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November 21, 2006
The Great R&D Dispute
Many industry and government leaders fear that the U.S. will lose its technological preeminence because of current research and development funding practices. As such, one of the long-debated issues among manufacturers and engineers is how R&D should be funded. The dispute continues.
One of the long-debated questions among companies and their engineers is how research and development should be funded. Technical societies and trade associations speak of a "research gap" and how it threatens United States global competitiveness, while some engineers question whether the federal government should support R&D at all; and if so, what type of research projects.
Moreover, R&D efforts play an integral role in domestic manufacturing, keeping it competitive in the face of rapid globalization. Evidence supporting such importance is plentiful. Many innovations that bolster U.S. manufacturing are achieved in part because of public-private partnerships organized by government-sponsored research initiatives. R&D efforts are not only important economically, but also militarily, proving significant in World War II and serviceable in more recent wars, such as in Iraq.
However, many industry and government leaders fear that the U.S. will lose its technological preeminence because of current R&D practices. In particular, they worry that innovation will emulate production and take place increasingly outside of the country.
The Economic Strategy Institute has already warned that America faces a $55 billion and rising trade deficit in advanced technology products. Falling revenues are forcing many U.S. telecom and technology companies to cut back on R&D spending or outsource such research abroad.
So a U.S. manufacturing downturn has caused many to wonder anew: Is the industry and the government adequately supporting high-level innovation, both in manufacturing and in engineering?
A major issue is that federal support of R&D is not growing rapidly. Indeed, funding can be perceived as being essentially flat, Battelle President and CEO Carl Kohrt recently told IndustryWeek.
Every year, the federal government authorizes billions in funding for manufacturing businesses and related activities such as R&D projects, workforce initiatives, or expansion and growth plans. This year, the federal government is expected to spend $96.6 billion funding R&D efforts, a modest increase of 1.8 percent over the $94.9 billion spent in 2005, according to Battelle Memorial Institute's forecast.
Even the Pentagon's Defense Advanced Research Projects Agency (DARPA), which arguably does the best job in R&D among government agencies, has sharply cut back its funding of university R&D in recent years, shifting its support to military contractors who could produce a faster payoff.
"And historically the industrial funding rate has been higher — 7.5 percent as opposed to the predicted 3.5 percent," Kohrt added.
Meanwhile, academia and other nonprofits make up the remaining expenditure of $20.4 billion, with academia increasing by a slim 1.1 percent and other non-profits increasing by a healthier 3.7 percent.
Boston Consulting Group (BCG) recently released survey results that show 72 percent of companies worldwide will increase spending on innovation in 2006, as IndustryWeek noted in September.
Reported IndustryWeek:
Taken together, those predicted declines are more than incremental shortfalls across the scope of R&D, notes Kohrt. The significance: "While Federal funding of R&D — basic research — is declining, industry is shifting its reduced R&D allocation from basic research to primarily applied product development. That delays the new disruptive technologies needed to drive future industrial, [which, in turn] translates into a diminished industrial future as the emergence of new disruptive technology development platforms is delayed."
Kohrt argues that an increasing government role (in basic research) is made even more imperative by the business model pressures on the R&D decisions made by established multinational firms.
In contrast, a distinguished technologist at Hewlett-Packard recently responded to Electronic Design's 2006 Reader Profile Survey by recommending pretty much the elimination of government R&D funding altogether. "Research should be done privately except in very narrowly defined defense sectors," he told the magazine. He went on to argue for private research because "it is more creative. It is solid science when you are competing to create goods and services rather than creating a bigger scare story to get more government funding," mentioning the environment as an example.
For Electronic Design's question, "In what technology areas do you believe the government should be increasing its R&D investment?" most respondents (82.6 percent) selected alternative power as their top priority to which government should direct R&D funds. Alternative power was followed by nanotechnology (46.8 percent). Homeland security ran third with 36.9 percent, followed by broadband infrastructures and robotics with about 31 percent each. There were also several write-in votes for medical applications (several respondents specifically mentioned stem cell research) and aerospace, noted the publication. Engineering education was another concern among Electronic Design's 2,597 respondents, with calls for encouraging a greater investment in primary schooling.
Despite the rising pressures of the federal deficit, national support of R&D got a boost with President W. George Bush's announcement of the American Competitive Initiative, the focus of which is to commit $5.9 billion in fiscal year 2007 to increase R&D investment, strengthen education and encourage entrepreneurship. "Over 10 years, the initiative commits $50 billion to increase funding for research and $86 billion for research and development tax incentives," Bush said when announcing the initiative. "My 2007 budget requests $137 billion for federal research and development, an increase of more than 50 percent over 2001 levels."
