Science and Engineering Indicators 2014

Measured and Unmeasured R&D

The statistics on U.S. R&D discussed in this section reflect the National Science Foundation’s (NSF’s) periodic National Patterns of R&D Resources reports and data series, which provide a comprehensive account of total U.S. R&D performance. The National Patterns data, in turn, derive from five major NSF surveys of the organizations that perform the bulk of U.S. R&D:

• Business R&D and Innovation Survey
• Higher Education R&D Survey
• Survey of Federal Funds for R&D
• Survey of R&D Expenditures at Federally Funded R&D Centers
• Survey of R&D Funding and Performance by Nonprofit Organizations

The National Patterns analysis integrates R&D spending and funding data from these separate surveys into U.S. R&D performance totals, which are then reported on a calendar-year basis and for the main performing sectors and funding sources.

Because of practical constraints in the surveys, some elements of R&D performance are omitted from the U.S. totals. In evaluating R&D performance trends over time and in international comparisons, it is important to be aware of these omissions.

The U.S. business R&D estimates are derived from a survey of R&D-performing companies with five or more employees. No estimates of R&D performance currently are available for companies with fewer than five employees. (NSF is in the process of designing and implementing a Microbusiness Innovation and Science and Technology Survey, which will collect data from companies with fewer than five employees.)

Until recently, the U.S. statistics for business R&D did not include social science R&D, and, likewise, R&D in the humanities and other non-S&E fields (such as law) was excluded from the U.S. academic R&D statistics. Other countries include both of these R&D components in their national statistics, making their national R&D expenditures relatively larger when compared with those of the United States. Both of these shortfalls are now addressed in the U.S. statistics. NSF’s Business R&D and Innovation Survey—which replaced the previous Survey of Industrial R&D, starting with the 2008 data year—includes social science R&D. Also, the Higher Education R&D Survey—which replaced the previous Survey of R&D Expenditures at Universities and Colleges, starting with the 2010 academic fiscal year—directly includes non-S&E R&D expenditures in the reported academic R&D totals. (The academic R&D totals reported by the National Patterns statistics have been revised back to 2003 to include the non-S&E R&D expenditures.)

The statistics for academic R&D track research expenditures that are separately accounted for in both sponsored research and institutionally funded research. U.S. universities do not report funds for research that are not separately accounted for, such as estimates of faculty time spent on research. This can be a limitation in international R&D comparisons because such estimates are often included in the national statistics of other countries.

Likewise, the activity of individuals performing R&D on their own time and not under the auspices of a corporation, university, or other organization is omitted from official U.S. R&D statistics.

Statistics on R&D performed by state governments are collected in a biennial NSF/U.S. Census Bureau survey, but these amounts (typically totaling only several hundred million dollars annually) are not yet regularly included in the National Patterns totals. Moreover, NSF has not fielded a full survey on R&D performance by nonprofit organizations since 1998—the National Patterns performance figures for this sector in the national R&D totals are estimated.

The National Center for Science and Engineering Statistics commissioned the National Research Council’s Committee on National Statistics to review the methodologies used in preparing the National Patterns data. The review panel began work in mid-2011 and provided its report in early 2013.

Location of R&D Performance, by State

Distribution of R&D expenditures among the U.S. states

In 2010, the 10 states with the largest R&D expenditure levels accounted for about 62% of U.S. R&D expenditures that can be allocated to the states: California, Massachusetts, Texas, Maryland, New Jersey, New York, Washington, Illinois, Michigan, and Pennsylvania (table 4-A).^* California alone accounted for 22% of the U.S. total, almost 4 times as much as Massachusetts, the next highest state. The top 20 states accounted for 84% of the R&D total; the 20 lowest-ranking states accounted for around 5% (appendix table 4-11 and appendix table 4-12).

The states with the biggest R&D expenditures are not necessarily those with the greatest intensity of R&D. Among those with the highest R&D/GDP ratios in 2010 were New Mexico, Maryland, Massachusetts, and Washington (table 4-A). New Mexico is the location of a number of major government research facilities. Maryland is the site of many government research facilities and growing research universities. Massachusetts benefits from both leading research universities and thriving high-technology industries. Washington State is home to government research facilities, leading research universities, and high-technology industries. California has relatively high R&D intensity and benefits from the presence of Silicon Valley, other high-technology industries, federal R&D, and leading research universities, but it is still fifth on this list.

