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Trends in Federal Support of Research and Graduate Education (2001)

Chapter: 5 Trends in Nonfederal Support of Research

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Suggested Citation:"5 Trends in Nonfederal Support of Research." National Research Council. 2001. Trends in Federal Support of Research and Graduate Education. Washington, DC: The National Academies Press. doi: 10.17226/10162.
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Suggested Citation:"5 Trends in Nonfederal Support of Research." National Research Council. 2001. Trends in Federal Support of Research and Graduate Education. Washington, DC: The National Academies Press. doi: 10.17226/10162.
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Suggested Citation:"5 Trends in Nonfederal Support of Research." National Research Council. 2001. Trends in Federal Support of Research and Graduate Education. Washington, DC: The National Academies Press. doi: 10.17226/10162.
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Suggested Citation:"5 Trends in Nonfederal Support of Research." National Research Council. 2001. Trends in Federal Support of Research and Graduate Education. Washington, DC: The National Academies Press. doi: 10.17226/10162.
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Suggested Citation:"5 Trends in Nonfederal Support of Research." National Research Council. 2001. Trends in Federal Support of Research and Graduate Education. Washington, DC: The National Academies Press. doi: 10.17226/10162.
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Suggested Citation:"5 Trends in Nonfederal Support of Research." National Research Council. 2001. Trends in Federal Support of Research and Graduate Education. Washington, DC: The National Academies Press. doi: 10.17226/10162.
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5 Trends in Nonfederal Support of Research In addition to the federal government, research is also changing composition of the nonfederal research portfolio supported by states, philanthropic foundations and indi- in relationship to the federal portfolio. These data series viduals, nonprofit institutions including universities them- include NSF surveys of research-performing universities selves, private investors, and, of course, public and pri- and research-sponsoring state governments and industry. vately held corporations. Together these sources account Data on philanthropic organizations’ contributions to for about 63 percent of the nation’s basic and applied research are collected by the private nonprofit Foundation research spending. Center.2 The most dramatic change in the late 1980s and 1990s The principal question we pose is whether spending by was the growth in corporate and other private investment the nonfederal sector has amplified or offset changes in the relative to federal government expenditures. Industry research field allocation of national government expendi- support of basic and applied research (excluding develop- tures. In particular, did trends in nonfederal support favor ment) increased 80 percent in real terms between 1990 and the life and especially biomedical sciences or did the 2000 to a level exceeding 50 percent of all research spend- physical sciences and engineering fields that lost ground in ing in the United States, up from slightly more than 40 the federal portfolio changes benefit from nonfederal percent in 1990. Because of its very small real growth, the sources of support in this period? Answering even that federal share dropped from 48 to 37 percent in the same general question is enormously diificult because of the period. Research expenditures by the states, universities, lack of adequate data and lack of comparability among and other nonprofit institutions increased 55 percent in the data sets. For example, in some data sets research cannot robust economy of the 1990s, but because of the higher be distinguished from development, so we address each growth rate in corporate R&D, their share of the nation’s source separately and, of necessity, in a very preliminary total research spending remained steady at about 11 per- way. cent. Venture capital and so-called angel investing in technology-based start-up firms increased nearly 25 times NONFEDERAL SUPPORT OF UNIVERSITY RESEARCH from 1990 to 2000 to more than $100 billion; but because AND DEVELOPMENT it primarily supported corporate infrastructure, product development, production and marketing rather than basic According to reports from research-performing univer- and applied research in these new firms, we do not con- sities and colleges, nonfederal support of research and sider it here.1 development in the mid-1990s grew at a slightly faster rate Our purpose in this section is not to describe exhaus- than federal support—28.2 percent in constant dollars tively trends in nonfederal support—a very tall order—but between 1993 and 1999—to reach approximately 8 percent to review what national data series can tell us about the of total expenditures by these institutions. This includes 1Lawrence M. Rausch. 1998. Issue Brief: Venture Capital Investment. Trends in the United States and Europe., p. 1. Arlington, VA: National 2See the Appendix for details. A second source of data on corporate Science Foundation. The magnitude of these investments is highly expenditures on research and development (undifferentiated) by a slightly dependent on market conditions and is declining steeply in early 2001. different universe of businesses differently classified, is Compustat’s Moreover the technological focus of venture capital investments can compilation of information filed with the U.S. Securities and Exchange change dramatically and rapidly. Commission. 79

