| Trends
in R&D Performance
Trends in Federal R&D Funding
Trends in Non-Federal R&D Funding
U.S. R&D/GDP Ratio
Sectoral Composition of R&D Performance
Trends in R&D by Character of Work
Industrial R&D by Industry, Firm Size, and R&D
Intensity
R&D Performance by State
In the mid- to late 1990s, R&D performance
in the United States surged.
In real terms (constant or inflation-adjusted dollars), total R&D
performance grew 40.5 percent between 1994 and 2000 at an average
annual real growth rate of 5.8 percent over the period (figure
4-1  ).
National Science Foundation (NSF) data indicate that this growth
rate was not sustained in the following 2 years, slowing to an estimated
1 percent between 2000 and 2001 and just keeping pace with inflation
between 2001 and 2002. Total 2002 R&D performance in the United
States is estimated to be $276.2 billion, up from an estimated $273.6
billion in 2001 and $264.7 billion in 2000.
(See sidebar, "Definitions of R&D.")
In comparison, GDP, the main measure of the nation's total economic
activity, grew in real terms by 3.8 percent per year between 1994
and 2000. R&D performance as a proportion of GDP rose from 2.40
percent in 1994 to 2.69 percent in 2000 as growth in R&D outpaced
the growth of the overall economy. The slowdown in R&D investment
in 2001 and 2002 coincided with an overall economic slow-down in
the United States, resulting in R&D to GDP ratios of 2.71 percent
in 2001 and 2.64 percent in 2002.
Organizations that perform R&D often receive outside funding;
conversely, organizations that fund R&D often do not perform
all the R&D themselves. Therefore, it is useful to analyze R&D
expenditure data in terms of who performed the R&D and who funded
it.
Industry performs most of the nation's R&D and accounted for
70.4 percent of total R&D performance in 2002.
Universities and colleges, excluding academically administered federally
funded research and development centers (FFRDCs), accounted for
13.0 percent of national R&D performance in 2002, followed by
the Federal Government (8.6 percent) and nonprofit institutions
(4.2 percent).
All FFRDCs combined performed 3.7 percent of U.S. total R&D
in 2002 (figures 4-1
and figure 4-2 ;
table 4-1  ).
Private industry is also the largest source of R&D funding
in the United States and provided 65.5 percent ($180.8 billion)
of total R&D funding in 2002. Most of these funds (98.1 percent)
flowed to industrial performers of R&D. The Federal Government
provided the second largest share of R&D funding, 28.3 percent
($78.2 billion), with only 43.6 percent of these funds financing
Federal labs and FFRDCs. The other sectors of the economy (i.e.,
state governments, universities and colleges, and nonprofit institutions)
contributed the remaining 6.2 percent ($17.2 billion) (table
4-1 ).
Trends in R&D Performance 
U.S. R&D has experienced largely uninterrupted growth over
the past 50 years (figure
4-1 ).
U.S. R&D performance grew each year between 1953 and 2002, even
in the early 1990s when both Federal and industrial R&D funding
slowed significantly
(figure 4-3 ).
In the mid-1990s substantial increases in industrial R&D, most
notably in the computer and other information technology (IT) sectors
and in small R&D-performing firms, ended a brief slowdown in
national R&D growth.
Between 1994 and 2000, an 8.9 percent real annual growth rate in
industrial support for R&D overshadowed a slight decline (-0.3
percent per year) in Federal R&D support, resulting in overall
real annual growth of 5.8 percent in U.S. R&D.
More recently, the growth of R&D investment in the United States
has slowed. Preliminary data indicate that although total R&D
expenditures continued to rise through 2002, industrial R&D,
which fueled the growth over the prior period, failed to keep pace
with inflation and experienced its first decline in real terms after
1994. This has occurred only six times in the past 49 years. The
business activities of many R&D-performing firms were curtailed
following the stock market decline and subsequent economic slowdown
of 2001 and 2002. The same sectors that saw impressive increases
in the late 1990s experienced declines in sales, share prices, and
R&D investment at the beginning of the 21st century.
Trends in Federal R&D Funding
Increases in Federal R&D investment, particularly in the areas
of defense, health, and counterterrorism, helped to offset the slowdown
in industrial R&D in 2001 and 2002. These increases also reversed
a decades-long trend in the shrinking share of Federal R&D funding
as a percentage of the nation's total R&D (figure
4-4 ).
