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Overview of R&D Trends (continued)

Total U.S. R&D in 1999 As the federal investment in R&D and the federal budget surplus expands, and the national debt shrinks, there is also good news from U.S. industry. Once again, the total U.S. R&D enterprise continues to grow. Recently, the National Science Foundation (NSF) released its preliminary projections for total U.S. R&D in calendar years 1998 and 1999, including industry-funded R&D. NSF estimates that the total U.S. R&D effort in 1999 is $247 billion (see Figure 3 and Table B). This represents an 8.8 percent or $20 billion increase over the $227 billion total in 1998, which itself was a 7.3 percent increase over 1997. Figure 3. As shown in Figure 3, since 1994 total U.S. R&D has expanded dramatically due almost entirely to substantial increases in R&D funding from industrial firms. In 1999, U.S. industry is expected to spend $169 billion on R&D with its own funds, an increase of 12 percent, far outstripping the more modest growth in federal R&D. As Figure 3 shows, industry has consistently expanded its share of total U.S. R&D over the past four decades, and now funds two-thirds of total U.S. R&D. Other funding sources for R&D, though far smaller in dollar terms, are also expected to increase their R&D spending. These increases in U.S. R&D spending cover all character-of-work categories. Despite worries in the mid 1990s that industry would cut back on its support of basic research, according to the NSF analysis industrial firms are expected to fund $12.7 billion of basic research in 1999, an increase of 11.6 percent. This increase is far higher than the increase in federal support of basic research (up 4.1 percent), although the federal government continues to be the majority sponsor of basic research. Applied research and development are also expected to grow. Because growth in total R&D is expected to exceed growth in the U.S. economy as a whole as measured by the Gross Domestic Product (GDP), NSF estimates that total U.S. R&D will reach 2.79 percent of GDP in 1999, up from 2.67 percent in 1998 and the highest share since 1967. If R&D continues to grow faster than the economy as a whole, as it has since 1994, in 2000 the U.S. R&D/GDP ratio could exceed the all-time high ratio of 2.87 percent in 1964. A survey by the Industrial Research Institute (IRI), an organization whose members include the largest R&D performing companies, indicates that industry plans to increase its R&D spending in 2000, though at a slower rate than in the past three years. Before adjourning, Congress approved a five-year extension of the Research and Experimentation Tax Credit, which had expired in July. Congress hopes that this credit will provide additional incentives for industrial firms to invest in R&D.