The watchword heading into 2013 is uncertainty, and the effect on the U.S. research and development enterprise is more unclear than ever. The current economic condition and uneasy prospects for the future combined with a federal government funding projection that could range anywhere from flat to significant declines have limited the prospects for 2013.
The Battelle/R&D Magazine team currently forecasts that U.S. R&D expenditures will grow by 1.2%, from our final 2012 estimate of $418.6 billion to $423.7 billion in 2013. Compared to an OMB estimated 1.9% inflation rate for 2013, this level of growth in R&D spending leads to a decline in U.S. R&D investments of 0.7% in real terms over the next year.
The underlying foundation of this forecast of U.S. R&D investment is based upon the National Science Foundation's (NSF) National Patterns of R&D Resources data—a longitudinal and umbrella data set that makes the required estimations based on the results from the various NSF R&D expenditure surveys to create a cohesive statement of accounts of the U.S. R&D enterprise. The most recent complete release of this database includes calendar year data estimates through 2009. This data set establishes the specific metric of Gross Domestic Expenditures on R&D (or GERD) for the U.S. Thus, the data captured within the National Patterns data set specifically estimates R&D performance occurring in the U.S., regardless of the type or ownership (including foreign) of the performer.
Other recent NSF survey releases and InfoBriefs are also used, including the Business R&D and Innovation Survey (BRDIS), the new Higher Education Research and Development (HERD) survey that provides detailed academic R&D expenditures through FY 2010, and its companion survey that collects data from the various Federally Funded Research and Development Centers (FFRDCs) also through FY 2010.
These new and enhanced data are used to develop and revise estimates for calendar years 2009 to 2012. The 2013 R&D spending forecast incorporates additional information included in various sections of this report, including information regarding federal R&D budgets, corporate R&D expenditures and plans, and the overall condition of the U.S. and global economies.
The source-Performer Matrix
The U.S. forecast is presented as the source-performer matrix, detailing the flow of funds between specific funding sources and specific R&D performers. The components of the matrix are identified by the NSF through its various surveys of R&D expenditures. The most notable component of the matrix is that four key sources of R&D funding—the federal government, industry, academia, and non-profit organizations—also perform R&D activities. Additional funding flows to academia from other government entities (state and local). A fifth set of R&D performers, FFRDCs, are often operated on a contract basis for the federal government by industrial firms, non-profit research institutes, or universities. While these FFRDCs are operated and managed toward federal R&D missions, many also collaborate with and provide research and technical services to the private sector.
Significant Factors and Assumptions
This 2013 forecast of U.S. R&D investments and performance, as represented in the source-performer matrix, is affected by various factors and assumptions. Six key factors are identified that shape the components of this forecast, but none more than the first.
Slow growth and uncertain plans
Though the state of the U.S. economy is somewhat better than at the end of 2011, the lack of a pronounced growth surge has not only dampened 2012 growth, but has continued a level of uncertainty regarding growth plans for 2013. More than a third of our respondents (from a late Q3 survey) say they are more optimistic about 2013; a third say they are more pessimistic. Of industry survey respondents, 46% expect to increase their R&D expenditures in 2013, while 29% expect decreases. University researchers are even less optimistic about 2013, with 54% expecting decreases in their R&D spending in 2013—likely tied to assumptions about federal R&D investment in 2013 and beyond.
Dampened industry R&D trajectory
By the end of Q1, 2012, it became apparent that the overall economic malaise would continue to be a restrictive force on overall industrial R&D much longer than previously forecast. An anticipated Q4 2011 R&D investment spike failed to materialize as firms waited to see if economic conditions in 2012 provided a spur to invest. Additionally, the anticipated return of U.S. industrial R&D to pre-recession levels has not materialized, and is now unlikely until perhaps late 2013.
