Science and Engineering Indicators 2014

Chapter 4. Research and Development: National Trends and International Comparisons

The U.S. R&D system consists of a variety of performers and sources of funding. These include businesses, the federal government, universities and colleges, other government (nonfederal) agencies, and nonprofit organizations. Organizations that perform R&D often receive significant levels of outside funding; those that fund R&D may also be significant performers. This section discusses the current levels and notable recent trends in overall U.S. R&D performance and funding. (Definitions for key terms in this section appear in this chapter’s glossary. The sidebar “Measured and Unmeasured R&D” discusses the main data sources that provide the basis for this analysis. Appendix tables 4-1–4-9 provide additional core data on U.S. R&D funding and performance.)

U.S. Total R&D and R&D Intensity

R&D performed in the United States totaled $424.4 billion (current dollars) in 2011, an increase of $17.7 billion over the previous year (table 4-1). The comparable total in 2008 was $406.6 billion, having increased $26.9 billion over the previous year. However, 2009 and 2010 were more difficult years for what has, over the longer term, been a mainly expanding U.S. R&D enterprise (figure 4-1). In 2009 and 2010, total U.S. R&D fluctuated narrowly around the 2008 level, showing little expansion ($404.7 billion in 2009; $406.7 billion in 2010). These circumstances resulted chiefly from a lowered level of business R&D in the face of the national and international financial crisis and economic downturn that started in late 2008 (figure 4-2).

The challenging path for U.S. R&D performance over the last several years is more apparent when the R&D expenditure figures are adjusted for inflation.^[1] On a constant dollar basis, U.S. total R&D in 2010 was below the 2008 level (table 4-1). Furthermore, the 2011 level only barely returns to the 2008 level. Much the same is true for R&D performance by the business sector (which accounts for around two-thirds of all U.S. R&D performance), although even in 2011 this sector’s R&D remains well below the 2008 level in inflation-adjusted terms (table 4-1).

U.S. total R&D grew by 4.4% in 2011, compared with a 3.9% expansion of GDP that year (table 4-2).^[2] These relative changes better mirror what has been the “historical” pattern of R&D and GDP growth than the experiences of 2009 or 2010. As a matter of longer-term averages, the growth of U.S. total R&D has outpaced that of the nation’s GDP—whether the averaging period is the past 5, 10, or 20 years (table 4-2). But, again, 2009 and 2010 were notably different experiences. U.S. total R&D dropped by 0.5% in 2009 mainly because of the hefty decline in R&D performed by the business sector (figure 4-2). GDP declined even more sharply that year, by 2.5%. GDP rebounded in 2010, growing by 4.2% over the 2009 level. R&D, however, did not match this pace, growing by only 0.5% over the 2009 level—held back by another year of decline in business sector R&D expenditures (figure 4-2). R&D’s return to a more familiar pace of growth in 2011 owes much to the return of a relatively high rate of expansion of business sector R&D (table 4-2; figure 4-2). (Preliminary data for 2012, available too late to incorporate in this chapter’s charts and tables, put the U.S. R&D total at $452.6 billion that year, an increase of 5.7% over the prior year, well ahead of the 4.0% pace of GDP growth, and mainly again the result of increased business R&D. This continuation in 2012 of the strong pace of R&D growth in 2011 suggests a return to the longer-term trend of R&D expansion in the wake of the 2008–09 domestic and international economic downturns [Boroush 2013].)

A consequence of these shifting growth rates is that the R&D intensity of the national economy (the ratio of R&D expenditures to GDP) exhibited a noticeable decline in 2010 and 2011, compared with the earlier years (figure 4-3). (The ratio of total national R&D expenditures to GDP is often reported as a measure of the intensity of a nation’s overall R&D effort and is widely used as an international benchmark for comparing countries’ R&D systems.)

