Government research spending to slow in 2007, while industry takes up the slack

COLUMBUS, Ohio, 15 Feb. 2007. Total funding for research and development should increase to $338 billion in 2007, an increase of 2.85 percent over the $329 billion funded in 2006, according to analysts at the non-profit research house Battelle in Columbus, Ohio.

Feb 15th, 2007

COLUMBUS, Ohio, 15 Feb. 2007. Total funding for research and development should increase to $338 billion in 2007, an increase of 2.85 percent over the $329 billion funded in 2006, according to analysts at the non-profit research house Battelle in Columbus, Ohio.

Driving the overall increase is industry funding and industrial performance, while federal support of research and development is expected to slow, according to the joint Battelle-R&D Magazine 2007 research and development funding forecast.

The federal government should spend $98.3 billion funding research and development efforts, a minor 1.8 percent increase over the $96.6 billion spent in 2006. Industrial investments on research and development, meanwhile should reach $219 billion in 2007 -- an increase of 3.4 percent over 2006 levels of $212 billion, the forecast says.

Academia and other non-profits make up the remaining expenditures on research and development with $20.8 billion for 2007. Academia is set to increase by 1 percent to $11.4 billion and non-profits should increase by 3.6 percent to $9.4 billion.

"Overriding all themes in this year's forecast are the dual needs of growing and maintaining the strong technological base that has characterized the U.S. for over 50 years and assuring that the education system provides the critical raw material for the engine that operates our industrial base," says Jules Duga, a Battelle senior researcher and co-author of the report.

Federal outlook

Much of the emphasis in government-funded research and development continues to be influenced by the global war on terror. Significant thrusts are being directed toward problems that deal with the detection of instruments or compounds that represent major terror threats, especially in the manufacturing, packaging, and distribution of biological and radiological materials.

Augmenting that type of research is advanced software development that takes advantage of information technology ranging from improved data collection to higher quality interpretation that allows officials to better connect the dots and aid in prevention of terrorism.

The U.S. Department of Defense will receive a record research and development budget of $76.8 billion in 2007, which is up 4.8 percent over 2006 levels.

The U.S. Department of Homeland Security-for the first time since its inception-will see a 21 percent decline in its research and development budget from the $1.281 billion it received in 2006.

The strong emphasis over the last 20 years to transfer government-developed technologies to the commercial marketplace has been upended, the forecast says. In the current environment, technologies used for the global war on terror are already linked with the commercial marketplace especially those that deal with personal identification and protection against identity theft.

In addition, research directed toward the identification of biological threats has a direct application to other public health problems, which are now under the purview of state and local governments.

Energy issues related to supply and impact on security will get greater attention and support. Past efforts to reduce dependence on foreign energy supplies have been less than successful. However, current pressures from cost increases and the general trends toward green practices appear to be having a greater effect on the funding of research and development directed toward alternate energy issues.

There will be a continued emphasis on the entire range of information gathering, analysis, and communication technologies that create and support reliable infrastructure.

Industry outlook

Overall, the U.S. industrial climate is strong with industrial research and development spending for 2007 up more than $7 billion -- a trend that should remain strong through the year and into 2008.

Growth fields for industry are electronics, biotechnology, pharmaceuticals, software development, and process modeling.

Aerospace growth will get a healthy boost as commercial airliner sales, communication systems, and imaging satellite sales escalate.

The semiconductor market appears poised for dramatic growth as various elements within it support the emergence and development of new technology, low cost, high-efficiency photovoltaic systems that are approaching the cost efficiencies of petroleum-based energy supplies.

Industries that show promise for improvements in research and development are energy, nanotechnology-based materials science, and any industry or sub-industry involved in sustainability areas.

Non-profit research and development is growing, but academia is suffering. The near-zero growth in academic-based research can largely be attributed to a lack of industrial support, but federal and state government support has also dwindled. Non-profit research and development funding comes mainly from the federal government -- in particular the Department of Defense and the Department of Homeland Security -- which has kept funding levels in a growth mode.

Notable trends include outsourcing. The energy and pharmaceutical industries will continue to outsource research and development at a growing rate in 2007 followed by the computer and semiconductor industries.

The largest portion of outsourcing will go to other industrial concerns -- largely those in the supply pipeline -- and commercial labs followed by academia and federal labs. Overall, about five percent is projected to be outsourced to foreign labs, but the general trend toward this mode of operations should grow.

The shifting demographics of the U.S. science establishment raise a warning flag. Many program managers, planners, teachers, researchers, and operating scientists and engineers are approaching retirement age. There are thus legitimate concerns regarding the number of future practicing science and technology employees working their way through the educational pipeline. In addition, there will be continuing needs for an educated public that can participate in the public debate over science and technology.

"Over the past decade, the character of U.S. research and development funding has undergone rather significant changes in what is generally an enterprise that is marginally predictable," Duga says. "These may well be seen as factors that have had, and will continue to have, impacts on the health and strength of the U.S. research and development enterprise."

Federal funding has been influence by the emphasis that was required to initiate special programs directed toward the global war on terror and the development of techniques to fight non-traditional types of ground wars.

Federal funding for research and development has also been affected by major federal budget deficits that accompanied the necessity of responding to the unanticipated damage associated with natural disasters.

Changes in industrial funding have been influenced by major moves toward establishing or pursuing research programs in financially and intellectually attractive offshore locales.

Other countries, particularly China and India, are making aggressive moves toward becoming formidable participants in the global research and development and technology arena, with resultant strengthening economic presences.

The next few years will likely see significant changes in the relative position of the U.S. research and development enterprise, and it will be necessary to engage in stronger ties with the overall international science and technology community.

The full report of the 2007 research and development Funding Forecast is in the January 2007 issue of R&D Magazine. The report also is online at www.rdmag.com. For more information contact Battelle online at www.battelle.org.

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