Monday, March 29, 2010

R&D Funding

From the Science and Engineering Indicators: 2010. This came out back in January but I'm just getting to it. You can find plenty of other coverage elsewhere (start here). What's immediately obvious is that the share of funding for R&D from the government has shrunk from a high of about 65% in the 1960s to about 25% in 2008. The other striking change is the increased share from business. I didn't label three other categories, universities and colleges, nonfederal government, and other nonprofit, which together make up about 6% of funding.

A few clarifying points are in order. First, total expenditures have grown over this entire period and for all groups. It is not the case that private funding is somehow crowding out public funding, even if it looks like this from the graph. The government increased its funding of R&D in almost every year since 1953 (as far back as the data go). But the growth rate from business investment has been higher. Thus, even though R&D funding from business started off with a smaller base ($2.2 versus $2.7 billion), by 1980 private investment passed government and the gap has widened ever since.

Despite the shrinking share of funding, government policy is important, and government politics even more so. So here's a simple reform, to make this post policy relevant. Rather than waiting until the end of the year, as they did in 2009, perhaps Congress could approve an extension to the R&D tax credit in a more timely manner. Uncertainty seems to be the word de jour, but it is applicable. Unfortunately, in the midst of a recession, policy uncertainty shouldn't be what we're talking about all the time. This is a simple legislative act, which would improve planning and reduce uncertainty.

Even better of course would be to just pass a permanent extension of the credit and be done with it. Forget budget dilemma's over how to offset the cost with payfors. Just count higher GDP as the offset and move on.

On a related note, interested readers might want to check out the Economist's recent conference on innovation:
The Economist believes that the world is governed by ideas. Because human progress relies on the advancement of good ideas, we are launching a new series of events that brings together top thinkers from around the world to discuss and debate the most important ideas of our time. By focusing on Innovation, Intelligent infrastructure, and Human Potential, we imagine an ecosystem where good ideas move from concept to implementation, fueled by the power of human ingenuity, and only the best survive. Welcome to the Ideas Economy.
Some good writeups from IBD here and here.

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