Research and Development

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The United States is becoming an entrepreneurship and innovation economy, with the development of two markets: the market for ideas, in the form of patents, and the market for innovation, in the form of the commercialization of new technology.

Government research

President Barack Obama's 2015 Budget proposes $135.4 billion for federal research and development (R&D), an increase of $1.7 billion or 1.2% from 2014. White House OST

Out of this $135.4 billion, $69.5 billion is proposed for defense R&D, and $65.9 billion is proposed for non-defense R&D. Federal investment in basic and applied research totals $64.7 billion, investment in development totals $68.0 billion, and investment in R&D infrastructure totals $2.6 billion.

R&D in the FY 2015 Budget by Agency (in millions of dollars) White House OST
FY 2013 Actual FY 2014 Estimate FY 2015 Budget Change FY 14-15 Amount (Percent)
Department of Defense 63,838 63,856 64,430 574 (0.9%)
Health and Human Services 29,969 30,912 31,069 157 (0.5%)
Energy 10,740 11,359 12,309 950 (8.4%)
NASA 11,282 11,667 11,555 -112 (-1.0%)
NSF 5,319 5,729 5,727 -2 (0.0%)
Agriculture 2,116 2,418 2,447 29 (1.2%)
Commerce 1,360 1,632 1,597 -35 (-2.1%)
Veterans Affairs 1,164 1,174 1,178 4 (0.3%)
Interior 785 840 925 85 (10.1%)
Homeland Security 684 1,032 876 -156 (-15.1%)
Transportation 829 853 865 12 (1.4%)
Environmental Protection Agency 532 560 560 0 (0.0%)
Patient Centered Outcomes Res. 488 464 528 64 (13.8%)
Education 319 323 336 13 (4.0%)
Smithsonian 238 232 252 20 (8.6%)
Int'l Assistance Programs 273 203 203 0 (0.0%)
All Other 396 428 495 67 (15.7%)
Total 130,332 133,682 135,352 1,670 (1.2%)

In the last 40 years, spending on R&D has generally increased, but spending on R&D as a percentage of GDP has declined since the 1970s. 2010 to 2013 resulted in the largest overall decrease in a three-year period since the end of the space race. AAAS Boston University

Defense, Non-Defense, and Total R&D Spending 1976-2016 AAAS
R&D Spending as a Percentage of Total Budget 1962-2016 AAAS

National Institutes of Health

The National Institutes of Health (NIH) supports biomedical research aimed at improving the health of the American people. The 2015 Budget provides $30.2 billion for NIH, an increase of $200 million over the 2014 level. The Budget provides $100 million to The Brain Research through Advancing Innovative Neurotechnologies (BRAIN) Initiative. White House OST

National Science Foundation

The National Science Foundation (NSF) supports academic research for most non-biomedical disciplines. The 2015 Budget provides $7.3 billion for NSF, an increase of 1% over the 2014 level. NSF intends to invest in the research of advanced manufacturing and robotics technologies, the BRAIN Initiative, a cyberinfrastructure initiative, and an "Innovation Corps" program aimed at bringing discoveries out of university labs for application in the commercial sphere. White House OST

Department of Defense

The Department of Defense (DOD) drives innovation in military capabilities and helps develop technology with commercial potential. The 2015 Budget proposes $64.4 billion for DOD R&D, an increase of 0.9% from 2014 levels. White House OST

Multi-agency initiatives

U.S. Global Change Research Program

The 2015 Budget provides $1.5 billion for the U.S. Global Change Research Program (USGCRP). According to the White House Office of Science and Technology, USGCRP coordinates and integrates Federal research and applications to assist the Nation and the world in understanding, assessing, predicting, and responding to the human-induced and natural processes of global change, including climate change, and their related impacts and effects. White House OST

Networking and Information Technology R&D

The 2015 Budget provides $3.8 billion for the Networking and Information Technology Research and Development (NITRD) Program. This program funds research in cybersecurity, high-end computing systems, software development, cloud computing, and other information technologies. White House OST