U.S. expenditures on R&D totaled 2.80% of GDP in 2010 and 2.81% in 2011. Both of these figures are lower than the 2.90% ratio that prevailed in 2009 (figure 4-3). Over the 10-year period from 2001 to 2011, the ratio has fluctuated to some degree year to year, between a low of 2.57% in 2004 and a high of 2.90% in 2009. The ratio had been rising since 2004 (figure 4-3). The lower levels in 2010 and 2011 represent a noticeable reversal.

Most of the rise of the R&D/GDP ratio over the past several decades has come from the increase of nonfederal spending on R&D, particularly that by the business sector (figure 4-3). This reflects the growing role of business R&D in the national R&D system and, in turn, the growing prominence of R&D-derived goods and services in the national and global economies. By contrast, the ratio of federal R&D spending to GDP declined from the mid-1980s to the late 1990s, notably from cuts in defense-related R&D. There had been a gradual uptick through 2009, the result of increased federal spending on biomedical and national security R&D and the one-time incremental funding for R&D provided by the American Recovery and Reinvestment Act of 2009 (ARRA).

Performers of R&D

The National Science Foundation (NSF) tracks the R&D spending patterns of all the major performers in the overall U.S. R&D system: businesses, the intramural R&D activities of federal agencies, federally funded research and development centers (FFRDCs), universities and colleges, and other nonprofit organizations.

Business Sector

In 2011, the business sector continued to be the largest performer of U.S. R&D, conducting $294.1 billion, or 69%, of the national total (table 4-1; figure 4-4). The 2011 level of business R&D performance rose over the 2010 level ($279.0 billion) and reversed apparent declines in 2009 and 2010. Over the 5-year period of 2006–11, business R&D performance grew an average of 3.5% annually, although somewhat behind the 3.8% rate of growth of overall U.S. R&D (table 4-2).

The business sector’s predominance in the composition of national R&D has long been the case, with its annual share ranging between 68% and 74% over the 20-year period of 1991–2011 (figure 4-5).

Universities and Colleges

Academia is the second-largest performer of U.S. R&D. Universities and colleges performed $63.1 billion,^[3] or 15%, of U.S. R&D in 2011 (table 4-1; figure 4-4). The total of academic R&D performance has increased by several billion dollars each year since 2006. Annual growth of R&D in this sector has averaged 5.2% over the period of 2006–11, well ahead of the rate of total national R&D (table 4-2).

Over the 20-year period of 1991–2011, the academic sector’s share in U.S. R&D has ranged between 11% and 15% annually. Furthermore, as discussed below, universities and colleges have a special niche in the nation’s R&D system: they performed more than half (55%) of the nation’s basic research in 2011.

Federal Agencies and FFRDCs

R&D performed by the federal government includes the activities of agency intramural laboratories and that of the FFRDCs. Federal intramural R&D performance includes the spending for both agency laboratory R&D and for agency activities to plan and administer intramural and extramural R&D projects. FFRDCs are R&D-performing organizations that are exclusively or substantially financed by the federal government. An FFRDC is operated to provide R&D capability to serve agency mission objectives or, in some cases, to provide major facilities at universities for research and associated training purposes. (There were 40 FFRDCs in 2011; see appendix table 4-10). Each FFRDC is administered by an industrial firm, a university, a nonprofit institution, or a consortium.

The federal government conducted $49.4 billion, or 12%, of U.S. R&D in 2011 (table 4-1; figure 4-4). Of this amount, $31.5 billion (7% of the U.S. total) was intramural R&D performed by federal agencies in their own research facilities, and $17.9 billion (4%) was R&D performed by the 40 FFRDCs.

The federal total was up only barely in 2011 (an increase of $0.5 billion over the prior year). Over the 2006–11 period more generally, however, it has increased from $1 billion to $2 billion annually (table 4-1). In 1991, the federal performance share was 15%, but it gradually declined in the years since 2006, ranging annually between 11% and 12%.

