2011 Global R & D Funding Forecast: Stability Returns to R & D Funding

Growth in R&D spending has resumed following recession-induced cuts in advanced economies, while growth in emerging nations continues unabated.

The global R&D outlook for 2011 is increasingly stable and positive, according to analysis performed by Battelle Memorial Institute and R&D Magazine. Having endured one of the worst recessionary periods in recent memory, R&D managers are adapting to expectations of moderate sustainable growth while competing on a global scale for market share and resources. Reflecting recent trends, prospects for R&D funding vary by region, with the United States (U.S.) expecting R&D growth to track GDP growth, Europe contemplating fiscal austerity that may restrict investment for several years, and most Asian countries maintaining strong financial commitments to R&D.

Total global spending on R&D is anticipated to increase 3.6%, to almost $1.2 trillion. With Asia’s stake continuing to increase, the geographic distribution of this investment will continue a shift begun more than five years ago. The U.S., however, still dominates absolute spending at a level well above its share of global GDP.

During the recession, the Asian R&D communities generally, and China specifically, increased their R&D investment and stature. As a Reuters headline noted, “While the world slashed R&D in a crisis, China innovated”. China entered the recession with a decade of strong economic growth. During that time, it increased R&D spending roughly 10% each year—a pace the country maintained during the 2008-2009 recession. This sustained commitment set China apart from many other nations.

In the U.S., a recession-related drop in industrial R&D spending in 2009 is expected to be recovered by increases in 2010 and 2011 at levels exceeding the rate of inflation. For federally-sponsored R&D, 2010’s election results and increased attention on government spending could signal future pressure on funding. The high level of defense R&D spending (more than two-thirds of the federal total) may be among the first areas reviewed. Cuts in DOD mission-specific R&D, however, should not seriously affect the broad science and technology foundation supported by NSF, NIH, NIST, and the DOE’s Office of Science. Some observers note that R&D funded by these agencies more directly affects U.S. competitiveness and economic growth than does defense-related R&D.

Among the global research communities, the state of R&D in the European Union (EU) is the most concerning. Challenged by weak economies in Greece, Spain, and Ireland, Europe is struggling to recover from the recession and to cut deficits, which in turn affects government support of R&D. As the Washington Post observed, “The pressure on European science … is yet another legacy of the financial crisis.” The EU’s ambitious goal to increase its R&D funding to at least the level of the U.S. (2.7% of GDP) has gone unmet, and that may continue to be the case for some time.

Conversely, the positive direction of R&D in Asia is driven by multiple synergistic factors, beginning with policy. Leading Asian nations recognize that their economic expansion can be sustained by continued commitment to R&D investment across a wide range of science and technologies. The scale and significance of research and development in Asia continues to grow, with implications for the rest of the world. Experienced researchers are becoming harder to find in the U.S. and Europe, as Asian emigrant scientists return to attractive opportunities at home.

View the 2011 Global R&D Funding World Chart (PDF).

At the same time, industrial, academic and even Western government R&D organizations are increasingly establishing. They are supporting substantial R&D facilities throughout Asia to take advantage of lower labor costs and larger pools of skilled scientists and engineers; and in some cases to support marketing efforts to an increasingly affluent and large local consumer population. Most U.S. and European Fortune 1000 companies already have multiple R&D centers and manufacturing sites throughout Asia, and they direct increasing shares of R&D budgets accordingly.

Finally, funding and geographic dynamics in the R&D landscape are likely amplified by macroeconomic factors, such as the rate of innovation and balances of trade, with corresponding shifts in liquidity, affluence and advanced manufacturing. These factors could make it more difficult for the U.S. to maintain its historic lead in the development and economic leverage of innovation, even as it invests as much on R&D as its next four global competitors combined.