Flat federal R&D budgets or worse
The Budget Control Act of 2011 (BCA) has imposed mandatory limits on department and agency R&D budgets for 2013. These spending caps limit the ability of Congress to even allow overall budgets to keep pace with inflation. Compounding the difficulty in establishing federal R&D budgets, the federal government is once again operating under a continuing resolution (CR). This CR extends until March 27, 2013, tying FY 2013 spending to FY 2012 levels for now. As in previous years, if budget negotiations prove difficult, the final federal R&D budgets for FY 2013 could ultimately be finalized at roughly these levels.
Avoiding the "fiscal cliff"
For this forecast the Battelle/R&D Magazine team assumed that some level of compromise regarding the federal "fiscal cliff"—the combination of expiring tax credits and the impact of the impending sequestration, or automatic budget cuts—will either be reached or its effects delayed beyond January 2, 2013. From an R&D perspective, a number of organizations, including the American Association for the Advancement of Science (AAAS) and the Information Technology & Innovation Foundation (ITIF), have performed interesting and detailed analyses of the short- and long-term budgetary impacts of the sequestration on federal R&D and the overall economy. From a forecast perspective, such a funding "event" would uniquely change the long-term inertia and stability that is a cornerstone of U.S. R&D investment.
Improved corrections for non-U.S. R&D
The release of the 2009 BRDIS data provides a clearer, though still limited, perspective on the size of U.S. corporate R&D expenditures in foreign operations. The ability to analyze trends, especially given the recession's impacts on the 2009 data, remains difficult with only two years of data. However, the NSF data reveals that on average U.S. firms (or U.S. locations of foreign companies) spent slightly more than 80% of their 2009 R&D investments here in the U.S. versus in foreign locations. The BRDIS data now allow for an improved estimation of the share of U.S. industry R&D growth that should be included within the industry expenditures forecast.
Other enhancements to NSF data
Other NSF surveys released later in 2012 have added enhancements and extensions that will likely be reflected in the next release of the National Patterns data. One component change stems from a full assessment through the new HERD survey of R&D expenditures by academia outside of the traditionally measured science and engineering (S&E) fields. It is estimated that the inclusion of non-S&E R&D will likely add $3 to 4 billion to overall U.S. academic R&D levels, and hence, overall U.S. levels. Likewise the companion survey of FFRDCs provides additional insights into the actual levels of federal funding and other sources of research funding and how this differs among laboratories' various management structures.
Details on U.S. R&D Funding Sources
The description and analysis of the 2013 forecast begin with a discussion of the major sources of U.S. R&D funding. This discussion focuses on the overall magnitude, nature, and distribution of these funds to the various performers.
Federal Funding of R&D
The ongoing budget and deficit concerns will continue to strain the ability of the federal government to invest in R&D efforts. At this point in time, though research and development funding has strong bipartisan support, fiscal realities and the spending caps put in place by the BCA will ultimately reduce total funds for federal R&D in 2013.
With the final federal FY 2013 R&D budgets likely guided by the current continuing resolution and held in check by the BCA, our forecast, building upon the work of the Office of Science and Technology Policy (OSTP) and analysis from AAAS, expects federal funding for 2013 to reach $128.8 billion, a decline of 1.4% from our final 2012 estimated federal R&D funding level of $130.7 billion. This level of federal R&D funding will constitute 30% of overall U.S. R&D funding in 2013.
Industry Funding of R&D
Industry funding for R&D in the U.S. is subject to a high level of uncertainty, both in overall growth and where this growth should occur. Under our assumptions, industrial funds for U.S. R&D will reach $261.7 billion in 2013, a slight increase of 2.3% from our final 2012 estimate of $255.9 billion. Much of this growth is from the core inertia inherent in the longer-term funding requirements of corporate R&D. At this level, industry R&D is the most significant component of overall U.S. R&D investment, accounting for 62% of the total.
