Basic Scientific Research Fading from American Companies

April 8, 2015
Innovation, Management

American corporations have cut back on the basic scientific research that helped fuel the technology boom of the last 50 years, new research shows.

While spending more on research overall, companies are focusing more on the applied research that makes money and investing less in the basic science that makes those applications possible.

Large companies are abolishing their own scientific capabilities and spending money on applications that can yield fast profits, rather than the groundbreaking research that underpins innovation, according to a working paper from Duke University Fuqua School of Businessprofessors Sharon Belenzon and Ashish Arora, plus Andrea Patacconi of the University of East Anglia.

The group studied changes in the level of research investment between 1980 and 2007 by more than 1,000 firms engaged in research and development. Among other measures, they found the share of those firms publishing research papers fell from 17 percent to 6 percent during that time, while the proportion filing patents increased from 15 percent to 25 percent.

Their working paper, "Killing the Golden Goose? The Decline of Science in Corporate R&D," was released by the National Bureau of Economic Research.

In the early 20th century and especially during the boom years after World War II, American corporations invested heavily in hiring scientists and building research facilities, the researchers said.

"Though that resulted in some very profitable discoveries — nylon is one, by DuPont — firms often found their scientific advances did not match the markets they were operating in," Arora said.

More commonly, groundbreaking discoveries by one firm would be turned into profit by others. Xerox, for example, pioneered the graphic user interface that Apple and Microsoft used in their computers.

"The thing about basic research that is so, so valuable is that you are creating something that is a public good, something anyone can use," Belenzon said. "This is why it spurs innovation and creates growth and technical change in the whole economy. But from an individual company's standpoint, it also means you are making the investment and somebody else is reaping the benefit."

Previous studies have documented how since 1980, in part due to the advent of stronger patent protections, smaller firms have accounted for a much larger share of innovation. Larger firms divested themselves of research units and simply paid smaller firms for their discoveries.

Belenzon and his colleagues set out to study how the investment of large firms in science — through acquisition of smaller firms — changed over time.

"What we found is that large firms not only outsourced these scientific abilities over time, they also invested less and less in science," Belenzon said. "And when they acquired science from other firms, the amount of money they paid for the scientific capabilities of those firms decreased."

"We show that while research expenditure is going up, the mix of research is moving away from basic research into more applied research," Belenzon said. "This is something no one had looked at in the past. It reconciles the puzzle that R&D expenditures are rising but growth rates are stagnating."

The concern is that this unwillingness to invest in basic science also makes it harder for smaller firms to sustain the kind of basic research that leads to innovation.

"Large firms want to focus on more applied research, and if you're a small firm and you want to sell your technology to larger firms, they are only going to pay for the applications," Belenzon said. "There's no longer an incentive for pure scientific research. This obviously raises concerns if you believe we have this kind of prosperity in the U.S. because of science. It is alarming and concerning."

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