Key Takeaways
1. Publicly funded science was the secret engine of America's post-WWII economic miracle.
The war effort taught us the power of adequately supported research for our comfort, our security, our prosperity.
Wartime technological transformation. In 1940, the United States was ill-prepared for war, but a single sheet of paper presented by Vannevar Bush to FDR created the National Defense Research Committee (NDRC). This historic partnership between the federal government, universities, and private enterprise mobilized the nation's scientific talent, leading to rapid breakthroughs in radar, proximity fuses, and mass-produced penicillin.
The post-war blueprint. Following the Allied victory, Bush authored Science: The Endless Frontier, arguing that the government must continue funding basic research to win the peace. This blueprint transformed higher education and fueled a massive post-war boom, with federal R&D spending peaking at nearly 2 percent of GDP in 1964.
Broadly shared prosperity. This public-private engine doubled the median American family income between 1947 and 1970, creating a vibrant middle class. The benefits of this technology-driven growth were distributed widely across the country, proving that:
- Government-backed science acts as a catalyst for private enterprise.
- Increased demand for technical skills can be met by expanding higher education.
- Public investments yield some of the highest-return assets in human history.
2. The private sector cannot and will not fund the basic research needed for breakthrough innovation.
A nation which depends upon others for its new basic scientific knowledge will be slow in its industrial progress and weak in its competitive position in world trade, regardless of its mechanical skill.
The spillover problem. Private corporations are fundamentally designed to maximize shareholder value, meaning they only invest in research that directly improves their own bottom line. Because the benefits of basic scientific discoveries "spill over" to competitors and the public, private firms systematically underinvest in foundational science.
Venture capital limitations. While the American venture capital (VC) industry is highly successful, it is structurally unsuited for long-term, capital-intensive scientific breakthroughs. VC funds typically operate on tight ten-year horizons, forcing them to avoid the "valley of death"—the risky, expensive phase of translating lab science into commercial products.
The decline of corporate R&D. Over the past few decades, corporate research has shifted away from basic exploratory science toward short-term product development. This market failure is illustrated by historic missed opportunities:
- RCA abandoning liquid crystal displays (LCDs) to protect its existing television business.
- Westinghouse failing to commercialize active-matrix displays due to high manufacturing setup costs.
- Xerox PARC inventing the graphical user interface but letting Apple and Microsoft capture the financial rewards.
3. America's retreat from public R&D funding has directly caused economic stagnation and rising inequality.
Converted to the same fraction of GDP today, that decline represents roughly $240 billion per year that we no longer spend on creating the next generation of good jobs.
A dramatic funding retreat. Since its peak in the mid-1960s, federal spending on research and development has plummeted from nearly 2 percent of GDP to a mere 0.7 percent. This massive funding gap has severely slowed the rate of productivity growth, which is the primary driver of rising living standards.
Stagnating middle-class wages. The slowdown in public R&D has coincided with a dramatic stagnation of middle-class incomes. While median US household income doubled in the twenty-three years following World War II, it grew by only 20 percent over the subsequent forty-five years, leaving millions of families feeling left behind.
Exploding income inequality. As public funding dried up, the remaining economic gains from technological progress became highly concentrated at the very top. This economic polarization is characterized by:
- The top 1 percent of Americans capturing over half of all income growth since 1993.
- The disappearance of high-paying manufacturing jobs due to automation without new industry creation.
- A widening gap between highly educated workers and those with only a high school diploma.
4. Innovation has become geographically polarized, concentrating wealth in a few "superstar" coastal cities.
Established big tech companies, left to their own devices, will bring a significant number of good jobs—along with congestion, high house prices, and perhaps even more inequality—to a small set of already successful cities, most of which are located on the East or West Coast.
The rise of superstar cities. The modern knowledge economy has created powerful "agglomeration" effects, where talented workers and tech companies crowd together in a few coastal hubs like San Francisco, Boston, and Seattle. This concentration of talent makes these cities highly productive but leaves the rest of the country economically isolated.
The housing barrier. Although these superstar cities offer high-paying jobs, middle- and low-income workers are increasingly blocked from moving to them due to astronomical housing costs. Restrictive local zoning regulations and land-use policies artificially limit the housing supply, driving rents and home prices to unaffordable heights.
A deeply divided nation. This geographic divergence has created a stark economic and political divide across America. The concentration of wealth and opportunity on the coasts has resulted in:
- Two-thirds of all venture capital funding being concentrated in just five metropolitan areas.
- A dramatic decline in geographic mobility, as lower-income workers can no longer afford to move to high-productivity areas.
- Growing political polarization between highly educated, prosperous urban centers and struggling heartland communities.
5. Publicly funded science continues to deliver massive social and economic returns when properly backed.
The NIH estimates that the HGP produced nearly $1 trillion in economic growth at the cost of $2 per year per US resident.
The genomic revolution. The Human Genome Project (HGP) is a prime example of how public funding can create entirely new industries. When the private sector refused to take on the massive financial risk of sequencing human DNA, a $3 billion federal investment mapped the genome, yielding nearly $1 trillion in economic impact and hundreds of thousands of jobs.
