Measures and Comparisons of National Resources for R&D

This section examines two indicators of R&D spending: (1) the ratio of total R&D expenditures to GDP and (2) the ratio of Federal funds expended for R&D to total Federal funds. Also presented is a comparison of U.S. R&D resources with those of other countries. These measures and comparisons show that the U.S. commitment to R&D seems to have plateaued during the past decade. Relative to the increases of its major international competitors, the U.S. R&D effort has eroded slightly, although many of these countries are also now experiencing a reduction in their R&D expenditures.

U.S. R&D/GDP Ratio

Growth in R&D expenditure should be examined in the context of the overall growth of the economy during the same period, given the significance of such factors as population growth, capital accumulation, and technological advancement. The ratio of R&D expenditures to GDP may be used as a measure of the Nation's commitment to R&D. In 1996, total U.S. support for R&D is expected to reach $184.3 billion. This sum represents 2.48 percent of estimated GDP— $7.428 trillion—slightly lower than the preliminary 1995 percentage of 2.52 (table C-15).

A review of U.S. R&D expenditure as a percentage of GDP over time shows an initial low of 1.38 percent in 1953 at the start of the time series, rising to a peak of 2.91 percent in 1964, followed by a gradual decline to 2.16 percent in 1978. The current expected ratio of 2.48 for 1996 is the lowest it has been since 1981, and reflects a downward trend since 1991. The initial drop in the R&D/GDP ratio from its 1964 peak largely reflected Federal cutbacks in defense and space R&D programs, although gains in energy R&D activities between 1975 and 1979 resulted in a relative stabilization of the ratio at around 2.2 percent. Over the entire 1965-78 period, the annual percentage increase in real R&D was less than the annual percentage increase in real GDP (chart 6).

See appendix tables C-1 and C-15.

From 1978 to 1985, the R&D/GDP ratio increased steadily from 2.16 to 2.82 percent. This increase was as much due to a slowdown in GDP growth as to increased spending on R&D activities. For example, the 1980 and 1982 recessions resulted in a slight decline in real GDP with no corresponding reduction in R&D spending. In contrast, during previous recessions, changes in funding for R&D tended to match or exceed the adverse movements of the broader economy.

Since 1985, the R&D/GDP ratio has exhibited a downward trend, due to declining growth in Federal R&D expenditures and slow-to-declining growth in non-Federal R&D expenditures.10 In the 11 years from 1985 to 1996, real GDP grew by 2.6 percent per year, while R&D grew by only 1.4 percent.

U.S. Federal R&D Funds/Total Budget Ratio

One way to gauge the Government's priority for R&D is to compare Federal outlays for R&D with Federal outlays for all purposes. 11 Total Federal outlays (for on-budget programs only) for 1996 are estimated at $1.27 trillion.12 R&D is expected to account for 5.3 percent ($67.7 billion) of those total outlays (chart 7 and appendix table C-24).

See appendix table C-24.

From 1970 to 1983, R&D outlays as a percentage of total outlays declined steadily—especially during the early 1970s—dropping from 9.0 to 5.5 percent. This trend was dominated by a sharp fall in nondefense R&D outlays as a proportion of all nondefense outlays (excluding interest on the national debt), which declined from 10.7 percent in 1970 to 4.3 percent in 1983. The declining share of nondefense R&D was not confined to one or two agencies but was a result of both slow growth in most non-DOD agencies' R&D outlays and a relatively rapid expansion of the non-R&D component of the Federal budget for civilian agencies. In contrast, throughout the same period, R&D conducted by the Defense Department as a proportion of total DOD outlays went from a low of 9.3 percent in 1970, to a peak of 11.3 percent in 1974, to 10.3 percent by 1983.

After 1983, the percentage of all Federal outlays devoted to R&D first moved up and then back down. The ratio peaked at 6.4 percent in each year of the 1987-89 period, but has dropped steadily since then to a preliminary level of 5.3 percent in 1996. Most of the increases in Federal R&D/total outlays in 1984-86 were due to relatively large increases in DOD R&D outlays. Before 1990, this increase in DOD R&D was not offset by the relative decline in non-DOD R&D—as had been the case in the 1970s—or by the growing share of the Federal budget for interest payments.13 In the 1990s, the declining R&D outlay ratio can be attributed to a relative decrease in non-DOD R&D as a proportion of non-DOD, non-interest, outlays. Concurrently, however, R&D has taken on relatively increasing importance in a shrinking DOD budget.

