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Surge in R&D Spending: Stand By for Innovation

America's crucibles of innovation - corporate and university laboratories - could be headed for a fresh burst of activity this year.

For the first time in years, spending for research and development in the United States is projected to grow significantly, a shift some analysts say could continue into the 21st century.

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"This is the first year of truly substantial increases" in research spending in half a decade, says Jules Duga, a senior analyst who tracks R&D trends for the Battelle Memorial Institute, an technology-development firm in Columbus, Ohio.

R&D money is being spent on everything from the push for a closer shave to the quest to understand how the cosmos evolved. Even the most esoteric university-based research efforts can lead to inventions and patents that spawn start-up companies and generate new jobs for the economy, while training a new generation of scientists and engineers.

Last year, corporations, the federal government, and universities poured a combined total of $206 billion into R&D efforts. This year, the total could exceed $220 billion.

The increase is fueled largely by private industry, buoyed by a strong economy and rising profits. Dr. Duga says he expects companies to pump $143 billion - nearly two thirds of the nation's total - into R&D. After years of paring payrolls and redrawing organizational charts, he adds, corporate leaders have come to realize that "companies can't live off their laurels; they have to create new ones."

Meanwhile, overseas competition is likely to heat up, according to Debra van Opstal, vice president of the Council on Competitiveness, based in Washington. On the basis of a number of indicators, including R&D spending, the United States moved into first place on the council's "innovation index" during the 1980s and '90s, she says. "But by 2006, assuming no major changes in policy, the US falls to sixth place because the innovators' club has grown."

While corporate spending for R&D grows, federal spending could rise as well. The White House is asking Congress for $77.7 billion in R&D spending, a 2.2 percent increase over last year. The proposed budget contains the largest dollar request for civilian R&D funding in US history, according to Kerri-Ann Jones, acting director of the president's Office of Science and Technology Policy (OSTP). And under the new budget, the National Science Foundation and the National Institutes of Health would get the largest single-year increases ever.

Federal spending may account for only about one-third of the nation's overall R&D investment. But Washington's contribution plays a key economic role. In 1996, estimated sales of products invented during the course of academic research and later licensed to industry reached $20.6 billion and involved 248 start-up companies, according to Judith Rodin, president of the University of Pennsylvania in Philadelphia.

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Overall, 75 percent of all patent applications in the US cite publicly funded research as at least partly responsible for a particular discovery or invention.

While prospects remain strong for continued growth in the nation's research enterprise, some analysts see trouble ahead for the federal R&D budget. President Clinton's proposed increases in R&D spending hinge largely on passage of tobacco-industry legislation, whose anticipated income already has been "spent" to pay for everything from Social Security reform to new roads and bridges.

David Goldston, legislative director for Rep. Sherwood Boehlert (R) of New York, says that given competing claims on the tobacco bill's income, "The chances of tobacco money going to this [R&D] is very close to zero."

In addition, he says some members of the House are calling for as much as $154 billion in additional spending cuts during the next five years - despite next fiscal year's projected budget surplus.

Still, if the president's tobacco-funded "21st Century Research Fund" goes up in smoke, he adds, "There's no reason to panic - but there's no reason to celebrate either."

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