A few days ago we reported that Massachusetts ranks 8th on Forbes list of Best Cities for Jobs, which was credited to the education and biotech industries. But there may be dark clouds on the horizon for employment in the Bay State, thanks to looming federal budget cuts.

According to a new report from University of Massachusetts’ Donahue Institute, scheduled reductions to the federal budget would cost Massachusetts more than 50,000 jobs over the next decade. And not just any jobs. “The pattern of these job losses strike at the very heart of the Massachusetts Innovation Economy,” the authors write.

A Bit of Background

Last year, following a ridiculous game of political chicken around raising the federal debt ceiling, Congress passed a bill that would implement across-the-board budget cuts beginning in 2013. The package would cut federal spending by $1.2 trillion over 10 years, and would include heavy cuts to the defense budget.

The package wasn’t really designed to ever take effect; its primary purpose was to force Congress to eventually take serious action to cut the budget in a more rational way. The steep overall cuts were a concession by Democrats, while the targeting of defense was a concession by Republicans. It was a compromise designed to ensure that both parties would come back to the table to hammer out a sane agreement.

But whether Congress can pass reasonable budget cuts in an election year is anyone’s guess, to put it optimistically. So it’s not beyond the realm of possibility that we’ll end up stuck with last year’s compromise.

Government Underwrites Innovation

What the UMass report underscores is just how central government spending is to innovation. As the authors explain:

Massachusetts is also the fifth?highest recipient of Department of Defense expenditures, at over $14.5 billion, and much of
the state’s prowess in education and innovation leadership is underwritten by an estimated $7.7 billion in federal funding for research and development activities.

Specifically, it would be cuts to Medicare payments and cuts to defense that would hit the state hardest. To go back to the Forbes ranking, it is the very sectors that have propelled Massachusetts through the economic downturn that would be most affected by these cuts.

There are two points to make in closing. The first is that, as the authors note, these cuts are not inevitable. Indeed, cuts of this magnitude may not be advisable at all in the short term. The budget deficit and national debt are serious issues, but we would be foolish to deal with them at the expense of our economic recovery. As has been said again and again, what we need is support for the economic recovery now, tied to credible budget cuts for the future.

Second, given the imperative to cut federal spending in the long term, we need to think long and hard about how to maximize innovation in an age of federal austerity. Students of innovation realize that the government is a key part of the technology ecosystem; we will need to pay more attention to how best to leverage federal dollars to promote Massachusetts’ innovation economy.

I’d welcome thoughts in the comments on this final point, particularly from those working at or with companies in defense, healthcare, or otherwise linked to government spending. How do we preserve our state’s technology prowess given the possibly steep reductions in federal spending coming down the pipeline?