Worldwide research and development (R&D) spending and performance exceeded $1 trillion in 2006 alone, and it continues to expand at a substantially higher rate than most countries' inflation rates. The latest Global R&D Report, a collaboration between Battelle and R&D Magazine, forecasts that global R&D spending will reach $1,210 billion this year, 7.6 percent higher than in 2007. Much of this growth continues to be fueled by a rapid expansion of R&D in China, whose spending is expected to grow by nearly 24 percent in 2008 to $216.8 billion — about 18 percent of global spending, up from 14 percent just two years ago.

As with most initiatives, R&D has become truly global, with all sectors moving within the not-too-distant future to a near-equal distribution of effort, funds and activity — as opposed to the domination the United States has held onto for the past 50 years — according to the annual Battelle-R&D Magazine report.

According to these findings:

The U.S. will continue to dominate for up to the next 10 years or so, but after that decade activity is likely to be split into thirds with North America, the European Union (EU) and Asia — dominated by China and India — holding approximately equal shares.

"Today's data highlight the role of R&D spending in improving the competitiveness of industries such as information technology, pharmaceuticals and other manufacturing industries," U.S. Commerce Secretary Carlos M. Gutierrez said in a September 2007 statement.

The Bureau of Economic Analysis and National Science Foundation (BEA-NSF) Research and Development (R&D) Satellite Account provides detailed statistics designed to facilitate research into the effects of R&D on the economy. The account shows how gross domestic product (GDP) and other measures would be affected if R&D spending were "capitalized" — that is, if R&D spending were treated as investment rather than as an expense.

If R&D were treated as investment, it would have "accounted for 5 percent of real GDP growth between 1959 and 2004, and 7 percent between 1995 and 2004," according to the experimental estimates produced by the BEA and NSF:

This ramp-up in R&D's contribution helps explain the pick-up in economic growth and productivity since 1995. To put the contribution of R&D in perspective, the business sector's investment in commercial and other types of structures accounted for just over 2 percent of real GDP growth between 1995 and 2004.

The BEA-NSF findings indicate that the sources of business R&D's contribution to real GDP growth from 1996 to 2004 were information-communications technology-producing industries (41 percent), biotechnology-related (27 percent) and transportation equipment manufacturing and all other industries (31 percent).

The most recent R&D Satellite Account, released in September, updates the statistics released last year and offers additional data for two more years (2003-2004). This joint account also provides, for the first time, R&D statistics for R&D-intensive industries, regional accounts and international accounts.

Despite prodding by the president of the National Association of Manufacturers and others, the R&D tax credit expired on Dec. 31, 2007* (1/9 update*). This law would have enabled manufacturers to continue claiming nearly 70 percent of all R&D tax credits.

The idea behind making the credit a multi-year law is that it would help companies start research that may take more than 365 days. For some industries, such as those related to medicine, often it takes seven years or more to progress from concept to marketable product.

"The current R&D tax has been extended at least 11 times since first enacted in 1981. But the uncertainty created by these year-to-year short-term extensions discourages companies from investing in critical, long-term, high-risk research projects that have historically shown tremendous payoffs in economic growth, productivity gains and jobs," according to the IEEE - USA.

Last year saw one advancement in U.S. R&D, in the America Competes Act, which, among other things:

• Included a provision that increases funding available for the federal Manufacturing Extension Partnership (MEP) program by $37 million (MEP provides direct assistance to small manufacturers, helping increase their competitiveness in the global market through technology and innovation);

• Doubled funding for the NSF from approximately $5.6 billion in FY2006 to $11.2 billion in FY2011;

• Established the Innovation Acceleration Research Program to direct federal agencies funding research in science and technology to set as a goal dedicating approximately 8 percent of their R&D budgets toward high-risk frontier research; and

• Authorized raising investment in the National Institute of Standards and Technology (NIST) from approximately $703 million in FY2008 to approximately $937 million in FY2011 and requires NIST to set aside no less than 8 percent of its annual funding for high-risk, high-reward innovation acceleration research.

This is a start, but much will be needed in 2008 to feed the innovation pipeline that helps us meet our needs, create jobs and stay ahead of the competition. R&D investment is the gift that keeps on giving. What could be a better antidote for an ailing economy?

Resources

2008 Global R&D Report
Battelle-R&D Magazine, January 2008

Annual Global R&D Report Reveals Growing Equalization of R&D Activity, Reduction of U.S. Dominance
Battelle-R&D Magazine, January 2008

Research and Development Satellite Account
United States Bureau of Economic Accounts, Sept. 28, 2007

Manufacturing Isn't the problem; It's Part of the Solution
by Martin Jischke, Tom Snyder and Denny Oklak
The Indianapolis Star (via ManufactureThis.org), April 16, 2007

Rising Above The Gathering Storm: Energizing and Employing America for a Brighter Economic Future
by Norman R. Augustine
The National Academies, Oct. 20, 2005

Failing to Renew R&D Tax Credit Would Hand Businesses an $8 billion Tax Increase
National Association of Manufacturers, Dec. 18, 2007

Permanent Extension of the R&D Tax Credit
IEEE-USA, Nov. 11, 2005

At South Bend Job Fair, Bayh Calls for Doubling Federal Funding for Small Business Innovation
Evan Bayh, Aug. 21, 2007

Reaction to FY 2008 Spending Bill: "A Step Backwards," "Very Disappointing"
The American Institute of Physics, American Physical Society, Association of American Universities and Alliance for Science & Technology Research in America
Dec. 28, 2007