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A note on R&D changing national priorities
0160-791X189 $3.00 + .OO Copyright 0 1989 Pergsmon Ptea plc
Tecbno/ogy k SocAy. Vol. 11, pp. 331-334 (1989) printed in the USA. All tights resented.
A Note on R&D Changing National Priorities Murray Weidenbaum
ABSTRACT. Decision mahers rarely establish policy on R&D. Government outlays for science and technology frow from decisions on national defense, energy, etc. Thus, budget cuts in those programs result inadvertently in reducedfunding for science and technology. At the same time, p&ate business-beset by foreign competition and takeover threatsis reducing a// costs that do not generate immediate returns. Decision mahers need to be concerned about the impact of these actions on R&D. The president should appoint a senior adviser to b&g to bear the knowledge of the scientific community in the councils of government. The private sector needs to focus more directly on applying R&D in the manufacturing process.
period of rapidly changing national priorities there is great danger that, quite inadvertently, support for science and technology in the United States is being downgraded. Scientific research and technological development make vital contributions to economic progress, national security, international commerce, and other key aspects of national life-including the ability to bear the burdens of a large national security and establishment. ’ However, little attention has been given to these linkages in the current public discussions and, hence, some analysis of the situation appears warranted.
In this
Nature of Decisions
in Research and Development
Public and private decision makers rarely make conscious decisions to finance R&D activities, aside from comparatively modest support of basic research. In the case of the public sector - which sponsors and pays for approximately half of all the R&D performed in this country-most R&D support results from spending money on specific program areas. Thus, the really large governmental outlays for science and technology flow from decisions to strengthen the national defense, promote energy independence, seek cures for diseases, and explore outer space. The entire budget of the National Science Foundation-the one agency devoted to promoting R&D per se - is less than 3 % of total federal outlays for R&D. Murray Weidenbaum is Distinguished Scholar at the Center for Strategic and International Studiez. He is on leave f;om Washington University, where be ho/d. the MatZnckrodt Distinguished University Professorshr) and directs the Center for Study of Amerikan Business. His most recent &oo& is Rendezvous With Reality: The American Economy After Reagan. 331
M. Weidenbaum
332
As can be seen in Table 1, the R&D intensity of individual activities and institutions varies greatly. NASA devoted over 45 % of its budget to research and development, while less than 1% of the outlays of the Veterans Administration is devoted to science and technology. Similarly, over 42% of the Energy Department’s budget is allocated to R&D and less than 2% in the case of the Department of Agriculture. The implications of these differences are, on occasion, quite profound. A shift in budgetary priorities from NASA to Agriculture or from Energy to the VA represents a de f&to (though most likely unintended) commitment for the federal government to spend less on R&D and more on other activities.
Recent Trends in Support of R&D The point is hardly theoretical. Two inconsistent trends are now in evidence. First, the United States is increasingly reliant on the fruits of scientific and technological activity to keep its basic strength. We maintain our military posture not by having the largest army or navy or air force. Rather, we rely on the most technically sophisticated and up-to-date arsenal of weapons. Similarly, our high-tech companies tend to maintain a favorable balance of trade, while the low-tech companies have suffered most severely from foreign competition. On the domestic scene, the R&D-intensive industries tend to experience greater in-
TABLE 1. Federal Agency R&D and Total Outlays in 1986
Department or Agency
R&D
Total
Outlays
Outlays
(in JI Billions)
R&D Percentage of Total
Above-Average R&D Ratios
National Science Foundation NASA Energy Department Commerce Department Agency for International Development Defense Department (Military) Interior Department Environmental Protection Agency Below-Average R&D Ratios Health and Human Services Department Agriculture Department Transportation Department Veterans Administration All Other Total, Federal Government
1.3 3.4 4.7 .4 .2 33.3 .4 .3
1.5 7.4 11.0 2.0 1.3 265.6 4.7 4.6
93.3 45.9 42.7 19.0 15.4 12.5 8.5 6.5
5.5 .9 .4
333.9 58.7 27.9
1.7 1.5 1.4
.2
26.1
0.7
.5
283.2
0.2
51.5
989.8
5.2
Source: Compiled from data prepared by the Offke of Management and Budget.
