Science Has Seen Little of 'Peace Dividend' From Reduced Defense Spending

Lawmakers have passed up opportunities in recent decades to direct more discretionary spending toward science, infrastructure and innovation, according to a new AAAS analysis; coalition urges steps to close the “Innovation Deficit.”

While a significant "peace dividend" has accumulated since the late 1960s due to declining or flat defense spending, the advantages of that dividend have largely bypassed investment in science, infrastructure, and education, according to a new analysis by Matt Hourihan, director of the AAAS R&D Budget and Policy Program.

Policymakers on both sides of the aisle frequently call for increased spending in those areas, Hourihan notes, as they are likely to do in the upcoming White House budget submission.

But lawmakers have passed up opportunities in recent decades to direct more discretionary spending toward science, Hourihan writes in a post to his program's website. Instead, most of the peace dividend has gone to spending on entitlements such as Social Security, Medicare and Medicaid.

The growth in such transfer payments is not surprising, given the popular support for Great Society legislation both in Congress and by the public. But these payments to individuals, most of which are mandatory and outside the normal appropriations process, complicate any efforts to achieve fiscal reform and increased spending on R&D investment, according to Hourihan. The budget composition that is now established will be difficult to modify, he argues.

Yet there is a strong case for closing what a coalition of 14 business, higher education and scientific organizations, including AAAS, is calling the "Innovation Deficit," the gap between what the nation is spending on research and education  and what it should be spending in order to maintain America's competitive edge in science, technology and innovation. The coalition has unveiled a new four-minute video that makes the case for closing the gap.

A coalition of 14 organizations including AAAS is calling for increased investment in research and education. | Innovation Deficit/YouTube

The coalition notes that, according to the National Science Board, the U.S. share of global R&D declined from 37 percent to 30 percent since 2001. During the same period, the economies of East and Southeast Asia and South Asia -- including China, India, Japan, Malaysia, Singapore, South Korea and Taiwan -- saw an increase in their combined share of global R&D from 25 per cent to 34 percent.

As Hourihan writes in his analysis, it is "worth asking whether the current budget composition best positions the nation to meet the challenges of the 21 st century." He acknowledges that it is difficult to know the optimal level of spending on R&D investment. While "most economic evidence suggests R&D provides significant social returns," he writes, "there isn't a clear answer to how much more we should target." He adds that industrial R&D is not a substitute for public research funding, which tends to focus on more basic research without an immediate expectation of payoff.

In a chart accompanying his analysis, Hourihan shows the substantial decline in defense spending in the latter half of the 20th century and early 21st century, from over 40 percent of the total federal budget in the late 1960s to less than 20 percent today. The largest decline, in the decade following Vietnam, represents an enormous postwar peace dividend that would be the equivalent of well over $600 billion per year in today's budget terms, Hourihan says. The post-Vietnam peace dividend also dwarfs a peace dividend at the end of the Cold War. 

Given the size of this defense savings in the 1970s, there were opportunities to further strengthen investment in R&D, job training, infrastructure, and the like, Hourihan says. But according to data from the Office of Management and Budget (OMB), that did not happen. Instead, the savings were mostly moved into transfer payments, with Social Security as the largest beneficiary. Medicare and Medicaid were still relatively small expenditures at the time, but the trend was set, Hourihan says, and the spending pattern continues to this day.

As a share of the total federal budget, OMB's "Investment" outlays now are only about half of what they were at their 1960s peak. The "Investments" category includes nondefense and defense R&D, infrastructure investments such as roads and airports, pollution control facilities, construction by the Army Corps of Engineers, and outlays for education and training programs. Even in the 1980s, when the federal budget grew for an extended period, "investment" outlays lagged behind, in part due to nondefense spending cuts under President Ronald Reagan, Hourihan says. Meanwhile, transfer payments -- led by Medicare and Medicaid -- grew and began to take up a much larger slice of the federal pie.

The publicly popular but politically complicated world of mandatory entitlement spending and the relative vulnerability of discretionary spending contribute to the ongoing fiscal conflicts that seem so difficult to resolve, according to Hourihan. "Even if one could precisely identify the advantages of increased investment," he writes, policy-makers "would still have to grapple with ideas of equity and fairness as much as good stewardship of the future. Ultimately, budgeting is about choosing between competing priorities. It will be interesting to see whether the choices today and tomorrow echo the choices of the past."