80 TRENDS IN FEDERAL SUPPORT OF RESEARCH AND GRADUATE EDUCATION institutional support and external support from industry, states were spending approximately $2.46 billion of state foundations, and other nonprofit institutions. revenues each year on research and development (com- The distribution of nonfederal support is reported in the pared with the federal government’s $70 billion). Not same field categories used in the Federal Funds Survey, included in the survey were state higher education funds but basic and applied research are not reported separately used at institutions’ discretion to support R&D activity or and development expenditures are included in the data. overhead on R&D. Nevertheless, over 80 percent of state The 1993-1999 results are shown in Annex Table 5-1. The funds earmarked for R&D went to universities. State portfolio differs significantly from that of federally funded agencies and their laboratories accounted for only 11 university research—with an even greater emphasis on the percent of expenditures, with the remaining 8 percent biological and medical sciences—but the directions and distributed to companies and nonprofit institutions. magnitude of changes in the mid-1990s closely parallel As with nonfederal research activity in universities, the federal spending trends in all but one outstanding case. largest recipients of state support were the biological and R&D in the medical sciences exhibited even faster growth medical sciences (nearly 40 percent of the total), followed in nonfederal than in federal support (44.1 percent vs. 28.9 by engineering and environmental science, with the re- percent) and consumed the largest share—27.5 percent of maining funds distributed among physical sciences, com- all nonfederal support—by the end of that period. The puter science and math, and social sciences as shown in biological and agricultural sciences also experienced Table 5-2. relatively rapid growth—32.2 percent and 20.1 percent Is there any reason to believe this allocation has respectively—and constituted 15.8 and 13.0 percent of the changed in the past several years? One significant new total portfolio, respectively. Together, the life sciences element of the states’ fiscal posture is the substantial represented 58 percent of R&D funding from sources other windfall that states will receive over several years as a than the federal government in 1999. On the other hand, result of the master agreement settling their liability litiga- nonfederal support of chemistry R&D increased only 14.2 tion against the tobacco manufacturers. The disposition of percent and represented a small share (2.6 percent) of these funds is entirely up to the affected state legislatures. nonfederal funding. Support of physics increased by 8.0 In FY 2000 and 2001, 44 legislatures have appropriated percent in real terms but represented only 2.4 percent of $8.2 billion, with the bulk of this money in the form of nonfederal funding. Support of computer science, in general funds, endowments and trust funds being devoted concert with federal spending trends, and electrical engi- to tobacco prevention, health care services, education, neering, in contrast to federal trends, grew substantially— tobacco farmer support, and various other purposes. In just by 35.0 and 37.5 percent, respectively—but to levels two years, however, 12 states have dedicated $207 million representing small shares of nonfederal funding (2.4 and (8.5 percent of state research and development spending in 3.2 percent, respectively). 1995) to research, all in the biomedical sciences. A $1 billion Florida endowment will generate an estimated $35 million per year for peer-reviewed biomedical research. STATES’ SUPPORT OF RESEARCH Michigan has created a $50 million biomedical research The states’ role in research and development expanded trust fund administered by the state’s public universities, in the 1980s and 1990s beyond their traditional role in and Colorado, Maryland, Illinois, and Kansas are planning agriculture and agricultural extension and support of other health research ventures.4 higher education to include technology-based economic More diversified are a handful of recent state initiatives development. Most states established science and technol- to establish centers of research excellence in particular ogy offices, many produced strategic plans, and a number fields. Although based at universities, the centers are launched new spending programs. State expenditures required to establish industry alliances and raise matching increased at a slightly faster rate than federal spending funds. California has established three such centers in throughout the period 1965 to 1995. nanotechnology; information technology and telecommu- The most recent, and in important respects unique, nications, and biotechnology/bioengineering/ comprehensive survey of this activity is a one-time snap bioinformatics-funded by the state at $100 million each for shot taken in 1995 when NSF/SRS commissioned a survey four years. Georgia’s Research Alliance program will by the State Science and Technology Institute (SSTI) of match private contributions with nearly $250 million in the Battelle Memorial Institute in Ohio.3 SSTI found that grants over 10 years for biotechnology, environmental, and telecommunciations research. Alabama, Illinois, and 3State Science and Technology Institute, 1999. The Survey of State Research and Development Expenditures: FY 1995, Columbus, OH: Battelle. The results are summarized in John Jankowski. 1999. What Is 4National Conference of State Legislatures. August 1, 2000. State the State Government Role in the R&D Enterprise? Arlington, VA: Allocation of Tobacco Settlement Funds, FY 2000 and FY 2001, Wash- National Science Foundation. ington, D.C.