A Note on R&D
333
creases in productivity than the less R&D-intensive ones. Clearly, outlays for science and technology are a key to the continuation of this country’s military and economic d ower. However, the second trend is adverse to this relationship. Most of the R&Doriented departments and agencies of the federal government are experiencing substantial budget squeezes, notably the Departments of Defense and Energy and NASA. Simultaneously, the “entitlements” or income redistribution programs (ranging from social security payments to farm subsidies to veterans’ pensions) are maintaining their growth trends. These latter agencies devote insignificant portions of their resources to R&D. At the same time, we are now witnessing a slowdown in outlays for the support of R&D by private business. Threats of hostile takeovers are forcing many companies to cut back discretionary outlays, no matter how valuable, in order to maximize short-term cash flow. Moreover, companies which have taken on staggering debt loads-either as part of a change in corporate control or to head it off-often find little alternative to cutting back all outlays that do not generate an immediate return on the investment. Moreover, there is a complex set of relationships affecting public sector-financed R&D and that sponsored by the private sector. This is most evident in the case of the major defense contractors who both perform R&D under government contracts and sponsor their own research and development, a portion of which may be charged to the government as overhead on defense contracts. At a time when the entire military budget is under pressure, there is a natural tendency for the Department of Defense to cut back on the percentage of company-initiated R&D that will be reimbursed as overhead on government contracts. Some industry leaders contend that this reduction in “independent” R&D reimbursements is forcing these high-tech companies to avoid new high-risk ventures. Instead, they are focusing their own funds on more modest extensions of their current product lines. Although such a strategy may be safe for an individual company, it dilutes the effectiveness of the total US R&D effort compared to competitors in foreign nations. Many of the nations that the United States competes with have been devoting rising shares of their national resources to R&D. Moreover, far larger proportions of their R&D budgets are assigned to civilian and commercial projects than is the case in this country. That point has been developed by other researchers but deserves more dissemination. Conchion Evaluating national policy on research and development is an especially difficult undertaking because so many seemingly unrelated factors are involved. A rise in corporate takeover threats or financing a new bailout of insolvent thrift institutions may exert far more influence on the overall trend of R&D in the United States than congressional enactment of an enhanced budget for the National Science Foundation. It is beyond the purview of this short think piece to develop a specific plan for the allocation of national resources between R&D and other activities. But it does
334
M. Weidenbaum
seem clear that decision makers, in both the public and private sectors, need to focus on the important relationship between R&D and the rest of the society in making their plans and taking important actions. At minimum, one of the key assistants appointed by the new president should have a strong background in science and technology. Senior officials involved in economic and budgetary decision making can rarely have an adequate understanding of the substantive issues involved in determining the amount and allocation of funds for research and development. In some past administrations, a formal science adviser was appointed who served, at least informally, as representative of the science community. At times, the science adviser became in good measure a public spokesman for the administration in office. The most successful science advisers succeeded in achieving a proper balance between these two quite different concerns. This is not a plea for making any specific appointment in the next administration. The point is that decision makers on key national issues should be more fully informed of the scientific and technological aspects.* Simultaneously, we should not neglect the one-half of all R&D in the United States which is sponsored and paid for by the private sector. American companies simply assign less of their engineering talent to production than do the Japanese, a decision not related to a lack of government money. By assigning more of their professional work force to detailed product design and quality control, Japanese firms often enjoy quicker responsiveness to market opportunities, lower costs, and better quality output. Some American scientific leaders contend that the strikingly greater competitiveness of Japanese industry is also due in part to their more effective use of the R&D resources that are available to them.3 Thus, much of the time the line between high-powered research laboratories and better products may not go through Washington, DC at all- but through the corporate offices of American industry. Notes 1. D. Williamson, Jr., ed. R&Dfir Nutiond Strength (Washington, DC: Center for Strategic and International Studies, 1982). 2. L.M. Branscomb, “Toward a National Policy on Research and Development,” a paper presented to the Conference Board, New York City, October 8, 1987. 3. PicRing Up the Pace: The Commercd Cbalenge to American Competitiveness (Washington, DC: Council on Competitiveness, 1988).
