NCPA - National Center for Policy Analysis

Science Shifting To Private Sector

October 1, 1997

Federal government spending on research and development (R&D) is declining in real terms, analysts say, but private industry funds most scientific and technological innovation in the U.S., and its investment is increasing.

  • The federal government funded more than half of all R&D in the United States from the end of World War II until 1978, when it was overtaken by industry spending.
  • Federal R&D spending continued to grow, particularly from 1980 to 1985, but then began declining in real terms by an average of 1.2 percent a year -- and by 3 percent in 1996.
  • The National Science Foundation says that of a total of about $185 billion spent on R&D in 1996, federal spending was 34 percent of the total, while industry funded 62 percent and about 5 percent came from state governments, universities and nonprofits.

Some say government should help fund basic or pure science -- the kind of research that has no apparent commercial value.

  • But only 20 percent of federal spending is devoted to basic science, while another 20 percent goes to applied research, and the remaining dollars to product development.
  • Nearly one-third of all basic science is funded by private industry or nonprofits.
  • If applied research and product development expenditures that lie clearly within the domain of the private sector were cut from the federal budget, taxpayers would save nearly $12 billion a year.

There is plenty of evidence that government R&D spending displaces private spending, due to extra taxes required to fund it and the expectation that the government will take care of society's science needs. Furthermore, in response to competition, industry R&D is becoming more efficient, by eliminating duplicative research and substituting lower-cost computer simulations for traditional experiments.

Source: John Hood (president, John Locke Foundation), "Government Science Cuts Are No Big Deal," Consumers' Research, October 1997.


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