Balancing Budgets and Eating Seed Corn
By Dr. Charles R. Chappell
NASA/Marshall Space Flight Center
Intro By Lee Cropp
THE story that stuck with me concerned a well-to-do neighbor of my grandfather who ate his seed corn during a long cold Pennsylvania winter. While the rest of the county went some hungry and cold, the neighbor and his family ate well, stayed warm using th e seed, animals, and orchard trees he had originally planned to plant, birth, and pluck fruit from in the spring. It was all for his family he insisted when asking for help in chilly March and balmy April. But with the neighbors having nothing to spare, h e had to sell his farm to support his family and spent the rest of his life as a poor renter, barely able to survive.
Since shortly after the Apollo era, I have thought of this country as my grandfather’s neighbor, eating its R&D seed corn with the same potential for a disastrous end. I planned to write a column or two on the subject. Recently a friend, and former NASA c oworker, knowing my hang-up on the subject, mentioned a paper she had just read on the subject and offered me a copy. After reading it I realized two things: the material was presented with more knowledge, depth, and conciseness than I could marshal for t he foreseeable future, and I was going to publish the paper, Balancing Budgets and Eating Seed Corn, in the Virtual Times, Huntsville Edition; Grumpy Old Editors not withstanding.
The author’s credentials are as impeccable as his grasp of the subject and its implications. He is Dr. Rick Chappell, Associate Director for Science at NASA’s Marshall Space Flight Center. A magna cum laude graduate in physics from Vanderbilt and a Ph.D. in Space Science from Rice University, Dr Chappell serves as chief scientist for MSFC, advising the Center Director on all science and university programs. He frequently speaks on topics related to technology, the economy, and America’s future. His representation of NASA encompasses an extensive variety of public appearances including Cable News Network, NBC’s Today Show, ABC’s Nightline, and the BBC.
This paper deals with America’s spending on space exploration and on research and development in general. Its purpose is to give a different perspective on how America spends research and development money against the background of how we spend all the rest of our money. We will look at the percentages of money spent on different things and the relative importance of those things. The bottom line of this talk is that investment in space exploration is not in the “nice to have” category if you have some extra money to spend but is a “main stream” expenditure. If we don’t support research and development, at a sufficient level, then as a Nation we are going out of business.
This is a subject that is somewhat of a passion for me because l have been dealing with it for a long time. l am concerned about the way NASA is viewed and the way space exploration is viewed and have thought a lot about why America ought to invest in space, science and technology. These investments are in the “seed corn” category and thus are harder to understand. In addition as budgets are tightened, our nation tends to start cutting these investments which is of course a short term solution that will lead us to a long term greater problem.
These are challenging times; America is trying to cut government spending and trying to do it carefully. Government is doing realignments to try to gain efficiencies and the country is trying to establish the priorities of how America spends its money. In establishing priorities, one tries to decide what is fundamentally important for the country and what is in the category that we can possibly do without. I want to share a few thoughts on that and particularly on our need to continue a very strong investment in research and technology.
This subject is timely; we have the congressional contract for America which is recommending large cuts in the budget and we have “reinventing government” that the Administration is leading. At the same time we have the Apollo 13 film which reminds us of the way we used to do exploration in America, 20 years ago. And we have the Shuttle-Mir missions which are a very different product of the times–both the economics of the times and the international politics of the times.
Let me begin by talking about seed corn. Seed corn is the corn that you save out of this year’s crop to use for planting next year’s crop. If you don’t save any of it, then you don’t have a crop next year. That’s pretty straight forward, pretty easy to understand for the farmer. Seed corn is also the thing which is the engine for the next year and future years’ activities. In investment terms, seed corn represents the dollars you spend now that are going to bring you more revenues in the future. If you don’t spend the dollar now, then the revenues in the future go down and it gets tougher and tougher for the country.