The Federal Government was once the main source of the nation's
R&D funds, funding as much as 66.7 percent of all U.S. R&D
in 1964. The Federal share first fell below 50 percent in 1979,
and after 1987 it fell steadily, dropping from 46.3 percent in that
year to 25.1 percent in 2000 (the lowest it has ever been since
the start of the time series in 1953). This sharp decline in the
Federal Government share, however, should not be misinterpreted
as a drastic decline in the actual amount of R&D funded (figure
4-3 ).
Adjusting for inflation, Federal support decreased 18 percent from
1987 to 2000, although in nominal terms, Federal support grew from
$58.5 billion to $66.4 billion during that period. Growth in industrial
funding generally outpaced growth in Federal support, leading to
the decline in Federal support as a proportion of the total. The
slowdown of industry's investment in R&D, as well as increases
in Federal R&D funding in recent years, reversed this trend.
Thus in 2002, the Federal share of R&D funding is estimated
to have grown to 28.3 percent.
Trends in Non-Federal R&D Funding
R&D financing from non-Federal sources grew by 7.6 percent
per year after inflation between 1980 and 1985, concurrent with
gains in Federal R&D spending. This growth rate slowed to 3.3
percent between 1985 and 1994 but rose to 8.6 percent during the
1994–2000 period. More recently, between 2000 and 2002, non-Federal
sources of R&D funding declined by 1.8 percent per year in real
terms.
As previously discussed, most non-Federal R&D support is provided
by industry. Of the 2002 non-Federal support total ($198 billion),
91.4 percent ($181 billion) was company funded. Industry's share
of national R&D funding first surpassed the Federal Government's
in 1980, and it has remained higher ever since. From 1980 to 1985,
industrial support for R&D, in real dollars, grew at an average
annual rate of 7.7 percent. This growth was maintained through both
the mild 1980 recession and the more severe 1982 recession (figure
4-3 ).
Key factors behind increases in industrial R&D included a growing
concern with international competition, especially in high-technology
industries; the increasing technological sophistication of products,
processes, and services; and general growth in such defense-related
industries as electronics, aircraft, and missiles. Between 1985
and 1994, growth in R&D funding from industry was slower, averaging
only 3.1 percent per year in real terms, but from 1994 to 2000 industrial
R&D support grew in real terms by 8.9 percent per year. This
rapid growth rate came to a halt following the downturn in both
the market valuation and economic demand for technology in the first
years of the 21st century. Between 2000 and 2002 industrial R&D
support declined by 2.5 percent per year in real terms.
Although industrial firms provide only a small portion of the R&D
funding at U.S. universities and colleges (6.5 percent in 2002),
their funding of academic research has grown faster than any other
sector over the past 2 decades. Between 1980 and 2000, industry's
funding of academic R&D grew at an average annual rate of 7.7
percent after adjusting for inflation, outpacing total academic
R&D, which grew at an average annual rate of 4.8 percent over
the same period. Growth in industry's funding of academic R&D
has since slowed to an average annual rate of 1.9 percent between
2000 and 2002, indicating that this source of funding is not immune
to economic forces, although apparently more so than industry's
R&D funding of industry itself.
R&D funding from other non-Federal sectors, namely, academic
and other nonprofit institutions and state and local governments,
has been more consistent over time, growing at an average annual
rate of 6.3 percent between 1980 and 2002 after adjusting for inflation.
Most of these funds went to research performed within the academic
sector.
U.S. R&D/GDP Ratio
Economists often use the ratio of R&D expenditures to GDP to
examine R&D in the context of a nation's overall economy. This
ratio reflects the intensity of R&D activity in relation to
other economic activity and is often interpreted as a relative measure
of a nation's commitment to R&D.
Since 1953, the first year for which national R&D data are
available, U.S. R&D expenditures as a percentage of GDP have
ranged from a minimum of 1.36 percent (in 1953) to a maximum of
2.87 percent (in 1964) (figure
4-5 ).
From 1994 to 2001, R&D outpaced growth of the general economy
and the R&D/GDP ratio rose close to its historic high. It is
estimated that the amount of R&D performed in the United States
equaled 2.71 percent of the United States GDP in 2001 and 2.64 percent
in 2002.
