Finding The Right Mix Of R&D

There's a simple cure for the sad decline of many U.S. industries: Invent better products, and consumers will beat a path to your door. So, how can companies attain technological leadership? Part of the answer is to invest heavily in research and development. But not just any kind of R&D. For too long, those corporate research labs that concentrated on the "R" churned out important discoveries without turning them into products. In the more recent past, companies have responded to the recession by focusing too much on the "D." That can boost competitiveness in the short term, but it will leave companies unable to come up with the big innovations needed for long-term survival.

The good news is that some U.S. companies seem to be learning from these mistakes. Not only are they raising R&D spending in these difficult times, they are finding ways to do both R and D--and to speed up the process. If the trend continues, these companies will be producing more innovative products for the same R&D buck.

At the same time, it's also clear that Washington can do more to help. After all, Uncle Sam spends $74 billion a year on R&D. Yet the vast majority of this money goes for defense and space, areas that no longer spin off many new technologies to the private sector. That's why Washington needs to redirect some of this money to key areas, such as automation, advanced manufacturing, and robotics, that will leverage industry's own R&D. It could also build a technological infrastructure--test facilities and computer networks--companies could use. And it needs to do more in educating industry about the latest science and technology advances around the world. Couple these steps with the improvements in companies' own R&D, and you have a good start toward a national competitiveness policy.

Before it's here, it's on the Bloomberg Terminal.