International Comparisons

Given the size of its economy, the United States spends more money on R&D activities than does any other country. In fact, it spends more than Japan, Germany, France, and the United Kingdom combined (appendix table C-21). Yet from 1990 to 1994, total R&D expenditures stagnated or declined in the United States, Japan, Germany, France, the United Kingdom, and Italy. Indeed, for more than a decade, these countries have displayed similar aggregate R&D trends: substantial inflationadjusted R&D growth in the early 1980s, followed by a general tapering off in the late 1980s, and then level or declining real R&D expenditures into the 1990s. For most of these countries, economic recessions and budgetary constraints had the effect of slowing both industrial and government sources of R&D support. In particular, both factors contributed to major reversal of R&D trends in Japan, where R&D spending declined recently after experiencing inflation-adjusted gains of about 8 percent annually during the previous decade. The same is true for the United Kingdom and Italy, where real growth in the 1980s gave way to declining R&D expenditures thereafter (chart 8).

See appendix table C-21.

Additionally, geopolitical changes have resulted in cutbacks in government support for defense-related R&D that, in turn, have reduced reported national R&D growth patterns in some countries—most notably, the United States and France. For Germany, the integration of the former East German science and technology system into that of West Germany's market economy resulted in an apparent jump in the nation's R&D effort in 1991. This growth, however, was subsequently scaled back in an effort to restructure and close unnecessary research institutions.14

R&D/GDP Ratios

The R&D/GDP ratio discussed above can be used to determine the relative emphasis placed on R&D activities by the United States and other countries, which is not directly related to the size of their economies. Use of this ratio bypasses many of the problems in interpretation caused by inflation, exchange-rate fluctuations, different unit costs, and variations in the volume of research efforts. Caution must nonetheless be exercised in making even these international comparisons, because each country measures its R&D somewhat differently.

In 1994—the latest year for which foreign data are available—the United States spent 2.49 percent of its GDP on R&D. In comparison, Japan spent 2.69 percent of its GDP; France, 2.38 percent; Germany, 2.33 percent; the United Kingdom, 2.19 percent; Canada, 1.57 percent; and Italy, 1.19 percent.

During the early to mid-1960s, the United States ranked highest among these countries in terms of R&D/GDP ratio. After 1964, however, the U.S. ratio began to decline, as Federal R&D spending for defense and space was cut back and the U.S. GDP continued to increase. At the same time, the ratios of other countries—notably (West) Germany and Japan—slowly increased. These trends continued until the late 1970s, when the U.S. ratio had dropped to 2.2 percent and was roughly equal to those of (West) Germany, the United Kingdom, and Japan.

From the late 1970s through the early 1980s, the ratios in all of the industrialized countries just mentioned, with the exception of the United Kingdom, were again increasing. By 1985, they had reached 2.82 percent for the United States, 2.72 percent for (West) Germany, 2.58 percent for Japan, 2.27 percent for the United Kingdom, and 2.25 percent for France (appendix table C-21). These ratios have fluctuated within narrow ranges since 1985. Japan's ratio peaked at 2.89 percent in 1990 and then dipped back to 2.69 percent in 1994 (chart 9). The ratio for Germany peaked at 2.88 percent in 1987 but has since declined to 2.33 percent in 1994—a result, in part, of the reunification of Germany and its subsequent effects on official statistics. The R&D/GDP ratio for France rose continually from 1.97 percent in 1981 to 2.45 percent in 1993, but in 1994 fell to 2.38 percent. The United Kingdom's ratio remained between 2.16 and 2.29 during the period 1983-94. As previously noted, the U.S. ratio fell continually after a peak of 2.82 percent in 1985, as a result of declining defense R&D funding (appendix tables C-21 and C-22).

See appendix tables C-21 and C-22.

