By Angus Loten 

CAMBRIDGE, Mass. -- The federal government needs to do more to support the development of innovative technology as U.S. productivity falls and foreign tech hubs gain clout, researchers at the Massachusetts Institute of Technology said.

"Nobody other than the federal government has enough money in their pockets to move the needle," said Simon Johnson, a former chief economist at the International Monetary Fund who teaches global economics and management at the MIT Sloan School of Management.

Speaking to chief information officers and other senior technology officials at the MIT Sloan CIO Symposium, Mr. Johnson said the drop in federal research-and-development funding is one of the key drivers behind declines in U.S. productivity growth, which has averaged 1.3% a year for the past decade, down from 2.8% a year in the decades before 1970.

The federal government spent $116 billion on R&D initiatives in 2017, with about 40% going to defense, according to the Congressional Budget Office. Overall federal R&D spending, at 0.7% of gross domestic product, is roughly half what it was in the mid-1980s.

The CBO estimates that private-sector firms spent $333 billion on R&D, or 67% of the national total, in 2015, based on the most recent available data. The federal government provided 24%, while universities, colleges and nonprofit organizations accounted for the rest, the agency said.

Although the unemployment rate is historically low, data on new job creation in industries fueled by R&D is disappointing, MIT researchers said.

Jonathan Gruber, who teaches economics at MIT, said private-sector firms are reluctant to fund R&D efforts that don't have a potential for commercialization or an immediate return on investment.

That means government support is crucial for yielding "spillover benefits" of scientific research, he said.

Mr. Gruber said in the years after World War II, public-private partnerships helped create such items as personal computers, radar and GPS systems, and satellite television, among other innovative tools.

These kinds of partnerships could be rekindled in a model where "the government does the basic science, and the private sector does the commercialization by bringing products to market," Mr. Johnson added.

They said the government also has a role to play in expanding technology beyond a half-dozen industry hubs, largely on the West and East coasts, in part by funding R&D efforts by tech startups located in other parts of the country.

The Information Technology and Innovation Foundation, a Washington think tank, in March warned that proposed federal budget cuts to R&D spending that the White House outlined would result in "stagnant productivity growth, lagging competitiveness and reduced innovation," citing increased research funding by China and other global tech competitors.

Mr. Johnson and Mr. Gruber have proposed the creation of a nonpartisan commission to identify policy options aimed at boosting innovation through a more proactive approach by federal lawmakers.

"People on the right and on the left are extremely interested in this," Mr. Johnson said.

Write to Angus Loten at angus.loten@wsj.com

(END) Dow Jones Newswires

May 22, 2019 16:26 ET (20:26 GMT)

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