Most of the growth over time in the R&D/GDP ratio can be attributed
to steady increases in non-Federal R&D spending.
Nonfederally financed R&D, the majority of which is company
financed, increased from 0.63 percent of GDP in 1953 to an estimated
1.90 percent of GDP in 2002 (down from a high of 2.02 percent of
GDP in 2000). The increase in nonfederally financed R&D as a
percentage of GDP illustrated in figure
4-5
corresponds to an upward trend in R&D and technology intensive
activities in the U.S. economy.
Historically, most of the peaks and valleys in the R&D/GDP
ratio can be attributed to changing priorities in Federal R&D
spending. The initial drop in the R&D/GDP ratio from its peak
in 1964 largely reflects Federal cutbacks in defense and space R&D
programs. Gains in energy R&D activities between 1975 and 1979
resulted in a relative stabilization of the ratio. Beginning in
the late 1980s, cuts in defense-related R&D kept Federal R&D
spending from keeping pace with GDP growth, whereas growth in non-Federal
sources of R&D spending generally kept pace with or exceeded
GDP growth. (See the discussion of defense-related R&D in the
next section.)
Sectoral Composition of R&D Performance
Since the early 1980s, R&D performance in some sectors has
grown much faster than in others. The industrial sector in particular
has grown increasingly dominant (figure
4-1 ).
In 1980, industry performed 68.4 percent of the nation's R&D,
the academic sector performed 10.2 percent, laboratories within
Federal agencies (Federal intramural R&D) performed 12.4 percent,
and the nonprofit sector performed 2.6 percent. All FFRDCs combined
performed 6.5 percent of the nation's R&D. Industry's defense-related
R&D efforts accelerated in the early 1980s, and its share of
R&D performance rose to 71.8 percent in 1985.
From 1985 to 1994, R&D performance grew by only 1.4 percent
per year in real terms for all sectors combined. This growth was
not evenly balanced across performing sectors, however. R&D
performance at universities and colleges grew by 5.4 percent per
year in real terms, compared with only 1.0 percent for industry,
-0.5 percent for Federal intramural performance, 5.0 percent for
nonprofit organizations, and 0.4 percent for all FFRDCs combined.
The 1994–2000 period was one of dramatic changes for these
growth rates. Total R&D performance in real terms averaged 5.8
percent growth per year, which was substantially higher than in
the earlier sluggish period. Yet, R&D performance at universities
and colleges grew at a slower rate of 4.1 percent per year in real
terms.
Industrial R&D expanded at a remarkable rate of 7.1 percent
in real terms (despite a decline in company-reported Federal financing
of R&D). Federal intramural performance decreased by 0.3 percent
per year in real terms. Nonprofit organizations, according to current
estimates, increased their R&D performance by 7.1 percent per
year in real terms over the same 6-year period. Finally, R&D
performance at all FFRDCs combined declined by 0.1 percent per year
in real terms in this period.
Industry is expected to have performed 70.4 percent of the nation's
total R&D in 2002 (table
4-1 ).
The estimated $194.4 billion in industrial R&D performance represents
a 2.5 percent average annual decrease in real terms from the 2000
level. Of the industrial R&D performed in 2002, 91.2 percent
was funded by industry; the remaining 8.8 percent was federally
funded. The federally funded share of industry's R&D performance
total has fallen considerably from 31.9 percent in 1987.
Universities and colleges are estimated to have performed 13.0
percent ($36.0 billion) of national R&D in 2002, an average
annual increase of 6.6 percent in real terms over their share in
2000. The Federal Government performed 8.6 percent ($23.8 billion)
of U.S. R&D in 2002, an average annual increase in real terms
of 13.3 percent over the 2000–2002 period. All FFRDCs combined
performed an estimated $10.3 billion of R&D in 2002, or 3.7
percent of the U.S. total. The nonprofit sector performed an estimated
$11.6 billion in 2002, or 4.2 percent of the U.S. total.
Trends in R&D by Character of Work
Because research and development encompasses a broad range of activities,
it is helpful to disaggregate R&D expenditures into the traditional
categories of basic research, applied research, and development.
Despite the difficulties in classifying specific R&D projects,
these categories are useful for characterizing the expected time
horizons, outputs, and types of investments associated with R&D
expenditures.