U.S. R&D performance, by sector and state

The proportion of R&D performed by each of the main R&D-performing sectors (business, universities and colleges, federal intramural R&D facilities, and FFRDCs) varies across the states, but the states that lead in total R&D also tend to be well represented in each of these sectors (table 4-A).

In 2010, R&D performed by the business sector accounted for about 69% of the U.S. total R&D that could be allocated to specific states. Of the top 10 states in total R&D performance, 9 are also in the top 10 in industry R&D. Missouri, 10th in business sector R&D, surpasses Maryland in the business R&D ranking.

University-performed R&D accounts for 16% of the allocable U.S. total and mirrors the distribution of overall R&D performance. Only New Jersey and Washington fall out of the top 10 total R&D states, replaced by North Carolina and Ohio.

Federal R&D performance (including both intramural R&D facilities and FFRDCs)—about 13% of the U.S. total—is more concentrated geographically than that in other sectors. Only five jurisdictions—Maryland, California, New Mexico, Virginia, and the District of Columbia—account for 63% of all federal R&D performance.^† This figure rises to 80% when the other 5 of the top 10 performers—Massachusetts, Tennessee, Alabama, Washington, and Illinois—are included.

Federal R&D accounts for the bulk of total R&D in several states, including New Mexico (84%), which is home to the nation’s two largest FFRDCs (Los Alamos and Sandia National Laboratories), and Tennessee (42%), which is home to Oak Ridge National Laboratory. The high figures for Maryland (58%), the District of Columbia (72%), and Virginia (45%) reflect the concentration of federal facilities and federal R&D administrative offices in the national capital area.

* The latest data available on the distribution of U.S. R&D performance by state are for 2010 (appendix table 4-11). Total U.S. R&D expenditures that year are estimated at $406.7 billion. Of this total, $377.0 billion could be attributed to one of the 50 states or the District of Columbia. This state-attributed total differs from the U.S. total for a number of reasons: some business R&D expenditures cannot be allocated to any of the 50 states or the District of Columbia because respondents did not answer the question related to location, nonfederal sources of nonprofit R&D expenditures (an estimated $11.3 billion in 2010) could not be allocated by state, state-level university R&D data have not been adjusted for double-counting of R&D passed from one academic institution to another, and state-level university and federal R&D performance data are not converted from fiscal to calendar years.

† Federal intramural R&D includes costs associated with the administration of intramural and extramural programs by federal personnel, as well as actual intramural R&D performance. This is a main reason for the large amount of federal intramural R&D in the District of Columbia.

Comparing International R&D Expenditures

Comparisons of international R&D statistics are hampered by the lack of R&D-specific exchange rates. Two approaches are commonly used: (1) express national R&D expenditures as a percentage of gross domestic product (GDP), or (2) convert all expenditures to a single currency. The first method is straightforward but permits only gross comparisons of R&D intensity. The second method permits absolute level-of-effort comparisons and finer-grain analyses but entails selecting an appropriate method of currency conversion. The choice is between market exchange rates (MERs) and purchasing power parities (PPPs), both of which are available for a large number of countries over an extended period.

MERs represent the relative value of currencies for cross-border trade of goods and services but may not accurately reflect the cost of nontraded goods and services. They are also subject to currency speculation, political events, wars or boycotts, and official currency intervention. PPPs were developed to overcome these shortcomings (Ward 1985). They take into account the cost differences of buying a similar market basket of goods and services covering tradables and nontradables. The PPP basket is assumed to be representative of total GDP across countries. PPPs are the preferred international standard for calculating cross-country R&D comparisons and are used in all official R&D tabulations of the OECD.*

Because MERs tend to understate the domestic purchasing power of developing countries’ currencies, PPPs can produce substantially larger R&D estimates than MERs for these countries. For example, China’s R&D expenditures in 2010 (as reported to the OECD) are $178 billion in PPP terms but only $104 billion using MERs.

However, PPPs for large developing countries such as China and India are often rough approximations and have other shortcomings. For example, structural differences and income disparities between developing and developed countries may result in PPPs based on markedly different sets of goods and services. In addition, the resulting PPPs may have very different relationships to the cost of R&D in different countries.

R&D performance in developing countries often is concentrated geographically in the most advanced cities and regions in terms of infrastructure and level of educated workforce. The costs of goods and services in these areas can be substantially greater than for the country as a whole.