It's unclear yet if lagging R&D investment levels in the U.S. are sufficient to maintain any global leadership. Consider, on a final note, U.S. R&D spending versus that of China. In March, Science magazine offered some perspective: "Spending by all Chinese sources, industry included, will rise from 236 billion yuan ($30 billion) in 2005 to 900 billion yuan ($113 billion) in 2020. Basic research is slated to climb from 6 percent of R&D expenditures in 2004 to as much as 15 percent in 15 years."
Resources
Recapturing R&D Leadership
by John Teresko
IndustryWeek, Aug. 1, 2006
Research & Development: Smarter Spending
by Jill Jusko
IndustryWeek, Sept. 1, 2006
The Future Of Engineering
by Ron Schneiderman
Electronic Design, October 2006
Electronic Design 2006 Reader Profile Survey Results
by Staff
Electronic Design, Oct. 12, 2006
China Bets Big on Big Science
by Hao Xin and Gong Yidong
Science magazine, March 17, 2006
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22 CommentsIt must be on priorities like SAFETY/SECURITY/HEALTH/
PEACE & profits-based funding.
Manufacturing, tooling, RandD, engineering and maint., are all equal legs on the stool. Every company has to have each one equally to survive. There should be research and development funds to help private inventors fund even minor projects. I personally have two projects and no funds to work with.
November 21, 2006 3:08 PMR&D Funding should increase at the Industry level and decrease at the Academia level for the main reason cited -- faster payoff. When R&D takes place at the "Real World" level (so long as results are shared within the industry HERE IN THE UNITED STATES), that is a better situation for the industry as a whole.
Case in point, at University of California-Davis, they have a "Mechatronics Lab". At California taxpayer expense, nearly ALL of the developments/innovations that are generated there benefit JAPANESE CNC machine tool builders. In my opinion, that is just wrong in so many ways.
November 21, 2006 3:28 PMAs an inventor with products in the worldwide market place:
Inventors and problem solvers need financial support to create the products needed throughout the world. With corporate leaders demanding high salaries and huge bonuses, they are bleeding the R&D dry, which is what creates the products or services for consumers and ultimately the leaders' salaries.
For the USA to stay in the game, there has to be a fast track to government and private funding. There are no shortages of problem-solving R&D inventors like myself, just money!!
November 21, 2006 4:08 PMUnfortunately for American manufacturing, many academic research projects stop once a premise has been achieved. The next step, bringing this new product or process to the manufacturing floor and the general market, simply does not happen. Any R&D project must include realistic goals and entertain the involvement of those with great practical experience producing similar goods. At least a portion of grant money must be designated toward implementation of these processes or products into existing industries.
I once worked for an R&D facility supposedly dedicated to improving American manufacturing. During my time there, three of their projects involved "inventing" products already in use in the automotive industry. The firm had been duped into becoming a development lab for a single company wishing to break into the market.
November 21, 2006 5:52 PMThe question ought better to be: How are revenues from royalties associated with patented innovation to be deployed?
Upper management typically views this revenue stream as just another unearned income windfall like banking interest to spend as they choose, when these royalty payments ought to be exclusively devoted to and rolled back into the very departments which created the royalty revenues in the first place.
Most Fortune 500 companies' R & D departments would be more plush-lined and subsidized than the marketing department if patent royalties would be re-deployed back to the R&D department. Oddly, it is hard to sell upper management on the above concept, yet manufacturing departments have no problem getting their share of the incoming revenue pie proportionate to their contribution and ongoing needs.
Class warfare, greed, negligence, jealousy directed toward the company's truly creative element, or keeping the designers in their place like good little employees? Take your pick, or all of the above. A wise firm has no excuse for having an under-funded R&D department: under-funding R&D is like getting a labotomy, then complaining that you can't run a hand calculator, but it is not the government's fault, and the government ought not to pay the bill.
November 21, 2006 6:04 PMManufacturing, tooling, R&D, engineering and maint., are all parts of a complete industry like different parts of a human body. In the era of standard products with fast and assured service, R&D activities are taking a backfoot. Industry-level R&D gives a faster pay-off but is guided by forseeable needs lacking ventures in new areas, whilst Academia-level R&D lacks forsight of usefulness. R&D activities by a combination of both shall be encouraged and funding shall be done to take us a step above present comfort level.
November 22, 2006 2:14 AMYes, R&D is important. All of the comments already posted cover it pretty good. CEOs want the big money and the hoot with the rest of the company. Yes, the whole company. If they can draw multimillion paychecks for a few years and the company fails, so what. "I got mine!"
