Federal R&D investments are the backbone of U.S. science and technology, but navigating the subject can be tricky. This newly updated brief helps readers better understand the complex and evolving science funding landscape – both at home and abroad – in recent decades.
Excerpts from the brief are published below. For more, download the full report.
Discretionary Spending is Important Context for R&D
Virtually all federal R&D funding is contained within the discretionary budget, the portion of federal outlays determined annually through the appropriations process. As seen in Figure 1, discretionary spending –especially defense – once occupied a more prominent place in the budget. Over time, however, the budget has come to be dominated by mandatory spending, made up mostly of the major entitlement programs – Social Security, Medicare, and Medicaid – and mostly on autopilot. This is driven by an aging population, rising healthcare costs, and other factors.
This matters for science because R&D doesn’t tend to change much as a share of the discretionary budget. At the height of the Space Race, R&D comprised 17.4 percent of discretionary spending, as seen in Figure 2. But since the early 1980s, R&D has tended to fluctuate between 11 and 13 percent of discretionary spending (recent changes in what gets counted as R&D have pushed this share somewhat lower). In many years, as the discretionary budget goes, so goes the R&D budget.
The centrality of discretionary spending for science can be seen in spending changes by agency (Figure 3). Beginning in FY 2011, the base discretionary budget began coming down, first for nondefense and then defense as well. The spending caps established by the Budget Control Act of 2011, including sequestration in FY 2013, intensified the strain. The impact on science agency budgets is plain in Figure 3, with budgets moving in rough unison depending on what is happening with the broader discretionary budget. This has historically been the case, though Congressional Budget Office (CBO) predicts discretionary spending will continue to decline relative to the federal budget and the economy overall as mandatory spending continues its growth.[i] This suggests federal R&D activities may also continue to decline relative to other economic activity, even as federal R&D dollars grow in absolute terms.
Global Landscape: R&D Shifting East
While this review is primarily focused on US trends, it is worth bearing the international context in mind. Global spending on R&D is on a rapid upward trajectory. Total worldwide R&D has roughly doubled since 2000, reaching an estimated $1.9 trillion in 2016.[ii]
While the United States remains the single largest funder of R&D, investments continue to shift east. Within the OECD data set, the United States accounted for 39 percent of global R&D in 2000 but only 28 percent in 2016. The E.U. showed a somewhat smaller decline, from 28 percent to 21.5 percent. Meanwhile, the five East Asian economies included in the set – China, Singapore, Taiwan, Japan, and South Korea – collectively increased their share of R&D from 23.4 percent in 2000 to 41 percent in 2016. China has been the major driver in this growth, but three of the other four, excluding Japan, have also grown rapidly (see box). The U.S. National Science Board projects that China will surpass the United States in total R&D funding from all sources by the start of 2019 (see Figure 16).[iii]
Examining the trends in research intensity – which refers to R&D as a share of GDP – the gradual shift in R&D resources from west to east is also apparent (see Figure 17). Since 1995, South Korea and Taiwan have nearly doubled their research intensity ratios, while China’s has more than tripled during this time. Meanwhile, the U.S. has slipped to tenth place overall, falling behind Germany, Taiwan and South Korea. This comes amid aggressive research intensity goals set by foreign governments. For example, Germany’s new coalition government has pledged to boost the country’s R&D spending from 2.9 percent to 3.5 percent of GDP by 2025, making Germany a world leader in research spending, behind only South Korea and Israel.[iv] The UK’s latest economic growth strategy aims to increase UK research intensity by nearly 50 percent over 10 years.[v]
Turning next to basic research specifically – as opposed to total R&D – spending among OECD member countries has quadrupled since 1985. The U.S. barely cracks the top ten in basic research as a share of GDP, though total American basic research spending remains largest in the world by far. The U.S. and other advanced nations have historically placed a high emphasis on basic research as a key to competitiveness, and some emerging competitors have accordingly assigned a high priority to basic research. For example, South Korea recently announced plans to double its basic research budget by 2022.[vi] But this is not the case everywhere. For instance, in spite of its recent rise, China has tended to invest relatively less in basic research and more on applied research and development. In fact, basic research accounted for only 5 percent of Chinese R&D in 2015, compared to the OECD average of 17.2 percent that year.Within government research portfolios, US spending on health R&D remains the highest among OECD nations in both absolute and relative terms (see Figure 18). Additionally, the U.S. devotes the largest share of R&D funding for defense purposes, at roughly 50 percent of the federal portfolio in 2016, whereas the European Union set aside only 4.2 percent. However, the fraction of US government research funding for agriculture and energy and environment is nearly the lowest among all OECD countries. The U.S. also assigns just a tiny fraction of its R&D budget for industrial technology, including R&D for innovative manufacturing processes. The general science function – core basic research that cannot be attributed to a specific objective – ranks surprisingly low in the U.S. compared to most OECD countries. On average, one-third of R&D in OECD countries is for multi-purpose general university funds (GUF), government block grants used at the discretion of higher education institutions; the U.S. does not employ a GUF mechanism.
Lastly, it’s important to note that the percentage of total R&D funded by government has stagnated and declined globally over the last decade, following the financial crisis. Government funding of R&D within the entire OECD area fell from 31 percent to 27 percent between 2009 and 2016, amid fiscal austerity policies in Europe and budget sequestration in the U.S. This funding slump comes as governments within the advanced OECD economies seek to steer public research towards ambitious “mission-oriented” goals such as healthy aging, clean energy and food security. With public research funding under budgetary pressure in recent years across the OECD, some governments have also started to innovate and experiment with new competitive research funding mechanisms such as lotteries, along with novel peer review processes.[vii]
[i] See CBO’s most recent Long-Term Budget Outlook: https://www.cbo.gov/publication/53919
[ii] OECD Main Science and Technology Indicators, 2018, http://www.oecd.org/sti/msti.htm
[iii] National Science Board, 2018, The Rise of China in Science and Engineering, https://nsf.gov/nsb/sei/one-pagers/China-2018.pdf
[iv] See coverage on Germany’s R&D spending goals: http://science.sciencemag.org/content/359/6380/1081.full
[v] See UK Industrial Strategy: https://www.gov.uk/government/publications/industrial-strategy-building-a-britain-fit-for-the-future
[vi] See announcement from South Korean government: https://en.yna.co.kr/view/AEN20180228009700320
[vii] A recent OECD report examined competitive research funding schemes in various countries: https://www.oecd-ilibrary.org/docserver/2ae8c0dc-en.pdf?expires=1545158586&id=id&accname=guest&checksum=084D7C2297467AADE97F4CE84277EB30