When the System of National Accounts (SNA), which is used by almost every country in the world, was last revised we decided not to capitalize R&D. However, there is an international meeting coming up shortly in the Netherlands, and it may decide that R&D should be capitalized. Once that happens there will be a flurry of activity on R&D. As far as I know the United States has the only complete set of satellite accounts incorporating R&D. Israel has a partial set of accounts, and France has a set of accounts that encompasses information technology but doesn’t capture other parts of R&D. If the decision is made to capitalize R&D others will seek our advice about how to do it. At the meeting in the Netherlands participants will consider how R&D might be capitalized in the System of National Accounts and the relationship between SNA and the Frascati Manual, the OECD’s guide to the collection of R&D data.
Let me turn to our R&D data wish list. My coauthor and I spent very little time looking at the quality of the data; we took them as given. But as we proceeded we did observe some things, and we did reach some judgments about what it would be desirable to have.
First, most people really want to know what kind of R&D performed in what industries contributed most to the increase in economic growth, but we could not begin to answer that. Missing from our satellite account is information on industries and the intermediate as well as capital and labor inputs to the production process, including all the inputs that enter into an R&D activity. We were working on a performing basis but we knew nothing about the industry composition because we can’t get enough data from NSF to perform this sort of analysis. So our foremost need is for industry detail, particularly information on services.
We also were concerned about things like outsourcing. Who does R&D for IBM? Is it IBM in its manufacturing area? Is it another company outside manufacturing? Is it in the services? IBM was doing R&D somewhere, but where was it? So we do need information on services, not just manufacturing. If you look at the R&D data for manufacturing, the industries that you want to look at most carefully have missing entries because of reporting problems because there are only a few companies in those cells.
Secondly, inputs and outputs in the national accounts work on an establishment basis. A company like IBM has a wide variety of establishments with a large percentage of the activity in services rather than computer hardware. So if you really want to know who is doing what to get a true picture of R&D, you want an establishment basis so you can clearly identify companies that are doing a significant amount of R&D, but have a large proportion of other activities.
We want even more information about industrial activity. There is a big difference between basic, applied, and development R&D -- a difference in the time before it reaches the economy. In recent years there has been a shift toward development, in large part because there has been a marked increase in business performance of R&D relative to the government. As that shift proceeds, there is also a shift away from basic towards applied research.
Later today some of my colleagues are going to come here to speak about the international aspect of R&D. We only have a few years of data and only for certain types of companies. We would like more of this because a lot of the R&D could be performed abroad. Also we would like to know what sort of R&D is imported and what are the spillovers of R&D. International boundaries do not mean a great deal in this context.
A continuous time series is important. We know that there has been at least one series break as result of a substantial change in the survey. If I recall correctly it had to do with the number of companies that were surveyed, and it occurred sometime in the latter part of the 1980s or the early part of the 1990s, periods that people are very interested in. We were told by NSF