In 2002 the United States performed an estimated $49.6 billion
of basic research, $64.8 billion of applied research, and $161.8
billion of development (table
4-1 ).
As a share of all 2002 R&D expenditures, basic research represented
17.9 percent, applied research represented 23.5 percent, and development
represented 58.6 percent.
Basic Research
In 2002, universities and colleges performed 53.8 percent of basic
research, more than any other sector. The intellectual freedom and
diversity of these institutions make them ideally suited to carry
out basic research. Industry performed an estimated 15.6 percent
of U.S. basic research in 2002. Rather than serve an immediate market
need, the basic research performed by a firm with industry funds
serves to strengthen the innovative capacity of the firm by developing
human capital and increasing the capability of the firm to absorb
external scientific and technological knowledge.
The Federal Government, estimated to have provided 58.9 percent
of basic research funding in 2002, historically has provided the
majority of funding for basic research (figure
4-6 ).
Moreover, the Federal Government funded 61.8 percent of the basic
research performed by universities and colleges in 2002. Industry
devoted only an estimated 5 percent of its total R&D support
to basic research in 2002, representing 18.5 percent of the national
total. The reason for industry's relatively small contribution to
basic research is that basic research generally involves the most
uncertainty in terms of both the technical success and the commercial
value of any results in the three broad categories of R&D. The
industries that invest the most in basic research are those whose
new products and services are most directly linked to advances in
science and engineering, such as the pharmaceuticals industry and
the scientific R&D services industry.
Applied Research
Nonacademic institutions perform the majority of U.S. applied research,
which totaled $64.8 billion in 2002. Industrial performers accounted
for 65.7 percent of all applied research, with the remainder largely
performed by Federal laboratories (12.5 percent) and universities
and colleges (12.4 percent). Industrial support accounts for 61.5
percent ($39.8 billion) of the 2002 total for applied research and
Federal support for 31.6 percent ($20.5 billion). The Federal Government's
investment in research has historically emphasized basic research
over applied research, reflecting the belief that the private sector
is less likely to invest in basic research. In 2002, Federal funding
for applied research was 70 percent of that for basic research.
Within industry, applied research acts to refine and adapt existing
scientific knowledge and technology into knowledge and techniques
useful for creating or improving products, processes, or services.
The level of applied research in an industry reflects both the market
demand for substantially (as opposed to cosmetically) new and improved
goods and services as well as the level of effort required to transition
from basic research to technically and economically feasible concepts.
Examples of industries that perform a relatively large amount of
applied research are the semiconductor industry and the biotechnology
industry.
Development
Development expenditures totaled an estimated $161.8 billion in
2002, representing the majority of U.S. R&D expenditures. The
development of new and improved goods, services, and processes is
dominated by industry, which performed 89.0 percent of all U.S.
development in 2002. Federal laboratories and FFRDCs performed an
estimated 9.1 percent of U.S. development; the remainder was performed
by universities and colleges and nonprofit institutions.
Industry and the Federal Government together funded 99.0 percent
of all development in 2002, with industry providing 81.4 percent
and the Federal Government providing 17.6 percent. The Federal Government
generally invests in the development of such products as tactical
nuclear weapons and space exploration vehicles, for which it is
the only consumer. The Federal investment in development is dominated
by the Department of Defense (DOD), which invests 85 percent of
its R&D funds in development (figure
4-7 ).
For more information about Federal R&D funding by agency and
character of work, see "R&D by Federal Agency."
Investments in development differ from investments in basic and
applied research in that they are relatively short-term in nature
and tend to depreciate in value relatively rapidly.
To track its longer-term investments in S&T, the Federal Government
excludes much of its spending on development in favor of focusing
on basic and applied research and other investments in R&D plant
and S&E education. For more information, see "Federal
S&T Budget" in "Federal R&D Funding by National
Objective."
