Have U.S. R & D expenditures declined?

My just-finished, month-long marathon speaking tour -- talking to many groups and audiences about creative problem solving -- ended with NASA's Innovative and Advanced Concepts Symposium in Seattle. (More on the trip, including my skype encounter with Edward Snowden, soon.)  But my number one takeaway is how eager so many folks are, in our civilization, to enhance our greatest advantage -- the trait of openness and exploration of new ideas, new solutions, new ways of getting things done. You see this, for example, in the runaway popularity of the hit film The Martian, and its central theme of innovative competence.

Very few issues are more reflective of attitudes toward the future than where politicians and pundits  and ordinary people come down toward Research and Development, or R&D.  

According to sage estimates, we owe half of the value of our economy... plus most of our increased health and lifespan... to technological advancements wrought by past investment.  And very likely the liberty to enjoy them and to argue freely across miracles like the one you are staring at, right now. 

Has our rate of R&D declined?  Certainly climate-related research has been axed, every time the GOP gets a chance... though it has grown increasingly clear that the hostility is aimed at science, in general. 

Some claim that declines in federally-funded pure research are made up for by increases in pragmatic, short-term, product-oriented development in many industries.  Let's dive into that for a few, nerdy paragraphs:

"Economists often use the ratio of Research and Development expenditures to GDP to examine R&D in the context of a nation's overall economy. This ratio reflects the intensity of R&D activity in relation to other economic activity and is often interpreted as a relative measure of a nation's commitment to R&D.

 Since 1953, the first year for which national R&D data are available, U.S. R&D expenditures as a percentage of GDP have ranged from a minimum of 1.36 percent (in 1953) to a maximum of 2.87 percent (in 1964).

"From 1994 to 2001, R&D outpaced growth of the general economy and the R&D/GDP ratio rose close to its historic high. It is estimated that the amount of R&D performed in the United States equaled 2.71 percent of the United States GDP in 2001 and 2.64 percent in 2002.[8]

Most of the growth over time in the R&D/GDP ratio can be attributed to steady increases in non-Federal R&D spending.

"Non-federally financed R&D, the majority of which is company financed, increased from 0.63 percent of GDP in 1953 to an estimated 1.90 percent of GDP in 2002 (down from a high of 2.02 percent of GDP in 2000). The increase in nonfederally financed R&D as a percentage of GDP illustrated in figure 4-5 figure corresponds to an upward trend in R&D and technology intensive activities in the U.S. economy.

Historically, most of the peaks and valleys in the R&D/GDP ratio can be attributed to changing priorities in Federal R&D spending. The initial drop in the R&D/GDP ratio from its peak in 1964 largely reflects Federal cutbacks in defense and space R&D programs. Gains in energy R&D activities between 1975 and 1979 resulted in a relative stabilization of the ratio. Beginning in the late 1980s, cuts in defense-related R&D kept Federal R&D spending from keeping pace with GDP growth, whereas growth in non-Federal sources of R&D spending generally kept pace with or exceeded GDP growth."

{Source: U.S. and International Research and Development: Funds and Technology Linkages}

== Okay, that's one perspective. ==

 But the rise of corporate R&D -- 

(1) is very near-term and product focused. It does not create seed corn, as farther-horizon federally funded research does, and…

…(2) Rising corporate R and D masks a deeper problem that we'll get to, in a future posting -- that this corporate research funding is not being matched by equivalent investment in actual productive capacity aimed at longer range returns.  Instead, the "financialization of capitalism" has lead to companies selling off not fat, but muscle, bone, sinew and brains, all in order for CEOs to meet quarterly dividend and stock price targets.

... (3) Ironically, this proves that Karl Marx, while a bright observer, was also really dumb at times.  His entire scenario of eventually being able to do without the services of bourgeois capitalists depends upon the assumption that society must build a certain level of capital stock, infrastructure, factories by capitalists stealing and investing labor value from workers.  Once they have “completed capital formation,” there’s no further need for capitalists.  The Prols take over and no one’s labor value gets stolen any more to invest in factories and such.

We now know this to be insane.  In a modern society, productive capital must be retooled at an ever-faster pace!  Hence, there is no end to the need for an entrepreneurial caste… though it can be tamed, kept honest and regulated for fairness to workers and the environment and to keep market competition flat-open-fair. 

In fact, the current Chinese “communist” party openly admits that Lenin’s Great Error was not keeping to his original plan of allowing Russian capitalists a role in the early Soviet economy, according to Marxist theory, but instead deciding to kill them all, hoping capital formation could be done by State Committee.  That proved disastrous and the Chinese now rationalize that they are bypassing that mistake! By fully unleashing their capitalists to perform their historical-economic role.  Indeed, they factor in the need for rapid re-tooling and allowing capitalists to be incentivized by wealth.

Alas, this rationalization fails on many levels.  First, most of the “privately owned” Chinese companies are in fact state enterprises which are subsidized and never have to earn a profit.  Second, so much of it is based upon predatory theft of IP from Inventing Nations. Some of this is to be expected — America was a major IP thief in the 19th century!  

But the rapaciously insatiable approach that is now the entire basis of their inflated system risks -

 (a) killing the goose that lays golden eggs, 

 (b) eats away at your moral underpinnings, and

 (c) devastates any chance of creating an autonomously fecund local inventing caste.

In other words, bypassing Lenin's Great Mistake does not protect you from making the next one... the assumption that you can maintain a repressive society that quashes individual creativity, by stealing creative elements forever from nations who you deem to be "cattle."

The presumption does not work.  It cannot. There are other, braver approaches, with better prospects.

== The crux? You're all nuts! ==

Seriously.  Every dichotomy that's zero-sum should be treated with suspicion.  Those screaming at sinful-greedy "capitalism" are actually denouncing what Adam Smith called the number one enemy of truly functional, flat-open-fair-creative enterprise -- the rent-seeking and parasitical conniving of oligarchs.  The devastating form of cheating that manifested in 99% of societies that ever had agriculture, across 6000 years.

It was the underlying reason for our revolution and new enlightenment.  Lest we forget.  And neither today's insipid, ill-educated right, nor the reflexive and passionately simple-minded left have even a clue.

Moving forward is going to take a wide stance, utilizing (though never trusting) government for what it does well... and breaking up undue concentrations of cheating power in the world of commerce, so that it will function as well. 

 Above all, we must want to solve problems.  That means investing in tomorrow.  It truly is that simple.