New Brief: Could Industry Fill The Gaps Following Federal R&D Cuts?

The evidence suggests limits to industry's willingness to fund R&D vacated by the federal government, should Congress go along with the White House's budget plans.

A central tenet of the Trump Administration’s budget approach is the idea that government should scale back federal R&D in many technology areas. Such a move would explicitly put greater reliance on the private sector to drive research and innovation. While the rollback proposed in the FY 2018 budget would be unprecedented, it also represents the latest iteration in a long debate over the federal role in technology and the interaction between public and private R&D.

In a new brief, AAAS explores the basic question: if the U.S. government were to step away from technology research, should we expect industry to step in? Based on the evidence, there are good reasons to believe the answer will be “no” in many market sectors and technology areas. A few points are clear:

  1. Industry is the primary innovator in this country, but much of that innovation tends to be incremental rather than disruptive. While one must be wary of overgeneralizing, the tendency within industry is to focus on shorter-term research and later-stage development, for reasons of risk, uncertainty, and time to return on investment.

  2. If this is true, should we then expect a decrease in higher-risk public R&D to result in a corresponding increase in private sector R&D? One historical case study suggests otherwise: the reductions in federal energy R&D activities in the early 1980s. When the federal government cut back R&D funding, industrial R&D subsequently declined as well, especially in more advanced energy technology areas.

  3. Government investment often serves as a foundation, complement, and catalyst for industry. Recent evidence increasingly shows government R&D tends to incent additional private R&D dollars, rather than crowding them out. In some cases, government support leads to R&D projects that wouldn’t have happened otherwise; in others, government R&D accelerates or expands projects that would have happened at a smaller or slower scale. Typically, the government and industrial roles in the innovation process are not substitutes for one another.

  4. Given these characteristics of the system, a decline in public R&D may well mean less R&D in the aggregate. This has implications for innovation and growth.

Download the full report here.


Cover Photo Credit: National Renewable Energy Lab