Industrial R&D by Industry, Firm Size,
and R&D Intensity
The level of industrial R&D is one indicator of industry's
commitment at any point in time to the production of new and improved
products, services, and processes. R&D expenditures, like those
for advertising, are discretionary and are set by firms at levels
intended to maximize future profits. R&D expenditures therefore
indicate both the importance that R&D is accorded with respect
to other discretionary spending as well as firms' perceptions of
the demand for new and improved technology. Of particular importance
is industrial R&D that is financed by the private sector as
opposed to the Federal Government. The broad themes explored in
this section include the strong rise in industry-funded R&D,
the rise of service-sector R&D after the early 1980s, a restructuring
of U.S. industrial R&D that is partially related to changes
in service-sector R&D trends, and R&D intensities as a tool
for industry analysis.
As previously described, R&D performed by private industry
reached $194.4 billion in 2002. This total represents a 2.5 percent
average annual decline in real terms from the 2000 level of $197.6
billion. Most of this decline was in industry-financed R&D.
Companies funded 91.2 percent ($177.3 billion) of their 2002 R&D
performance, with the Federal Government funding nearly all the
rest ($17.1 billion, or 8.8 percent of the total). For more than
a decade the largest component of R&D in the United States has
been performed by private industry through private industry's own
funds. (Some of this funding is supported through venture capital
investments. For a discussion of the relationship between venture
capital and R&D expenditures, see chapter
6.) This component of U.S. R&D grew from 43 percent of total
R&D in 1953 to 64 percent in 2002.
R&D in Nonmanufacturing Industries
Until the 1980s, little attention was paid to R&D performed
by nonmanufacturing companies largely because R&D activity in
the service sector was negligible compared with the R&D operations
of manufacturing companies. Before 1983, nonmanufacturing industries
accounted for less than 5 percent of total industrial R&D performance
(including industry-administered FFRDCs), but by 2001 (the most
current year for detailed data on industrial R&D), they accounted
for 39.2 percent.
In 2001, firms classified in nonmanufacturing industries performed
$77.8 billion of R&D ($72.4 billion in funds provided by companies
and other non-Federal sources and $5.4 billion in Federal support)
(table 4-2 ).
Of this amount, 79 percent ($56.9 billion) can be attributed to
trade, software and computer-related services, and scientific R&D
services.
An examination of these three groups of industries helps explain
the dramatic growth in nonmanufacturing R&D over the past 2
decades.
R&D performance attributed to the trade industry reached $24.4
billion in 2001. Although some of this R&D was performed by
companies whose primary business was wholesale or retail trade,
there is little doubt that this sum includes more than just the
activities of dot.com retailers. A known consequence of assigning
firms to one industry based on payroll data—the classification method
used for the NSF Industry R&D Survey—is that a company can be
classified in an industry that is not directly related to its reported
R&D activities.
Although imperfect, this classification scheme reasonably categorizes
all but the most diversified companies into industries closely aligned
with their primary business activities. The classification of firms
into the trade industry is one exception to this assertion because
the sale and marketing of goods and services, a trade activity,
is often a significant activity in both manufacturing and nonmanufacturing
firms. A large pharmaceutical firm or diversified conglomerate would
be classified in the trade industry if the payroll associated with
its sales and marketing efforts outweighed that of any other industrial
activity in the company. One indication of these classification
artifacts is that in 2001, 86 percent of the R&D attributed
to the trade industry was performed by companies with total R&D
programs in excess of $100 million, whereas companies in the same
size category accounted for only 42 percent of the R&D in all
other nonmanufacturing industries combined. Another indication is
that more than $1 billion of biotechnology R&D was reported
by companies classified in the trade industry in 2001.
Nonmanufacturing industries associated with software and computer-related
services such as data processing and systems design performed approximately
$24.0 billion of company-funded R&D in 2001.
As computing and IT became more powerful, flexible, and ubiquitous
over the past 2 decades, the demand for services associated with
these technologies boomed. The R&D of companies providing these
services also grew dramatically during this period. In 1987, when
an upper-bound estimate of software and other computer-related services
R&D first became available, companies classified in the industry
group "computer programming, data processing, other computer-related,
engineering, architectural, and surveying services" performed $2.4
billion of company-funded R&D, or 3.8 percent of all company-funded
industrial R&D. In 2001 the company-funded R&D of a comparable
group of industries (excluding engineering and architectural services)
was greater by a factor of 10 and accounted for 13.2 percent of
all company-funded industrial R&D
(table 4-3 ).
This trend in the growth of software and computer-related services
R&D shows no sign of slowing. Despite essentially no growth
in total company-funded, industry-performed R&D between 2000
and 2001, the company-funded R&D for this group of industries
grew by 10 percent.
