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Overview of R&D Trends (continued)

Total U.S. R&D in 2000 Figure 3. (click on the image to view or download a full-page PDF version of the chart) As the federal investment in R&D, the U.S. economy, and the federal budget surplus all expand, and the national debt continues to shrink, 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 1999 and 2000, including industry-funded R&D. NSF estimates that total U.S. R&D performance in 2000 will be $264 billion (see Figure 3 and Table B). This represents a 7.9 percent or nearly $20 billion increase over the $245 billion total in 1999, which itself was a 7.5 percent increase over 1998. 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 2000, U.S. industry is expected to spend $179 billion on R&D with its own funds, an increase of 10.3 percent over the previous year, 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. This remarkable growth in industry R&D has been fueled by a record-setting economic expansion over the past ten years, the rapid growth of technology-dependent industries such as information technology and biotechnology relying heavily on R&D for future growth, and the ever-increasing importance of new technology as a key element in economic competition for a broad range of industries. 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 $14.8 billion of basic research in 2000, an increase of 10.0 percent. This increase is far higher than the increase in federal support of basic research (up 5.1 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 once again 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 2.72 percent of GDP in 2000, up from 2.65 percent in 1999 and the highest share since 1967. Heading into 2001, however, there is some doubt as to whether these large increases for industrial R&D can be sustained. In late 2000, there were abundant signs that the decade-long U.S. economic expansion was, if not coming to an end, at least entering a period of slower growth. Historically, industrial R&D has closely tracked the business cycle, so an economic slowdown may lead many companies to curtail their R&D activities. There is some question as to whether this historical correlation will hold up in the next economic slowdown or recession; some economists believe that heavily R&D-dependent high-tech industries will continue to invest heavily in R&D in the search for new technological breakthroughs regardless of economic conditions.