If in fact the productivity slowdown was at least partially caused by a drop in public R&D spending, it’s evidence that we would be far richer today if we had kept up a higher level of science investment. And it also flags the dangers of today’s proposed cuts. “Based on our research,” says Fieldhouse, “I think it’s unambiguously clear that if you actually slash the budget of the NIH by 40%, if you slash the NSF budget by 50%, there’s going to be a deceleration in US productivity growth over the next seven to 10 years that will be measurable.”
Out of whack
Though the Trump administration’s proposed 2026 budget would slash science budgets to an unusual degree, public funding of R&D has actually been in slow decline for decades. Federal funding of science is at its lowest rate in the last 70 years, accounting for only around 0.6% of GDP.
Even as public funding has dropped, business R&D investments have steadily risen. Today businesses spend far more than the government; in 2023, companies invested about $700 billion in R&D while the US government spent $172 billion, according to data from the NSF’s statistical agency. You might think, Good—let companies do research. It’s more efficient. It’s more focused. Keep the government out of it.
But there is a big problem with that argument. Publicly funded research, it turns out, tends to lead to relatively more productivity growth over time because it skews more toward fundamental science than the applied work typically done by companies.
In a new working paper called “Public R&D Spillovers and Productivity Growth,” Arnaud Dyèvre, an assistant professor at of economics at HEC Paris, documents the broad and often large impacts of so-called knowledge spillovers—the benefits that flow to others from work done by the original research group. Dyèvre found that the spillovers of public-funded R&D have three times more impact on productivity growth across businesses and industries than those from private R&D funding.
The findings are preliminary, and Dyèvre is still updating the research—much of which he did as a postdoc at MIT—but he says it does suggest that the US “is underinvesting in fundamental R&D,” which is heavily funded by the government. “I wouldn’t be able to tell you exactly which percentage of R&D in the US needs to be funded by the government or what percent needs to be funded by the private sector. We need both,” he says. But, he adds, “the empirical evidence” suggests that “we’re out of balance.”
The big question
Getting the balance of funding for fundamental science and applied research right is just one of the big questions that remain around R&D funding. In mid-July, Open Philanthropy and the Alfred P. Sloan Foundation, both nonprofit organizations, jointly announced that they planned to fund a five-year “pop-up journal” that would attempt to answer many of the questions still swirling around how to define and optimize the ROI of research funding.
“There is a lot of evidence consistent with a really high return to R&D, which suggests we should do more of it,” says Matt Clancy, a senior program officer at Open Philanthropy. “But when you ask me how much more, I don’t have a good answer. And when you ask me what types of R&D should get more funding, we don’t have a good answer.”