As with previous years, 98% of this funding stays within industry R&D operations, either as internal R&D or to other U.S. industrial R&D contractors. Forecasting where industry will make the remaining $5.2 billion in R&D investments remains a challenge. Trends toward open innovation have been mostly limited to sharing available intellectual property portfolios rather than sharing R&D financial resources—not surprising given the current economic conditions. We continue to see potential for growth in industrial funding to academia and non-profit R&D operations, but at a very modest scale. If economic conditions worsen in 2013, these investments will be some of the first to be cut back.
Other Funding of R&D
The remaining 8%, or $33.2 billion, of U.S. R&D investment comes primarily from self-funding sources, grants from non-profit organizations (typically foundations) and state, local, and other governments. These funding sources, though a small component of overall U.S. R&D funding, provide both focused resources for specific areas (for example, multiple sclerosis research funded by the National MS Society or Parkinson's research funded by the Michael J. Fox Foundation) or provide intramural resources for very early stage or capability development research within academic institutions. Combined, these other funding sources are forecast to increase by 3.3% over our final 2012 estimate of $32.1 billion.
Details on U.S. R&D Performers
Examining the performance dimension of the 2013 source-performer matrix leads to a more detailed understanding of the role that the federal government (including the FFRDCs), industry, academia, and non-profit organizations play in the U.S. R&D enterprise.
Federal Performance of R&D
The continued budget pressures and cuts in federal R&D funding will once again impact the performance of intramural research by federal departments and agencies. We forecast federal intramural research to reach $27.4 billion in 2013, declining by 3.5% from our final 2012 estimate of $28.4 billion. With this decline exceeding the overall federal funding decline of 1.0%, federal intramural R&D performance will be at its lowest current dollar level since 2005.
FFRDC Performance of R&D
As we began last year, we attempt to better describe the resources leading to the performance of R&D by the FFRDCs. We forecast that FFRDCs will perform $17.2 billion in R&D activities in 2013, a decline of 0.6% from our final 2012 estimate. Within these resources, the FFRDCs continue to operate principally with their federal resources—more than 97% of their funding comes from the federal government. The remaining funds include more than $250 million from industry—representing both contract research activities and funds from some FFRDC industry operators.
Industry Performance of R&D
Total industry R&D performance is forecast to reach $293.6 billion in 2013, a slight 1.8% increase over our final 2012 estimate of $288.5 billion, but still a decline in real terms. Federal funding for industry R&D will be affected like most recipients of federal R&D funds. The overall federal spending on industry R&D will decline by 1.3%, reaching $37.1 billion in 2013, with much of this decline reflecting continued reductions in federally funded defense R&D. This represents the third straight year with declining levels of federal R&D funds to industry.
Academic Performance of R&D
We forecast a slight 0.4% increase in academic performance of R&D, reaching $66.6 billion in 2013 compared to our final 2012 estimate of $66.4 billion. As 2012 ends and 2013 begins, all remnants of spending increases due to ARRA have been removed, and academic R&D expenditure levels, dominated by federal funding, begin to stabilize on a new, flatter growth trajectory. Federal funding for academic R&D is forecast to decline by 0.8% to $41.3 billion in 2013. In real terms, the federal investment in academic research will decline by 2.7%.
Increases in other sources of funding for academic R&D will mitigate these effects somewhat. Institutional internal funding will increase by 2.1%, reaching $12.6 billion in 2013. This increase comes as some institutions look to reduce the effect of uncertain federal funding on key research programs and faculty while other institutions begin to establish variations on the “grand challenge” theme to provide resources and structure to future research endeavors.
The economic realities of 2012 and uncertainties of 2013 have tempered our expectations for increasing levels of collaborative R&D between industry and academia leading to a slight 1.6% increase in industry support for academic R&D in 2013, reaching $3.3 billion.
Non-Profit Performance of R&D
We forecast R&D performance by non-profit organizations to increase by 3.7%, reaching $18.8 billion in 2013. The largest dollar increases will come from within the non-profit community itself. Technology R&D organizations will invest internal R&D funds to keep promising research programs active during periods of federal funding uncertainty.