Red Flag Research

One of the factors that made the U.S. such a dominant nation in the 20th century, it can be argued, is industrial research. The establishment and growth of large laboratories by U.S. companies in fields such as electronics, aeronautics, and chemistry had an enormous impact on the economy, from nylon to semiconductors to Post-it notes. Company labs, particularly for basic research, are on the decline, and that change is having an impact, too.

Corporate research labs are not what they used to be. Aside from the still strong R&D done by the pharmaceutical and biotechnology industries, a lot of companies have chosen other paths for innovation. One is to move their facilities overseas, primarily to Asia, where a highly educated workforce is waiting and less restrictive laws can energize the research process. Dow Chemical, for example, is building a major R&D facility in China that is expected to employ 600 people, and General Electric has 2,200 scientists and engineers at its research center in Bangalore, India.

Another path is to get scientists outside of the industry to do the basic research here in the U.S. But this is a path that has had unintended consequences for universities and science as a whole.

Federal government support for research at universities—except for medical research—has not risen substantially in years and has been flat or negative when inflation is considered. So it happened that university scientists were looking for new sources of funding at about the same time as some companies were cutting their in-house basic research. The result has been a significant increase in industry-sponsored university R&D since the 1980s.

By the 1990s, there was also a huge concern about scientific conflict of interest. As researchers did more work for companies, the perception, if not the reality in some cases, was that such research was not totally objective but rather was skewed toward the wants of the corporation. Most universities had to develop detailed conflict-of-interest guidelines for scientists to keep problems at a minimum. But the perception of conflict continues and can be seen particularly in how difficult it has become to seat scientists on government advisory boards or study committees when they have done corporate-funded research.

The faltering of federal science support has resulted in industry becoming the major spender on research in the U.S., providing close to two-thirds of total R&D funding. In academe, industry provided 5.4% of all research funds in 2003, according to National Science Foundation data, whereas federal support was 61.7%. Industry support may seem small, but the percentage has grown faster than all other sources over the past 20 years.

Data from the latest survey of member companies by the Industrial Research Institute confirm that these R&D trends are continuing. Companies responding to the survey say that balancing long-term and short-term R&D objectives is one of the biggest problems they face. The survey also finds that companies are planning to increase their outsourcing of R&D to other companies and to forge more contracts with federal labs. And although there is no indication of increases in basic research spending, companies plan “sizable increases” in grants and contracts for university R&D.

Unlike federal grants, however, which have few strings attached and few expectations, industrial research is looking for a product. The inevitable result is that scientists will stop pursuing long-term, purely basic research in favor of more applied studies with more promise to deliver near-term applications and products for the corporate sponsor.

The outcome of this change will be less innovation. As university scientists work and train their graduate students to do more directed research—because that is where the grant money is—there eventually will be less basic knowledge from which to innovate. U.S. companies will become more reliant on R&D performed overseas, even as those nations develop their own technological industries. Giving up long-term research in favor of short-term goals will not sustain a technologically driven industry for long. This corporate R&D situation has been likened to the old story of the frog that is sitting is a pot of water slowly being heated to a boil. The frog doesn’t jump out because it doesn’t even realize it’s dying.

But maybe U.S. firms aren’t like that frog and do realize they could be in trouble. Perhaps the shifting of basic research out of companies is part of a long business cycle that has yet to come full circle. Perhaps a new paradigm for innovation is evolving that makes substantial industrial basic research unnecessary. Whatever the situation, the solution will likely include a return to improved corporate funding of long-term basic research. And the companies that can do this first will be better off—in the long term.

Views expressed on this page are those of the author and not necessarily those of ACS.