The definition of a "superpower" varies across different sources, but one thing most agree on is that a superpower is a nation or state that has a superior military. For America, that's a problem. Here's why, and how it could affect you.
The cuts keep coming
Last week, Congress passed a fiscal 2014 omnibus spending bill, which includes $572 billion for defense. However, the bill reduces defense research and development funding by almost $7 billion, compared with 2013 levels, and is more than $6 billion less than what the White House requested for Pentagon weapons procurements.
That might not seem like a significant blow to America's military superiority, but it absolutely is. In addition to affecting much-needed weapons procurements, the continuing cuts to defense R&D could have a devastating, and lasting, impact on America's technical superiority.
According to Defense News, Frank Kendall, undersecretary for acquisition, technology, and logistics, said, "I'm very concerned about eroding technological superiority and where we're headed." He also stated, "Unless sequester is reversed, nations such as China and Russia could become more militarily powerful than the United States."
A lost superpower?
One of the factors that drive innovation and technology is R&D funding. Yes, individual companies have their own R&D funds, but when it comes to defense, and costly weapons systems -- like Lockheed Martin's (NYSE: LMT ) F-35, and Boeing's (NYSE: BA ) KC-46A -- the government's R&D investment is vital. Consequently, reducing government-funded R&D hampers weapons development, which over time, erodes technological superiority.
Further, the eroding of technical superiority could become a vicious cycle: As America's weapons prowess wanes, lucrative weapons sales dry up and go to better systems, further affecting R&D and technological innovations.
More importantly, defense R&D often leads to advancements in consumer technology. For example, Ivan Getting, and the U.S. Department of Defense invented the Global Positioning System, or GPS, and without the Defense Advanced Research Projects Agency, or DARPA, the Internet may not exist. Moreover, DARPA also had a hand in the technology that led to the World Wide Web, Google Maps, Windows, the cloud, Siri, and a number of other technologies, according to PC Pro.
What this means
The loss of R&D funding is a significant problem, and if it continues, there's no doubt that America's military prowess will suffer. That in turn, could affect America's superpower status. Further, defense contractors, including the two I mentioned, depend on R&D funding, especially for large-scale weapons systems. As such, without adequate funding, they, too, may suffer a loss of technical ability. That could dampen profits, which could affect their stock price. Last, but certainly not least, defense R&D has led to some truly impressive advancement. Thus, it'll be a sad day if that avenue of innovation dries up. Consequently, investors should keep a close eye on any budget Congress passes, and, specifically, continuing cuts to R&D.
R&D may be declining, but can you still profit?
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