"Actions have been set in motion that will have a longer-term impact on the structure and operations of the total R&D enterprise," said the study's author Jules Duga, a Battelle senior research leader. "The events of the recent past do not represent a speed bump: they create a detour, one which may not return the system to a more predictable path for several years to come," he said.

• Total R&D expenditures in the United States are expected to increase about 3.4 percent to nearly $302 billion in 2003, according to the annual forecast.

A key factor in the 2003 forecast is the fact that industrial support-even though basically stagnant-continues to dominate the amount of R&D spending. However, it is the increase in government support that will shape the near future.

• Federal spending on R&D is expected to be $89 billion-an increase of 10.5 percent
• Industrial spending on R&D for 2003 is expected to be virtually flat at $194 billion-an increase of less than 1 percent (0.13 percent)
• Universities and other non-profit organizations are projected to spend more than $18 billion of their own funds on R&D-an increase of about 7 percent over 2002 figures.

As noted in the 2002 forecast, the attacks of Sept. 11 and the faltering economy began affecting funding for 2002. Now add two important external elements that are permeating the R&D enterprise: the creation of the Department of Homeland Security and the accounting scandals involving major corporations.

"Given the far-reaching impacts of some actions and events of the past two years, it is safe to say, that we have witnessed a sea change in the manner in which all types of activities will be altered. Although there are historic precedents that help us deal with some of the perturbations of the system, a 'return to normalcy' is not expected in the near term," Duga said.

The federal outlook: The combined forces of responses to the buildup in defense expenditures and the continuation of strong support in basic sciences and health-related research will lead to the 10.5 percent increases in federal spending.

As anticipated in last year's forecast, government priorities that relate to defense and biological sciences will be felt with the significant increases in the 2003 budget. Greater emphasis will be placed on communications, intelligence, surveillance, smarter weaponry, better intelligence gathering and interpretation, and improved responses to chemical and biological warfare.

These changes have been driven more by situations which are of immediate concern than by longer-term policies in the administration. To be sure, fundamental consideration relative to the strengthening of the nation's efforts to better understand and apply science and technology will continue to grow, as evidenced through moves to increase basic science support.

The creation of the Department of Homeland Security and the reorganization of the federal government will lead to both shifting of funds and responsibilities, as well as the creation of new funding programs. The integration of research, applications, and activities will not be accomplished immediately, but will evolve over the next few years.

Earlier optimism relative to the use of budget surpluses to advance science and technology has significantly abated. In spite of the major increases in R&D funding, these will be unevenly distributed across the whole spectrum of government activities. If continued large-scale budget deficits become a reality, the R&D portion of discretionary spending will likely suffer.

The industrial outlook: The insignificant increase of less than 1 percent of total industrial support of R&D is far less than has been seen in recent years. It is a reflection of the economic factors that have emerged in the past year and the uncertainties that are inherent in the stock market. The industrial expenditures were expected to level off, falling from a rate of growth that was difficult to sustain.

But the revelations regarding significant irregularities in company bookkeeping and the damage to major companies has had a far-reaching impact on U.S. businesses. The downstream impacts of loss in confidence, bankruptcies, ripple effects and associated disruptions are not the only consequences. These direct results have created questions relative to the accuracy of the entire financial reporting system, including that which addresses the reported values of R&D investments.

The academic/non-profit outlook: The support of research and development in the academic sector has undergone slow and steady changes over the past few decades. The percentage of government support for academic R&D has been declining, being almost entirely replaced by increases in the self-funding of academically performed works.

This self-funding has been increasing steadily as a result of major fund-raising efforts undertaken in the academic sector, the expansion of development offices and, in more recent years, the promotion of new initiatives in industrial cooperative funding of pre-competitive research projects. Added to this is the increase in state government support of the universities, over and above the basic support from the state legislatures to public colleges and universities.

The complete Battelle-R&D Magazine forecast is published annually in the January issue of R&D Magazine. Reprints of the full report can be obtained in late January by contacting Jean Hayward at (614) 424-7039 or at haywardj@battelle.org.

Battelle serves industry and government in the areas of technology development, laboratory management, and technology commercialization. Headquartered in Columbus, Ohio, Battelle has annual revenues of $1.2 billion, has operations at more than 100 locations, and clients in 30 countries. It counts as its successes the development of the office copier machine (Xerox), pioneering work on the compact disc, medical technology breakthroughs, and fiber optic advancements for telecommunications. For more information, visit www.battelle.org or contact Media Relations Manager Katy Delaney at (614) 424-5544 or at delaneyk@battelle.org.