The R&D performed by companies in the scientific R&D services
industry more than doubled in the 4 years between 1997 and 2001
from $7.0 to $14.2 billion.
The portion of this industry's R&D that was company-funded increased
at an even faster pace, from $4.7 billion in 1997 to $10.9 billion
in 2001. The scientific R&D services industry comprises companies
that specialize in conducting R&D for other organizations, such
as many biotechnology companies. (See sidebar, "Biotechnology
R&D in Industry.") Although these companies and their R&D
activities are classified as nonmanufacturing because they provide
business services, many of the industries they serve are manufacturing
industries. This implies that the R&D activities of a research
firm that services a manufacturer would have been classified as
R&D in manufacturing if the same research firm were a subsidiary
of the manufacturer. Consequently, a growth in measured R&D
in services may, in part, "reflect a more general pattern of industry's
increasing reliance on outsourcing and contract R&D" (Jankowski
2001). (For more information, see "Contract R&D.")
Although a great deal of R&D in the United States is related
in some way to health care services, companies specifically categorized
in the health care services sector accounted for only 0.4 percent
of all industrial R&D and for only 1.0 percent of all R&D
by nonmanufacturing companies. As in many industries, innovation
often results from R&D performed in other industries, in this
case the pharmaceutical, scientific instrument, and software industries
in particular. These results illustrate that R&D data disaggregated
according to industrial categories (including the distinction between
manufacturing and nonmanufacturing industries) may not always reflect
the relative proportions of R&D devoted to particular types
of scientific or engineering objectives or to particular fields
of science or engineering.
R&D in Manufacturing Industries
Within the manufacturing industries, three groups dominate: computer
and electronic products, transportation equipment, and chemicals
(table 4-2 ).
In 2001, computer and electronic products accounted for the largest
amount of R&D performed among all industries at $47.1 billion,
or 23.7 percent of all industrial R&D and 39.0 percent of all
manufacturing R&D. For this subsector, industrial firms provided
$41.2 billion in R&D support and the Federal Government funded
the remainder.
In 2001, transportation equipment accounted for the second most
R&D performed in the manufacturing sector at $26.0 billion,
or 13.1 percent of all industrial R&D. Of these expenditures,
19.1 percent was federally funded, primarily for R&D on aerospace
products (planes, missiles, and space vehicles). In addition to
aerospace products, this subsector includes a variety of other forms
of transportation equipment, such as motor vehicles, ships, military
armored vehicles, locomotives, and smaller vehicles such as motorcycles,
bicycles, and snowmobiles.
In 2001, chemicals ranked third in R&D performed in the manufacturing
subsector at $17.9 billion, approximately 1 percent of which was
federally funded. In terms of R&D performance, the largest industry
within the chemicals subsector is pharmaceuticals and medicines.
In 2001, R&D performed by these companies accounted for 61 percent
of non-Federal R&D funding in the chemicals subsector ($12.9
billion).
Industrial R&D and Firm Size
Manufacturing R&D performers are typically quite different
from nonmanufacturing R&D performers. Manufacturing R&D
performers tend to be larger firms that perform more R&D on
average than nonmanufacturing firms (table
4-5 ).
Approximately 33,000 firms in the United States performed R&D
in 2001; of these, 51 percent were in the manufacturing sector.
Manufacturers account for an even greater share (61 percent) of
total industrial R&D performance. As a share of the nation's
GDP, on the other hand, manufacturing contributes less than 20 percent.
Manufacturers dominate in terms of R&D performance largely because
of the activities of the largest manufacturing firms. In 2001 the
largest manufacturing firms (those with 25,000 or more employees)
accounted for 49 percent of the R&D in the manufacturing sector,
whereas nonmanufacturing firms in the same size category accounted
for only 25 percent of total nonmanufacturing R&D.
Among small R&D-performing firms (those with less than 500
employees), those in the nonmanufacturing sector conduct significantly
more R&D than those in the manufacturing sector, both in aggregate
and on a per-firm basis. These small firms accounted for 12 percent
of manufacturing R&D, 31 percent of nonmanufacturing R&D,
and 19 percent of all industrial R&D in 2001.
