Chapter 4:

U.S. and International Research and Development: Funds and Alliances


Chapter Overview

Research and development (R&D) appear to be benefiting from the economic prosperity of the mid-1990s. Businesses are thriving, jobs are being created, and inflation seems to be under control. A recent upswing in R&D spending in the United States is paralleling these and other positive economic trends. The annual level of R&D expenditures is estimated to have reached a record-setting high in 1997, exceeding $200 billion for the first time. In addition, the rate of growth in R&D investment is the highest it has been since the early 1980s, a welcome contrast to a period in the early 1990s when it failed to keep pace with inflation.

What is driving the recent R&D expansion? It is not the Federal Government, which is continuing to curtail its support of defense-related R&D activities. Instead, almost all of the acceleration is attributable to industrial firms. Simply stated, many firms are reaping record profits, which is creating a profitable climate for investment in innovation.

The invention of new and improved products, processes, and services has a pervasive impact on the quality of life and the standard of living in the United States and other industrialized nations. Although a negligible portion of the world's financial and human resources is invested in R&D, advancements in science and technology (S&T) often deliver huge and crucial payoffs in terms of economic growth and prosperity, national security, and the health and well-being of society.

A number of new trends in U.S. R&D investment have emerged in recent years, including:

In addition, federal spending priorities have been gradually changing. Pressure to balance the budget, combined with defense downsizing (which began in the late 1980s after the end of the Cold War), is continuing to reshape industrial R&D activity, redefine the mission of federal laboratories, and reduce the growth rate of university research programs.

The purpose of this chapter is to track these and other U.S. and international trends in S&T financial investment.

Chapter Organization

This chapter is divided into five parts. The first, "National Trends in R&D Expenditures," contains information on overall R&D funding trends by source of support, performing sector, and character of work (including national investment in basic research, applied research, and development).

The second part, "R&D Patterns by Sector," takes a closer look at each of the R&D-performing sectors. R&D funding and performance by individual manufacturing and nonmanufacturing industries are examined; also included are discussions of R&D investment by size of company, R&D intensity, and federal support of industry-performed R&D. Next, the most recent data on federal R&D obligations are examined, including statistics for individual agencies and those classified by character of work. The part concludes with a discussion of federal laboratories' role in national R&D performance.

The third part is devoted to domestic partnerships and alliances within and between sectors. Topics covered include industrial R&D consortia, technology transfer activities, and other federal programs designed to stimulate joint research activities.

International R&D comparisons are examined in the fourth part, beginning with an analysis of absolute levels of total and nondefense spending by country, R&D/gross domestic product (GDP) ratios, patterns of sector-specific funding and performance, and information on the character of R&D work undertaken. Next, considerable detail on governments' R&D focus and priorities is provided, including a summary of recent policy initiatives and fiscal incentives for R&D performance.

The fifth part summarizes the growth of international R&D and technology alliances and the rapid rise in industrial R&D investment flows into and out of the United States.

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