Tecbno/ogy k SocAy. Vol. 11, pp. 331-334 (1989) printed in the USA. All tights resented.
A Note on R&D Changing National Priorities Murray Weidenbaum
ABSTRACT. Decision mahers rarely establish policy on R&D. Government outlays for science and technology frow from decisions on national defense, energy, etc. Thus, budget cuts in those programs result inadvertently in reducedfunding for science and technology. At the same time, p&ate business-beset by foreign competition and takeover threatsis reducing a// costs that do not generate immediate returns. Decision mahers need to be concerned about the impact of these actions on R&D. The president should appoint a senior adviser to b&g to bear the knowledge of the scientific community in the councils of government. The private sector needs to focus more directly on applying R&D in the manufacturing process.
period of rapidly changing national priorities there is great danger that, quite inadvertently, support for science and technology in the United States is being downgraded. Scientific research and technological development make vital contributions to economic progress, national security, international commerce, and other key aspects of national life-including the ability to bear the burdens of a large national security and establishment. ’ However, little attention has been given to these linkages in the current public discussions and, hence, some analysis of the situation appears warranted.
In this
Nature of Decisions
in Research and Development
Public and private decision makers rarely make conscious decisions to finance R&D activities, aside from comparatively modest support of basic research. In the case of the public sector - which sponsors and pays for approximately half of all the R&D performed in this country-most R&D support results from spending money on specific program areas. Thus, the really large governmental outlays for science and technology flow from decisions to strengthen the national defense, promote energy independence, seek cures for diseases, and explore outer space. The entire budget of the National Science Foundation-the one agency devoted to promoting R&D per se - is less than 3 % of total federal outlays for R&D. Murray Weidenbaum is Distinguished Scholar at the Center for Strategic and International Studiez. He is on leave f;om Washington University, where be ho/d. the MatZnckrodt Distinguished University Professorshr) and directs the Center for Study of Amerikan Business. His most recent &oo& is Rendezvous With Reality: The American Economy After Reagan. 331
M. Weidenbaum
332
As can be seen in Table 1, the R&D intensity of individual activities and institutions varies greatly. NASA devoted over 45 % of its budget to research and development, while less than 1% of the outlays of the Veterans Administration is devoted to science and technology. Similarly, over 42% of the Energy Department’s budget is allocated to R&D and less than 2% in the case of the Department of Agriculture. The implications of these differences are, on occasion, quite profound. A shift in budgetary priorities from NASA to Agriculture or from Energy to the VA represents a de f&to (though most likely unintended) commitment for the federal government to spend less on R&D and more on other activities.
Recent Trends in Support of R&D The point is hardly theoretical. Two inconsistent trends are now in evidence. First, the United States is increasingly reliant on the fruits of scientific and technological activity to keep its basic strength. We maintain our military posture not by having the largest army or navy or air force. Rather, we rely on the most technically sophisticated and up-to-date arsenal of weapons. Similarly, our high-tech companies tend to maintain a favorable balance of trade, while the low-tech companies have suffered most severely from foreign competition. On the domestic scene, the R&D-intensive industries tend to experience greater in-
TABLE 1. Federal Agency R&D and Total Outlays in 1986
Department or Agency
R&D
Total
Outlays
Outlays
(in JI Billions)
R&D Percentage of Total
Above-Average R&D Ratios
National Science Foundation NASA Energy Department Commerce Department Agency for International Development Defense Department (Military) Interior Department Environmental Protection Agency Below-Average R&D Ratios Health and Human Services Department Agriculture Department Transportation Department Veterans Administration All Other Total, Federal Government
1.3 3.4 4.7 .4 .2 33.3 .4 .3
1.5 7.4 11.0 2.0 1.3 265.6 4.7 4.6
93.3 45.9 42.7 19.0 15.4 12.5 8.5 6.5
5.5 .9 .4
333.9 58.7 27.9
1.7 1.5 1.4
.2
26.1
0.7
.5
283.2
0.2
51.5
989.8
5.2
Source: Compiled from data prepared by the Offke of Management and Budget.
