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industrial laboratories. In recent years, in response to new competitive environments, industry has shifted away from long-term physical sciences research and toward nearer-term research and development. At the same time, the government's discretionary expenditures (which include R&D investments) have been constrained by efforts to balance the federal budget amidst growing entitlement outlays. Additional pressure on condensed-matter and materials physics funding comes from the field's responsibility to develop and operate large national facilities for materials research, such as synchrotrons and neutron sources, that are heavily utilized by a growing community of users from many scientific and engineering disciplines. As a result, although the resources available to condensed-matter and materials physics are substantial, there are severe constraints in comparison to the overall need to maintain the nation at the forefront of fundamental research in this technologically critical area.

As a fraction of gross domestic product, federal investment in R&D has dropped by about half over the past 30 years. This trend of declining investment threatens U.S. leadership in science, including condensed-matter and materials physics. At the same time, it is estimated that half of the economic growth in the last half century has come from technological innovation that requires leadership in science. The President's budget request for FY 1999 reflects these concerns, placing increased priority on science and technology and showing strong gains for many federal research agencies. In addition, the bipartisan Fritz-Rockefeller bill (S. 2217) calls for a doubling of federal investment in civilian research over the next 12 years. This bill, known as the Federal Research Investment Act, is supported by a coalition of more than 100 science, engineering, and technology organizations. A parallel effort to increase support for defense R&D is also under way.

Human Capital

Many economists attribute current economic growth to investments in human capital, the capacity to generate new ideas that organize and rearrange existing resources to achieve productivity gains. Examples range from new ways of processing steel and polymers, to the soaring performance of electronic and optical systems, to the growth in software and computer applications. These advances share common characteristics of innovation and integration of knowledge—the economics of ideas. Human capital, enabled by investments in educational and research institutions, drives economic growth by providing the new ideas that allow escape from a traditional economic future limited by scarcity of resources and the law of diminishing returns.

Unlike physical resources, which are limited in a finite world, the potential of human capital is nearly limitless. But it is not free. A commitment to education, to research, and to the free exchange of information and ideas is essential. In the modern global economy, world leadership is impossible without leadership in human capital.