Tuesday, March 05, 2013

Sequestration Will Contribute to Further Fallback of U.S. R&D

I quote from The Economist:
Chinese investment (including both public and private money) more than quintupled from 2000 to 2010, to $160 billion, in 2005 prices. America’s R&D spending rose by just 22% over that period, according to the OECD. Research also makes up a smaller portion of America’s economy than some other countries’. In a ranking of R&D spending as a share of GDP, America came tenth in 2011. A decade earlier it was sixth. 
Nevertheless, America remains the world’s biggest engine for innovation. It spent $366 billion on research in 2011, compared with $275 billion by all 27 countries of the European Union. Despite China’s rapid ascent, America still spends more than twice as much on R&D. Subsidies help. America’s government pays for about one-third of all domestic research and for most basic science.
The main theme of the article is that sequestration is going to hurt the federal research budget. If it causes lower GDP growth it will also hurt R&D growth in industry (supported by sales and in the hope of future sales). This latter concern was not mentioned by The Economist article.

I find it of some concern that nine other countries spend a greater percentage of GDP on R&D than does the United States, but I recall that the United States is large and there are parts of the USA that spend more of their GDP on R&D than do the research intensive small countries in Europe.

I note also that outsourcing some R&D to India and other low cost countries may make sense for the United States. Apple is an example of a company that has been very competitive and has created big profits for its U.S. investors and U.S. jobs while outsourcing a lot of work on Apple products.

I also wonder if the United States might be better off providing tax financing for experimental development of new products (through tax breaks for corporate R&D) rather than directly funding more fundamental research in government labs and universities. Of course, fundamental research is hugely important, but it might be a good idea to reconsider how much we should spend on tax financing leaving decision making in industry, and how much we should spend on direct federal R&D spending with decision making in Congress and the federal bureaucracy.

No comments: