R & D’s New Sugar Daddy: Small, Competitive Firms

Let’s say you’ve got a great idea for a new technology that could make our lives easier. Now if you could just get some sugar daddy to put up the funds for the basic research to get your dream machine on the road.

Where do you turn? To the federal government or to private industry?

In the not-too-distant past, the government was your best bet, because most funding for research came out of Washington. Today, however, you probably would fare better with a small, enterprising company that could turn your idea into a marketable product.

That’s because private industry has taken over the lion’s share of funding for industrial research and development.

This major shift in how science is done in this country has been documented in a series of studies by the National Science Foundation, most recently in an 800-page tome written for Congress called “Science and Engineering Indicators 1998.”

This trend is both good and bad. The people who have the most to gain from research--companies that can use new ideas to stay ahead in an increasingly competitive world--are paying more of the tab. But it could also channel more research into projects with a potential for short-term gain at the expense of the “longer-term quest for new knowledge and breakthrough discoveries,” the report to Congress warns.

The federal government remains the principal funder of academic research, and that is not likely to change in the foreseeable future. But since the early 1970s, private industry has outspent the federal government on research directly tied to industry.

Federal funding for such research has been declining steadily from a high of 59% of every dollar spent on research in 1959 to its current level of about 16%. That trend accelerated with the end of the Cold War and the resulting cutbacks in defense spending, and it continues today.

Most federal dollars going into industrial research still come from the Defense Department, but that has been declining from a high of 69% of the total federal contribution in 1986 to 54.7% in 1996.

In 1996, the most recent year for which statistics are available, federal funding for industrial research and development amounted to $23.7 billion, compared with private industry’s investment of $121 billion.

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Interestingly, funding for research is growing faster among smaller companies--those with fewer than 500 employees--than larger ones.

“There’s a whole lot of small drug companies that are hanging their futures on one drug or a couple of drugs,” said Raymond M. Wolfe of the NSF’s Division of Science Resources Studies. These smaller companies’ “main activity is research and development.”

“If they want to stay in the running, they have to do the research,” said Wolfe, author of a recent NSF study on funding patterns. His work shows that after adjusting for inflation, industrial-oriented research rose 9% in the private sector in 1996, but federal funding fell 1%.

The studies demonstrate that the United States still leads the world in R&D.; In 1994, the latest year for which foreign figures are available, this country spent more than Japan, Germany, France and Britain combined.

One out of every two dollars is spent in six states, in decreasing order: California, New York, Michigan, Massachusetts, New Jersey and Pennsylvania. The growth in private funding for research could play a role in congressional debates over the level of federal funding. Many in Congress argue that if industry wants research done, industry should pay for it.

But as noted often by Neal Lane, the outgoing director of the National Science Foundation who has been nominated to be the next presidential science advisor, industrial research tends to be targeted at products and services that can offer an immediate payback. Few companies are willing to shell out the bucks for basic research just because they are curious.

Yet that remains a principal goal of pure science, the search for what’s new, regardless of where it might lead.

And for that, a vigorous federal funding program is essential.

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Lee Dye can be reached via e-mail at leedye@compuserve.com.