R&D Spending to Rise in 2006; Inflation to Outpace Fed Support

Total funding for research and development is expected to increase by approximately 2.9 percent to $329 billion in 2006, according to the joint Battelle-R&D Magazine annual forecast. The projected increase, from the estimated $320 billion spent in 2005, covers all R&D expenditures across industry, government and academia.

 

• The federal government is expected to spend $96.6 billion funding R&D efforts, a modest increase of 1.8 percent over the $94.9 billion spent in 2005.
• Industrial expenditures on R&D are expected to reach $211.9 billion in 2006 -- an increase of 3.5 percent over the $204.8 billion expended in 2005.
• Academia and other non-profits make up the remaining expenditures of $20.4 billion with academia increasing by a slim 1.1 percent and other non-profits increasing by a healthier 3.7 percent.

A running - and important - theme revealed from data and trends throughout the report "is that the support of research and development runs the risk of being viewed as an expense and a luxury, rather than an investment, and one that can be shelved until more funds are available," said Battelle's Jules Duga, a senior research leader and co-author of the forecast.

The federal deficit will have a significant impact on the extent to which R&D funds will be available within the overall category of discretionary spending. The massive unforeseen expenditures associated with the war in Iraq and hurricane relief programs have put a major squeeze on almost all aspects of the budget.

The continued trend toward the globalization of R&D will have a significant impact on the U.S. A projected shortfall of people in the future generation of scientists, engineers, and researchers remains an area of concern that is exhibited in trends in the industrial market as well as in the federal government.

The global war on terror continues to impact federal R&D, but the majority of funds directed toward it will be concentrated on the development, rather than the research, side.

Funding is basically flat for 2006 with the exception of a few special initiatives such as expanded space exploration and energy development activities.

Federal Outlook

The report notes federal support of R&D has undergone significant changes in both content and direction over the past few years, especially with respect to programs related to the global war on terror. However, the initial increases in R&D following the Sept. 11 attacks have not been sustained. Areas that are seeing sustained impact are the broadening and deepening of technology capabilities related to threat identification and amelioration, as well as the reorganization of existing programs such as those of the Department of Homeland Security.

The anticipated across-the-board reduction in federal support for R&D "does not bode well for the support of initiatives that have been touted to return the U.S. to prominent positions in different areas of science and technology," Duga said.

The long-term impact of reduction in basic research funded by the government is raising concerns because industrially funded research generally does not satisfy the same criteria or have the same long-range impact on the technological strength of the country.

Industrial Outlook

Surveys covering anticipated industrial funding indicate a slowly-increasing optimism relative to total commitment to R&D. However, a trend of note is the difference between how much industrial support will increase and how it is distributed between domestic and foreign performers. Major increases in the funding of off-shore R&D performance, coupled with the expansion of off-shore facilities, will have an impact on the U.S. R&D enterprise.

While earlier data showed a favorable "balance of trade" in the funding of R&D - with foreign company support of R&D performed in U.S.-located facilities outdistancing the amount of R&D funded abroad by U.S. companies - the gaps had been narrowing over the past few years. Recent studies reveal that the total amount of foreign direct investment is shifting heavily toward India and China, and that the R&D component of this investment is increasing as well. In addition, Eastern Europe is expected to be a growing actor in this field.

Increasing Expenditures by States

The forecast acknowledges the more progressive role state governments are assuming in supporting targeted research areas and investing in the associated university infrastructure. Several states - such as California, Arizona, Iowa, Ohio, New York and Texas - have proposed significant new funding for a variety of R&D programs in an effort to promote research and an environment for economic development. A great deal of this investment has been in the biosciences, but states are also investing in other emerging technology areas such as nanotechnology.

The forecast emphasizes, in particular, that the long-term future health of the U.S. R&D enterprise, and the benefits that accrue, can be significantly impacted by the near-term decisions related to funding, education and globalization.

Battelle has been issuing the R&D funding forecast for 36 years, the last 10 in conjunction with R&D Magazine. It relies on a variety of primary and secondary sources, including documents and data from the federal budget, the American Association for the Advancement of Science (AAAS), and the Industrial Research Institute.

The full report of the 2006 R&D Funding Forecast will be printed in the January issue of R&D Magazine in late January. Reprints will be available then by contacting Battelle's Jean Hayward at (614) 424-7039 or haywardj@battelle.org.