Looking at the big picture this year America will spend 1,500 billion dollars, 1.5 trillion. Out of that, about a 1,000 billion dollars will be spent on social support and programs. One thing you always hear about the space program is, “we can’t spend money up there in space because of all the major social concerns we have down here at home.” We do have social concerns and we are spending about two-thirds of our budget to address them. In fiscal year 1995 we are spending 263 billion dollars on defense, a little less than a fifth of the total money we spend. We are spending almost that much on interest on the national debt, 235 billion dollars. This is money that we have to pay because we have borrowed money in the past. The United States owes about five trillion dollars today. The interest we pay is money that we have to spend that gives us no return at all; it is no investment whatsoever. Subtracting the above expenditures from 1.5 trillion dollars leaves 72 billion dollars that we are going to spend, in total, on research and development, about 5 percent of our budget. About half of that is on military research and development. So just slightly more than 2 percent of our total budget is what will be spent on civilian research and development. Our seed corn, therefore, for the United States this year is about 2 percent. We are going to spend 9 billion dollars on space exploration R&D, which is half of 1 percent of the total 1,500 trillion dollars that America will spend this year.
These seed corn investment numbers are already small, but that is the number that the Congress is proposing to cut right now. Current proposals seek an additional reduction of this small amount by more than one-third. That is very frightening. We have to protect these expenditures, because if we don’t continue spending at least as much on research and development, as we do now, we are in progressively more of a going out of business mode. When the investment is smaller, the return on the investment gets smaller which causes the tax revenues to get smaller, making the budget balancing more difficult, making it harder to find the seed corn dollars next year, leading to a downward spiral. This proposed R&D reduction is therefore something America needs to think about very carefully.
To get some perspective on it, lets look at the way we were as a nation during Apollo, which we were reminded of in the Apollo 13 film, a fantastic movie. The thing that is so significant about the film is that it is a true life American adventure with no Hollywoodism in it. It is just what we did back when we were a lot bolder as a country. The producers didn’t have to add any fiction to it to make it a spectacular film. It reminds us about America at a time of reaching out, a time when we were very confident, when we were taking risks, when we had a “get it done” attitude, when we were thriving on exploring the unknown and dealing with the unexpected. It was good to do that sort of thing; the public was captivated by it and caught up in it. In going to the moon America was driving the creative minds of the very best people because we had to do things that have never been done before. This is a recurrent theme which is particularly important to NASA; that is, driving creativity which then drives new technology which then drives new products which then feeds back into the economy.
These were the golden years of exploration. We had the National political will both with the President and with the Congress. At that period of time, Congress would add money to the administration’s space budget as you will remember. And John Kennedy started this off, by setting the stage appropriately when he said “we choose to go to the moon in this decade because that goal will serve to organize and measure the best of all our energies and skills.” It drives people to create and it drove people to do things that had never been done before. President Kennedy was right in his prediction; that was exactly what happened.
We spent 25 billion dollars on Apollo in R&D and that led to an estimated 200 billion dollars return into the gross national product. As a result, in 1970 America generated 75 percent of all the new technology in the world with only 5 percent of the world’s population. We were dominant in technology all over the world. Thousands of commercial products were generated and major new industries such as communication satellites at 5 billion dollars a year came into being. Information storage technology and compact disc players were facilitated by space technology and are a 17 billion dollar a year industry today. Many medical diagnostics and all of the things that come out of the creative process were being driven by aggressively exploring space.
In the Apollo era we had high creativity. The number of patents that Americans held was at an all time high. We were the largest creditor nation in the world. We had the highest number of Americans receiving PhD.’s in science and engineering and we had high international prestige as evidenced by the fact that one quarter of the world’s population watched the first Apollo moon landing on television.
In contrast, if we look at today, the situation is very different. The whole feeling about exploration in this country seems to be about avoiding risk taking. We are hesitant and ambivalent about exploration. We think of it more in a cost/benefit analysis way – tell me ahead of time how much I am going to get back before ltell you exactly how much I’m going to invest. We are backing away from risk, we are losing our edge these days as a Nation and the political will to explore aggressively is not there.
If you look at the Presidents after John Kennedy, you’ll find the following: Johnson began to level off the space budget, Nixon cut the space budget by a factor of four; Ford was not in office long enough to say very much about the space program; Carter hardly mentioned the space program in 4 years; Reagan began to see its popularity as the Shuttle began to fly and became a supporter; and Bush was very strong on the space program. President Clinton is a measured supporter. He believes in investing in science and technology but the current budget climate limits how aggressive he can be in supporting research and development. And these days, Congress tends to cut the budget that the Administration puts forward rather than adding to it. So we have a different circumstance, a lot of which comes from a lack of appreciation by the Congress about how important these investments are to the country, now and in the future.
