Do You Know Where Your R&D Dollars Are?

By Keith McDowell

Parenting in the twenty-first century is a formidable challenge symbolized in many ways by the familiar phrase “Do you know where your children are?” Threats from Internet predators or the foolish use of smartphones for sexting have replaced the omnipresent drug culture of the previous century as the latest cause de jour. What’s a parent to do in the face of an ever expanding universe of possible teenage pitfalls and traps?

In a similar vein, but certainly far less dramatic or significant to a family, we ask a similar question of those who posture themselves as keepers or “parents” of the American innovation enterprise: do you know where your R&D dollars are? Surprisingly, many who expound on innovation, set innovation policy, manage innovation, or engage directly as innovators have little or no knowledge of either the source of research and development (R&D) funding or who performs the R&D. Of course, one could argue that R&D dollars don’t equate to innovation, but their source and distribution to performers is definitely an input metric for the innovation ecosystem and worthy of review at a macro-scale.

Fortunately, the National Science Foundation compiles the necessary data each year as part of its Science and Engineering Indicators. Sadly, the data are two years old since it takes time to collect the data and produce the tables and analysis. The most recent data are from Fiscal Year 2008.

Table I. Source of R&D Dollars – FY 2008.

Source	$ millions	Per Cent
Business	267,847	67.36
Federal Government	103,696	26.08
Other Nonprofits	12,020	3.02
Universities & Colleges	10,600	2.67
Nonfederal Government	3,453	0.87
TOTAL	397,616	100.00

Let’s begin with the source of R&D dollars as shown in Table I. The source categories are straightforward except, perhaps, for “other nonprofits” which includes a hodge-podge of foundations, private investors, and other such entities. The source category “universities & colleges” also represents a complex funding source since institutions of higher education pull their funding from many sources other than tuition and endowments. Given that the rules for colorizing such monies are often arcane, it’s best to accept “universities & colleges” as mostly a derivative source of funds, but nonetheless important as a filter and funnel for funding.

As expected, business or industry is the principal source at 67.36% with the federal government coming in at 26.08%. Given the constant publicity about federal spending and federal involvement in research, the roughly 3 to 1 ratio for business to federal government might seem unusual to some, but has been rather constant over time. In summary, American business or industry continues to be the overwhelming leader in R&D funding.

Although the remaining three sources provide only 6.56% of the funding, these dollars are often the most important to the innovation enterprise since they tend to fund the high risk R&D and are generally the most fungible and available for rapid redistribution toward a breakthrough. We need more such funding, especially as “proof of concept” dollars.

Table II. Expenditure of R&D Dollars – FY 2008.

Performer	$ millions	Per Cent
Business	289,105	72.71
Universities & Colleges	51,163	12.87
Federal Internal	27,000	6.79
Other Nonprofits	15,606	3.92
FFRDC	14,741	3.71
TOTAL	397,616	100.00

Who performs R&D in the United States and at what level? Table II presents the data. Again, the categories require some explanation with the first two being straightforward. The category “federal internal” includes a large and varied mixture of federal agencies such as NASA and facilities – often military – such as Groom Lake, Naval Research Laboratory, Redstone Arsenal, and Eglin Air Force Base. The category “other nonprofits” also includes a rich and varied mixture of performers including Battelle, Beckman Institute, RAND Corporation, Santa Fe Institute, Scripps Research Institute, Southwest Research Institute, SRI International, and many more.

The final category of FFRDC includes the “federally funded research and development centers.” According to the hyperlinked reference, FFRDCs “are unique independent nonprofit entities sponsored and funded by the U.S. government to meet specific long-term technical needs that cannot be met by any other single organization.” The list includes Los Alamos National Laboratory, Lincoln Laboratory, and the Jet Propulsion Laboratory as examples. FFRDCs are managed in three ways: by federal agencies, by nonprofits, or by universities.

The bulk of American R&D is performed by business at 72.71%. Interestingly, business or industry spends $21.3 billion more on R&D than it funds. In second place are universities and colleges at 12.87% or $51.2 billion. Of that amount, $10.6 billion or 20.72% come from internal sources. This commitment of resources by institutions of higher education is the most striking feature of all the data and challenges one’s notions of how R&D is funded. One can debate whether cash-starved educational institutions should be so heavily engaged. Certainly that debate in the context of separating research from teaching is currently underway in Texas and has embroiled university systems, regents, and the Governor in a contentious battle – one that will likely spread to other states as the economic slowdown continues and tea party advocates push for “more from less.”

Innovation requires R&D funding! And that means all involved in the innovation ecosystem must understand and be aware at the macro-level of both the source of the R&D funding and those who perform the R&D. As never before, the answer to the question “do you know where your R&D dollars are?” is essential as America engages in the game of global competition.