* Recent research raises some unresolved questions about the use of GDP PPPs for deflating R&D expenditures. In analyzing the manufacturing R&D inputs and outputs of six industrialized OECD countries, Dougherty et al. (2007:312) concluded that “the use of an R&D PPP will yield comparative costs and R&D intensities that vary substantially from the current practice of using GDP PPPs, likely increasing the real R&D performance of the comparison countries relative to the United States.”

Federal R&E Tax Credit

The United States and other OECD countries offer fiscal incentives for business R&D at the national and subnational levels (Thomson 2012). For businesses, tax credits reduce after-tax costs of R&D activities. For governments, tax credits are forgone revenue, known as tax expenditures. Public incentives for R&D are generally justified by the inability of private performers to fully capture benefits from these activities, given the intangible nature of knowledge and information.

The U.S. research and experimentation (R&E) tax credit was originally established by the Economic Recovery Tax Act of 1981 on a temporary basis. It has been extended and modified several times and was last renewed through 31 December 2013 by the American Taxpayer Relief Act of 2012.^* The credit is designed to apply to incremental amounts beyond recent research activity by a business. In particular, the regular research tax credit applies to 20% of qualified research expenses beyond a base.^† The efficiency of the credit, how much a dollar worth of credit generates research activities beyond what otherwise would occur, depends on the effective credit (after limitations in overall business credits and other adjustments to the statutory credit are taken into account for a given taxpayer) and how sensitive R&D is to business costs. For an overview and methodologies to estimate the effectiveness of the R&E credit, see Guenther (2013) and Hall (1995).

Research tax credit claims fell 6.4% to $7.8 billion in 2009 from $8.3 billion in 2008, whereas corporate tax returns claiming the credit dropped 3% to 12,359 filers (appendix table 4-21 and appendix table 4-22), based on estimates from Statistics of Income/Internal Revenue Service (IRS). The reported reduction in credit activity is consistent with the 3.3% decline in company-funded domestic R&D over the same period (appendix table 4-15). R&E credit claims relative to company-funded domestic R&D have fluctuated rather narrowly between 3.0% and 3.5% since 2001 (3.5% in 2009).

* See Internal Revenue Code (IRC) Section 41(a)(1). P.L. 112-240, Section 301. The 2012 Act retroactively extended the research tax credit from 1 January 2012 through 31 December 2013.

† For the regular credit, the base amount is a multiyear average of research intensity (research relative to gross receipts) up to a maximum of 50% of current research spending. Variations include the alternative simplified credit and the alternative incremental R&E tax credit (AIRC; IRC Section 41(c)(4)), in place for 1996–2008 tax years (Guenther 2013). See also IRS form 6765 at http://www.irs.gov/pub/irs-pdf/f6765.pdf.

Federal Budgetary Concepts and Related Terms

Budget authority. This refers to the funding authority conferred by federal law to incur financial obligations that will result in outlays. The basic forms of budget authority are appropriations, contract authority, and borrowing authority.

Obligations. Federal obligations represent the dollar amounts for orders placed, contracts and grants awarded, services received, and similar transactions during a given period, regardless of when funds were appropriated or payment was required.

Outlays. Federal outlays represent the dollar amounts for checks issued and cash payments made during a given period, regardless of when funds were appropriated or obligated.

R&D plant. In general, R&D plant refers to the acquisition of, construction of, major repairs to, or alterations in structures, works, equipment, facilities, or land for use in R&D activities. Data included in this section refer to obligated federal dollars for R&D plant.

Tracking R&D: The Gap between Performer- and Source-Reported Expenditures

In the United States—and in some other Organisation for Economic Co-operation and Development (OECD) countries—the figures for total government support of R&D reported by government agencies differ from those reported by the performers of R&D. In keeping with international guidance and standards, most countries provide totals and time series of national R&D expenditures based primarily on data reported by R&D performers (OECD 2002). Differences between the data provided by funders and that provided by performers can arise for numerous reasons, such as the different calendars for reporting government obligations (fiscal years) and performance expenditures (calendar years). In the United States, there has been a sizable gap between performer and funder data for federal R&D over the past two decades.

In the mid-1980s, performer-reported federal R&D in the United States exceeded federal reports of funding by $3 billion to $4 billion annually (5%–10% of the government total). This pattern reversed itself, however, at the end of the decade: in 1989, the government-reported R&D total exceeded performer reports by almost $1 billion. The government-reported excess increased noticeably from then to 2007, when federal agencies reported obligating $127 billion in total R&D to all R&D performers ($55 billion to the business sector), compared with $107 billion in federal funding reported by the performers of R&D ($27 billion by businesses). In other words, the business-reported total was some 50% less than the federally reported R&D support to industry in FY 2007 (figure 4-A; appendix table 4-36). These differences in federal R&D totals were seen primarily in DOD funding of development activities by industry. The figures for 2008–11 suggest a narrowing of the federal agency reporting excess, but they are primarily the result of a manual imputation procedure for business R&D performers in these years.