With the move of manufacturing out of this country, I guess they think we don't need R&D. Inventors and the like are left to wonder what to do with their great ideas. Been there with you guys. Ever wonder why our automakers can't survive in this country, but the foreign can??? They improve, we lumber along.
Thanks.
November 22, 2006 8:56 AMRemember, when you live in a free country, you don't need the country's money to mnprove yourself or to do any discovery. If you need public money, then the public shall be own some stocks on the product that you discover. I strongly believe you do it your self.
November 24, 2006 9:27 AMIt is interesting how addicting fed based funding seems to get for the big $$$ winners... be they private, university, corporate, shmorporate... whatever. And the clarion call in all these opinion papers... the ones that find their way into print... is always for MO MONEY... translation... mo FED money... as if the government somehow has the brains or the brass huevos large enough to accurately pick the right projects.
Generally, bureaucrats and hack type suck-ups come with commensurate amounts of political baggage and that will tend to translate into political agenda... well... most of the time. If good ideas come from creative minds, there will be a natural clash of agendas by statistical definition and the result will always be good projects that never see the financial light of day. Guaranteed.
Remember, government tends to be self-preserving, self-serving, and self-aggrandizing most of the time because the plethora of political animals who make it into the ranks are not generally the statesman variety. Again... politicians are not statesmen... generally. Chew on that a while and it becomes apparent that government based funding for real R&D is going to come with strings, conditions, limits, etc. in narrowly defined areas that do not threaten major string-pulling political positions lurking in the background somewhere. H m m m m.
OK, so what should we do about it? Let government fund the things that government needs. Let private enterprise fund private or market-based needs... for process or competitive edge... but with a twist. The fly in the ointment is always money... well... the lack of it, actually. Change the tax code to allow 200%, 300% or even 500% write-offs for R&D aimed at real tangible marketable products.
In other words, private money can take a chance on wild or far out ideas if there is a financial benefit for funding the really good ideas... especially if the projects fail. Money doesn't take stupid chances for a good reason. Multiple write-offs change the financial landscape a little and make it possible for money to participate in the good ideas. Take a chance on a flier... write off 4 times the cost against gross income... right off the top. If the project wins... write off the R&D and then go public. If the project looses... tax free money for something else.
Will the money come out to play if there is a guaranteed multiple benefit for getting down on the playing field and suffering a few bumps and bruises? Oh yes! Money will come out to play very seriously and very quickly if there is tax free incentive to do so. It's the lack of incentive that restrains money. The ideas are available. God invented creative people a long time ago. Every generation breeds a fresh new batch of creative kids. So... what would happen if money and creative ideas could find each other?
Hmmm, I would bet that Google, Yahoo, yet2.com, Red Herring, Inc., Forbes, WSJ and a whole host of others would like to do the matchmaking. YIPPIE ! ! ! Engineer meets adventure capital! They might even collect a 5% fee for doing so. Wouldn't that be nice? Can you smell the money and the ideas coming out of the woodwork and baking up good stuff together? Smells good, doesn't it?
There should be some caveats. For one the products should be made in America for some period of time... 10, 20, 17 years... whatever. And it would be helpful if preference is given for 5 specialty areas... mining, manufacturing, agriculture, transportation and communications. By definition anybody who produces any new real or tangible product would be covered. For example, fertilizer production may be smelly, but the stuff is real... so... Physical construction would be covered but real estate speculation would not. Etc.
And while we are at it, reduce the taxes on those favorite areas... mining, manufacturing, agriculture, transportation and communications. How about a 10% max tax? Maybe 7% max? Hmmm.
And while we are at it, how about tax free profits on IPO's for those new companies with those new products? That way we could fund the ideas and then fund the growth of the ones worth producing in the market place. R&D is fun for inventors but it doesn't affect anybody's life in a practical way until people can use those new gadgets in the kitchen, in the car, at the office, on the farm or on the factory floor. Hmmm, tax free IPO's. Imagine that.
There isn't a lack of money. There isn't a lack of good product ideas. But there are some political animals with agendas who would not like an American economy on steroids. Correct the problem of straight jacket tax laws and it's not hard to rev things up. Is anybody out there listening? Anybody? Hello. Anybody?
Hmmm.
December 18, 2006 5:25 PMLike what technology has been critical to our success in Iraq? We have seen a massive failure of American Technology in Iraq - unable to stop the flow of explosives into Baghdad - find out where IED's come from - stop the use of our Communication systems by the enemy.
December 19, 2006 12:29 PM
