OK. This is rant time. Corporate profits are doing fine- even if we (the consumer, the population) are not. A lot of this profit is due to the fact that workers are not being paid well, or that there are not enough workers (i.e., corporations are “running lean”, often meaning there are too few workers for the tasks at hand).
But, now, it seems that corporations are making a really big decision. They are not investing in R&D, which is the exactly the opposite of what should be done during recessions. The lifeblood of next year’s sales are the new innovations developed today; yielding the “bread and butter” of tomorrow.
According to Battelle Memorial Institute (the 2012 article is no longer available), overall R&D spending will decline 0.7% over the next year. (This is adjusted for inflation of 1.9%, so R&D will increase in constant dollars by 1.2%, with actual values of $ 418.6 billion to $ 423.7 billion.) This assumed that no one jumped off the fiscal cliff- or the drop will be even higher. [Note: This piece has been in the queue since mid-December 2012.]
The biggest drop is in the Federal funding of R&D, typically 30% or so of the total amount spent in America. The Budget Control Act (2011) has put a tremendous crimp in the supply of funds for research. Limiting the spending to no more than $ 128.8 billion (assuming no fiscal cliff issues, again), which is a drop in real dollars of $ 1.9 billion from this year.
Corporate R&D will reach $ 261.7 billion, from this year’s $ 255.9 billion, which is slightly higher than inflation. More than 98% of these funds will stay within the corporate confines- or be spent to fund product/process design at companies such as ours. Only 2% is expected to be used by university researchers.
Let us not forget the multiplier effect. That $ 423.7 billion to be spent next year on R&D correlates to $ 1.24 trillion in the total economy; employing 2.5 million employees (admittedly, not all full-time) with an indirect value of some 8.3 million workers.
Now, compare those numbers to the trend that existed before the Wall Street meltdown. R&D increased by about 4% a year until 2008; since then inflation has outpaced the growth in R&D. And, that is only part of the story.
Other countries are beginning to outspend the U.S. They certainly are increasing their R&D expenditures are much higher rates. For example, China is expected to increase their R&D outlays by 11.6%- which exceeds their inflation rate of 3.6% dramatically. While the actual gross numbers are only ½ of ours ($ 197.3 billion versus $ 418.6 in US), it’s only a matter of time (2022, not even a decade away) before they outspend us in real dollars!
Is this how we want our federal policies to affect us?
Interesting! The money seems to be directed at sure things rather than speculation. I see this in sport in the UK here- funding being given only to those who are already world contenders, funding being takne away from those who need developing.
Cheers, Gordon
The Great Gordino recently posted..Should You Pay For Traffic To Your Blog?
Yes, Gordon- those new and improved tissue boxes. Just so that they can get the R&D tax credit, to boot! (Another example of unintended circumstances…)
Makes you wonder where we’ll be 50 years from now 🙁
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In a suburb of Beijing, Alessa? (At least those of us who want to stay occupied in the development/research stage of things…Of course, I have my respirator at the ready.)
I totally agree with this Roy. And working in a field that is also underfunded (mental health), I understand the serious consequences of not investing in appropriate programs and anticipating future needs or growth….bravo to you for voicing it!
Not only do we not fund R&D for mental health, we don’t fund it’s practice! And, then we wonder why we have folks roaming our streets, acting out at work, etc…
Thanks for reminding us that mental health R&D is critical to insure that we can have less mental health problems, Cathy!
This really surprised me Roy. Considering how fast things come in and out of the market and how much people LOVE to get the newest and latest innovations I would have thought this was the last place companies would have been cutting. I’ll be sharing this with a friend of mine who I’m sure will be most interested in your thoughts.
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I think Gordon reached the right sentiment on that, Bonnie. Too much of the R&D is arranged to create those “new and improved” tissue boxes and not the improvements we need. I also believed that given the R&D tax credit that numbers would be up… but, as certain party members believe that all spending is bad- the more we cut federal spending the lower the R&D. And, unfortunately, the feds are the primary sponsor of basic R&D- upon which the rest is based….
Can you outsource R & D? I heard on the news this week that a US software developer was outsourcing his entire job to a man in China without his company knowing. The company got suspicious when they noticed someone from China was logging onto their network at the same time each day. The American worker just played games on his computer all day. The American was paying the Chinese worker 50,000 a year and he was making six figures. The new American way!
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Not to mention that breach of confidentiality, Janette! Enterprising fellow, but clearly without any regard for propriety!
Now, many of our clients outsource their R&D to us- but we work hard to protect their proprietary rights…
Thanks for this great and very informative article.I really appreciate your blog and i will definitely share it to my friends.Hope your blog will grow as much as possible.
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I appreciate your recommendations, Candice. Thanks so much- for visiting, for commenting, and for passing it along!