One More R&D post...

The Economist wisely points out that:

"Merely counting pennies is no way to measure national prowess. Research spending is an input, not an output."

However, they do not propose an alternative metric.

It is also interesting to hear that:

"One reason why spending in Asia has risen is that American firms nearly doubled their R&D investments there in the decade to 2008, to $7.5 billion. GE recently announced a $500m expansion of its R&D facilities in China."

http://www.economist.com/node/21543170

Upvote Upvoted 0
1 response
SezFlom was wondering if this mattered at all. I think the jury is out on that. So the typical answer is yes and no. Yes because at least in some fields you cannot come up with new products without spending on R&D. Though higher spend does not always lead to a higher discovery rate. For evidence from the pharma sector look at Gary Pisano's book: Science Business. The recent data however are not telling a new story. R&D expenditure as a proportion of GDP has been declining in the U.S. since the 1970's at least.

Amar Bhide: The Venturesome economy argues that it does not matter. It's been a while since I read his book, but he makes a number of points. First he describes the R&D spend race as techno nationalism, which he thinks is pointless since the benefits of innovation are not appropriated by the country that does the R&D but they can be global, example: Apple. Share ownership is globally dispersed as are the consumer surplus benefits. Second, most of the $ benefits of inventions are not appropriated by the inventor, they lie downstream, so investments in intangible capital are important to capture the downstream benefits. Bhide has data which show that Asian countries invest primarily in tangible capital whereas the U.S. has huge investments in intangible capital. You could add to this the example of Kodak. They invented the digital camera and I am sure they spent a lot of
money on R&D, but clearly they did not benefit from the spend. There are other examples ... the VCR was also invented in the U.S. but the Japanese really capitalized on that rather than American firms. So R&D spending is just part of the puzzle. As are R&D personnel or the number of students studying science and math or science and math scores. These may affect future capabilities or dictate where countries can play in the future, but they do not guarantee outcomes.

— Ashish