Trends in Non-Federal Support

U.S. expenditures on R&D; are estimated to have reached $173 billion in 1994 (chart 2). This total is a 2 percent increase over estimated 1993 expenditures-$170 billion-and unchanged after adjusting for expected inflation.[2] The Federal Government provided 36 percent ($62 billion) of total funds; and non Federal sectors of the economy, i.e., industry, State governments, universities and colleges, and other nonprofit institutions, provided the remaining 64 percent ($110 billion). The level funding of total R&D; in 1994 continues the trend of slow growth in real R&D; support which began in 1986. Not since the early seventies has there been a period of such protracted low growth in national R&D; support.

Starting in 1969 and for nearly a decade, R&D; growth failed to keep up with either inflation or general increases in economic output. In fact, between 1968 and 1975, real R&D; expenditures declined 7 percent as both business and Government deemphasized funding for research programs. Federal support in particular fell considerably during this period (down 21 percent in real terms). Both Federal defense and nondefense related R&D; programs declined (chart 2).

Chart 2

Following recovery from the 1974 oil embargo and the 1975 recession, a significant funding reversal occurred. U.S. R&D; expenditures more than tripled within just 10 years, climbing from $35 billion in 1975 to $114 billion in 1985. After adjusting for inflation, the 10 year increase was approximately 67 percent.

During the first half of this period (1975-80) there was considerable growth in Federal R&D; funding for nondefense activities. Although defense related R&D; expenditures rose annually, much of the Federal R&D; gain was attributable to energy related R&D; (particularly nuclear energy development) and to greater support for health related R&D.; Non Federal R&D; increases were concentrated in industry and resulted largely from greater emphasis on energy conservation and improved use of fossil fuels. Consequently, energy concerns fostered increases in R&D; funding by both Federal and non Federal sources. Support for energy R&D; rose 140 percent in real terms between 1974 and 1979 and accounted for one half of the national increase in real R&D; spending.

Overall, the U.S. constant dollar investment in total R&D; grew at an average annual rate of 4 percent during 1975-80. Although the rate of increase remained rather steady through 1982 (4 percent annually), the focus of the national R&D; effort began to shift heavily toward defense related activities in the early eighties.[3] Largely as a result of increases in defense R&D;, growth in total R&D; expenditures accelerated to an 8 percent average annual rate over 1982-85: not since the space inspired spending bulge in the early sixties had R&D; in the United States grown so rapidly during any 3 year period.

This pattern of a generally increasing rate of real R&D; growth, however, changed abruptly in the mid eighties. From 1985 to 1994, R&D; spending slowed to a 1 percent annual real rate of increase. Slackening in both Federal and non Federal support contributed to this slowing though Federal support is declining at a faster rate.

2. Real growth for 1994 is derived using the Office of Management and Budget GDP implicit price deflator estimate of 2.1 percent.

3. Industry R&D; expenditures on energy and pollution abatement also slowed in the early eighties. During 1981 and 1982, such expenditures increased at only one third the rate reported for the previous 4 years.

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