U.S. leadership in terms of its financial investment in R&D vis-à-vis other countries narrowed considerably during the past 2 decades; more recently there has been a worldwide slowing in the growth of such funds. While R&D patterns by sector are quite similar across countries, national sources of support differ considerably. Foreign sources of R&D have been increasing in practically all countries.
The largest seven R&D-performing countries (G7) are markedly similar in terms of which sectors undertake the R&D. Industry was the leading R&D performer in each of the seven; performance shares in the early 1990s ranged from a little more than 70 percent in the United States and Japan, to somewhat less than 60 percent in Italy and Canada. Industry's share ranged between 60 percent and 70 percent in Germany, France, and the United Kingdom. (See figure 4-17 and appendix table 4-35.) The majority of industry's R&D performance was funded by industry itself in each of these countries, followed by government funding. Government's share of funding for industry R&D performance ranged from as little as 1 percent in Japan to about 20 percent in the United States and France.31
In most of the seven countries, the academic sector was the next largest R&D performer, followed by government laboratories. Only in France and Italy was government's R&D performance (which included spending in several nonprivatized industries, as well as in some sizable government laboratories) slightly larger than that of academia. Government's R&D performance share was smallest in Japan and the United States, at about 10 percent of the total.
Consistent with performing most of these countries' R&D activities, the industrial sector provides the greatest proportion of financial support for R&D. Shares for this sector, however, differed substantially from one country to the next. Industry provided more than 70 percent of R&D funds in Japan; 60 percent in Germany; about 50 percent in the United States, the United Kingdom, and Italy; and somewhat less in France and Canada. (See figure 4-17.) In each of these seven countries, government was the second largest source of R&D funding and also provided most of the funds used for academic R&D performance. Foreign funding - predominately from industry for R&D performed by industry - is an important and growing funding source in several countries. (See Foreign R&D in The United States in this chapter.) The R&D funding share represented by funds from abroad ranged from 12 percent in the United Kingdom to a mere 0.1 percent in Japan. In the United States, almost 7 percent of funds spent on R&D in 1993 are estimated to have come from majority-owned affiliates of foreign firms investing domestically. This amount was up considerably from the 2-percent funding share provided by foreign firms in 1980.32 (See appendix tables 4-35 and 4-36.)
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 in 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, only to have since been scaled back in an effort to restructure and close inefficient, inappropriate, and redundant research institutions (Government of the Federal Republic of Germany, 1993; Meyer-Krahmer, 1992).
The drop in Germany's total R&D effort is indicated by recent trends in its R&D-to-GDP ratio, a metric that is one of the most widely used indicators of a country's commitment to scientific knowledge growth and technology development. (See figure 4-19.) In Germany, the ratio has fallen from 2.9 percent at the end of the 1980s, before reunification, to its current level of 2.5. This pattern is not, however, restricted to Germany. In the United States, R&D's share of GDP similarly declined from 2.8 percent in 1991 to an estimated 2.4 percent in 1995. In fact, the latest R&D/GDP ratio in each of the G7 countries is no higher than the ratio reported at the start of the 1990s. In France, Germany, Japan,33 the United Kingdom, and the United States, R&D/GDP ratios appear to have drifted back from recent peaks to the 2.2- to 2.7-percent range. In Italy and Canada, which also have confronted economic and budgetary constraints, this ratio leveled off at about 1.3 and 1.5 percent, respectively.
Moreover, the recent slowdown/decline in R&D spending is not confined to the OECD's largest industrialized countries. R&D growth during the 1990s in many of the smaller or less technologically advanced European countries has been slower than the growth reported for the 1980s. This is particularly true among Eastern European countries and the former Soviet Union, where the severe market and industrial adjustments necessitated in transitioning to market economies have been accompanied by an even more severe downsizing of R&D activities (European Commission, 1994).
Although such figures should be treated cautiously, the R&D/GDP ratio shown for Russia displays well the overall decline in the country's indigenous R&D capabilities since the collapse of the Soviet Union. (See figure 4-19.) As recently as 1990, R&D accounted for about 3.5 percent of Russia's gross economic product (Dezhina, 1994). Perhaps two-thirds of that amount was expended in military laboratories, about 10 percent was directed toward basic research in a multitude of fundamental science fields, and most of the remainder was classified as applied industrial research which overlapped with defense-related R&D (Schweitzer, 1995). By 1992, government support for R&D had dwindled to less than 1 percent of GDP and nongovernmental sources were generally unknown.34 Indeed, according to the Russian Center for Science Research and Statistics (1995), the country's total R&D - calculated according to OECD international standards - dropped from 2 percent of GDP in 1990 to 0.8 percent in 1992. Reflecting the lack of core budgets, entire research institutes have been closed - including many of the well-equipped laboratories of the former military-industrial complex - and an estimated 30 percent of all researchers have left for the commercial sector, for retirement, or for other reasons, including emigration, since 1991. According to statistics released in 1994 by the Russian Ministry of Science and Technological Policy, the overall R&D budget now represents less than 0.5 percent of GDP (Schweitzer, 1995). About two-thirds of the Federal budget appropriations are now for civilian R&D, although about 40 percent of this nondefense R&D is performed within defense industries (Russian Center for Science Research and Statistics, 1995). Furthermore, by the end of 1994, it is estimated that probably more than one-half of civilian R&D was financed from foreign sources.