The volume of the federal government’s R&D performance is relatively small compared with that of the U.S. business sector. Even so, the $49.4 billion performance total in 2011 exceeded the total national R&D expenditures of every country except China, Japan, Germany, South Korea, and France.^[4]

Other Nonprofit Organizations

R&D performed in the United States by nonprofit organizations other than universities and certain FFRDCs was estimated at $17.8 billion in 2011 (table 4-1). This was 4% of U.S. R&D in 2011, a share that has been largely the same since 2000 (figure 4-4).

Geographic Location of R&D

The sidebar “Location of R&D Performance, by State,” summarizes the leading geographic locations of U.S. R&D performance. For additional R&D indicators at the state level, see chapter 8.

Sources of R&D Funding

Funds that support the conduct of R&D in the United States come from a variety of sources, including businesses, federal and nonfederal government agencies, academic institutions, and other nonprofit organizations. The mix of funding sources varies by performer.

R&D Funding by Business

The business sector is the predominant source of funding for the R&D performed in the United States. In 2011, business sector funding accounted for $267.3 billion, or 63% of the $424.4 billion of total U.S. R&D performance (table 4-1; figure 4-4).

Nearly all of the business sector’s funding for R&D (98%) is directed toward business R&D performance (table 4-3).^[5] The small remainder goes to academic and other nonprofit performers.

The business sector’s predominant role in the nation’s R&D funding began in the early 1980s, when the support it provided started to exceed 50% of all U.S. R&D funding (figure 4-6). This business sector share moved up annually until reaching 69% in 2000. However, this share has declined somewhat in the years since, amid rising federal R&D funding, to 64% in 2006 and 63% in 2011.

R&D Funding by the Federal Government

The federal government is the second-largest source of overall funding for U.S. R&D. It is a major source for most U.S. performer sectors except private businesses, where the federal role, while not negligible, is substantially overshadowed by the business sector’s own funds.

Funds from the federal government accounted for $125.7 billion, or 30%, of U.S. total R&D in 2011 (table 4-1; figure 4-4). This funding was mainly directed to federal, business, and academic performers, but other nonprofit organizations were also recipients (table 4-3).

Federal funding accounted for all of the $31.5 billion of federal intramural R&D performance in 2011 and nearly all of the $17.9 billion of R&D performed by FFRDCs. (Nonfederal support for FFRDC R&D has been around $0.4 billion in recent years, or less than 1% of total support; see appendix table 4-10.)

Federal funding to the business sector accounted for $31.3 billion of business R&D performance in 2011, or 11% of the sector’s R&D total that year (table 4-3). Federal funds to academia supported $38.7 billion (61%) of the $63.1 billion spent on academic R&D in 2011. For the R&D performed by other nonprofit organizations, $6.3 billion (about 35%) of this sector’s $17.8 billion of performance was supported by federal funds.

The federal government was once the leading sponsor of the nation’s R&D, funding some 67% of all U.S. R&D in 1964 (figure 4-6). The federal share decreased in subsequent years to 49% in 1979, on down to a historical low of 25% in 2000. However, changing business conditions and expanded federal funding for health, defense, and counterterrorism R&D pushed the federal funding share above 30% in 2009 and 2010 and to nearly 30% in 2011. Similarly, through the early 1960s, more than half of the nation’s business-performed R&D had been funded by the federal government. This share then declined in subsequent years to below 10% in 2000, but it increased again to 11% by 2011 (appendix table 4-2).

R&D Funding from Other Sources

The balance of R&D funding from other sources is small: $31.4 billion in 2011, or about 7% of all U.S. R&D performance that year. Of this amount, $12.5 billion (3%) was academia’s own institutional funds, all of which remain in the academic sector; $3.8 billion (1%) was from state and local governments, primarily supporting academic research; and $15.1 billion (4%) was from other nonprofit organizations, the majority of which funds this sector’s own R&D. In addition, some funds from the nonprofit sector support academic R&D.

The share of R&D funding from these sources has been gradually increasing over the 2006–11 period (figure 4-6). In 2006, these other sources accounted for just under 7% of U.S. total R&D.