The separation of R&D into defense and nondefense components allows for an examination of the ratio of nondefense R&D to total GDP. In 1994, the most recent year for complete data, the United States had a nondefense R&D/GDP of 2.0 percent. Compared with the industrialized countries under discussion, the United States ranks fourth in terms of nondefense R&D/GDP, below Japan (2.7 percent), Germany (2.3 percent), and France (2.1 percent), 15 but above the United Kingdom (1.9 percent), Canada (1.5 percent), and Italy (1.1 percent) (chart 9). Roughly 80 percent of the U.S. R&D effort in 1994 was devoted to nondefense activities, as compared with 99 percent for Japan.

R&D Scientists and Engineers/Labor Force Ratios

Another useful measure for international comparisons is the number of R&D scientists and engineers in a country as a proportion of its total labor force. The estimated number of scientists and engineers employed in full-time-equivalent (FTE) R&D jobs as a proportion of the total labor force is higher in the United States and Japan than in the other industrialized market economies under discussion. For the United States, FTE R&D scientists and engineers has tended to rise steadily—with minor fluctuations—from approximately 0.55 percent of the labor force in 1976 to 0.76 percent in 1991. However, in 1993, the most recent year for which complete data are available, the number fell slightly to 0.74 percent, or 74 S&Es per 10,000 labor force (chart 10).

See appendix table C-20.

In 1993, for the first time in recent history, Japan exceeded the United States in the proportion of all employees that are R&D S&Es—0.80 percent in Japan compared to 0.74 percent in the United States. This difference in the R&D S&E ratio between the United States and Japan is in sharp contrast to earlier values. For example, in 1981, the proportions were 0.62 for the United States and 0.55 for Japan.16 France and Germany also experienced significant increases in this proportion between 1981 and 1993: from 0.36 percent to 0.58 percent, and from 0.44 percent to 0.59 percent, respectively. In Canada, R&D S&Es increased from 0.34 percent of the labor force in 1981 to 0.47 percent in 1991. In contrast, the United Kingdom and Italy show relatively smaller growth in this percentage. Overall, U.S. leadership in terms of the highest proportion of R&D S&Es in the labor force no longer holds, and is continuing to deteriorate in relation to other industrialized nations.


Footnotes

10See appendices A and B for explanations and summary statistics detailing the effects on the U.S. R&D/GDP ratios from recent changes in the NSF survey of industry R&D performance.

11This idea is applicable in most years. However, in some years, Federal outlays for purposes other than R&D may reflect extenuating circumstances such as a major war rather than "the Government's priority for R&D."

12Almost all off-budget receipts and disbursements are for social security programs (the Federal Old-Age and Survivors Insurance and the Federal Disability Insurance trust funds) which are excluded from the budget totals by the Balanced Budget and Emergency Deficit Control Act of 1985. Preliminary off-budget outlays for FY 1996, as provided in the President's 1997 budget proposal, are $302 billion (in current dollars). See Office of Management and Budget, The Budget of the United States Government, Fiscal Year 1997 (Washington, DC: U.S. Government Printing Office, 1996).

13As a percentage of total Federal on-budget outlays, interest payments on the national debt rose from 13.8 percent in 1983 to 19.4 percent in 1989. In 1996, the preliminary share of on-budget outlays for interest payments is 21.8 percent (see table C-24).

14For more detailed discussion of these changes, see National Science Board, Science & Engineering Indicators—1996, NSB 96-21 (Washington, DC: U.S. Government Printing Office, 1996).

15For France, the 1993 ratio is cited, as the 1994 figure was not yet available.

16Japanese and U.S. surveys on the number of scientists and engineers engaged in R&D are not strictly comparable. Estimates for most of the U.S. data are adjusted to capture full-time equivalence; Japanese surveys, on the other hand, ask for the total number of S&Es engaged in R&D regardless of the amount of time devoted to R&D. Japanese data on scientists and engineers exclude those engaged in R&D in the social sciences. The U.S. data exclude such personnel from the industry sector alone. The historical series for these U.S. personnel data was revised in this National Patterns. Data for 1985 and later years are not directly comparable with the data for 1984 and earlier years. See appendix A for a review of these changes.


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