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As Federal Research Funds Recede, the Private Sector is Filling the Gap

The 2019 US budget proposal contemplates a 42.3 percent reduction by 2028 in nondefense discretionary spending, where scientific research dollars are situated

by Bernard B. Tulsi
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That budget constraints, shifting priorities, and—more recently—apparent apathy have combined to shrink the federal purse of research dollars is hardly news anymore. What is still alarming, though, is the scope and speed of the deepening erosion in financial backing for science and technology (S&T) from United States (US) government sources.

In its March 17, 2018 issue, The Economist reported that US spending on research and development (R&D) was 0.6 percent of national gross domestic product (GDP) in 2015, or about one-third of the level it was in 1964. Data compiled by the American Association for the Advancement of Science (AAAS) indicated that official US research spending peaked at more than two percent of GDP in the 1970s. The trendline, however, charted a steady decline, subsequently—in 2014, the government share of research spending was 0.75 percent of GDP. This trend is set to continue and seems likely to worsen. The 2019 US budget proposal contemplates a 42.3 percent reduction by 2028 in nondefense discretionary spending, which is precisely where the dollars for scientific research are situated.

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Whether this is a reflection of waning enthusiasm among both scientists and the general public, or the product of other forces, the luster of science appears ever so slightly dimmed versus about a decade ago (2009), according to data from the Pew Research Center ( The Pew surveys suggest that while there is still a majority positive outlook, there has been a slight increase of people in the country with a negative view of science.

Results from Pew’s January 2015 survey indicated that S&T still occupied a place of considerable prominence, but seemed to have waning prestige relative to just five years earlier (2009). Still, even though there is substantial discord on whether and the extent to which government should be involved in different aspects of the economy and industrial sectors—bailouts of banks and auto companies, promotion of alternative energy sources, etc.—the American public appears to approve of government support and promotion of scientific research and its associated endeavors.

The Pew survey showed that seven out of 10 adults believed that government investments in basic science and engineering pay off over time. Almost eight of 10 adults said that science made life easier for most people, and the majority felt that science was beneficial to healthcare, food production, and safety and environmental quality. Signaling an important split in public opinion, the survey showed that 61 percent of the respondents thought government funding was essential for scientific advancements. On the other hand, about a third (34 percent) felt that private investments were sufficient to drive progress in science.

A long-held view was that industry (private) funds were dedicated to applied research to develop and improve products, innovate and enhance production processes, and boost commercial viability and profitability. As a result, private funds were hardly expended on basic research aimed at first principles and generating essential knowledge. This view was largely supported by a key AAAS finding: For every dollar spent by industry, 80 cents went to applied research.

Conventional wisdom was that industry invested in applied research leading to commercial products and services, while government picked up the tab for fundamental and discovery research. By 2017, it was becoming abundantly clearer that this long-standing juxtaposition was being turned on its head. Jeffrey Mervis, writing in the March 9, 2017 issue of Science magazine, noted that for the first time in the decades since World War II, the federal government was no longer paying for the lion’s share of the fundamental research done in the US.

Referring to data from the National Science Foundation (NSF), Mervis noted that federal institutions accounted for only 44 percent of the $86 billion expended on basic research in 2015. Federal government funding supported 70 percent of the basic research conducted in the 1960s and 1970s, paid for 61 percent in 2014, and then dropped below 50 percent in 2013. To be sure, the sharp proportional drop-off in government spending was not the result of reduced government spending alone. Notable increases in corporate spending for basic research started to become more evident around 2012, and as its proportion of the total grew, the percentage contributed by government was correspondingly lower. Overall, it appeared that private sector spending was dominant in the US now, outperforming the US government by three to one.

