Innovation landscapes: The changing role of corporate research

Corporate laboratories were hotspots for U.S. innovation for most of the twentieth century. Large firms, such as DuPont or Bell Labs, acted as epicenters for research and development activities, driving investment in frontier technologies underserved by university researchers at the time. By the 1980s, however, many of these powerhouses of industrial research began to cut back on their research programs, paving the way for universities and startups to emerge as new centers of innovation.

A recent research summary from the National Bureau of Economic Research, “The changing structure of American innovation,” describes this rise and fall of industrial innovation in the United States and a growing division of innovative labor between university-based research institutions and development-focused corporations.

While it would be a monumental task to identify every factor contributing to this remapping of the U.S. innovation landscape, one explanation is corporations’ decreasing profitability of R&D activities. The authors of the NBER article point to the rising costs of knowledge spillovers and shifting priorities in government procurement policies as key contributing factors.

During the heyday of corporate labs, in-house scientists and engineers were at the forefront of their fields and actively contributed to leading academic journals. Starting in the 1980s, however, the competitive edge that corporations gained from their research activities began to diminish as technological change accelerated, and knowledge spillovers became more costly to manage.

Shifting national security priorities also impacted the profitability of corporate labs. The waning of the Cold War and a push to reform government procurement strategy in the 1980s and 1990s coincided with a sharp decrease in the number of non-competitive government procurement contracts to corporations that promised a guaranteed demand and therefore reduced the risk of undertaking large, open-ended R&D projects. Taking its place were contracts that focused on innovations with commercial applications and that utilized a competitive bidding process.

The authors argue that corporate labs were uniquely positioned to take on large-scale, multidisciplinary, and mission-oriented research projects, an experience difficult to replicate in university or startup settings. However, they caution that simply reviving corporate labs is not the solution. Instead, in their more detailed report, the authors advocate for the need for improving collaboration and partnership between universities and corporations to reconnect research and development activities more strongly.

The funding opportunities resulting from the CHIPS and Science Act represent one way to incentivize greater collaboration between universities, corporations, and other regional stakeholders, however, the long-term sustainability of such initiatives remains a question. Today’s innovation landscape is more complex than during the peak of corporate labs, particularly when it comes to intellectual property protection and enforcement strategies. Demonstrating the value of regional collaboration and inclusive growth will be vital to navigating this complexity and driving the next generation of American innovation.

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.