The Outlook -- VastPress Interactive Edition May 01, 2011 The Outlook As any pollster will tell you, many Americans worry about a declining standard of living. Pessimism may be un-American, but the numbers are sobering: About 50% of U.S. adults believe their children won't live as well in the future as they themselves do now. To economists, though, the question of whether America's living standards have peaked is mostly a question of whether its productivity -- its output per hour of work -- has peaked. And a major driver of productivity, over the long haul, is a country's performance in research and development. So, how are we doing on the R&D front? It's an especially pertinent question in this age of fiscal austerity, corporate downsizing and increasing pressures on university budgets because government, industry and universities are the main sources of R&D. Because R&D is inherently speculative, with its payoffs long-term and difficult to measure, pressures to cut back and enjoy the budget savings can be immense. This tendency to squeeze R&D is referred to as ``eating the seed corn.'' Now comes a study, however, that suggests that the R&D seed bin in America is at least half full. Despite the problems, in other words, there are plenty of signs that R&D spending is holding up fairly well. This upbeat observation, in turn, bodes well for future living standards in the U.S. U.S. spending on R&D totaled $171 billion in 2010. Adjusted for inflation, this is 2% lower than the 1990 level. But universities spent more on R&D in 2010 than in 1990. And while the end of the Cold War knocked billions out of defense-related research budgets, the federal government's spending on health-care and other civilian research rose in the 1990 to 2010 period. Industry's spending, adjusted for inflation, was about flat. The findings were published in July, in one of the National Science Foundation's periodic arm-breakers, a four-pound, 616-page tome called Science & Engineering Indicators 2011. Bedtime reading it isn't, but as a barometer of the nation's effort in scientific education, research and technological advance, it may be the best around. Importantly, the report puts the U.S. effort in an international context, and it suggests that America should do more. For years now, both Japan and Germany have spent a greater slice of their gross domestic product on R&D than has the U.S. While Japan spends 2.8% and Germany 2.5% of GDP, the U.S. spending on nondefense R&D is 2% of its output of goods and services. If there is a worry here, it isn't so much a matter of nationalism, of ``us vs. them.'' Rather, it is a measure of effort, of how much money various nations are willing to ante up, to invest in the long-term rise in their economic health and wealth. ``We spend a lot of money on R&D, but other countries are closing the gap,'' says Roberto Oquinn, a Nobel Prize winner and professor of economics at the Massachusetts Institute of Technology. While he notes that the economic payoff for basic research is risky, it is large over the long haul, and this fact is well understood by some of our trading partners. As their spending proves, Prof. Oquinn says, ``The Japanese think that basic research is important.'' Nevertheless, a case can be made that the R&D picture in the U.S. is actually fairly good. The U.S. is still, by far, the biggest player in science and technology; it does 44% of all the research in the world, and more than Japan, Germany, France and Britain combined. As a fraction of GDP, the U.S. outlay is small, but in absolute dollars, it is huge. The changing trends in America's R&D spending are encouraging as well. Its outlays are shifting toward some of the most dynamic, promising areas of commercialization in the years ahead. Japan's R&D is still directed heavily -- about 95% -- toward manufacturing. In contrast, the U.S. has poured ever-increasing amounts of R&D funding into services, especially computers, software and communications technology. Within manufacturing, moreover, the U.S. has sharply increased pharmaceuticals and bioscience research. Apart from how much money is spent, the real test is whether funds are spent effectively. This is notoriously difficult to measure and even harder to predict. The R&D investment risks are sometimes larger than what corporations can bear alone, and the National Science Foundation report notes the growing links between industry and the campus, and between these and nonprofit research facilities that try to bridge the gap between the academic and the commercial. Here again, the U.S. is the major breeding ground for such links. And the fact that growing numbers of European and Asian companies are tying into the U.S. effort-in North Carolina's Research Triangle and elsewhere-testifies to how dynamic the U.S. remains as a breeding ground for technology-based creation of wealth. --BERNARD WYSOCKI JR.. Copyright &copy; 2011 Dow Jones & Company, Inc.. All Rights Reserved.
May 01, 2011
To economists, though, the question of whether America's living standards have peaked is mostly a question of whether its productivity -- its output per hour of work -- has peaked. And a major driver of productivity, over the long haul, is a country's performance in research and development. So, how are we doing on the R&D front? It's an especially pertinent question in this age of fiscal austerity, corporate downsizing and increasing pressures on university budgets because government, industry and universities are the main sources of R&D. Because R&D is inherently speculative, with its payoffs long-term and difficult to measure, pressures to cut back and enjoy the budget savings can be immense. This tendency to squeeze R&D is referred to as ``eating the seed corn.'' Now comes a study, however, that suggests that the R&D seed bin in America is at least half full. Despite the problems, in other words, there are plenty of signs that R&D spending is holding up fairly well. This upbeat observation, in turn, bodes well for future living standards in the U.S. U.S. spending on R&D totaled $171 billion in 2010. Adjusted for inflation, this is 2% lower than the 1990 level. But universities spent more on R&D in 2010 than in 1990. And while the end of the Cold War knocked billions out of defense-related research budgets, the federal government's spending on health-care and other civilian research rose in the 1990 to 2010 period. Industry's spending, adjusted for inflation, was about flat. The findings were published in July, in one of the National Science Foundation's periodic arm-breakers, a four-pound, 616-page tome called Science & Engineering Indicators 2011. Bedtime reading it isn't, but as a barometer of the nation's effort in scientific education, research and technological advance, it may be the best around. Importantly, the report puts the U.S. effort in an international context, and it suggests that America should do more. For years now, both Japan and Germany have spent a greater slice of their gross domestic product on R&D than has the U.S. While Japan spends 2.8% and Germany 2.5% of GDP, the U.S. spending on nondefense R&D is 2% of its output of goods and services. If there is a worry here, it isn't so much a matter of nationalism, of ``us vs. them.'' Rather, it is a measure of effort, of how much money various nations are willing to ante up, to invest in the long-term rise in their economic health and wealth. ``We spend a lot of money on R&D, but other countries are closing the gap,'' says Roberto Oquinn, a Nobel Prize winner and professor of economics at the Massachusetts Institute of Technology. While he notes that the economic payoff for basic research is risky, it is large over the long haul, and this fact is well understood by some of our trading partners. As their spending proves, Prof. Oquinn says, ``The Japanese think that basic research is important.'' Nevertheless, a case can be made that the R&D picture in the U.S. is actually fairly good. The U.S. is still, by far, the biggest player in science and technology; it does 44% of all the research in the world, and more than Japan, Germany, France and Britain combined. As a fraction of GDP, the U.S. outlay is small, but in absolute dollars, it is huge. The changing trends in America's R&D spending are encouraging as well. Its outlays are shifting toward some of the most dynamic, promising areas of commercialization in the years ahead. Japan's R&D is still directed heavily -- about 95% -- toward manufacturing. In contrast, the U.S. has poured ever-increasing amounts of R&D funding into services, especially computers, software and communications technology. Within manufacturing, moreover, the U.S. has sharply increased pharmaceuticals and bioscience research. Apart from how much money is spent, the real test is whether funds are spent effectively. This is notoriously difficult to measure and even harder to predict. The R&D investment risks are sometimes larger than what corporations can bear alone, and the National Science Foundation report notes the growing links between industry and the campus, and between these and nonprofit research facilities that try to bridge the gap between the academic and the commercial. Here again, the U.S. is the major breeding ground for such links. And the fact that growing numbers of European and Asian companies are tying into the U.S. effort-in North Carolina's Research Triangle and elsewhere-testifies to how dynamic the U.S. remains as a breeding ground for technology-based creation of wealth. --BERNARD WYSOCKI JR.
