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Recent Research: Meaningful results from R&D becoming more costly

May 31, 2018
By: Mark Skinner

Congress so far has ignored administration budget requests that call for reducing U.S. investment in research and development.  Science and innovation advocates interpret the legislative branch’s decision as good for many reasons. Authors Nicholas Bloom, Charles I. Jones, John Van Reenen, and Michael Webb add another reason in their NBER working paper Are Ideas Getting Harder to Find? They find U.S. productivity, measured as cost per meaningful innovation across a number of key sectors, is decreasing at an average rate of 5.3 percent annually. Prevailing economic growth projections may be optimistic, they conclude, because the projections do not incorporate ever-increasing prices for R&D outcomes.

Steve Maas summarizes the phenomenon in the aptly titled NBER Digest article “Bang for the R&D Buck is in a Long Steady Decline.” The working paper demonstrates that for computer chips, research productivity has dropped at an annual rate of 6.8 percent since 1971. Research productivity to sustain modest improvements in major agricultural crops required to support an ever-growing world population, such as corn, soybeans, wheat and cotton, has declined by 4 to 6 percent annually.  Pharmaceutical R&D productivity for FDA approved drugs has dropped 3.5 percent annually since 1970.

Maas summarizes the authors’ concerns with growth projections: “Declining research production may in part be explained by firms shifting to ‘defensive' R&D to protect their market positions.” Further, they say that overall research productivity may have suffered because of a decline in basic research spending stemming from reductions in publicly funded research as a share of GDP.

State and university programs to support R&D and university-industry collaboration may wish to explore mechanisms to increase research productivity and lower costs.  Federal R&D investments may need to support higher risk, breakthrough research areas such as artificial photosynthesis or leap frog technologies to begin to shift the trend.

Otherwise, as Maas quotes the authors’ conclusion: “[J]ust to sustain constant growth in GDP per person, the U.S. must double the amount of research effort searching for new ideas every 13 years to offset the increased difficulty of finding new ideas." 

recent research