GOVERNMENT

NSF bullish on industry New figures from the National Science Foundation offer some cheering news on the outlook for industrial R&D spending and for R&D employment. NSF predicts the direction is solidly upward—with industry R&D spending growing by 22% between 1972 and 1975 to reach a record level of $14 billion annually. Moreover, industry employment of scientists and engineers appears to have stabilized, NSF says, predicting that employment will edge upward from an estimated 240,000 in 1972 to 260,000 in 1975.

The rate of growth in company fund­ing of R&D will also continue to outpace growth in the federal R&D budget—a situation that has existed for several years. Between mid-1972 and mid-1974 (fiscal years 1973 and 1974) federal obligations (commitments to spend) for R&D will grow by 5.6%—from $16.50 billion to $17.43 billion—and expendi­tures will grow by 4.3% from $16.10 billion to $16.79 billion. This assumes that Congress enacts President Nixon's proposed R&D budget for fiscal 1974 in­tact, and that the President does not impound any federal R&D funds in fis­cal 1974.

In terms of constant dollars—using NSF's estimate of an average annual rate of inflation of 3%—industrial spending for R&D will still be up 12% from 1972 to 1975. Federal obligations for R&D, however, will decline by about 0.4% over about the same period while actual federal spending for R&D will drop by about 1.6%.

NSF's analysis and forecast are based on information from interviews with the top R&D officials of 52 of the nation's largest corporations, including several major chemical producers, and three research organizations. The interviews were conducted during the summer and fall of 1972 and were aimed at examining changes in the level and nature of in­dustrial basic research. Industry funds about 10% of the nation's total basic research. Firms interviewed by NSF account for about one half of industry R&D spending in the U.S. and are those in which basic research plays a signifi­cant role.

The sharp year-to-year gains in in­dustrial R&D budgets of the fifties and sixties are not likely to return, NSF says, adding that growth from 1972 to 1975 is best characterized as "sen­sible" and will approximate much more closely growth in the economy. Indeed, a major factor in the slowdown in indus­try funding of R&D in the late sixties and early seventies, NSF says, has been the decline in corporate earnings as the nation's economy slumped.

In short, industrial R&D efforts fell as earnings fell. For instance, in the economic doldrums of 1970 and 1971 industry spending for R&D rose only 4%. From 1971 to 1972, as business con-

R&D funding, jobs ditions and the economy improved, in­dustrial R&D spending rose at twice this rate. And NSF predicts that growth in industrial R&D spending will average about 7% annually from 1972 to 1975.

The rate of growth varies among the many industry groups studied by NSF. The leading industry group—drugs and medicines—will boost spending by 34% to $750 million annually in 1975. The electrical equipment industry will be a close second, hiking outlays by 25% to $3.0 billion. The aircraft and missiles industry is next, up 18% to $1.15 billion annually, followed by in­dustrial chemicals, up 15% to about $1.0 billion annually, and petroleum, up 6% to $525 million annually. Spend­ing for R&D by all other industries will grow by 23% to $7.5 billion annually.

Reasons for the upturn in industry R&D spending, according to NSF, in­clude an upswing in the nation's econo­my as well as an improvement in cor­porate earnings. R&D spending is also likely to be stimulated by the increased technical effort needed to comply with government regulations in areas such as product safety, NSF says. Increased emphasis on internal company evalua­tion of "ill effects" of potential new products will also stimulate industry spending on R&D as well as increases in R&D overhead costs.

Pollution control expenditures do not appear to have much of an impact on funds for basic research, NSF says. Only a few companies told NSF that a significant portion of their basic re­search program has been for pollution control. In some instances, according to NSF, the effort was aimed at getting "a better understanding of the composi­tion of pollutants, foreseeing new forms of pollution, and examining the question

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Company-funded R&D will continue to post solid gains $ Billions

14

12

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8

6,

0

a Base year 1967. Price deflator for gross national product has been used to convert current to constant dollars. This represents an estimate of price change rather than a precise measure. For 1972-75 an esti­mated increase of 3% per year was used for the price deflator, b Estimated. Source: National Sci­ence Foundation

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of pollution control through less costly methods than presently exist."

