Business Should Rally Round The Labs

The economic recession may be ending, but not the recession in corporate spending for research and development. A recent survey by this magazine (BW--July 1) indicates that R&D outlays by U. S. companies rose just 2.2% last year in inflation-adjusted terms--the second smallest increase in 15 years. And the National Science Foundation projects no real growth at all in such spending this year.

The fact that the R&D slump reflects both the sluggish economy and government cutbacks in defense does not lessen its dire implications for U. S. competitiveness. Other nations facing slowdowns have managed to keep such investment on a rising course--from 2.8% to 7.5% in real terms in Canada, Germany, Italy, and France last year. What's more, there are signs that U. S. companies are neglecting their strongest suit: basic research aimed at new technologies and products. Stung by Japan's prowess in applying the fruits of research to quality product development, they are finally concentrating on upgrading their product lines. Unfortunately, many also appear to be cutting back the kind of high-risk research that leads to new products and technologies.

Clearly, R&D investment cannot be hostage to the vagaries of the market and the business cycle if the U. S. is to maintain its competitive vitality. The government, which sponsors roughly half of the nation's R&D, needs to lead the way--by shifting more of its focus from such areas as defense and aerospace to emergent civilian technologies and by making the R&D tax credit permanent. And Wall Street needs to find a better way of valuing research efforts. In the end, however, it is companies that must resist short-term pressures and recognize that balanced and sustained R&D is essential to their growth and survival.

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