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December 11, 2012
Since the US elections in November, all the political talk has shifted to the looming "fiscal cliff." The term refers to two things: the expiration of the Bush-era tax cuts for profitable corporations and wealthy individuals and a comprehensive spending decrease across all aspects of government in 2013. The former had been planned by the Obama administration for a few years while the latter is a result of the negotiations that allowed for the debt ceiling to be raised in August of 2011.
The big issue for the IT industry is that these sequestration cuts happen across the board. Institutions like the National Science Foundation (NSF) and the National Institute of Health (NIH), which reward grants and indirectly drive the IT industry in the US, do not get a reprieve despite the fact that the research they oversee is key to the country's long-term future.
"I think the federal agencies and the congressional appropriators have worked hard to carefully evaluate scientific research programs," said Robert Gropp, director of public policy at the American Institute of Biological Sciences, who was quoted in recent article in Discovery News. "I think they have made the cuts to programs that were underperforming or of lower priority. I am not sure that there is much more that can be cut without very real and long-term negative ramifications."
The spending cuts would, according to the AIBS, drop the grant proposal success rate in the NSF from 22 percent to 16 percent while the NIH proposal success rate drops from 19 to 14 percent.
Obviously, less funding from the government means research institutions and universities have to turn to the private sector, a sector that would not exactly come away from the tumble unscathed. After all, the removal of the Bush-era tax cuts directly affects those with the most power to invest and direct capital toward struggling researchers. Company execs would feel as if they have less money to spend and would probably choose to fund fewer new projects.
Further, with the public sector drying up, the private corporations would be flooded with proposals. That situation becomes problematic even before those corporations take on fewer projects, according to a Network World story published this week. "If you have a company that's solely involved in government contracting and therefore their business is cut off, they're going to try to branch out into other forms of business, at least in the near term, which will squeeze out other companies," said Lamar Whitman, director of public advocacy for CompTIA.
In essence, with less money to go around the market gets crowded. If those conditions persist, the market shrinks. With that said, vendors adapting to new tax codes that would essentially eliminate write-offs for large purchases could adapt their pricing model such that they keep their client base intact, according to Richard Davis, managing director covering enterprise software for investment bank Canaccord Genuity.
Davis said that even with a freeze on government projects, vendors will find a way to power through. Some of the smaller or under-performing companies may diminish or be absorbed while profit margins decrease at larger vendors. The real trouble, however, lies in long-term national scientific achievement.
First of all, the lower grant acceptance rate means scientists have to devote more of their time to grant writing instead of focusing on actually planning and performing experiments. "In essence, they start doing less science – their time is going to preserving funding. This can certainly slow scientific progress," said Gropp.
The long-term threat lies also simply in the number of people available to train the next generation for the jobs of the future. For example, there are currently 227,000 unfilled IT jobs in the United States today according to Indeed.com. That makes the IT industry third in the country behind healthcare and retail regarding vacancies.
For the most part, IT jobs go to people who have been trained in computer technology, math, and science. The data scientist job in particular, which the United States at its current rate (not the sequestered rate) is projected to fall a few hundred thousand short in filling over the next decade, comes largely from those interested in computational physics.
Going over the fiscal cliff would axe 31,000 jobs in the sciences alone, according to a George Mason study. That means 31,000 fewer people able to educate the youth and inspire interest in technology.
In short, a spending freeze would hamper the country's already stammering science education system. This in turn would add to the country's failure in filling its highly technical jobs, giving countries like China an opportunity to race ahead of the United States in technology research.
If precedent holds, some deal between the administration and Congress will be struck at the 11th hour, and the sequestration will be averted. If not, the short-term effect on tech vendors will be minimal, but the long-term effect on technology innovation in the United States could be ominous.
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