US Research and Development Spending Plateaus

THE rate of research and development spending growth in the United States has slowed dramatically over the past decade, according to a recent National Science Board report, "Science and Engineering Indicators - 1991."

After a wave of defense spending boosted R&D expenditures by 6.9 percent annually from 1979 through the mid-'80s, spending growth dropped to 1.2 percent annually between 1985 and 1991.

As perceptions of a long-term decline in manufacturing competitiveness become widespread in the US, politicians have made some proposals to remedy the R&D shortfall. But without a cold-war foe to fight and face-to-face with a huge federal budget deficit, government-supported R&D spending is not expected to grow.

Meanwhile, for the first time since 1975 industry-funded R&D expenditures declined in 1989 (in inflation-adjusted dollars). The report estimates that expenditures fell in 1990 and 1991 as well.

Though the US maintains a trade surplus in high-tech manufactured products, the surplus in 1988 was half that of 1980, according to the report.

The US started the 1980s with a 40-percent share of the global market for high-tech goods. By 1988 it fell to 37 percent. Over the same period, Japan increased its share from 18 to 27 percent.

Private industry provided a greater proportion of R&D funding in Japan than in the US, contrary to popular perceptions of central government control of business activities there. Private sources supplied 70 percent of R&D funds in Japan, and 50 percent in the US. Among major industrialized nations, only France's private sector provided a smaller portion of R&D funding than US private industry did. The report attributes the decline in US private R&D funding to thinner profit margins at corporations as the

'80s drew to a close.

William Morin, director of the National Association of Manufacturers' Council on High Technology, says that although the long-term trend for R&D funding has been upward, "We may just be in a period of leveling off ... as companies are taking a harder look at how they spend their research dollars. That's not necessarily bad if you accept the fact that companies in this country need to focus less on the revolutionary leaps in technology and more on the step-by-step, incremental improvements like the Japane se do."

Sony is one such Japanese company, according to Morin. Sony's strategy of constantly producing new, slightly different and improved models represents a more efficient use of R&D funds.

Regarding policy changes here in the US, Morin says that the R&D tax credit should be made permanent. "We've limped along with a temporary credit here for years and years," he says. "They'll extend it for six months, 18 months, or two years. [But] R&D is a long term undertaking, and with this constant uncertainty in the tax code, companies can't plan ahead."

From 1980 to 1989, the US had an average annual productivity growth rate of about 4 percent, ahead of France (3 percent), and Germany (1.5 percent), but behind Britain and Japan (each about 5.5 percent).