Looking around the world, the U.S. industry is not alone in suffering the effects of the global financial crisis. The difference is that other countries are coming to the aid of their biotech sectors with stimulus funds. Norway is doing it, Israel is doing it, and other countries are on their way to doing it. Given the advantage the U.S. has in biotechnology, it's puzzling that we are not rushing in to aid the industry. The U.S. economy is facing other serious problems, to be sure, but we cannot afford to lose our edge in biotech to our global trading partners.
If U.S. taxpayers don't supply capital to the industry, others should consider doing so, because it is not only the U.S. economy that potentially stands to lose. Our global trading partners potentially stand to lose as well because any "gains from trade" that they would accrue because of our comparative advantage in biotechnology will evaporate if the industry falters.
Because of global trade imbalances, deep sources of investment capital in foreign exchange reserves are available. Our trading partners are struggling like we are, and are using their reserves to help their own domestic economies. However, they have accumulated trillions of dollars over the past several years and are projected to accumulate more, although the rate of growth is slowing. They have accumulated these reserves as a result of their own comparative advantages. The most efficient use of the funds would be to buy more U.S. goods or services in industries where we have comparative advantage. Since our partners appear more inclined to save and/or invest than consume, another option would be to recycle these funds as investments back to U.S. industries that possess those same advantages, such as the biotech industry.
Moreover, while foreign governments have traditionally eschewed equity investments in favor of U.S. Treasury and Agency debt, it has been suggested that the recycling of excess global savings into U.S. debt helped push down global interest rates, drove investors to riskier assets, and contributed to the credit bubble that has now burst. Foreign governments, perhaps through their sovereign wealth funds (SWFs), should consider allocating a greater portion of their dollar reserves to equities. SWFs have the capital to diversify investments throughout the U.S. biotech sector, thereby mitigating any risk of loss.
SWFs are not without political controversy, especially where investments are being made in strategic industries. However, the need for capital is serious; it is likely that such investments would be met with little political backlash in the current climate. On the other hand, interest by SWFs could prompt swift taxpayer funded support for the industry.
Regardless of the source of funds, capital is needed to prevent a loss of life-saving and innovative products and a curtailing of U.S. dominance in biotechnology, for the benefit of the U.S. and its global trading partners. When it comes to helping the U.S. biotech industry, courage and stupidty are not separated by thin lines.