TRENDS IN NONFEDERAL SUPPORT OF RESEARCH 81 Wisconsin each have plans for $100 million initiatives in transportation equipment, scientific instruments and, biotechnology and biomedical research. increasingly nonmanufacturing industries such as computer and data processing services and research, development and testing services. By 1999 the largest R&D spenders in PHILANTHROPY manufacturing were electronics and pharmaceuticals. Philanthropic giving also accelerated with the economy A closer examination of internally financed basic and and rise in the value of investment portfolios in the 1990s. applied research in these and other sectors reveals two The American Association of Fundraising Council Trust characteristics that distinguish public and private spending for Philanthropy estimates that charitable giving to all patterns. See Annex Table 5-4. First, industrial research causes increased 10 percent or more per year in the latter spending is volatile. Despite the overall growth in indus- half of the 1990s.5 Individual donations and bequests trial R&D, research spending fluctuated sharply in nearly represented nearly three-quarters of the more than $200 every R&D-intensive sector and without apparent confor- billion given in 2000, about 2 percent of gross domestic mity to the business cycle. For some industries the low product. Although there is no single comprehensive source point occurred early in the decade, for others at the mid- of public data, approximately 1,000 independent, corpo- point, and for still others late in the decade. Moreover, rate, and community foundations are surveyed annually by year-to-year changes were in many cases quite sharp, as the nonprofit Foundation Center and asked to report the high as 30 percent and frequently in the range of 10 to 20 distribution of their contributions. Excluded from this percent, both up and down. The exceptions to this survey are the Howard Hughes Medical Institute6 public cyclicality were the service industries as a group and charities such as the American Cancer Society (with a electronic components, which exhibited fairly continuous research budget of $115 million in 2000) and other disease growth at least from the middle of the decade. organizations. Education, health, arts and cultural, human Electronic components, particularly in contrast to services, and civil rights and social action purposes repre- pharmaceuticals, illustrate a second characteristic of sent well over 80 percent of foundation grants, but increas- industrial research. Its character varies greatly across ingly scientific and engineering research is a significant sectors and even over time. In drugs and medicines, for beneficiary. In 1994, research grants constituted approxi- example, basic research represented an average of about 14 mately 7.5 percent of the grants of foundations reporting; percent of all private sector pharmaceutical R&D in the in 1999, the share had grown to 11.2 percent. Medical 1990s, while in computers and electronic components research accounts for the largest share of the total, and its basic research never exceeded about 4 percent of R&D and share increased from 32 to 37 percent in that six-year in most years ranged from less than 1 percent to about 3 period. By contrast, the share going to the physical sci- percent.7 ences and “technology” declined from 18.3 to 12.5 per- While the corporate sector also favored biomedical cent. The distributions among several categories, unfortu- research in the 1990s as well as some other areas of nately not well defined and perhaps overlapping, are growth in the federal portfolio (e.g., computer science/ shown in Annex Table 5-3. software), there was significant investment growth in some areas where federal support was falling—e.g., electronic components/electrical engineering—but this was highly INDUSTRY RESEARCH INVESTMENT skewed toward product and process development and away Between 1990 and 2000, internally funded corporate from fundamental research. Moreover, research spending research and development spending significantly outpaced in the semiconductor/electronic components sector is by no other indicators of corporate activity such as sales, capital means certain to continue to increase in a far more uncer- investment, and employment growth, let alone publicly tain economic environment than that of the latter part of funded R&D. The expenditures were highly concentrated the 1990s. in a few industrial sectors—primarily pharmaceuticals, other chemicals, electronic components and equipment, 7Although the level of basic research support is low in a number of industries there is little evidence in the NSF data that it is declining as 5Growth slowed to a little more than 6 percent in 2000. American frequently asserted. In fact, in none of 10 industries in Table 1.1 has the basic research share of R&D declined over the decade. For a more Association of Fundraising Counsel Trust for Philanthropy, Giving USA, thorough examination of research funding trends and needs in informa- at www.aafrc.org. 6A nonprofit medical research organization under the U.S. tax code not tion technology see National Research Council. 2000. Making IT Better: Expanding Information Technology Research to Meet Society’s Needs. subject to the same regulations as private foundations. Washington, D.C.: National Academy Press.

