5
Trends in Nonfederal Support of Research

In addition to the federal government, research is also supported by states, philanthropic foundations and individuals, nonprofit institutions including universities themselves, private investors, and, of course, public and privately held corporations. Together these sources account for about 63 percent of the nation’s basic and applied research spending.

The most dramatic change in the late 1980s and 1990s was the growth in corporate and other private investment relative to federal government expenditures. Industry support of basic and applied research (excluding development) increased 80 percent in real terms between 1990 and 2000 to a level exceeding 50 percent of all research spending in the United States, up from slightly more than 40 percent in 1990. Because of its very small real growth, the federal share dropped from 48 to 37 percent in the same period. Research expenditures by the states, universities, and other nonprofit institutions increased 55 percent in the robust economy of the 1990s, but because of the higher growth rate in corporate R&D, their share of the nation’s total research spending remained steady at about 11 percent. Venture capital and so-called angel investing in technology-based start-up firms increased nearly 25 times from 1990 to 2000 to more than $100 billion; but because it primarily supported corporate infrastructure, product development, production and marketing rather than basic and applied research in these new firms, we do not consider it here.1

Our purpose in this section is not to describe exhaustively trends in nonfederal support—a very tall order—but to review what national data series can tell us about the changing composition of the nonfederal research portfolio in relationship to the federal portfolio. These data series include NSF surveys of research-performing universities and research-sponsoring state governments and industry. Data on philanthropic organizations’ contributions to research are collected by the private nonprofit Foundation Center.2

The principal question we pose is whether spending by the nonfederal sector has amplified or offset changes in the research field allocation of national government expenditures. In particular, did trends in nonfederal support favor the life and especially biomedical sciences or did the physical sciences and engineering fields that lost ground in the federal portfolio changes benefit from nonfederal sources of support in this period? Answering even that general question is enormously diificult because of the lack of adequate data and lack of comparability among data sets. For example, in some data sets research cannot be distinguished from development, so we address each source separately and, of necessity, in a very preliminary way.

NONFEDERAL SUPPORT OF UNIVERSITY RESEARCH AND DEVELOPMENT

According to reports from research-performing universities and colleges, nonfederal support of research and development in the mid-1990s grew at a slightly faster rate than federal support—28.2 percent in constant dollars between 1993 and 1999—to reach approximately 8 percent of total expenditures by these institutions. This includes

1  

Lawrence M.Rausch. 1998. Issue Brief: Venture Capital Investment. Trends in the United States and Europe., p. 1. Arlington, VA: National Science Foundation. The magnitude of these investments is highly dependent on market conditions and is declining steeply in early 2001. Moreover the technological focus of venture capital investments can change dramatically and rapidly.

2  

See the Appendix for details. A second source of data on corporate expenditures on research and development (undifferentiated) by a slightly different universe of businesses differently classified, is Compustat’s compilation of information filed with the U.S. Securities and Exchange Commission.



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

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

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Trends in Federal Support of Research and Graduate Education Wisconsin each have plans for $100 million initiatives in biotechnology and biomedical research. PHILANTHROPY Philanthropic giving also accelerated with the economy and rise in the value of investment portfolios in the 1990s. The American Association of Fundraising Council Trust for Philanthropy estimates that charitable giving to all causes increased 10 percent or more per year in the latter half of the 1990s.5 Individual donations and bequests represented nearly three-quarters of the more than $200 billion given in 2000, about 2 percent of gross domestic product. Although there is no single comprehensive source of public data, approximately 1,000 independent, corporate, and community foundations are surveyed annually by the nonprofit Foundation Center and asked to report the distribution of their contributions. Excluded from this survey are the Howard Hughes Medical Institute6 public charities such as the American Cancer Society (with a research budget of $115 million in 2000) and other disease organizations. Education, health, arts and cultural, human services, and civil rights and social action purposes represent well over 80 percent of foundation grants, but increasingly scientific and engineering research is a significant beneficiary. In 1994, research grants constituted approximately 7.5 percent of the grants of foundations reporting; in 1999, the share had grown to 11.2 percent. Medical research accounts for the largest share of the total, and its share increased from 32 to 37 percent in that six-year period. By contrast, the share going to the physical sciences and “technology” declined from 18.3 to 12.5 percent. The distributions among several categories, unfortunately not well defined and perhaps overlapping, are shown in Annex Table 5–3. INDUSTRY RESEARCH INVESTMENT Between 1990 and 2000, internally funded corporate research and development spending significantly outpaced other indicators of corporate activity such as sales, capital investment, and employment growth, let alone publicly funded R&D. The expenditures were highly concentrated in a few industrial sectors—primarily pharmaceuticals, other chemicals, electronic components and equipment, transportation equipment, scientific instruments and, increasingly nonmanufacturing industries such as computer and data processing services and research, development and testing services. By 1999 the largest R&D spenders in manufacturing were electronics and pharmaceuticals. A closer examination of internally financed basic and applied research in these and other sectors reveals two characteristics that distinguish public and private spending patterns. See Annex Table 5–4. First, industrial research spending is volatile. Despite the overall growth in industrial R&D, research spending fluctuated sharply in nearly every R&D-intensive sector and without apparent conformity to the business cycle. For some industries the low point occurred early in the decade, for others at the mid-point, and for still others late in the decade. Moreover, year-to-year changes were in many cases quite sharp, as high as 30 percent and frequently in the range of 10 to 20 percent, both up and down. The exceptions to this cyclicality were the service industries as a group and electronic components, which exhibited fairly continuous growth at least from the middle of the decade. Electronic components, particularly in contrast to pharmaceuticals, illustrate a second characteristic of industrial research. Its character varies greatly across sectors and even over time. In drugs and medicines, for example, basic research represented an average of about 14 percent of all private sector pharmaceutical R&D in the 1990s, while in computers and electronic components basic research never exceeded about 4 percent of R&D and in most years ranged from less than 1 percent to about 3 percent.7 While the corporate sector also favored biomedical research in the 1990s as well as some other areas of growth in the federal portfolio (e.g., computer science/software), there was significant investment growth in some areas where federal support was falling—e.g., electronic components/electrical engineering—but this was highly skewed toward product and process development and away from fundamental research. Moreover, research spending in the semiconductor/electronic components sector is by no means certain to continue to increase in a far more uncertain economic environment than that of the latter part of the 1990s. 5   Growth slowed to a little more than 6 percent in 2000. American Association of Fundraising Counsel Trust for Philanthropy, Giving USA, at www.aafrc.org. 6   A nonprofit medical research organization under the U.S. tax code not subject to the same regulations as private foundations. 7   Although 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 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 thorough examination of research funding trends and needs in information technology see National Research Council. 2000. Making IT Better: Expanding Information Technology Research to Meet Society’s Needs. Washington, D.C.: National Academy Press.

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Trends in Federal Support of Research and Graduate Education ANNEX TABLE 5–1 Non-Federally-Funded Academic R&D in 1999 dollars   Change in Number Percentage 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.

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Trends in Federal Support of Research and Graduate Education 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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