How Will Defense Cuts Affect R&D?

February / March 2012 By: Tom Michael Volume 10 Number 1

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Washington’s defense industry is bracing for deep budget cuts promised by the Obama administration, but how those cuts will affect innovative, high-tech new military projects remains to be seen.

President Obama, standing with Defense Secretary Leon Panetta at the Pentagon in early January, sought to assure the public—and a panicky private-sector defense industry—that the military would remain at the world’s technological vanguard.

Obama told reporters that the new defense budget path, while austere, will still “ensure that our military is agile, flexible and ready for the full range of contingencies.”

However, the White House isn’t all the Pentagon has to worry about. The administration has vowed to reduce defense spending by about $450 billion over the next 10 years. But if Congress can’t overcome its gridlock and reach agreement on a bigger deficit reduction plan (remember last summer’s debt limit debate?) another $500 billion in cuts are required in 2013. Even for a Pentagon infamous for bloated budgets, a combined spending cut of nearly a trillion dollars would hurt—a lot.

A recent New York Times article, which stoked some controversy, found that the Pentagon spends about 12 percent of its budget on research and development, or about $81.4 billion during the most recent fiscal year. That amount, the Times found, is roughly 55 percent of all federal spending on research and development. Deep cuts to the R&D budgets could ultimately affect the larger economy, some sources in the article argued.

“And as the Pentagon confronts the prospect of cutting its budget about 10 percent over the next decade, even some people who do not count themselves among its traditional allies warn that the potential impact on scientific innovation is being overlooked,” the article said. “Spending less on military research, they say, could reduce the economy's long-term growth.”

However, a separate study by researchers at the University of Massachusetts Amherst's Political Economy Research Institute downplayed the impact of defense spending on job creation, if not innovation. The study analyzed the effect of $1 billion in defense spending compared to spending $1 billion on clean energy, health care and education, as well as for tax cuts, which produce increased levels of personal consumption.

“Our conclusion in assessing such relative employment impacts is straightforward: $1 billion spent on each of the domestic spending priorities will create substantially more jobs within the U.S. economy than would the same $1 billion spent on the military,” the researchers wrote. In an election year, when job creation is on the tip of every politician’s tongue, the study is likely to gain notice.

“We show that investments in clean energy, health care and education create a much larger number of jobs across all pay ranges, including midrange jobs (paying between $32,000 and $64,000) and high-paying jobs (paying over $64,000),” the report stated. “Channeling funds into clean energy, health care and education in an effective way will therefore create significantly greater opportunities for decent employment throughout the U.S. economy than spending the same amount of funds with the military.”

The Obama-Panetta news conference outlining the coming defense cuts included the release of a report titled “Sustaining U.S. Global Leadership: Priorities for the 21st Century.” While the report did, indeed, warn of leaner Pentagon budgets it also included language that might give cutting-edge private sector innovators and investors reason to breathe a little easier.

In the realm of weapons of mass destruction detection and nonproliferation technology, the report suggests continued, deep investment. In the years since 9-11, the counter-WMD priority, and all of the innovation it has produced, has been a critical part of the Pentagon’s mission. It will remain so, according to the DOD report.

“The Department of Defense will continue to enhance its capabilities, acting with an array of domestic and foreign partners, to conduct effective operations to counter the proliferation of WMD,” the report said. “In partnership with other elements of the U.S. government, DoD will continue to invest in capabilities to detect, protect against, and respond to WMD use, should preventive measures fail.”

Obama emphasized technology during his Pentagon announcement, taking special care to assert that cyberspace technology would be a major priority. The report made similar pronouncements.

The Defense Department “will continue to work with domestic and international allies and partners and invest in advanced capabilities to defend its networks, operational capability, and resiliency in cyberspace and space,” the report stated

 The report also pledged a continuing commitment to nuclear deterrence and stockpile stewardship—a goal that requires significant R&D spending.

“As long  as  nuclear weapons remain in existence, the United States will maintain a safe, secure, and effective arsenal,” the report said. “We will field nuclear forces that can  under any circumstances  confront an adversary with the prospect of unacceptable damage, both to deter potential adversaries and to assure U.S. allies and other security partners that they can count on America’s  security commitments.” 

However, the report also included some language that could make officials at the Department of Energy’s nuclear labs shudder.

“It is possible that our deterrence goals can be achieved with a smaller nuclear force, hich would reduce the number of nuclear weapons in our inventory as well as their role in U.S. national security strategy,” the report said.

It’s clear that deep and possibly painful cuts are coming to the Pentagon. What is less clear is how these cuts will affect innovation in the Defense Department and the overall American economy. It’s hoped that leaders in Congress, as well as in the White House and the Pentagon, will think carefully about slashing budgets that could yield even bigger fruits for the economy in the years ahead.

Tom Michael is Innovation’s Washington bureau chief.