82 TRENDS IN FEDERAL SUPPORT OF RESEARCH AND GRADUATE EDUCATION ANNEX TABLE 5-1 Non-Federally-Funded Academic R&D in 1999 dollars Change in Percentage Number Change Field 1993 1999 1993–1999 1993–1999 Total 8,923,176 11,442,264 2,519,088 28.2% Engineering 1,448,558 1,818,848 370,290 25.6% Aeronautical/Astronautical 58,893 77,417 18,524 31.5% Chemical 146,017 170,248 24,231 16.6% Civil 242,317 312,623 70,306 29.0% Electrical 267,564 368,054 100,490 37.6% Mechanical 192,953 237,660 44,707 23.2% Metallurgy/materials 165,738 166,846 1,108 0.7% Engineering, other* 375,074 486,000 110,926 29.6% All sciences 7,474,618 9,623,416 2,148,798 28.7% Physical sciences 689,454 740,169 50,715 7.4% Astronomy 104,352 112,084 7,732 7.4% Chemistry 262,373 299,610 37,237 14.2% Physics 259,324 280,225 20,901 8.1% Environmental sciences 500,736 588,913 88,177 17.6% Atmospheric 55,553 65,513 9,960 17.9% Earth sciences 193,171 223,695 30,524 15.8% Oceanography 143,402 198,165 54,763 38.2% Mathematical sciences 77,158 103,580 26,422 34.2% Computer science 205,782 277,735 71,953 35.0% Life sciences 4,983,013 6,671,036 1,688,023 33.9% Agricultural sciences 1,236,836 1,485,804 248,968 20.1% Biological sciences 1,368,009 1,809,185 441,176 32.2% Medical sciences 2,181,345 3,142,768 961,423 44.1% Psychology 128,720 154,739 26,019 20.2% Social sciences 622,799 789,682 166,883 26.8% Other sciences 266,956 297,562 30,606 11.5% NOTE: Because of rounding, detail may not add to totals. *Engineering, other includes bioengineering/biomedical engineering in 1999. SOURCE: National Science Foundation/Division of Science Resources Studies, Survey of Research and Development Expenditures at Universities and Colleges, Fiscal Year 1999.

TRENDS IN NONFEDERAL SUPPORT OF RESEARCH 83 TABLE 5-2 1995 Recipients of State Research (Basic and Applied) Support by Field (Percent) Biological sciences 27.2 Engineering 12.7 Medical sciences 12.2 Physical sciences 7.6 Environmental sciences 7.5 Social sciences 6.5 Math and computer science 3.9 Psychology 1.8 n.e.c. 20.6 TABLE 5-3 Foundation Grants for Research in Millions of Current Dollars Field 1994 1999 Medical $189.9 $381.4 General $105.9 $184.6 Physical Science $71.4 $73.2 Life Science $33.3 $91.8 Technology $36.8 $50.4 SOURCE: Foundation Center, Foundation Giving Trends, Washington, DC, 1999. TABLE 5-4 Corporate Funded Industrial Research (Basic and Applied) in Millions of Current Dollars Industry 1990 1991 1992 1993 1994 1995 1996 1997 1998 *1999 Drugs and Medicines — 4064 4992 — — 4832 4204 5003 4987 4756 Other Chemicals — 3327 3008 — — 2946 3430 3026 3797 3724 Petroleum Refining and Extraction — 1378 — — — 891 — 761 846 — Office Computing and Accounting Machinery — 1850 — 1161 846 1439 1775 4081 8493 2575 Other Machinery (except Electrical) — 1065 — 955 991 1405 1165 1291 1160 — Communications Equipment — 1132 — — — 769 806 1290 — 1590 Electronic Components — 1025 1053 — 1627 2235 — 4732 — 4617 Other Electrical Equipment — 1147 — — — 754 — 1383 — — Transportation Equipment 2467 2334 1542 1380 1522 2332 2764 2505 — 4026 Professional and Scientific Instruments 2102 2907 2802 2449 2460 2685 2069 2290 2479 — Non-manufacturing 7395 8774 7771 6215 5980 7796 8021 9897 10422 13956 Computer/data processing services — — — — — 2099 1793 1929 — 1047 Research, Development, Testing — — — — — — 1923 2362 2508 3990 — Not reported to avoid disclosing proprietary information. *North American Industry Classification System employed in 1999. All other years, Standard Industry Classification System. Figures may not be comparable.

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The Board on Science, Technology and Economic Policy updated its 1999 analysis (Appendix A, Securing America's Industrial Strength, 1999) of changes since 1990 in the distribution of federal research funding by field of science and engineering) by incorporating FY 1998 and FY 1999 obligations from the NSF Federal Funds survey, with particular attention to the trends in basic research support, changes in research fields' relative dependence on research-sponsoring agencies, and the relationship between changes in research support and changes in enrollment in graduate training in selected fields of research. The Board did not recommend funding levels for any discipline but addressed procedural aspects of R&D budgeting.

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