The NIH innovation engine. The National Institutes of Health (NIH) serves as a powerful catalyst for the American biomedical sector. NIH-funded basic research contributed to the development of every single one of the 210 new drugs approved by the FDA between 2010 and 2016, saving millions of lives and generating massive private-sector value.
Spillovers from military research. Publicly funded military R&D also continues to drive civilian commercial success. From the internet and GPS to the robotic vacuum cleaners in our homes, defense-related research has consistently crowded in private investment and boosted national productivity through:
- The Small Business Innovation Research (SBIR) program, which provided critical early-stage funding to giants like Qualcomm and Symantec.
- The creation of advanced computer science departments at universities nationwide.
- The development of dual-use technologies that lower costs and create high-paying manufacturing jobs.
6. We can jump-start the economy by establishing new technology hubs in mid-sized, low-cost cities.
There are dozens of other cities throughout the United States that meet the conditions for creating a new technology hub.
Untapped regional potential. America does not need to rely solely on its current coastal superstar cities to drive innovation. There are dozens of mid-sized cities across the country that possess the necessary ingredients to become thriving technology hubs, including highly educated populations, world-class research universities, and a high quality of life.
The Tech Hub Index System. To identify these hidden lands of opportunity, the authors developed a rigorous ranking system evaluating 378 metropolitan areas. This index identifies 102 potential tech hubs across 36 states—led by cities like Rochester, Pittsburgh, and Columbus—that combine strong scientific infrastructure with highly affordable housing.
A powerful big push. Establishing these new hubs requires a concentrated, large-scale public investment to overcome the natural gravity of existing superstar cities. By focusing federal R&D dollars on these ready-to-grow communities, we can:
- Create millions of high-paying jobs for both college graduates and skilled technicians.
- Relieve the extreme congestion and housing pressures currently choking coastal cities.
- Revitalize the economies of the industrial Midwest, the South, and other left-behind regions.
7. A national "Innovation Commission" should run a positive-sum competition to select these new hubs.
The competition we have in mind would serve the interest of the nation, not individual companies.
Avoiding zero-sum tax wars. The recent public competition for Amazon's second headquarters (HQ2) exposed the destructive nature of current state-level economic development policies. States and cities currently spend $50 billion annually on tax breaks to lure existing companies, a zero-sum game that drains public coffers without creating new national wealth.
The BRAC commission model. To prevent political favoritism and "boondoggles," the selection of new technology hubs should be overseen by an independent, nonpartisan Innovation Commission. Modeled after the highly successful military Base Realignment and Closure (BRAC) process, this commission would evaluate city proposals objectively and present a single package to Congress for an up-or-down vote.
A positive-sum competition. Cities would compete not by offering wasteful corporate tax write-offs, but by demonstrating their readiness to support a thriving scientific ecosystem. To win federal backing, applicant cities would need to show:
- Commitments to reform local zoning laws to ensure abundant, affordable housing.
- Strong partnerships between local universities, vocational schools, and private businesses.
- Robust infrastructure plans, including transit upgrades and high-speed internet access.
8. Taxpayers must share directly in the financial upside of public research through an "Innovation Dividend."
An annual innovation dividend would be paid out in cash terms equally to all Americans, illustrating vividly the returns from the public’s investment in advancing science.
Capturing public returns. For too long, the American taxpayer has borne the financial risk of basic scientific research, only to watch a small group of private investors and corporate executives capture the windfall profits. To build lasting political support for science, the public must receive a direct, transparent share of the financial upside.
Public land ownership. The primary mechanism for capturing this wealth is through public ownership of the land surrounding the newly established research hubs. As federal investments transform these cities into booming tech centers, the value of the surrounding real estate will skyrocket; the government can capture this appreciation through smart leasing and land management.
The permanent fund model. The revenues generated from these public land leases would flow into a national endowment, modeled after the highly popular Alaska Permanent Fund. This fund would distribute the returns directly to every American citizen, ensuring that:
- Every household receives a regular, cash "Innovation Dividend" check.
- The link between public scientific investment and personal financial well-being is made explicit.
- Income inequality is mitigated by distributing the fruits of technological progress equally.
9. Global competitors, especially China, are aggressively copying our historic playbook to overtake us.
Intensely innovative competitors are gaining strength around the world, in large part because other nations are doing a better job of reading American history.
The global science race. While the United States has retreated from its historic commitment to public science, other nations are aggressively scaling up their R&D investments. Countries like South Korea, Israel, and Germany now spend a significantly higher share of their GDP on research than the United States, threatening our long-standing technological dominance.
China's aggressive rise. China is rapidly executing the exact public-private playbook that powered America's post-war miracle. By massively expanding its university system, launching targeted recruitment programs like the "Thousand Talents" initiative, and establishing dozens of state-backed science parks, China is poised to become the world's leading producer of scientific research.
The cost of losing leadership. If the United States cedes its leadership at the scientific frontier, we will lose more than just prestige. We will lose the high-paying industries of the future, while other nations set the global standards for:
- Critical emerging technologies like 5G wireless networks and artificial intelligence.
- The environmental and ethical rules governing synthetic biology and gene editing.
- The extraction of valuable rare earth elements through deep-sea mining.
