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Report: Business Research Funding Decline Impacts Innovation

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A new report from the National Science Board, the governing body of the National Science Foundation, says declines in business R&D investment over the past decade, particularly during the recession of 2008-2009, are taking a toll on American innovation. The report, Research & Development, Innovation, and the Science and Engineering Workforce, also notes that reductions in state funding of research universities are reducing the country’s capacity to train the future R&D workforce.

In its report, the Board says venture capital investment in selected science and technology industries declined from $43 billion in 2000 to less than $10 billion in 2010. In the period 2007 to 2010, private equity investments overall in certain S&T industries dropped from $60 billion to $15 billion. The 2008-2009 recession years were particularly difficult for R&D investment. Business R&D spending — which normally accounts for six out 10 R&D dollars spent in the U.S. — declined $12 billion or nearly five percent.

The decline in private-sector investment was accompanied by a shift away from investment in early stage start-ups, which are generally more risky investments. Arthur Reilly, former senior director at Cisco Systems and chair of the group that issued the report says, “During recessions, it’s not surprising that businesses would spend less, but the volatility also reflected shifts of private equity, venture capital, and angel funding from early stage investment to the less risky late-stage investment.”

The decline in R&D spending during the recession years was offset somewhat by Federal R&D funding. In 2009, defense R&D accounted for more than half (55%) of the total. Federal science funding, however, is focused on basic research. U.S. agencies support 53 percent of the country’s basic research at universities and national labs, compared to 22 percent by private companies.

Nonetheless, the report indicates private enterprise remains the main funder and practitioner of R&D in the American economy. While only 3 percent of companies in the U.S. perform R&D, they account for 62 percent of the nation’s R&D spending and 71 percent of the R&D performed. The private sector also funds nearly 80 percent of development work, a key pathway for bringing innovations to market.

Another concern expressed in the report is the decline in state funding for research universities, a major source of new R&D talent. State funding for public research universities, as noted in the report, declined by an inflation-adjusted rate of 10 percent between 2002 and 2010, or by 20 percent on a per-student basis.

José-Marie Griffiths, academic vice president at Bryant University and former National Science Board member, also noted the important role of universities in attracting scientists from overseas. “Universities attract foreign talent and they conduct critical basic and applied research,” says Griffiths. “Federal immigration and visa policies have a direct impact on our ability to attract and retain the type of science and engineering talent we need for economic growth here.”

The report says employment growth for scientists and engineers slowed over the last decade to 1.4 percent, but it exceeded the overall employment growth rate of 0.2 percent. Unemployment rates were lower and salaries were generally higher for science and engineering workers and degree holders over this period.

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