In absolute dollar terms, the U.S. international position was markedly different - and comparatively more favorable - than indicated by the nondefense R&D/GDP ratios. Between 1981 and 1993, growth in U.S. nondefense R&D spending was rather similar to growth in other industrial countries, save for Japan, whose nondefense R&D expenditure growth was notably faster than that in the United States. Thus, as a percentage of the U.S. nondefense R&D total, comparable Japanese spending jumped from 42 percent in 1981 to 53 percent in 1993. (See appendix table 4-34.) During this period, Germany's annual spending was equal to 26 to 30 percent of U.S. nondefense R&D spending, while France's annual spending was equivalent to 16 to 18 percent, and the United Kingdom's annual spending was between 14 and 17 percent. In 1993, the combined nondefense R&D spending in these four countries equaled $119 billion (in constant dollars), somewhat greater than nondefense R&D spending in the United States ($106 billion in constant dollars).
29 Although several developing countries have greatly expanded the level of national resources they devote to civilian research efforts, the overall financial impact of their efforts is small compared with those of the large industrialized countries.
30 Estimates are for 1993; see OECD (1995). Note that these estimates are based on reported R&D investments converted to U.S. dollars with PPP exchange rates. (See appendix table 4-22.) Although PPPs are not equivalent to R&D exchange rates per se, they better reflect differences in countries' laboratory costs than do market exchange rates. See section, Purchasing Power Parities: Preferred Normalizer of International R&D Data (NSB, 1993, pp. 98-99).
31 The national totals for Europe, Canada, and Japan include the research component of general university funds (GUF) block grants provided by all levels of government to the academic sector. Therefore, at least conceptually, the totals include both academia's separately budgeted research and research undertaken as part of universities' departmental R&D activities. In the United States, the Federal Government generally does not provide research support through a GUF equivalent, preferring instead to support specific separately budgeted R&D projects. On the other hand, a fair amount of state government funding probably does support departmental research at public universities in the United States. Data on departmental research, which is considered an integral part of instructional programs, generally are not maintained by universities. U.S. totals may thus be underestimated relative to the R&D effort reported for other countries.
32 Unlike for other countries, there are no data on foreign sources of U.S. R&D performance. The figures used here to approximate such foreign involvement are derived from the estimated percentage of U.S. industrial performance undertaken by majority-owned (that is, 50 percent or more) non-bank U.S. affiliates of foreign companies.
33 The R&D data reported here for Japan generally are those adjusted by the OECD from the official Japanese statistics in order to make them more comparable with international standards. In Japan, data for R&D personnel are expressed as the number of people working mainly on R&D rather than in terms of full-time equivalent. Consequently, R&D labor cost data - and therefore total R&D expenditures - are overestimated by international standards. Based on estimates obtained from recent Japanese studies, the OECD reports adjusted Japanese R&D totals that are about 15 percent lower than the official R&D series. For example, the adjusted Japan R&D/GDP ratios reported here are 2.1 percent for 1981, 2.9 percent for 1990, and 2.7 percent for 1993. The unadjusted ratios are 2.3 percent for 1981, 3.1 percent for 1990, and 2.9 percent for 1993.
34 These trend statistics are taken from Dezhina (1994) and represent Federal budgetary expenditures on science as a percentage of GNP. These figures may be viewed as a rather comprehensive accounting of the Russian R&D total (up through 1992) since business enterprises - in other words, nongovernmental resources - accounted for only 0.1 percent of total domestic R&D finances, and foreign R&D funding was not prevalent. Although there is some uncertainty as to the defense versus nondefense components of Russia's R&D total, as well as the more general question of what is being counted in these totals, the key point is undeniable: Federal Government R&D financing has been radically reduced in the 1990s and other domestic sources of financing are practically negligible.
35 This is not to say that defense-related R&D does not benefit the commercial sector. There unquestionably have been technological spillovers from defense to the civilian sector. But almost as certainly, the benefits are less than if these same resources had been allocated directly to commercial R&D activities. Moreover, considerable anecdotal evidence indicates that the technological flow is now more commonly from commercial markets to defense applications, rather than the reverse.