Although R&D tends to be performed by large firms in the manufacturing
sector and smaller firms in the nonmanufacturing sector, considerable
variation can be found within each sector, depending on the type
of industry. R&D tends to be conducted primarily by large firms
in several industrial subsectors: aircraft and missiles; electrical
equipment; professional and scientific instruments; transportation
equipment (not including aircraft and missiles); and transportation
and utilities, which are in the nonmanufacturing sector. In these
same sectors, however, much of the economic activity occurs in large
firms to begin with, so the observation that most of the R&D
in these sectors is also conducted by large firms is not surprising.
R&D Intensity
In addition to absolute levels of and changes in R&D expenditures,
another key indicator of industrial commitment to S&T is R&D
intensity, a measure of R&D relative to production in a company,
industry, or sector. For most firms, R&D is similar to sales,
marketing, and general management expenses because it is a discretionary
expense. R&D does not directly generate revenue in the same
way that production expenses do, so it can be trimmed when profits
fall. Evidence suggests, however, that R&D enjoys some degree
of immunity from belt-tightening endeavors, even when the economy
is faltering, because of its crucial role in laying the foundation
for future growth and prosperity.
Many ways exist to measure R&D intensity; the one used most
frequently is the ratio of company-funded R&D to net sales.
This statistic provides a way to gauge the relative importance of
R&D across industries and among firms in the same industry.
The industrial subsectors with the highest R&D intensities in
2001 were scientific R&D services (36.5 percent), software (19.3
percent), communications equipment (16.6 percent), and computer
systems design and related services (16.5 percent). The R&D
intensities of the professional, scientific, and technical services
industries are particularly high because, as previously explained,
much of the R&D reported by these companies also appears in
their reported sales figures. Industries with the lowest R&D
intensities (0.5 percent or less) were food, broadcasting and telecommunications,
and utilities (table 4-6
).
A decrease in the net sales of R&D-performing companies between
2000 and 2001 resulted in the ratio of R&D to sales for all
industries increasing to 3.8 percent in 2001, up from 3.4 percent
in 2000.
Sales are more skewed towards larger companies than R&D performance
(table 4-6 ).
Smaller companies have much larger R&D-to-sales ratios than
larger companies, reflecting that most startups and companies with
less established revenue streams tend to be smaller. Large, well-established
companies often have reserves of cash and other liquid assets that
allow them to maintain their R&D activities amid short-term
economic downturns. Less mature companies, however, tend to be more
reliant on outside investment and thus their expenditures on R&D
are more likely to be cut in the event of a contraction in the economy
or capital markets. This is one explanation for the divergence in
the R&D intensities of very small companies (less than 100 employees)
and all other companies between 2000 and 2001.
R&D Expenses of Public U.S. Corporations
Most firms that make significant investments in R&D track their
R&D expenses separately in their accounting records. (See sidebar,
"R&D: Asset or Expense?") The annual reports
of public U.S. corporations often include data on these R&D
expenses.
In 2001 the 20 U.S. corporations with the largest reported R&D
expenditures spent $67.9 billion on R&D. Ford Motor Company
reported the most R&D ($7.4 billion), followed by General Motors
Corporation ($6.2 billion) (table
4-7 ).
IT companies and pharmaceutical companies dominate the remainder
of the list.
Corporate data tabulated by the U.S. Department of Commerce (DOC)
reveal that the R&D spending of U.S.-headquartered corporations
grew from $93.6 billion in 1994 to $164.5 billion in 2000, implying
average annual real growth of 7.9 percent over the period (U.S.
DOC/TA 2002). The largest and fastest growing R&D sectors during
this period were the information and electronics manufacture and
services sector, which spent $35.3 billion on R&D in 1994 and
$77.7 billion in 2000, and the medical substances and devices sector,
which spent $16.7 billion in 1994 and $32.5 billion in 2000 (appendix
table 4-22  ).
Preliminary analysis of more recent company records indicates that
the growth of U.S. corporate R&D slowed in 2001. (See sidebar,
"Corporate R&D Strategies in an Uncertain Economy,"
for information on how some U.S.-based corporations intended to
adjust their R&D policies in 2003.)
R&D Performance by State
The latest data available on the state distribution of R&D
performance are for 2000. Although R&D expenditures are concentrated
in relatively few states, patterns of R&D activities vary considerably
among the top R&D-performing locations. In 2000, total U.S.
