COLUMBUS, OH. 11 June, 2009—Never has a year been harder to forecast economically than 2009. Careful and historically accurate predictions of this closely watched forecast in scientific R&D were knocked askew by a variety of factors in 2009.
A recession, stimulus, new administration, continuing resolutions, and globalization effects have altered the picture of R&D spending from just six months ago.
For 51 years, the editors of R&D Magazine (the past 31 with Battelle) have created an annual R&D Funding Forecast at the beginning of each year to document R&D spending in government, industry, and academia.
In just the past six months, multiple external forces have affected the accuracy of that 2009 forecast, including a deepening recession and the impact of $18 billion of increased government funding from the American Recovery and Reinvestment Act (ARRA) signed in mid-February. These forces have had notable R&D effects in the automotive, biopharm, computer, and other industries.
Overall, including the ARRA investment, federal R&D budgets for FY 2009 reach $165.4 billion or an increase of 12.5 percent over base level FY 2009 R&D funding. At the current annual growth rate of 2.3 percent (FY 2008 to FY 2009) this level would be reached, on base level R&D funding only, in slightly more than five years.
Following are some results from the updated forecast:
- For the first time since 2002 there appeared to be a decline in the anticipated growth rate of effort directed toward new business.
- Changing patterns in industrial R&D are seen in the expected slowdown in the growth of professional staff, the hiring of new graduates, and in the outsourcing of R&D to other industry.
- Strong research-intensive industries are continuing to fund critical R&D programs, recognizing that the present economic situation will not last forever. With few exceptions (though notably Toyota and Motorola), a large number of technology companies made relatively few cuts to their most recent quarterly R&D budgets.
“We must remember that there are two themes that pervade the industrial R&D picture,” said co-author Jules Duga, a Battelle senior research scientist. “First, R&D is not a product, but a process: it is not a production line commodity that can be readily turned off and turned on with only short-term consequences in terms of inventories. To the contrary, it’s an activity that can influence the long-term competitive position and survival of an enterprise.
“Second, much research is undertaken in a manner similar to a marathon race: a long and oftentimes arduous journey that does not allow even a brief hiatus lest a slower competitor might pass on the way to an earlier finish,” Duga said.
- Academic institutions stand to receive more overall stimulus funds than industrial or government researchers, and expect to spend about three-quarters of the funds on research-based items.
- Academic response to the package is mixed: delighted to have the additional funding, especially in light of decreasing funding from industry, but concerned over the short time frame over which the stimulus funds are to be spent.
- There is significant concern that the stimulus funds will create a “blip effect,” though the doubling of the National Institutes of Health (NIH) budget may limit this effect.
- The ARRA included $18.34 billion toward R&D efforts amounting to 2.3 percent of the overall stimulus funds with $14.69 billion provided for direct R&D efforts and $3.64 billion for R&D facilities and capital equipment.
- NIH is the big R&D winner within the ARRA, accounting for $10.4 billion or 56.7percent of the ARRA R&D funding.
- The ARRA was used to provide specific increases in R&D funding toward the Obama administration’s policy goals. Four agencies—the NIH, the National Science Foundation (NSF), Department of Energy (DOE) and National Institute of Standards and Technology (NIST) (the latter three being part of the America COMPETES act)—account for more than 88 percent of the stimulus investment in R&D.
“The importance of the stimulus effect on construction and capital expenditures cannot be overstated,” said Marty Grueber, a co-author of the report and a research leader at Battelle. “At $3.64 billion, the ARRA alone provides an amount equal to approximately 80 percent of recent years’ facilities and equipment budgets.”
Federal Budget Impact
- The overall federal R&D budget increased by 2.3 percent, from $143.7 billion in FY 2008 to $147 billion in FY 2009.
- The Department of Defense (DoD) received a $1.34 billion increase; the NIH received a $1.2 billion increase while the DOE received an $814 million increase over FY 2008 levels.
- The top 40 countries account for about 85 percent of all R&D spending in the world. The total R&D spending estimate for those countries changed from $1.143 trillion in the December 2008 Battelle R&D Magazine Forecast to $1.125 trillion in the current forecast. This represents an increase of only 1.6 percent spent in 2008, in comparison to the originally forecasted 3.2 percent increase.
- Though the estimates changed for every country, China and India continue on their substantial growth path increasing their expenditures on R&D by 14.9 percent and
6.7 percent, respectively. China in particular continues to be very aggressive in its support of R&D, with significant infrastructure and programmatic investments.
- Europe is drifting further behind the U.S. in R&D funding and it may never close the research gap with the U.S. if it fails to boost investment in the services sector.
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