How the Heck Does That Get Funding?!?!

March 13, 2007

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Over the past decade, research and development funding has undergone significant changes relative to past marginal predictability. Herein is a comprehensive guide to the scope and strategy of current federal, industrial and academic R&D investment in the U.S., Europe and Asia.

As you will see throughout this issue of Industrial Market Trends, the spirit of ingenuity and innovation is alive and well … albeit often manifested in very bizarre ways. No doubt, maintaining competitiveness requires that we invest in research and development and that we reward innovation.

With this IMT issue, we reward strange innovations simply by calling them out. More to the point, however, this article addresses the current and near-future state of global R&D investment.

Total funding for R&D is expected to increase to $338 billion in 2007, an increase of 2.85 percent over the $329 billion funded last year. Industry funding and industrial performance is driving the overall increase, while federal support of R&D is expected to slow, according to the joint Battelle-R&D Magazine 2007 R&D Forecast:

• The federal government is expected to spend $98.3 billion funding R&D efforts, a minor 1.8 percent increase over the $96.6 billion spent in 2006; • Industrial investments on R&D are expected to reach $219 billion in 2007, a healthy increase of 3.4 percent over 2006 levels of $212 billion; and • Academia and other nonprofits make up the remaining expenditures on R&D with $20.8 billion for 2007. Academia is set to increase by 1 percent to $11.4 billion and nonprofits are expected to increase by 3.6 percent to $9.4 billion.

U.S. Federal Outlook Much of the emphasis in government-funded R&D continues to be influenced by the "global war on terror."

The Department of Defense (DOD) will receive a record R&D budget of $76.8 billion in 2007, which is up 4.8 percent over 2006 levels. Meanwhile, the Department of Homeland Security (DHS) — for the first time since its inception — will see a 21 percent decline in its R&D budget from the $1.281 billion it received in 2006.

"Significant thrusts are being directed toward problems that deal with the detection of instruments or compounds that represent major terror threats, especially in the manufacturing, packaging, and distribution of biological and radiological materials," according to the report released in January, which went on to say:

Augmenting that type of research, is advanced software development that takes advantage of information technology ranging from improved data collection to higher quality interpretation that allows officials to better connect the dots and aid in prevention of terrorism.

Moreover, the strong emphasis over the last 20 years to transfer government-developed technologies to the commercial marketplace has been upended. In the current environment, according to the report, technologies used for the global war on terror are already linked with the commercial marketplace, especially those that deal with personal identification and protection against identity theft. As well, research directed toward identifying biological threats has a direct application to other public health problems, which are now "under the purview of state and local governments."

Energy issues related to supply and impact on security are set to receive greater attention and support. Past efforts to reduce dependence on foreign energy supplies have been less than successful, yet current pressures from cost increases appear to be having a greater effect on the funding of R&D directed toward alternate energy issues.

Finally, the report suggests that there will be "a continued emphasis on the entire range of information gathering, analysis and communication technologies that create and support reliable infrastructure."

Industry Outlook Overall, industrial R&D spending for 2007 is up more than $7 billion, a trend the report expects to remain strong through the year and into 2008.

Growth fields for industry include the following: electronics, biotechnology, pharmaceuticals, software development and process modeling.

Aerospace, too, is getting a healthy boost from commercial airliner sales, communication systems and imaging satellite sales. The semiconductor market appears poised for dramatic growth, as well.

Industries that show promise for improvements in R&D investments are energy, nanotechnology-based materials science and any industry or sub-industry involved in areas of sustainability.

Academic/Nonprofit While nonprofit R&D is growing, academia is suffering. The near-zero growth in academic-based research can largely be attributed to a lack of industrial support, notes the report, but federal and state government support has also dwindled.

Nonprofit R&D funding comes mainly from the federal government — the DOD and the DHS, in particular — which has kept funding levels in a growth mode.

One Year Ahead President George W. Bush's federal budget for fiscal 2008 proposes an increase in total R&D spending but includes no new initiatives in science or energy research. Most of the increase goes to a few select departments, such as the DOD, the Department of Energy (DOE) and the National Science Foundation. The budgets of other R&D agencies are expected to shrink.

Congress, however, has not yet passed the budget for fiscal 2007, so no real numbers are available to compare with the President's 2008 proposal.

Still, the overall numbers put forth in the 2008 R&D budget point to a small increase, mostly for development. Bush has proposed spending almost $143 billion for R&D in the next fiscal year, 2.5 percent above what is expected to be spent in 2007, according to Chemical & Engineering News last month. As usual, much of that total would go to the DOD, which is slated for a 1.3 percent rise of almost $1 billion to $79 billion.

European R&D Investment As aforementioned, other countries and regions such as China, Japan and the European Union are increasing their public investment in R&D.

Nonetheless, according to, European countries spend less than the U.S. and some Asian countries on R&D. Two years ago, the EU's statistical office Eurostat showed that government and industry invested only 1.9 percent of gross domestic product (GDP) on R&D in 2004 — significantly less than Japan at 3.18 percent and the U.S. at 2.66 percent.

Yet this news has instigated change, writes Gunjan Sinha:

Late last year, legislators firmed their commitment to the Lisbon strategy of 2000, which set a goal to transform the EU into a competitive knowledge-based economy. The European Council approved the 7th Framework Programme (FP7) — the EU's chief instrument for funding science and technology research from 2007 through 2013.

By making more money available on top of what governments already offer, the EU's new funding scheme hopes to slow the exit stream, at least. Scientists initially criticized FP7 because the proposed budget falls

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