Several investigations into the possible causes for the data gap have produced insights but no conclusive explanation. A General Accounting Office investigation made the following assessment:

Because the gap is the result of comparing two dissimilar types of financial data [federal obligations and performer expenditures], it does not necessarily reflect poor quality data, nor does it reflect whether performers are receiving or spending all the federal R&D funds obligated to them. Thus, even if the data collection and reporting issues were addressed, a gap would still exist. (GAO 2001:2)

Echoing this assessment, the National Research Council (NRC 2005) noted that comparing federal outlays for R&D (as opposed to obligations) with performer expenditures results in a smaller discrepancy. (In FY 2007, federal agencies reported total R&D outlays of $109 billion, compared with the performer-related total of $107 billion. In FY 2011, federal agencies reported R&D outlays of $131 billion, compared with the performer-reported total of $134 billion.)

Government Funding Mechanisms for Academic Research

U.S. universities generally do not maintain data on departmental research (i.e., research that is not separately budgeted and accounted for). As such, U.S. R&D totals are understated relative to the R&D effort reported for other countries. The national totals for Europe, Canada, and Japan include the research component of general university fund (GUF) block grants provided by all levels of government to the academic sector. These funds can support departmental R&D programs that are not separately budgeted. GUF is not equivalent to basic research. The U.S. federal government does not provide research support through a GUF equivalent, preferring instead to support specific, separately budgeted R&D projects. However, some state government funding probably does support departmental research, not separately accounted for, at U.S. public universities.

The treatment of GUF is one of the major areas of difficulty in making international R&D comparisons. In many countries, governments support academic research primarily through large block grants that are used at the discretion of each higher education institution to cover administrative, teaching, and research costs. Only the R&D component of GUF is included in national R&D statistics, but problems arise in identifying the amount of the R&D component and the objective of the research. Moreover, government GUF support is in addition to support provided in the form of earmarked, directed, or project-specific grants and contracts (funds that can be assigned to specific socioeconomic categories).

In several large European countries (France, Germany, Italy, and the United Kingdom), GUF accounts for 50% or more of total government R&D funding to universities. In Canada, GUF accounts for about 38% of government academic R&D support. Thus, international data on academic R&D reflect not only the relative international funding priorities but also the funding mechanisms and philosophies regarded as the best methods for financing academic research.

Major Federal Policies Promoting Technology Transfer and Commercialization of R&D

Technology Innovation Act of 1980 (Stevenson-Wydler Act) (P.L. 96-480)—Established technology transfer as a federal government mission by directing federal labs to facilitate the transfer of federally owned and originated technology to nonfederal parties.

University and Small Business Patent Procedures Act of 1980 (Bayh-Dole Act) (P.L. 96-517)—Permitted small businesses, universities, and nonprofits to obtain titles to inventions developed with federal funds. Also allowed government-owned and government-operated laboratories to grant exclusive patent rights to commercial organizations.

Small Business Innovation Development Act of 1982 (P.L. 97-219)—Established the Small Business Innovation Research (SBIR) program, which required federal agencies to set aside funds for small businesses to engage in R&D connected to agency missions.

National Cooperative Research Act of 1984 (P.L. 98-462)—Encouraged U.S. firms to collaborate in generic precompetitive research by establishing a rule of reason for evaluating the antitrust implications of research joint ventures.

Patent and Trademark Clarification Act of 1984 (P.L. 98-620)—Provided further amendments to the Stevenson-Wydler Act and the Bayh-Dole Act regarding the use of patents and licenses to implement technology transfer.

Federal Technology Transfer Act of 1986 (P.L. 99-502)—Enabled federal laboratories to enter cooperative research and development agreements (CRADAs) with outside parties and to negotiate licenses for patented inventions made at the laboratory.

Executive Order 12591, Facilitating Access to Science and Technology (April 1987)—Issued by President Reagan, this executive order sought to ensure that the federal laboratories implemented technology transfer.

Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418)—Directed attention to public-private cooperation on R&D, technology transfer, and commercialization (in addition to measures on trade and intellectual property protection). Also established the Manufacturing Extension Partnership (MEP) program at the National Institute of Standards and Technology.

National Competitiveness Technology Transfer Act of 1989 (P.L. 101-189)—Amended the Federal Technology Transfer Act to expand the use of CRADAs to include government-owned, contractor-operated federal laboratories and to increase nondisclosure provisions.

Small Business Innovation Development Act of 1992 (P.L. 102-564)—Reauthorized the existing SBIR program, increasing both the percentage of an agency’s budget to be devoted to SBIR and the maximum level of awards. Also established the Small Business Technology Transfer (STTR) program to enhance opportunities for collaborative R&D efforts between government-owned, contractor-operated federal laboratories and small businesses, universities, and nonprofit partners.

National Cooperative Research and Production Act of 1993 (P.L. 103-42)—Relaxed restrictions on cooperative production activities, enabling research joint venture participants to work together on jointly acquired technologies.

National Technology Transfer and Advancement Act of 1995 (P.L. 104-113)—Amended the Stevenson-Wydler Act to make CRADAs more attractive to federal laboratories, scientists, and private industry.

Technology Transfer Commercialization Act of 2000 (P.L. 106-404)—Broadened CRADA licensing authority to make such agreements more attractive to private industry and increase the transfer of federal technology. Established technology transfer performance reporting requirements for agencies with federal laboratories.

America COMPETES Act of 2007 (America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Sciences [COMPETES] Act) (P.L. 110-69)—Authorized increased investment in R&D; strengthened educational opportunities in science, technology, engineering, and mathematics from elementary through graduate school; and further promoted the nation’s innovation infrastructure. Among various provisions, the act created the Advanced Research Project Agency–Energy (ARPA-E) to promote and fund R&D on advanced energy technologies; it also called for a President’s Council on Innovation and Competitiveness.

America COMPETES Reauthorization Act of 2010 (P.L. 111–358)—Updated the America COMPETES Act of 2007 and authorized additional funding to science, technology, and education programs over the succeeding 3 years. Numerous provisions were intended to broadly strengthen the foundation of the U.S. economy, create new jobs, and increase U.S. competitiveness abroad.

Presidential Memorandum, Accelerating Technology Transfer and Commercialization of Federal Research in Support of High-Growth Businesses (October 2011)—Issued by President Obama, this memorandum directed a variety of actions by federal departments and agencies to establish goals and measure performance, streamline administrative processes, and facilitate local and regional partnerships to accelerate technology transfer and support private sector commercialization.

Federal Technology Transfer: Activities and Metrics

Federal technology transfer can take a variety of forms (FLC 2011), including the following:

Commercial transfer. Movement of knowledge or technology developed by a federal laboratory to private organizations into the commercial marketplace.

Scientific dissemination. Publications, conference papers, and working papers, distributed through scientific/technical channels; other forms of data dissemination.

Export of resources. Federal laboratory personnel made available to outside organizations with R&D needs through collaborative agreements or other service mechanisms.

Import of resources. Outside technology or expertise brought in by a federal laboratory to enhance the existing internal capabilities.

Dual use. Development of technologies, products, or families of products with both commercial and federal applications.

Federal technology transfer metrics to date have typically covered activities in three main classes of intellectual asset management and transfer:

Invention disclosure and patenting. Counts of invention disclosures filed (typically, an inventing scientist or engineer filing a written notice of the invention with the laboratory’s technology transfer office), patent applications filed with the U.S. Patent and Trademark Office (or abroad), and patents granted.

Licensing. Licensing of intellectual property, such as patents or copyrights, to outside parties.

Collaborative relationships for R&D. Including, but not limited to, Cooperative Research and Development Agreements (CRADAs).

Data on technology transfer metrics such as these are now increasingly available. Nonetheless, it has been long and well recognized by the federal technology transfer community that counts of patent applications and awards, intellectual property licenses, CRADAs, and the like cannot, normally, by themselves provide a reasonable gauge of the downstream outcomes and impacts that result from the transfers––many of which involve considerable time and numerous subsequent developments to reach full fruition. There is a growing literature on federal technology transfer success stories, facilitated in part by the annual agency technology transfer performance reporting mandated by the Technology Transfer Commercialization Act of 2000 and through regularly updated reports by technology transfer professional organizations such as the Federal Laboratory Consortium. Even so, the documentation of these downstream outcomes and impacts is well short of complete.