On Sunday, July 8, the Washington Post published an article arguing that the U.S. has pushed for more scientists, but the jobs aren’t there. While the article noted that job markets for physicians and physicists remain strong (with unemployment rates for those professions less than 2 percent), jobs are sparser for those holding biology or chemistry Ph.D.’s. In particular, the unemployment rate for chemists is the highest it’s been in 40 years and U.S. drug firms have cut 300,000 jobs since 2000. The challenge is particularly acute for recent Ph.D.’s, as just 38 percent of new Ph.D. chemists were employed in 2011.
There are of course many reasons for employment shortages in these fields but perhaps the two most prominent are stagnating federal investment in key scientific fields such as life sciences and faltering U.S. innovation-based competitiveness. Due to unsatisfactory regulatory, tax, talent, technology, and trade policies, the United States has become a less attractive location for globally mobile investment in R&D and production activity. This trend is presented in detail in a forthcoming book by ITIF President Rob Atkinson and myself, Innovation Economics: The Race for Global Advantage (Yale, September 2012). True, one way to ensure that there is not a shortage of scientists and engineering jobs would be to reduce the demand for scientists and engineers but that is hardly a goal we should set. Instead, we should strive to increase the innovation, income, and jobs that a robust scientific and engineering workforce provides.
ITIF’s May 2012 report Leadership in Decline: Assessing U.S. International Competitiveness in Biomedical Research documented the foundational role that public investment plays in enabling and advancing a nation’s competitiveness in the life sciences, but explained how federal funding for biomedical research peaked in 2003 and has been falling in nearly every year since in both inflation-adjusted dollars and as a share of GDP. In fact, in inflation-adjusted dollars, the National Institutes of Health (NIH) funding level for 2013 will actually roll NIH funding back to 2001 levels. As the Washington Post article correctly notes, this stagnating federal research investment constricts funding for academic life sciences research and has played a substantial role in the contraction of employment opportunities for life sciences Ph.Ds. Unfortunately, even worse is the looming specter of sequestration, which will be automatically triggered on January 2, 2013 (unless Congress reaches a budget deal in the interim), which would slash NIH funding by at least $2.4 billion, or 7.8 percent of the agency’s budget. Such sequestration would further deleteriously impact life sciences jobs: projections suggest that sequestration would cost 33,000 jobs that would otherwise grow from NIH extramural spending in the normal course of events.
Yet stagnating federal investment in life sciences doesn’t just threaten academic research jobs, it erodes and imperils the underlying international competitiveness of the U.S. life sciences industry, and thus the industry’s potential to create jobs. In fact, foreign competitors are starting to outinvest the United States in the life sciences, and not just as a share of GDP: at current rates, the U.S. government’s investment in life sciences research over the ensuing half-decade is likely to be barely half that of China’s in current dollars, and roughly one-quarter of China’s level as a share of GDP. Such investment has already propelled China past the United States as the world’s leader in next-generation genome sequencing capacity, with one-third of the world’s capacity.
These trends matter because public and private investment in life sciences R&D turn out to be complements, not alternatives or substitutes, meaning that the more competitors like China invest in basic life sciences research, the more private investment, including venture capital, they are likely to attract; something already reflected in the fact that Chinese life sciences venture capital investment increased by 319 percent from 2009 to 2010, while the level of U.S. venture capital directed toward the life sciences has fallen by 20 percent since 2007. As ITIF’s Leadership in Decline report explains, the increase in life sciences venture capital flowing into China is mirrored by increasing foreign direct investment (FDI) from Western biotechnology and pharmaceutical firms flowing into China (and Singapore, South Korea, and elsewhere). As our increasingly sophisticated competitors attract an ever growing share of globally mobile life sciences investment, R&D, and production activity, life sciences employment grows in these countries, which has the potential to negatively impact the supply of life sciences jobs in the United States.
Yet it’s not just that other countries are investing relatively more in the life sciences, an equally serious problem is that our regulatory system is not efficiently enabling U.S. drug and biologic firms to bring new pharmaceuticals or therapies to market. For example, it takes on average twice as long in the United States as in Europe to receive regulatory approval (or not) for a new drug. Meanwhile, U.S. corporate tax rates are the highest in the OECD, even as the level of U.S. R&D tax credit generosity has fallen to 27th among OECD countries and as other nations have introduced an array of innovative tax tools, such as patent boxes, to favor investment by allowing companies to pay lower taxes on the profits from newly patented products. In short, the United States is offering an increasingly less attractive environment for life sciences firms to innovate, thrive, and flourish. And at the end of the day, this is what explains the evaporation of life sciences (e.g. biology and chemistry) jobs, and explains why the U.S. push for more scientists isn’t being met with an adequate supply of jobs.
So what needs to be done to rectify this? First, as ITIF suggests in Refueling the U.S. Innovation Economy: Fresh Approaches to STEM Education, the United States needs to implement smarter demand-side policies (e.g., R&D tax credits, international trade agreements, acquisition programs, etc.) to boost the demand for output from science and engineering sectors. More specifically, the United States should undertake a comprehensive assessment of the global competitiveness of the U.S. biotechnology and pharmaceutical industries, something ITIF will actually undertake in a report to be released in the Fall of 2012. Such a competitiveness assessment will examine issues such as industry and market structure, needed supporting infrastructure, research and workforce strengths and gaps, availability of materials and components, how government policies abets or stunts the sector’s competitiveness, etc.
One point the competitiveness assessment will strongly reiterate (as several ITIF reports have) is the need for Food and Drug Administration (FDA) reform to bolster the competitiveness of U.S. life sciences industries, which would play a vital role in boosting job prospects for professionals in these fields. In particular, regulations must be based in science and should be frequently updated to take into account both the lessons gained from experience and to adapt to new platforms and opportunities as our understanding increases with advances in research (e.g., genomics, proteomics, metabolomics, etc.) The system should not seek zero risk as this is unattainable in the real world. Regulatory review should seek to establish that novel products are as safe as others in the marketplace. But more importantly, regulators must develop new tools to deal with new products derived from breakthrough innovations. Simply put, the regulatory review paradigms of the 20th century are not sufficient for the 21st.
At the same time, federal agencies need to work more in concert to take into account the impact of their actions on innovation competitiveness and to coordinate with other agencies. Medical devices are a good example: The FDA reviews the safety and effectiveness of medical devices, the Department of Health and Human Services sets reimbursement schedules, and the Department of Defense and the Veteran’s Administration procure such devices. But these agencies do not coordinate to implement a unified strategy that would orient government policies to support the competitiveness of the U.S. medical device industry. We see this failure of policy and leadership in not just medical devices—and pharmaceuticals—but in industry after industry.
In summary, the United States needs to enact a far more sophisticated set of policies regarding regulations, public investment, taxes, trade, education, and others if we want to create an environment in which U.S. life sciences firms—and those in other science- and engineering-based sectors—can remain globally competitive and thus produce sufficient employment opportunities to fully leverage the high-skilled scientific and engineering talent being produced in the United States.
Image credit: Wikimedia Commons User Molotov LT