A Note on R&D
333
creases in productivity than the less R&D-intensive ones. Clearly, outlays for science and technology are a key to the continuation of this country’s military and economic d ower. However, the second trend is adverse to this relationship. Most of the R&Doriented departments and agencies of the federal government are experiencing substantial budget squeezes, notably the Departments of Defense and Energy and NASA. Simultaneously, the “entitlements” or income redistribution programs (ranging from social security payments to farm subsidies to veterans’ pensions) are maintaining their growth trends. These latter agencies devote insignificant portions of their resources to R&D. At the same time, we are now witnessing a slowdown in outlays for the support of R&D by private business. Threats of hostile takeovers are forcing many companies to cut back discretionary outlays, no matter how valuable, in order to maximize short-term cash flow. Moreover, companies which have taken on staggering debt loads-either as part of a change in corporate control or to head it off-often find little alternative to cutting back all outlays that do not generate an immediate return on the investment. Moreover, there is a complex set of relationships affecting public sector-financed R&D and that sponsored by the private sector. This is most evident in the case of the major defense contractors who both perform R&D under government contracts and sponsor their own research and development, a portion of which may be charged to the government as overhead on defense contracts. At a time when the entire military budget is under pressure, there is a natural tendency for the Department of Defense to cut back on the percentage of company-initiated R&D that will be reimbursed as overhead on government contracts. Some industry leaders contend that this reduction in “independent” R&D reimbursements is forcing these high-tech companies to avoid new high-risk ventures. Instead, they are focusing their own funds on more modest extensions of their current product lines. Although such a strategy may be safe for an individual company, it dilutes the effectiveness of the total US R&D effort compared to competitors in foreign nations. Many of the nations that the United States competes with have been devoting rising shares of their national resources to R&D. Moreover, far larger proportions of their R&D budgets are assigned to civilian and commercial projects than is the case in this country. That point has been developed by other researchers but deserves more dissemination. Conchion Evaluating national policy on research and development is an especially difficult undertaking because so many seemingly unrelated factors are involved. A rise in corporate takeover threats or financing a new bailout of insolvent thrift institutions may exert far more influence on the overall trend of R&D in the United States than congressional enactment of an enhanced budget for the National Science Foundation. It is beyond the purview of this short think piece to develop a specific plan for the allocation of national resources between R&D and other activities. But it does
334
M. Weidenbaum
seem clear that decision makers, in both the public and private sectors, need to focus on the important relationship between R&D and the rest of the society in making their plans and taking important actions. At minimum, one of the key assistants appointed by the new president should have a strong background in science and technology. Senior officials involved in economic and budgetary decision making can rarely have an adequate understanding of the substantive issues involved in determining the amount and allocation of funds for research and development. In some past administrations, a formal science adviser was appointed who served, at least informally, as representative of the science community. At times, the science adviser became in good measure a public spokesman for the administration in office. The most successful science advisers succeeded in achieving a proper balance between these two quite different concerns. This is not a plea for making any specific appointment in the next administration. The point is that decision makers on key national issues should be more fully informed of the scientific and technological aspects.* Simultaneously, we should not neglect the one-half of all R&D in the United States which is sponsored and paid for by the private sector. American companies simply assign less of their engineering talent to production than do the Japanese, a decision not related to a lack of government money. By assigning more of their professional work force to detailed product design and quality control, Japanese firms often enjoy quicker responsiveness to market opportunities, lower costs, and better quality output. Some American scientific leaders contend that the strikingly greater competitiveness of Japanese industry is also due in part to their more effective use of the R&D resources that are available to them.3 Thus, much of the time the line between high-powered research laboratories and better products may not go through Washington, DC at all- but through the corporate offices of American industry. Notes 1. D. Williamson, Jr., ed. R&Dfir Nutiond Strength (Washington, DC: Center for Strategic and International Studies, 1982). 2. L.M. Branscomb, “Toward a National Policy on Research and Development,” a paper presented to the Conference Board, New York City, October 8, 1987. 3. PicRing Up the Pace: The Commercd Cbalenge to American Competitiveness (Washington, DC: Council on Competitiveness, 1988).