Science in the National Interest, the Clinton administration’s policy statement, also has a forward-looking set of policy goals. Most of these studies, however, were based on an assumption of greater R&D budget growth than is likely to occur for some time. We do not believe that the new research opportunities and goals identified in such reports should be ignored simply because there is no new money. The wisdom they contain about matching S&T to societal goals could be used by decisionmakers to guide the S&T enterprise through the shoals of decremental budgeting. What is needed now is a process that matches these recommendations to today’s budgetary realities. It must be a process that will make hard choices and trade-offs, such as recommending decreases in the support of some areas of science so that there can be increases in others. Some national objectives such as planetary exploration could be accomplished at a more measured pace. Other priorities could receive greater emphasis. New commissions or task forces are not needed; the S&T advisory mechanisms we already have should be used to assess these choices and trade-offs.

We are not calling for a radical change from decentralization to centralization in the current policymaking system. Our decentralized system has been a source of strength because it fosters diversity and creativity. The informal adjustments of programs and goals that bottom-up planning and budgeting provide do not work nearly as well when budgets are flat or shrinking. We believe that the measures we recommend are required to counteract the pathologies of decremental budgeting and broaden the perspectives of S&T policymakers who are focused on annual budget battles to include a vision of the opportunities and needs of the future.

Even the modest adjustments in current procedures that we suggest will be difficult to achieve in a system that has thrived without more integrated planning and budgeting. If the current budget squeeze is going to continue into the next century, however, cuts and trade-offs are going to be made. The question is, how well will they be made? We think our suggestions would improve decisions, although they will take a great deal of political will to implement.