Higher education’s dominant role in basic research continues 20-year decline

For the last 40 years, higher education has been the dominant performer of basic research in the United States, but there has been a slide in higher education’s share over the last 20 years as businesses have increased their performance of basic R&D (Figure 1). If the current trendline continues, businesses will soon surpass higher education as basic R&D performers and become the predominant basic R&D performer just as they have been in applied R&D for decades.

Figure 1. R&D performance by performer of basic research, 1979-2022.

Basic research is experimental work undertaken to acquire new knowledge without a clear application. It’s traditionally thought of as the purview of universities and federal labs, however, that has changed in recent years (Figure 1). Since 1980, the percentage of basic research in the U.S. performed by universities declined from 48.3% to 44.7% in 2022 (after peaking at 54% in 2011 and 2012), while the percentage performed by business grew from 20% in 1990 to more than 35% in 2022. In that period, the percentage of U.S. basic research conducted by federal labs went down from 23% to approximately 10%.

Applied research is directed primarily towards a specific, practical aim or objective. The largest percentage of applied research is conducted by business. However, between 1990 and 2022, that amount decreased 70% to 63%, while the percentage conducted by universities grew from 12.6% to 15.6% (Figure 2). The amount performed by federal labs grew slightly from 14% to 15%, and the amount performed by nonprofits went from less than 4% to more than 6%.

Figure 2. R&D performance by performer of applied research, 1979-2022

Experimental development is research aimed at producing new products or processes or improving existing products or processes. Nearly all of this is performed by business and, as such, it is sometimes omitted from public policy discussions. In fact, since 1990, the percentage of experimental development performed by business grew from 83% to more than 91% in 2022, while the percentage performed by federal labs shrunk from 14% to 6%.

The shift towards a greater share of U.S. basic research being conducted by businesses rather than universities has several policy implications. Business-led R&D, with a focus on market needs and commercialization, may lead to faster development and the introduction of new products and technologies. Businesses are likely to prioritize research in areas they believe to have high growth potential or where they have existing expertise, leading to targeted advancements in specific sectors. Faster development in high-growth fields has the potential to stimulate economic growth.

At the same time, basic research is crucial for long-term scientific and technological advancements but may be deprioritized by businesses focused on short-term gains. This deprioritization could lead to a knowledge gap in foundational discoveries. There is also a concern that business R&D may concentrate in certain industries and geographic locations, potentially exacerbating economic inequality and regional disparities. And R&D performed by the private sector may result in proprietary technologies, limiting public access to knowledge and hindering further innovation.

According to data from the National Center for Science and Engineering Statistics (NCSES) within the National Science Foundation, since 1979, the ratio of US R&D to GDP, termed “research intensity,” grew from 2.11 in 1979 to 3.36 in 2020 (Figure 3). National Science Foundation data shows that the growth in research intensity was largely driven by an increase in R&D funded by business from an $26 billion in 1979 to $517 billion in 2020 (in current dollars). In the same period, R&D funded by the federal government grew, from $27 billion to $138 billion. Historical data show that from 1953 to 1979 federal-funded R&D exceeded business-funded R&D. In 1980, for the first time, business-funded R&D exceeded federal-funded R&D by approximately $1 billion. Business-funded R&D has outpaced federal-funded R&D ever since.

Figure 3. US ratio of R&D to GDP, by source of funds for R&D, 1979-2022

Despite the large increase in R&D funded by business, the federal government remains the largest funder of research at US universities. Figure 4 shows that between 1979 and 2022 federal funding of research at US universities grew from $3.5 billion to more than $54 billion. In the same period, university R&D funded by business grew at a much slower pace, rising from $193 billion to $5.7 billion. As a percentage of total R&D performed by universities, federal spending decreased from 67% in 1979 to 55% in 2022. In the same period, the percentage of university R&D funded by business grew slightly, increasing from 3.6% to 5.8% (Figure 5).

Figure 4. Higher education R&D by source of funds, 1979 – 2022.

Figure 5. Percentage of total higher ed R&D expenditure by source of funds, FY1979-2022.

As U.S. R&D continues to shift toward more research conducted by the private sector, policy makers may contemplate interventions such as increased support for basic research and industry-academia collaborations. For example, the federal government could increase funding for basic research at universities to ensure a continued pipeline of discoveries and knowledge creation. Both federal and state governments could encourage partnerships between businesses and universities to facilitate knowledge transfer and bridge the gap between basic research and commercialization. Also, policy makers might consider investments in R&D infrastructure and incentives for businesses to locate in underserved areas to help mitigate regional disparities.

This article was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.