Money & Business

Is Sequestration Killing Innovation?

By / Dec 5, 2013 (iStock/Thinkstock)

Could the country that introduced household electricity, airplanes, and the microwave oven soon lose its competitive edge? U.S. trade groups and academics say continued across-the-board cuts to federal funding could stymie the R&D necessary to shore up the nation’s economic future.

Executives and trade association leaders representing some of the nation’s largest organizations  and academic institutions have a message for Congress: Reverse the broad, mandatory funding cuts known as sequestration, or brace for significant economic fallout.

Writing for Reuters news service, Andrea Shalal-Esa details a recent press event in which several business leaders urged lawmakers to undo the cuts required under the 2011 Budget Control Act.

Chief among them was Wes Bush, the CEO of defense contractor Northrop Grumman and chairman of the Aerospace Industries Association (AIA).

In addition to causing more job cuts— Northrop Grumman reportedly reduced its workforce by 19 percent in recent years—Bush said further federal spending cuts would significantly hinder key research and development and could even threaten the nation’s long-term national security.

The Pentagon alone stands to lose up to $500 billion in funding over the decade as a result of sequestration, on top of $487 billion in previously planned reductions, according to Reuters.

Representatives from the technology sector also weighed in. Ian Steff, vice president of the Semiconductor Industry Association, told reporters that his company invested nearly 20 percent of its revenues, or some $32 billion, in R&D projects last year. But the steep decline in federal dollars due to continued sequestration would likely spell trouble for his industry.

This all comes as foreign countries have demonstrated a new commitment to innovation and R&D.

“Other countries are seizing the moment, they are seizing this opportunity. This is a global competition and if we stay on this track, we’re going to lose.”

“Other countries are seizing the moment, they are seizing this opportunity,” Bush said during the news conference. “This is a global competition and if we stay on this track, we’re going to lose.”

While spending on innovation in the United States has remained flat to slightly down over the last 10 years, Steff said, advancing nations such as China and South Korea have significantly increased it. China alone reportedly grew its R&D budget by more than 90 percent in a decade.

Such statistics are part of the reason why the AIA and more than 100 different industry groups recently wrote a letter to President Obama and Congress challenging the across-the-board cuts.

Academia Weighs In

Make no mistake, it isn’t just corporate America that’s struggling with sequestration’s effects. Some of the nation’s leading academics have also voiced concerns about their long-term economic implications, specifically the impact they would have on government-funded research.

At the news conference, Hunter Rawlings, president of the Association of American Universities, attributed as much as half of U.S. economic growth in recent years to innovation— but said that trend wasn’t likely to continue unless Congress undoes sequestration.

In a recent Huffington Post opinion piece, Molly Corbett Broad, president of the American Council on Education, said Congress would be sorely mistaken if it fails to address the growing “innovation deficit”.

“But solving this problem will be difficult unless conference committee members eliminate the looming FY 2014 sequestration cuts, those annual, automatic, across-the-board spending reductions that first hit this past March, with another round scheduled for January,” she writes.

How We Got Here

Corbett Broad goes on to remind readers that sequestration was never supposed to happen. When Congressional leaders failed in 2011 to reach a budget agreement that would reduce the ever-growing federal deficit between $1.2 billion and $1.5 billion by 2021, sequestration was put in place as a threat. The specter of a decade of mandatory, indiscriminate cuts was supposed to force even the most politically deadlocked of lawmakers into compromise for the sake of the nation’s fiscal stability.

It’s pretty obvious how that turned out. And, having already weathered a two-week government shutdown last October, it’s anyone’s guess what happens next.

Now, business leaders are doing whatever they can to stem the tide. “We’re talking here about the nation’s future economic development being hurt by a policy that is not only short-sighted, but totally wrong-headed,” said Dorothy Coleman, vice president of the National Association of Manufacturers, at the press conference.

How has your organization been affected by sequestration? Tell us in the comments.

Corey Murray

Corey Murray is a contributor to Associations Now. More »

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