Corporate R&D officials disagree over the relative value of basic research, however, NSF says. NSF defines basic research as "original investigations for the advancement of scientific knowledge . . . which do not have specific commer­cial objectives, although they may be in fields of present or potential interest to the reporting company." Some com­panies that do conduct basic research aren't sure whether the results are worth the cost, NSF says. Frequently, the company paying for the research doesn't receive the full benefits of the effort. Also, the time between basic research and product or process payoff is often long, and a company may not feel it is worth the cost. Still, some officials inter­viewed by NSF feel that a basic research effort is essential to the long-term growth of their companies. And still others feel that industry has been under-investing in R&D.

Industry funding of basic research did remain relatively constant at a $460 million to $470 million level during 1968-70, NSF says. By 1972, industry spending for basic research rose to $520 million, and will increase to $650 million by 1975—a gain of about 25% from 1972 to 1975.

Among the many industry groups studied by NSF, the industry groups boosting their investment in basic re­search the most will be drugs and medi­cines and aircraft and missiles. Both industries are projected by NSF to in­crease their basic research spending by 33% between 1972 and 1975. The elec­trical equipment industry is a close sec­ond at 26%, followed by industrial chemicals at 19%, and petroleum at 9%. All other industries taken together are expected to boost their basic re­search spending by about 23%. NSF estimates that this increase in basic re­search spending will lead to employ­ment of about 10% more basic research scientists in 1975 than in 1972. From 1968 to 1972, industry employment in basic research dropped about 5%.

NSF observes that industrial basic research is tending toward efforts that are "shorter-term, more relevant, and hence more economically justifiable." Some R&D officials say funding for ba-

Basic research gets small part of industry-financed R&D

1972 1975b

Total Total $ Millions8 R&D Basic R&D Basic

All indus- $11,400 $520 $13,950 $650 tries

Electrical0

Aircraft Chemicals Drugs Petroleum Other

2,400 975 890 560 495

6,080

115 30

105 105

23 142

3,000 145 1,150 40 1,025 125

750 140 525 25

7,500 175

a Current dollars, b Estimated, c Including communica­tions. Source: National Science Foundation

Chemicals, drugs fund 40% of industry basic research

% Distribution, 1972

Chemicals 20%

a Including communications. Source: National Sci­ence Foundation

sic research can be turned off in a highly technical company without any imme­diate harm to the company's competi­tive position. And cutbacks in basic research are obviously much easier when the competition is also cutting back. But many R&D officials "generally believed" that following such a policy on a long-term basis could lead to disas­ter.

Another facet of the tight R&D money situation in the late sixties and early seventies has been a move toward more goal-oriented research at corporate research laboratories, NSF says (a poli­cy not unlike that being followed by the Nixon Administration in deciding which projects and programs to fund in the federal R&D budget). "Potential basic research projects were closely scruti­nized to see if they were 'economically justifiable,'" NSF says. Projects were to be tied much more closely to business objectives, and, where possible, some companies encouraged capitalizing on research performed elsewhere. NSF notes: "For these companies, substan­tial emphasis was placed on keeping up with the results of overall research, rather than actively engaging in re­search."

Industry basic research programs are also influenced by government R&D policy. At some companies, officials told NSF that costs incurred in meeting fed­eral regulations have led to a cutback in basic research. On the other hand, NSF finds that some companies pursue basic research in areas such as safety and transportation which hold the po­tential for significant investment by the Government.

In all, NSF's findings underscore growing opinion that the decline in in­dustry support of basic research is at an end, and that a resurgence is in the offing. For its part, NSF expects the growth in company-supported basic research to be "somewhat greater" than the overall gain in company R&D bud­gets.