National Nanotechnology Initiative

The 2015 Budget proposes $1.5 billion for the multi-agency National Nanotechnology Initiative (NNI). The National Nanotechnology Initiative (NNI) member agencies support R&D focused on materials, devices, and systems that exploit the physical, chemical, and biological properties that emerge in materials at the nanoscale. Participating agencies support fundamental research for nanotechnology-based innovation, technology transfer, and nanomanufacturing. White House OST

Corporate R&D

Status Quo

Private Spending.jpg

Much of today's research is still dominated by the largest firms. Corporations with more than 10,000 employees account for more than half of research spending, while small businesses with less than 500 employees account for less than one-fifth of R&D expenditures. (Ivey Business Journal) Research today is dominated by the very largest of firms. (Berkeley) Corporations with over 10,000 employees still account for more than half the research spending. Those with fewer than 500 employees, a traditional definition of small a business, account for less than one-fifth of the total expenditures. These same patterns hold internationally. (Ivey Business Journal)

The Oxford Review of Economic Policy conducted a study on corporate financing of R&D. They found:

  1. Small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital.
  2. Evidence for high costs of R&D capital for large firms is mixed, although these firms do prefer internal funds for financing these investments.
  3. There are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets are not highly developed.

The National Science Foundation reported that "companies spent $323 billion on research and development performed in the United States during 2013, 6.7% more than the $302 billion spent during 2012. Funding from the companies’ own sources was $247 billion during 2012 and $265 billion during 2013, a 7.1% increase. Funding from other sources was $55 billion during 2012 and $58 billion during 2013. Data for this InfoBrief are from the Business R&D and Innovation Survey (BRDIS), which was developed and is cosponsored by the National Science Foundation and the U.S. Census Bureau." (NSF)

Corporate R&D Problems

Commitment Issues

Josh Lerner, the Jacob H. Schiff Professor of Investment Banking at Harvard Business School, says companies have been too fickle in their commitment to new innovation initiatives. A historical lack of commitment in the corporate venture domain has made employees less likely to join a corporate venturing group they fund, entrepreneurs reluctant to accept their funds, independent venture funds hesitant to syndicate investments with these groups, and corporate funded start-ups find collaborations harder to arrange. In each case, the very real possibility that the rug will be pulled out from under the corporate venture initiative leads others to be reluctant to work alongside them. Harvard Business Review

Restructuring Incentive System

A general problem for firms is figuring out how to offer appropriate rewards for those within research laboratories. Lerner says the key for finding these rewards is partially removing some of the stigma from the failure for corporate innovators. One of the reasons why failure is not an option in many corporate laboratories is that group leaders are loath to endanger continuing funding for their projects. A question which would reward both further research by economic theorists and real-world exploration is how to induce “truth telling” when evaluating high-risk innovative projects. Several examples exist of ways to address this problem, from venture groups who employ a “devil’s advocate” to make the case why a proposed investment should not be undertaken, to corporations who rely heavily on outside experts when making project funding decisions. Harvard Business Review

Organizational experimentation

Far too often, the corporate world does a poor job of learning from the past: earlier initiatives, if unsuccessful, are forgotten about, and the key architects dismissed or exiled to the Kazakh subsidiary. The outcome is highly predictable: many firms seem destined to repeat the past, making the same mistakes in pursuing innovation again and again. An illustration is the experience of General Electric, which repeatedly began corporate venturing efforts, only to abandon the efforts after the venture teams left due to frustration over the disconnect between their broad responsibilities and modest compensation levels. Harvard Business Review

Innovate the Innovation Process

Despite the academic and real-world insights of recent years, many aspects of the innovation process remain poorly understood. Rather than sticking to one time-honored route of pursuing new ideas, exploring the impact of different organizational structures—whether internal skunk-works or formal corporate venturing initiatives—is likely to be a recipe for success. Harvard Business Review