Chapter 4: Research and Development: Funds and Technology Linkages


Chapter Overview

In 2006 the United States commemorates the bicentennial of Meriwether Lewis and William Clark's completed expedition of discovery across a then-uncharted North American continent. This expedition, championed by President Thomas Jefferson and funded by a federal appropriation of $2,500 in 1803, foreshadowed future voyages of discovery in the realms of science and technology (S&T) unimaginable two centuries ago. The commemoration of this expedition is recognition of the importance of scientific discovery to the nation and to the world.

The research and development activities undertaken today possess many of the same characteristics demonstrated by the Lewis and Clark expedition. Commerce, Jefferson's primary justification for the expedition, remains a driving force in discovery, and today profit-seeking firms perform most of the nation's R&D. At the same time, just as Congress did in 1803, governments still recognize that, for a variety of reasons, the private sector cannot or will not fund all of the R&D that might benefit society, and, therefore, public financing maintains an important role in the global R&D enterprise. And in our own time, modern R&D projects still require the teamwork and collaboration exhibited by Lewis and Clark's Corps of Discovery to advance the frontier of S&T.

Observing the trends in R&D and innovation, economist Jacob Schmookler (1962) concluded that, "The historical shifts in inventive attention appear to reflect the interplay of advancing knowledge, which opens up new inventive opportunities for exploitation, and the unfolding economic needs and opportunities arising out of a changing social order." These two forces—advancing scientific and technological knowledge and economic demand—can be characterized, respectively, as the supply and the demand sides of invention. Under this framework, advances in S&T may occur when the cost of invention (a function of current scientific knowledge) drops below the profit potential of invention (a function of demand). Similarly, shifts in demand for technological advances can raise the profit potential of invention above the cost of invention.

Technology developments resulting in part from national defense and other government investments in the first half of the 20th century, coupled with the growth of research universities and specialized industrial laboratories in advanced countries, cemented the role of S&T as a key contributor to national economic growth, productivity, security, and social welfare. In the second half of the 20th century, industrial innovation became increasingly globalized following international investments by multinational corporations (MNCs). Global R&D and related international investments are still concentrated in a few developed countries or regions. However, certain developing economies have increased their national R&D expenditures and have become hosts of R&D by U.S. MNCs within the past decade. Concurrent with these developments, industrial R&D is often performed in collaboration with external partners and contractors, assisted by an increasing international pool of scientific discoveries and talent.

Policymakers in both the public and private sectors constantly seek to evaluate their organizations' performance as a benchmark against both historical trends and current and future competitors. But because it is difficult to measure these advances directly, policymakers often use data on R&D expenditures as a proxy measure for the effort expended to make these advances possible. R&D expenditures indicate both the relative importance of advancing S&T compared with other goals as well as the perceived value of future S&T innovations. For example, R&D must compete for funding with other activities supported by discretionary government spending—from education to national defense. The resulting share of a government's budget that is devoted to R&D activities thus indicates governmental and societal commitment to R&D relative to other government programs. Likewise, profit-seeking firms invest in product R&D to the extent that they foresee a potential market demand for new and improved goods and services. Other indicators discussed in this chapter include industrial technology alliances and federal technology transfer activities.

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Chapter Organization

This chapter is organized into seven sections that examine trends in R&D expenditures and collaborative technology activities. The first section provides an overview of national trends in R&D performance and R&D funding. The second analyzes data on the location of R&D performance in the United States. The third and fourth sections focus on the respective roles of business enterprises and the federal government in the R&D enterprise.

The fifth section summarizes available information on external technology sourcing and collaborative R&D activities across R&D-performing sectors, including industrial contract R&D expenditures, federal technology transfer, and domestic and international technology alliances.

The sixth section compares R&D trends across nations. It contains sections on total and nondefense R&D spending; ratios of R&D to gross domestic product (GDP) in various nations; international R&D funding by performer and source (including information on industrial subsectors and academic science and engineering fields); the allocation of R&D efforts among components (basic research, applied research, and development); and international comparisons of government R&D priorities and tax policies.

The seventh section presents data on R&D by U.S. MNCs and their overseas affiliates and by affiliates of foreign companies in the United States. Data include R&D expenditures by investing or host countries and their industrial focus, and R&D employment.

National Science Board.