Government Funding: The Unsung Hero of Innovation and Progress

While reducing government investment in scientific research and development may seem like a quick fix to help close the budget deficit, it poses long-term risks to national progress, public welfare, and global leadership. It is not an act of fiscal prudence, but rather a disinvestment in our future. As ITIF has previously written, a 20 percent cut in federal R&D spending would cost the American economy nearly $1.5 trillion. Scientific breakthroughs require sustained funding and long-term orientation. Unlike the private sector, governments have the capacity, scale, and obligation to invest in knowledge, even if it takes years or decades to yield benefits. According to the National Center for Science and Engineering Statistics, the federal government has long been the primary source of funding for basic research in the United States. With that in mind, the U.S. government should increase funds allocated to such efforts so as not to cede global leadership in this area.

In the development of novel technologies, publicly funded science frequently catalyzes subsequent innovation in the private sector. According to the European Research Council, over 40 percent of government-backed projects were cited in patents, illustrating this pipeline. The public sector serves to mitigate financial risk in early work so that companies can subsequently improve, scale, and commercialize it—creating jobs and improving lives.

For example, the Internet did not originate in Silicon Valley, but rather in the U.S. Department of Defense. In the 1960s, the Advanced Research Projects Agency (ARPA, later DARPA) developed a pioneering network called ARPANET, designed to maintain communication during a nuclear event. At the time, no company saw the potential in networking mainframe computers, but because of government research efforts, what evolved is the Internet we know today. GPS technology, which now underpins entire industries—shipping, agriculture, transportation apps like Uber, delivery apps like DoorDash, satellite weather forecasting, global communication systems, and many others—also traces back to federally funded science programs.

Perhaps no example in recent times is more powerful than the development of mRNA vaccine technology. The rapid deployment of COVID-19 vaccines by Pfizer-BioNTech and Moderna was the culmination of decades of foundational research by the National Institutes of Health (NIH). NIH scientists were working on RNA-based therapeutics and lipid nanoparticle delivery systems in the early 2000s. When the pandemic struck, researchers at private companies were able to quickly build upon that groundwork, producing the vaccines that saved millions of lives and reopened the global economy. According to the 2022 State of Science Index, nearly 60 percent of adult Americans became more appreciative of science as a result of the COVID-19 pandemic.

The Office of Scientific Research and Development (OSRD), created during World War II to support the government’s military objectives and responsible for developing radar and the atomic bomb, saw many of its other inventions yield significant peacetime applications. These include, most notably, the mass production of penicillin, which revolutionized medicine, as well as the development of synthetic materials that laid the foundation for postwar advances in materials science and industrial innovation. Although OSRD existed only from 1941 to 1945, shortly after the end of World War II, the National Science Foundation (NSF) was founded in 1950 to continue supporting a wide range of scientific research, not just that related to defense.

Similarly, the National Aeronautics and Space Administration (NASA), founded in 1958 to compete with the Soviet Union during the Space Race, has since delivered far more to humanity than space missions alone. Its budget is often looked to as a source for cuts by both parties, even though NASA’s vast portfolio of developed technologies has driven breakthroughs that tackle global challenges while improving everyday life. Satellite-based Earth-observation systems monitor climate change, track natural disasters, and inform agricultural practices by analyzing soil moisture, crop health, and land use—transforming how we respond to climate risks and enhance food security.

Moreover, advanced digital image processing and multispectral analysis, born from NASA’s space missions, have been adapted to improve medical diagnostics. Water purification systems developed for astronauts have led to portable filtration systems used in remote and disaster-stricken areas worldwide. NASA’s research in crash dynamics, materials science, and aviation safety has improved transportation by informing better seatbelt and child car seat design, advancing anti-icing protocols for aircraft, enhancing flight control software, and creating more impact-resistant car bumpers and panels. All of this has been achieved despite NASA’s continually shrinking budget, which has decreased from a peak of 4.4 percent of the federal budget in 1966 to only 0.3 percent today. Imagine how many more breakthrough discoveries could emerge with greater investment.

Importantly, government-funded R&D does not occur only in federal labs, but also at universities where faculty and students, funded by federal grants, pursue novel research. This system has made American universities the global standard not just as teaching institutions, but also as incubators for innovation. Government-backed university scientists have contributed to a broad spectrum of real-world applications: CRISPR gene-editing tools, renewable battery technologies such as solid-state and lithium-sulfur systems, various cancer treatments like immunotherapy, algorithms that power artificial intelligence models, and improved materials for solar cells. Despite this, the federal government recently made substantial budget cuts to universities and the grants that fund university researchers.

Basic scientific research is not a cost center but a strategic investment in long-term national innovation. While fiscal responsibility is important, austerity in areas such as scientific research risks crippling future technological progress. According to the International Monetary Fund, citations for scientific articles peak at eight years—more than double the three-year peak for patents—highlighting the enduring impact of basic research compared with applied research. Similarly, an MIT study found that a 10 percent increase in government defense R&D leads to a 5 to 6 percent rise in private-sector R&D in the same industry while also boosting total factor productivity growth by 5 percent annually. In sum, this underscores the powerful innovation spillover effect of public research funding. Innovation spillover is especially strong for smaller firms, according to findings in a report by economist Arnaud Dyevre for the European Central Bank, and explains about one-third of the U.S. productivity slowdown since 1950 amid declining public investment.

Moreover, federally funded R&D investments also benefit society. Indeed, the American Enterprise Institute found that each dollar of public R&D investment yields $5 to $20 in social benefit. In fact, according to a 2023 report by Fieldhouse and Mertens, non-defense R&D funding significantly boosts private-sector innovation, accounting for roughly one-quarter of business productivity growth since World War II, with social returns estimated between 150 and 300 percent. Yet despite its centrality to innovation, security, and prosperity, U.S. federal R&D spending as a percentage of GDP has decreased from a peak of 2 percent in the 1960s to just 0.6 percent today. This trend is likely to worsen as President Trump plans to cut $5 billion from the NSF’s $9 billion budget next year, per The New York Times.

Sustained investment in R&D is critical for global competitiveness. Other nations, including China, are rapidly increasing their science budgets, recognizing the strategic value of innovation—making investment in scientific research also a matter of national security. As ITIF has previously documented, in 2023, China invested $781 billion in R&D, only slightly trailing the United States’ $823 billion, and may already have surpassed U.S. spending when adjusted for cost. Moreover, China’s R&D growth rate is dramatically outpacing that of the United States. Countries that lead in science will shape the 21st century. If the United States retreats from science spending, it risks falling behind in key areas such as artificial intelligence, biotechnology, and green energy, thereby ceding technological leadership and undermining public welfare.

The federal government must reverse this decades-long trend by increasing funding for research and development and modernizing the process by which that funding is allocated. Scientific American estimates that researchers spend nearly 40 percent of their time navigating administrative red tape just to apply for grants, which then demand excessive proof of immediate, short-term impact. Removing these inefficiencies would allow scientists to devote more of their time to actual research while still reducing bureaucratic overhead and saving taxpayer dollars.

Scientific R&D represents our collective vision for what is possible, enabling us to be proactive, not reactive, in solving the challenges we face. However, doing so requires thinking beyond what we can envision today. Scientific breakthroughs rarely emerge from linear planning or narrow objectives but instead from sustained investment in a diverse range of disciplines—many of which may seem disconnected or speculative at first. Risks must be taken and patience must be exercised, because some of the most transformative discoveries arise from creating conditions that allow innovation to flourish. Only by investing in the future can we take advantage of all that it promises. Rather than asking whether we can afford to invest, we must ask whether we can afford not to.