R&D expenditures were $265 billion, of which $247 billion could
be attributed to expenditures within individual states, with the
remainder falling under an undistributed "other/unknown" category
(appendix tables
4-23
and 4-24
).
These totals include R&D performed by industry, universities,
Federal agencies, and nonprofit organizations. (For a broader range
of indicators of state-level S&E activities, see chapter
8.)
Distribution of R&D Expenditures Among States
In 2000 the 20 highest ranking states in R&D expenditures accounted
for 87 percent of U.S. R&D expenditures, whereas the 20 lowest
ranking states accounted for only 4 percent. The six states with
the highest levels of R&D expenditures (in decreasing order
of magnitude) were California, Michigan, New York, New Jersey, Massachusetts,
and Illinois, and they accounted for half of the entire national
effort. The top 10 states, which included Texas, Washington, Pennsylvania,
and Maryland (ranked 7th, 8th, 9th, and 10th, respectively), accounted
for two-thirds of U.S. R&D expenditures in 2000 (table
4-8 ).
California alone accounted for more than one-fifth of the $247 billion
U.S. R&D total, exceeding the next highest state by nearly a
factor of three.
Ratio of R&D to Gross State Product
States vary significantly in the size of their economies because
of differences in population, land area, infrastructure, natural
resources, and history. Consequently, state variations in R&D
expenditure levels may simply reflect differences in economic size
or the nature of their R&D efforts. One way to control for the
size of each state's economy is to measure each state's R&D
level as a percentage of its gross state product (GSP).
Like the ratio of industrial R&D to net sales, the proportion
of a state's GSP devoted to R&D is an indicator of R&D intensity.
A list of states and corresponding R&D intensities can be found
in appendix table
4-25 .
Sector Distribution of R&D Performance by State
Although leading states in total R&D tend to be well represented
in each of the major R&D-performing sectors, the proportion
of R&D performed in each of these sectors varies across states.
States that are national leaders in total R&D performance are
usually leaders in R&D performance by industrial sector, which
is not surprising because industry-performed R&D accounts for
77 percent of the distributed U.S. total. Although university-performed
R&D accounts for only 12 percent of the U.S. total, it also
is highly correlated with the total R&D performance in a state.
Less overlap is reported between the top 10 states for total R&D
and the top 10 states for federally performed R&D.
Only 4 states are in both top 10 lists: Maryland, California, Texas,
and New Jersey. Maryland ranked first in Federal R&D performance,
followed by the District of Columbia, California, and Virginia.
The inclusion of Maryland, Virginia, and the District of Columbia
in the top four ranking reflects the concentration of Federal facilities
and administrative offices within the national capital area. Alabama,
Florida, and New Mexico rank among the highest in Federal R&D
because of their relatively high shares of Federal space- and defense-related
R&D.
Industrial R&D in Top States
The types of companies that carry out R&D vary considerably
among the 10 leading states in industry-performed R&D (table
4-9 ).
This reflects regional specialization or clusters of industrial
activity. For example, in Michigan the transportation equipment
industry accounted for 73 percent of industrial R&D in 2000,
whereas it accounted for only 15 percent of the nation's total industrial
R&D. Washington, having a high concentration of software R&D,
has less of its industrial R&D concentrated in manufacturing
industries than the nation as a whole. The computer and electronic
products industry accounts for 24 percent of the nation's total
industrial R&D but accounts for a larger share of the industrial
R&D in California (36 percent), Massachusetts (44 percent),
and Texas (42 percent). These three states have clearly defined
regional centers of high-technology research and manufacturing:
Silicon Valley in California, Route 128 in Massachusetts, and the
Silicon Hills of Austin in Texas. In addition, New Jersey and Pennsylvania,
both home to robust pharmaceutical and chemical manufacturing industries,
show much higher concentrations of R&D in these industries than
the nation as a whole. Of course other factors besides the location
of industrial production also play a role in the location of industrial
R&D activities. For example, industries tend to perform research
near universities that conduct the same type of research, enabling
them to benefit from local academic resources. (For more information,
see "Technology Linkages: Contract R&D, Federal
Technology Transfer, and R&D Collaboration.")
|
Print this chapter
E-mail this page