How does America do in technology today? We probably generate less than 25 percent of all new technology; some people say 20 percent as compared to 75 percent, 20 years ago. About half of the new patents issued in the United States these days are to non-U.S. citizens. This loss of technology then causes us to buy things from other nations. When we want the best car or the best stereo or the best camera for the money, we tend, in many instances, to buy things overseas. In the recent news it was reported that the imbalance of trade for the first 6 months of 1995 was 68 billion dollars negative. It has been hovering around 120 billion dollars a year negative now for about 10 years, and that is a lot of dollars that go out of this country. The imbalance of trade means that we are spending much more on foreign goods than foreigners spend on U.S. goods. What happens is that the dollars go out of the country; and the foreign countries have the dollars, the biggest banks, and the largest stock markets. Fortunately, foreign nations are nice enough to loan these dollars back to us because our government is spending more money than we are taking in. So the Japanese and other foreign nations for example, loan us 20-30 billion dollars a month to keep our country running. That is not a good circumstance. This large flow of money out of this country and the fact that we are borrowing it back has made America the largest debtor nation in the world. We have a good quality of life, but we are doing it more and more based on floating loans than on living based on the things that we produce and consume and pay for internally. This should be very much of a concern to all of us.
One approach that has been discussed to address the imbalance of trade is trade sanctions. Sanctions were considered to try to “level the playing field” so that other nations will buy our products as easily as we buy theirs. Leveling the playing field is certainly a consideration, but Americans are used to playing on whatever playing field is out there and winning. All the football teams in America prepare for the upcoming season. They will have to play on other people’s fields. And they will have to deal with the home field advantage that other teams have by being prepared for it, not by arguing about whether or not they are going to play on your field or our field. I’d like to see America do the same thing; that is, make an adequate investment in research and development so that we can dominate the technology market so that we don’t have to go out and argue over leveling the playing field.
In education today doctoral degrees in science and engineering are very far behind 20 years ago and about half are going to people who are not U.S. citizens, to our competitors. Very few American students are choosing science and technology. I don’t know what the figures are this year but about 5 years ago l visited the University of Alabama. At that time they had 18,000 students, and only about 50 were chemistry majors and 32 were physics majors out of the 18,000 students. In the material sciences graduate department they had 22 graduate students and only one was an American citizen. This situation is not just at the University of Alabama, it is common all over this country and it is not a good trend.
In national prestige these days, in space, it is different from Apollo. We talk about international cooperation and that has good things to it from an international politics viewpoint. It allows America to carry out space exploration and spend less of our own money by partnering with other nations. But there is a trade-off here, because this approach has the downside that our nation is not producing all the technology itself. When we partner with other countries, we are beginning to depend on their technology. Then downstream, when we look to see who has the best technology for one area or another, we will not be as dominant because we will have had to be dependent on other nations for some of that technology. This lack of key technologies in America will lead to new products overseas which Americans will buy.
America today is very different from the America of Apollo. We have cut R&D spending substantially. During Apollo we spent 6 percent of our budget on civilian research and development and another 6 percent on military research and development. We had 12 percent of our budget in investment. Today we spend only 2 percent of our budget on civilian R&D and just slightly more than that on military R&D so we are down by a factor of three in the percentage of our money that we spend each year on seed corn investment. At a time when economic competition worldwide would suggest that we ought to be spending more and not less in research we keep coming down and are proposing to come down even more. It’s a very important element of the budget, but it is something that doesn’t get into the arena of public discussion when America decides how it is going to spend its money each year.
The results of cutting R&D over the past 20 years are stunning and very clear. The decision to back away from an aggressive program in space, science and technology has been a bad decision. It has robbed America of its technological leadership and all the economic benefits that go with it. Furthermore, think of the message it sends to the kids: “you better be careful about thinking of a career in science and engineering because you may not have a job downstream.” Our country is not dedicated to science and technology as much as it used to be. We have to learn from the difference in America today and the way it used to be, so that we can guide the decisions on how we spend our money in the future. We must protect the seed corn and invest it in those things which drive creativity and in turn advance technology. It is indeed possible for the government to drive new technology. Apollo is an example of that, where the government makes a commitment and then follows through with the expenditures in R&D. When this happens, the country responds with creativity.
