There was a time when every politician parroted the mantra that R&D investment spurs innovative company creation, which spurs job growth. That mantra needs to change. In reality, the best prospects for bioscience job growth are less likely to come from innovative companies than from companies providing services. This has implications for policymakers investing in R&D; if creating jobs at home is the aim, then strong incentives must be provided to ensure local service providers remain globally competitive.

The biotech sector was built on the back of innovation in small-to-medium–sized enterprises (SMEs) spun out from universities. Public money spent on R&D in universities resulted in scientific breakthroughs that were then commercialized through licensing to large companies (e.g., big pharma) or to startups aspiring to be the next Genentech or Amgen. Beginning with a few founders and a little seed money, the growth trajectory for a startup followed roughly the same path: from incubator, to shiny new headquarters, to gleaming laboratories with a flotilla of experts in discovery and preclinical research, toxicology and lead generation, and finally to the holy grail of a fully integrated pharmaceutical company with an approved product, development and marketing team.

Alas, those days are gone. Although universities spin several hundred life science companies out each year (Nat. Biotechnol. 32, 428–435, 2014), only tens ever receive sustainable funding from venture capital. The vast majority struggle along with a skeleton crew, feeding off scraps of seed funding until they finally expire. Even those startups that do receive venture funding are unlikely to create many jobs; increasingly, they are shoehorned into the capital-efficient, asset-centric model in which a tiny team—sometimes just an entrepreneur-in-residence and a venture partner—coordinate the preclinical work, lead generation and toxicology, all the way to proof-of-concept trials, using a network of service companies. This is the model that has the best chance of providing a return on investment to limited partners. This is the model that gives investors the best chance of an exit. It is not a model for substantial job creation—at least, not directly.

Indirectly, though, it may be another story. While jobs have dwindled at both ends of the innovative biopharmaceutical spectrum—whether cutbacks in big pharma R&D or downsizing of biotech startup teams—they are burgeoning elsewhere. Over the past decade, more and more innovative companies have turned to clinical research organizations (CROs) to reduce their fixed costs and contract out R&D functions. According to Quintiles, one of the largest CROs, ∼$19 billion was spent on pharmaceutical outsourcing last year, a figure expected to grow to $23 billion by 2016. Most of this revenue is in clinical development, but rapid growth is also expected in preclinical services.

Is this growth in CRO activity transferring into job growth? According to a report released last month by the nonprofit Battelle and the trade group the Biotechnology Industry Organization (BIO) entitled State Bioscience: Jobs, Investments and Innovation 2014, the answer is a resounding yes.

Using data from the US Department of Labor's Quarterly Census on Employment and Wages, Battelle and BIO identify three broad sectors of the bioeconomy where employment has risen over the past decade: 'Medical Devices & Equipment', 'Bioscience-related Distribution', and 'Research, Testing & Medical Laboratories'. The first two sectors have grown since 2001 by 349,000 jobs (up 1.5%) and 442,000 (up 6.3%), respectively. But it is the last category, which includes CROs, that has seen the highest growth—a massive 28.1% increase over the decade (up to 468,000 jobs). At the same time, the report notes a concurrent shrinkage in the pharmaceutical R&D universe: pharma employment shows a nearly 11% decline since 2001.

Does this still mean that R&D investment leads to job creation? Yes and no.

While jobs are still created, they are predominantly in the service sector, and employment growth may not necessarily occur locally. CROs are a global industry, much less dependent on local expertise and knowledge transfer than innovative startups supported by locally acting venture investors. Most of the services carried out by CROs are standardized research practices that can be done in any country—the vibrant CRO sectors in India and China bear testament to this.

Thus, any government investing in R&D to spur local bioscience job creation must today also find ways to incentivize local CROs. One way to do this is to extend R&D tax credits beyond narrowly defined innovative SMEs so that local service sector companies can also benefit. Although certain countries like Canada, Ireland, France and the United Kingdom already do this, such tax credits are surprisingly uncommon in the United States for CROs. This may be changing, however, as exemplified by the Massachusetts Biotechnology Council's May announcement that it was seeking a 10% investment state tax credit for CROs to boost the sector.

Another way of supporting local CROs is to provide funding and support specifically for the sector. In Kansas, BioResearch Central has created a network of ∼90 CROs to provide services to the biotech and pharmaceutical industry. The network comprises a close knit set of enterprises that are able to rapidly refer clients to other local providers within the network. A local venture fund, the Kansas Bioscience Authority, has also considered specifically providing funding to service providers.

R&D investment in bioscience innovation still creates jobs. The problem today is that those jobs can often just as easily be created in the global marketplace as in the region where the R&D investment originally was made. That means politicians must act to support the global competitiveness of local service providers—whether through tax credits, CRO support networks or investment in CRO ventures.

It's time for policymakers to update the twentieth century knowledge-based economy mantra. It's time they recognized the realities of the twenty-first century service-based bioeconomy.