Giving with one hand while taking away with the other: Bipartisan Innovation Act and Antitrust are headed towards an irreconcilable conflict

Congress has just begun conferencing to resolve differences between the United States Innovation and Competition Act (USICA) (S.1260) and the America COMPETES Act (H.R. 4521). This “must pass” legislative package contains billions in funding and incentives to spur U.S. innovation, create jobs, and address critical challenges around emerging technologies and a rapidly changing global technology landscape. The measures in the final package will promote federal research and development (R&D) in technology and science, foster stronger public-private partnerships, and build on the huge investments in R&D made by the private sector as federal expenditures have dropped precipitously (as a percentage of GDP) in the last half century.

At the same time, some in Congress continue to urge passage of antitrust legislation aimed at leading U.S. tech companies. If enacted, these bills would likely lead almost immediately to a drop in private sector R&D spending at a time of increasing global competition for leadership in technology innovation.

The antitrust legislation is a mistake.  Although an increase in federal R&D spending is prudent, welcome and necessary, it cannot substitute for the continued innovation of the private sector.  By diverting investment from private R&D, this legislation will imperil both national and economic security.  The U.S. cannot compete globally with one while hamstringing the other. It needs both.

Strengthening U.S. Tech Leadership…

Although nearly a year has gone by since the Senate passed its version of the innovation package – USICA – the legislation remains urgent. As President Biden remarked in his State of the Union address, the legislation is critical to “make record investment in emerging technologies and American manufacturing” to enable the United States “to compete for the best jobs of the future” and “level the playing field with China and other competitors.”

While much has been made of the $52 billion in spending to support domestic semiconductor manufacturing, less attention has gone to how the legislation would jump start federal government spending on science and technology R&D. As other nations have increased government R&D, the United States has gone in the opposite direction. Overall, the trend is a decline in federal R&D investments as a percentage of GDP in 22 of the last 28 years since 1990. Indeed, the fall in federal R&D funding as a share of the economy has been steady over the last 60 years. From its high in 1964, U.S. federal R&D spending has declined by 65 percent, and it is down 40 percent since 1980. Compared to the U.S., China has seen an explosive growth in both public and private R&D investments over the last 20 years and are now close to parity with the U.S.

Federal R&D has proven essential to kick start important innovation in areas where the market has yet to catch up – especially in basic research, where the federal government remains the largest funder in the United States. Often touted is the work of the Defense Advanced Research Projects Agency (DARPA) on the internet and global positioning system (GPS) technology, conducted decades ago. Fostering academic and private sector innovation through federal R&D programs is important and, given the exponential growth in such spending by China, many in the United States see rejuvenation of federal R&D as an existential necessity.

Despite the decline in federal R&D spending over the past half century, the United States has set the pace for innovation worldwide. This is owing to significant R&D investment in the private sector. Since 1980, the private sector has outpaced the federal government in overall R&D spending and now does so by a wide margin. The largest four U.S. technology companies spend almost $100 billion annually in R&D, which represents over 20 percent of the total business R&D and on par if not greater than the entire U.S. federal government.

As ITIF has detailed, the spending of five U.S. firms alone—Alphabet, Amazon, Apple, Meta, and Microsoft—had combined R&D expenditures of $128 billion in 2020, exceeding R&D by all Japanese firms and two-thirds of the top 2,500 EU-based firms and amounting to more than a third of all Chinese public and private R&D spending. This massive spending has enabled the United States to lead in critical technological innovation in artificial intelligence (AI), quantum computing, robotics, and other fields. These advances carry direct benefits to consumers in the form of products and services we use every day. They also serve as an engine for continued U.S. innovation and global leadership in technology. Network effects, which are prevalent in the technology sector, feed on themselves and are known to be one of the primary drivers of R&D investments. R&D by top tech companies leads to open source software that spurs additional innovation, new platforms that foster development of novel apps, investment in smaller companies, and many other features that benefit the innovation ecosystem at large. 

Whatever form the final innovation package takes, it will undoubtedly include measures to drive public-private collaboration and investment in critical technologies including AI, quantum computing, privacy-enhancing tech, and others. These are central to continued U.S. innovation, maintaining a competitive edge vis-à-vis China, and creating jobs. In addition, sustained investment will help to advance technology in responsible ways to set a model for the democratic world and counter the spread of digital authoritarianism. The investment, and the message this package will send, will have enormous implications for consumer welfare, economic growth, and national security.

…or Undermining Core U.S. Advantages?

Some in Congress also are pursuing with vigor a campaign that would directly undermine the core goals of the bipartisan innovation package. Styled as antitrust reform, bills like the American Innovation and Choice Online Act (AICOA) would cause leading U.S. tech companies to decrease their R&D investments and force transfer of proprietary data and technology to competitors, including (based on the current form of the bill) to foreign rivals in China and Russia.

The proponents of AICOA claim that the measures are designed to promote consumer choice and help small entrepreneurs looking to make headway. There is notably little economic analysis behind these claims. In fact, a recent economic study has found that the likely cost from the antitrust bills for companies and consumers would be more than $300 billion over time, without achieving any of its stated objectives. And there is little doubt that the bill would cause leading tech companies—those that contribute over 20 percent of private sector technology R&D each year—to reduce their investments. This would have dramatic downstream effects on the entire tech ecosystem, on the ability of the U.S. government to promote safe and responsible technologies, on cybersecurity, and on job creation. 

It is well-recognized that stable funding, and the ability—and willingness—to invest in the long-term is essential to create important advances in emerging technologies. China is making those investments today. In the U.S., federal R&D is important, but without investments from the very companies that the antitrust bills seek to undermine, the race for the future is one the U.S. cannot win.

 

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