It is interesting to look at America’s situation today from an historical perspective. Paul Kennedy who is a Yale historian wrote a book called “The Rise and Fall of the Great Powers.” He found that there are certain common things that happen with every nation when it reaches the top of its power and then goes down the other side. Initially, there is an expansion phase where the country reaches out, takes in more territory, takes in more people and resources and increases in strength. Then there is a phase where because there is more territory, the country has to spend more money on protecting this larger frontier, i.e. to spend more money on “guns.” And because there are more people to take care of the country has to spend more money on “butter.” Even with the guns and butter requirements it is still important for the country to continue spending money on the investment or seed corn. As budget resources start to get tight and there’s not enough money to pay for the guns, the butter and the seed corn tough decisions have to be made. That is where America is right now.
The decision that we make on how to deploy our money in America is going to be very, very important. It would be interesting to stand in the halls of Congress today and listen to the discussions that are going on about the budget and how to spend our money and to compare those to the discussions that you would have heard among the leaders of China in the 1400’s or around Phillip V of Spain in the 1500’s or the British in the 1700 and 1800’s–all of whom are making decisions that they really didn’t have the money to invest in exploration, that they needed to just spend the money at home and that was going to make things better. History shows that the nations which turn inward and do not invest in creativity, in innovation, in technology, and in science end up declining. This is where America is today. You can almost hear the grinding machinery of the decision process in Washington going down the same road and making decisions that will take us away from spending on the future, through investment in research and development and technology. This is clearly taking us in the wrong direction.
What should we do? What is the solution? There are 2 important things. First, we certainly have to pay for the government we have. We have been living on borrowed money too long and we are trying to attack this problem as a nation. We are trying to get our arms around living within our means as a government and that comes across in the contract for America, in reinventing government, and in striving for a balanced federal budget. These actions are very important. Within that context, as we are trying to balance the budget, we have to think about what are the obligations that America has to its future both short-term and long term. The investment in research and development is a long-term obligation. It is not an option, it is an obligation.
Once we determine what resources we need to run the government, we should take in the adequate tax money to meet the needs. It is very hard for me to understand why we are talking about a 245 billion dollar tax cut when we are going to pay 265 billion dollars next year in interest alone on the national debt. It is hard to understand how a tax cut fits into the bigger picture. It would be nice, to have a tax cut, but it is not going to help us to pay for the government we have.
Secondly, once we determine the obligations that the American government has, we have to put the seed corn investment very high on the list. If not at the top, very close to the top. We have not only to protect it, but increase it because this investment is the thing that is going to help us down the road since it underpins the future economy. The government should establish challenging goals in research and technology and fund those goals steadily and continuously. These goals drive creativity; creativity generates technology; technology leads to new and improved products; Americans buy these products, this leads to new jobs, and new tax revenues, and the tax revenues come in and help balance the budget. In addition, if the technology is good, Americans are going to buy American products and not foreign products and that is going to lower the imbalance of trade. This will keep the money at home, which then will improve quality of life for Americans.
This is a straightforward story but it has several steps in it and it is a story that people don’t naturally think about. They don’t think about how the investment in R&D feeds straight back into the future economic strength of the country. What is the right percentage of our money to spend on R&D? Two percent is too low. We can tell that. In the mid-60’s when we were spending 6 percent on civilian and 6 percent on defense, we were doing very well. We were dominating technology in the world. Companies usually spend around 10 percent on investment in the future. So the right number is certainly some place between 2 and 12 percent. I’d like to see a lot closer to 12 than 2, but 2 is way too low and we are going down competitively right now instead of going up. The message that ought to come back to the policy-makers is that the R&D investment is too low and the percentage needs to head back up toward the point where the sum of civilian and military research and development is closer to 10 percent than the 5 percent that it is now.
Let’s don’t let America eat its seed corn. We need to balance the budget, but we need to do that in a way that preserves the programs which cause our nation to reach out, to try the untried, to do the things that have never been done before. And if we invest as we should, then we can hope to keep the American dream alive.