08 January 2012

The World's Biggest Engine of Innovation

Think of institutions that successfully foster innovation over many decades and you might put on a short list a few companies like Apple or DuPont. But I'd argue that at the top of that list would be the US Department of Defense. For many decades that government agency has developed technologies, processes and products that shape aspects of our everyday lives, including everything from the tread pattern on your shoes to the architecture of the internet that enables you to read this post.

Last Friday, the New York Times warned of the effects on innovation of a decreasing military budget, quoting my close colleague Dan Sarewitz:
Professor Sarewitz, who studies the government’s role in promoting innovation, said that the Defense Department had been more successful than other federal agencies because it is the main user of the innovations that it finances. The Department of Energy and the National Institutes of Health, which also finance large volumes of research, are not major consumers of energy or healthcare. The Pentagon, which spends billions each year on weapons, equipment and technology, has an unusually direct stake in the outcome of its research and development projects. “The central thing that distinguishes them from other agencies is that they are the customer,” Professor Sarewitz said. “You can’t pull the wool over their eyes.”

Another factor is the Pentagon’s relative insulation from politics, which has allowed it to sustain a long-term research agenda in controversial areas. No matter which party is in power, the Pentagon has continued to invest in clean-energy technology, for example, in an effort to find ways to reduce one of its largest budget items, energy costs.
The scale of investment that DOD is able to make is of course crucially important, but as alluded to by Sarewitz, it is how DOD does its business that differentiates it from almost all of civilian mission agencies (exceptions might include Agriculture and NIST). Unfortunately, discussion of R&D policies typically devolves into discussions of "how much" rather than "how." Consider how the Washington Post's Ezra Klein reacted to the NYT story:
There’s an argument health reformers occasionally face that goes something like this: Sure, America way overspends on health care. But that overspending ultimately encourages medical innovations of incalculable value. Sharp cuts to health-care spending could lead us to lose out on those innovations.

I thought of that argument while reading Binya Appelbaum’s article warning that cutting the defense budget could kill off the military’s historical role as a driver of consumer-friendly innovations. The chain of reasoning goes something like this: We funnel huge amounts of money to the military; some of that money goes to R&D; some of that R&D unexpectedly pays off for consumers; and so cutting the military budget could ultimately hurt consumers.
He argues:
[F]unding military R&D is probably an inefficient way to fund nonmilitary innovations. If what we want is R&D focused on innovations with broad applications, we should fund that R&D directly rather than hoping that some of the military’s innovations turn out to also be of use to consumers.
But to argue that R&D funding simply needs to be redirected is to miss the point -- innovation outcomes related to government R&D are a function of far more than just funding amounts. Imagine if you took the DOD R&D budget and gave it to NASA or DOE or NSF. A lot of good work would get done, no doubt, but arguably you'd have much less innovation, commercialization and societal impact.
A key reason for these differential outcomes is -- as Sarewitz suggests -- that DOD is a mission agency that innovates to serve clearly defined operational functions. To put it bluntly, if DOD fails to innovation then American soldiers die. That will focus attention.
In addition, Congressional oversight of military performance is far more rigorous than other federal agencies where R&D investments are not measured in terms of societal impacts. Not surprisingly then DOD invests far less in what it calls "basic research" than do other agencies (see figure above, DOD spends less than half on "basic research" than does NSF, but its total R&D budget is about 20 times bigger). DOD learns a lot by doing and has close relationships with contractors and others in the private sector, who depend upon DOD funding but also take DOD technologies to the marketplace in non-military applications.

Academics and others who prefer to do largely unaccountable "basic research" understandably are not big fans of the DOD model. But if a goal of federal R&D is to stimulate innovation in productive directions, then the Defense model offers much to learn from -- whatever total amount the government ultimately devotes to federal R&D.