September 3, 2006

The Economic Impact of R&D

I've been Interested in government's role in Research & Development (R&D) for some time. The myriad programs of tax credits and incentives sometime work and sometimes don't. But in my opinion there is no substitute for the positive impact of public sector pure research. Oh sure the economic impact of pure research happens decades forward, but I can't think of a better way to ensure a pipeline of wealth creation and stability for the future.

As it happens there's a great article in today's New York Times by Anna Bernasek called:
"The State of Research Isn't All That Grand" (registration required) on this very topic.

It seems that the US government is spending less on pure research -- "After several years of spending a bit more on research and development, the federal government is cutting back in some areas, after adjusting for inflation. While the government will continue to spend more on developing weapons systems and spacecraft, overall government investment in basic and applied research — the foundation of the nation’s innovative capacity — is in some ways shrinking."

This is part of a longer term downward trend by government accounting for pure research from 67% to 30% over the last 40 years. For a committed capitalist like me this would seem to be ok given that the outlook for corporate R&D is up -- "Total R.& D. spending in the United States grew for decades until 2002, when it dropped for the first time in 50 years after the crash of technology stocks. According to the latest figures from the National Science Foundation, such spending climbed slightly in 2003, to $291.9 billion, after adjusting for inflation, and is estimated to have increased to $312.1 billion in 2004. "

But there is a twist - "40 percent of the American high-tech industry already had a research and development presence in Asia, and, of that share, about one-third plan to increase their presence." It's not just the proximity to high growth Asian markets, or the access to Phd's or Engineers that compel these companies to organize R&D and Innovation centres in Asia. It's the commitment countries themselves have to foster innovation. For example, China and Korea have been increasing government led R&D by about 10% per year for many years.

Can I still call myself a capitalist if I'm for more North American Government committment to reasearch and innovation?

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