Providing some deeper context, professor Ashish Arora of Duke University’s Fuqua School of Business, whose research has focused on private support for basic research, says, “Our study found that corporate America has been reducing its investment in basic research, and government statistics show a similar picture.” Dr. Arora and his team assessed research conducted inside companies, focusing on corporate research by publicly traded companies in the US. “The drop-off in private engagement started somewhere around the mid-1990s, and that decline seems to have leveled off,” says Dr. Arora. He also says that the most recent data from the NSF confirms the leveling off of the decline, and that there may even have been an uptick in more recent years, but that will be known for sure only over time.

He goes on to say that spending on internal corporate research has not been increasing, particularly if it is normalized with the growth rate of the national economy. “The decline started in the ’90s, continued to about 2010 or thereabouts, and since then it has either reversed itself a bit or flattened out.”

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Dr. Arora says that there may be a number of explanations for the decline. “These include the impatience of investors engaged in short-term equity markets, globalized competition from imports, the decline of antitrust enforcement, and as some people have suggested, difficulties with managing long-term research in public corporations.” Outsourcing, especially of manufacturing operations, could have resulted in the movement of associated process R&D overseas as well—as better proximity undoubtedly benefits both production and research, especially quality control efforts. He says these are not mutually exclusive explanations, and one or more of them could be operating at the same time.

“Another explanation is the [advent of] very large sustained activities in the university research sector, which meant that companies could draw on university research instead of having to set up operations in-house,” according to Dr. Arora. He says that one of his group’s current areas of study, which is now in the analysis stage, is examining the relationship between university research and corporate research.

He says the substantial buildup of American universities in the 1950s, ’60s, and ’70s mostly fueled by sustained government financial support, has produced the current situation—where we can confidently rely on university research for basic discoveries. Promising discoveries get assimilated into commercial ventures via direct links between university research efforts and corporate R&D. In addition, links between university research and the start-up sector have resulted in the commercialization of numerous outstanding breakthrough technologies and a constellation of highly successful businesses.

Acknowledging that philanthropic support has become a major source of research funding, Dr. Arora notes that it has largely been confined to the medical field. “If you are not in the medical area, philanthropic support has been quite limited,” he says.

Dr. Arora notes that corporate America—represented by entities like AT&T, Bell Labs, IBM, and DuPont, among others—has significantly scaled back its involvement in basic research. “My sense is that Microsoft, Google, Facebook, and others are doing some research, but nothing on the scale that the older, more-established companies used to do, which means there is a net decline in basic research efforts.”

To some extent, government support, both federal and state, for basic research has increased in the aggregate over time, and its levels were never really as dire as predicted, according to Dr. Arora. “If the government significantly cuts back on funding basic research, we will be in a difficult situation. At different points in time, however, significant cuts to the National Institutes of Health, for example, have been proposed but they did not materialize.” He concedes that budgets have not grown and instead have tended to be flat.

Elaborating on the difficulties that could result from reduced funding support for research, Dr. Arora says there is little doubt that America’s competitiveness in the world would be seriously affected without the requisite investment in research—and its national prosperity, including sustained growth and living standards, could be threatened. He notes that China is now making large investments in upgrading its universities and research sector—while the jury is still out on the outcomes from these investments, the emphasis on research is quite clear, as has been the case in the US for decades.

Furthermore, he adds, “There’s no denying that the prosperity of the last 60 to 80 years has relied significantly on the knowledge generated through scientific research.” Research endeavors have also resulted in the training of young people who have gone on to great and wonderful accomplishments in research and in the private sector, and created a highly successful entrepreneurial class, according to Dr. Arora.

He says he is optimistic about the future of research in the US. First, he holds out hope that stringent cuts in research funding will not materialize, as has been the case when such ideas were bandied about in the past. Second, there is a long tradition of private philanthropy to universities, which is very vibrant, even if different in size and scope and levels from such efforts in prior generations.

Dr. Arora concludes, “While American universities have been supported by donors, a significant chunk of university projects [has] been funded by the universities themselves.

In addition, the technologies themselves, such as new breakthroughs in the life sciences and in artificial intelligence and machine learning, will help to create new wealth, which will eventually make its way back into research—in what form, it is not really clear yet, but I remain optimistic.”