R&D, by Character of Work

R&D encompasses a wide range of activities: from research yielding fundamental knowledge in the physical, life, and social sciences; to research addressing national defense needs and such critical societal issues as global climate change, energy efficiency, and health care; to the development of platform or general-purpose technologies that can enable the creation and commercial application of new and improved goods and services. The most widely applied classification of these activities characterizes R&D as “basic research,” “applied research,” or “(experimental) development” (OMB 2012b; OECD 2002; NSF 2006). (For definitions of these terms, see this chapter’s glossary.) These categories have been criticized as reinforcing the idea that creating new knowledge and innovation is a linear process beginning with basic research, followed by applied research and development, and ending with the production and diffusion of new technology. However, alternative classifications that involve measureable distinctions and capture major differences in types of R&D have yet to emerge. Despite the recognized limitations of the basic research-applied research-development classification framework, it remains useful in providing indications of differences in the motivation, expected time horizons, outputs, and types of investments associated with R&D projects.

The most recent character-of-work cross-section in NSF’s R&D expenditures and funding data covers 2011.^[6] Basic research activities accounted for 18% ($75.0 billion) of the $424.4 billion of total U.S. R&D that year. Applied research was 19% ($82.4 billion); development was 63% ($267.1 billion) (table 4-3; figure 4-7).

Basic Research

Universities and colleges remain the primary performers of U.S. basic research, accounting for 55% of the $75.0 billion in 2011 (table 4-3). The business sector performed about 17%; the federal government (agency intramural labs and FFRDCs) performed 15%; and other nonprofit organizations performed 13%.

The federal government continues as the prime source of funding for basic research, accounting for about 55% of all such funding in 2011 (table 4-3). The business sector was the second-largest performer at 20%, but although its $15.1 billion of funding for basic research is small compared to its $267.3 billion of funding for all R&D that year, the contribution is particularly significant to the national R&D as a whole. Universities and colleges themselves provide about 10% of basic research funding. Other nonprofit organizations provide 12%.

In choosing whether to perform basic research, businesses consider various factors, such as the extent of appropriability of results, the commercialization risks involved, and the uncertainties of investment returns over business-acceptable time horizons. Despite the risks and uncertainties involved, many companies believe that company engagement in basic research can help them develop human capital, attract and retain talent, absorb external knowledge, and strengthen innovation capacity. Businesses that invest most heavily in basic research tend to be in industries that are most directly tied to ongoing scientific and technological advances, such as the pharmaceuticals and scientific R&D service industries.

Applied Research

The business sector performed 57% of the $82.4 billion of applied research in 2011 (table 4-3). Universities and colleges accounted for 20%; the federal government (federal agency intramural labs and FFRDCs) accounted for 16%; and nonprofit organizations accounted for 7%.

Businesses provided the bulk of funding (53%) for applied research in 2011. The federal government provided 37%. Academia, nonfederal governments, and other nonprofit organizations contributed 4%, 1%, and 5%, respectively.

Industries that perform relatively large amounts of applied research include chemicals and aerospace. Federal funding for applied research is spread broadly across all the performers, with the largest amounts (in 2011) going to universities and colleges, federal intramural labs, the business sector, and FFRDCs (table 4-3).

Development

The business sector dominates in development, performing 88% of the $267.1 billion that the United States devoted to development in 2011 (table 4-3).^[7] The federal government (agency intramural labs, FFRDCs) accounted for another 9%—much of it was defense related, with the federal government being the main consumer. By contrast, academia and other nonprofit organizations perform very little development, respectively 2% and 1% of the total in 2011.

The business sector provided about three-quarters (78%) of development funding ($208.3 billion) in 2011, nearly all of it in support of development activities by businesses (table 4-3). The federal government provided 20% ($54.5 billion) of the funding, with more than half going to the business sector—especially in defense-related industries—and most of the remainder going to federal intramural labs and FFRDCs. Universities and colleges, other nonprofit organizations, and nonfederal government agencies provided small amounts of funding to support performance of development activities.

Notes