Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 19
3
IMPACTS ON THE U.S. ECONOMY AND
QUALITY OF LIFE
What is known about the contribution of research to GDP,
productivity, wages, employment, and private sector R and D? Is there a
basis for setting a target for aggregate research spending? How can the
flow of knowledge from research into particular economic activities be
measured? These were some of the questions addressed during the
session of the workshop on the direct economic benefits of research
spending. Three speakers looked at such issues as R and D’s influence on
productivity gains, the association between research activity and local
labor market conditions, and citations in industrial patents to publicly
funded research. These have been the principal avenues for measuring
economic benefits of research
FEDERAL RESEARCH AND PRODUCTIVITY
From the 1950s to the 1970s, many studies examined the broad
outcomes of federal R and D, but fewer studies have occurred in recent
decades, said Carol Corrado, Senior Advisor and Research Director in
Economics at the Conference Board. She presented recent results from
investigations of the relationship between R and D and productivity,
taking mostly a “30,000-foot perspective.” She also emphasized a key
prospective change in the U.S. national accounts. Starting in 2013, R and
D spending will be capitalized as an investment instead of being treated,
as it is now and has been historically, as an intermediate expense. This
means that both private and public R and D will raise bottom-line GDP
and national saving.
According to Corrado, the total U.S. R and D investment level has
been stable since the 1980s as a share of GDP. Since 1959, the share of
19
OCR for page 20
20 MEASURING THE IMPACTS OF FEDERAL INVESTMENTS IN RESEARCH
all R and D investment funded by the public sector has declined relative
to that funded by the private sector, with rough stability in both sectors
since about 2001. The total nominal R and D investment in 2007 was
$407.5 billion, with business at $269.6 billion, government at $117
billion, universities at $10.6 billion, and nonprofits at $8.4 billion.
Corrado investigated the R and D intensity of eight industries over
two time periods: the 1990s and the 2000s. When the R and D intensity
of each industry matched Total Factor Productivity (TFP) estimates, as it
did for the 1990s, R and D can be interpreted as the sole driver of
productivity gains. The 1990s data also show that the computer industry,
which was heavily subsidized by federal R and D, outperformed the
others. In fact this industry seemed so exceptional that Corrado removed
it to look solely at the other seven industries for more general trends. But
even excepting computers, R and D appeared to be the sole driver of the
productivity gains of the 1990s.
However, the same comparison showed that R and D contributed
only 30 percent to the average industry productivity gain in the 2000s,
Corrado said. This analysis had too little data to draw firm conclusions,
according to Corrado. The analysis also was not able to measure the
impacts of investments in the life sciences on human health, though the
Bureau of Economic Analyses (BEA) is working to introduce a
healthcare satellite account. Also excluded from this analysis was
educational services, which may require a geographically localized
approach.
The productivity growth of the 1990s suggests that the Internet and
demand for networked devices were key drivers of economic activity in
that decade, said Corrado. Government played “a classic role” in
supporting new technology when several private companies worked with
NSF to set up the first T1 telephone data line in 1987. This federal R and
D created infrastructure and also helped to close “valleys of death” in the
commercialization of research.
Corrado also called attention to the dwindling share of
manufacturing in the U.S. economy. What does it mean for policy if the
United States moves to an economy characterized by “designed in
California, made in China”? she asked.
Finally, she observed that innovation is “more than science.”
Studies suggest that firms innovate based on intangibles such as product
design, new business processes, and staff knowledge building, not just
new research results. An estimate for 2001 put R and D’s share of
OCR for page 21
21
IMPACTS ON THE U.S. ECONOMY AND QUALITY OF LIFE
spending on all of these intangibles at just 16 percent, although R and D
dollars could influence the outcome of spending on other intangibles.
Corrado said that the source of innovations needs to be better
understood. For example, Virgin Atlantic holds a patent on the design of
its first class cabins, which is one example of how the notion of a science
and innovation policy can be broadened. The role of diffusion, which
could help explain the changes from the 1990s to 2000s in the industries
she analyzed, also needs more intensive study.
INDIRECT ECONOMIC BENEFITS OF RESEARCH
Government research expenditures are increasingly justified in
terms of economic benefits such as job creation. But the practical
benefits of research are disputed even by some scientists, said Bruce
Weinberg, Professor of Economics and Public Administration at Ohio
State University, and there is little accepted methodology for estimating
these benefits.
Weinberg focused on “indirect benefits.” He described these as the
“productivity spillover benefits” beyond particular products or processes
that develop out of research. Examples include a better trained workforce
that generates higher productivity, solutions to industrial problems, new
infrastructure, or hubs for innovation. Even if these spillover benefits
turn out to be smaller than the direct benefits, “they are important and are
increasingly driving the discussion about the cost and benefits of
research.”
One way to estimate the economic benefits of research is through
job creation, but Weinberg noted that “this poses deep fundamental and
practical problems.” For example, if a job pays $50,000 a year, the value
of the job to a person is really that amount minus what a jobholder would
have been earning on another job. Also, as wages go up in science jobs,
people may move to science from other occupations, which moves jobs
from one sector to another rather than creating jobs.
Instead, Weinberg suggested focusing on outcomes—wages or
productivity— in places where more science and research is carried out.
What should be estimated, he said, is whether research leads to more
productive industries in local economies.
Weinberg related measurements of research in particular cities to
economic metrics of those cities. He asked whether wages and
employment are better in cities where more research is being done. He
OCR for page 22
22 MEASURING THE IMPACTS OF FEDERAL INVESTMENTS IN RESEARCH
also looked at measures of innovation such as patenting in cities with
more science.
Based on preliminary results for U.S. metropolitan areas, a positive
correlation exists between wages, employment, and academic R and D,
he said. The results indicate that a 1 percent increase in academic R and
D is associated with roughly 120,000 more people employed and $3
billion more earnings in a metropolitan area. Weinberg cautioned,
however, that these results are far from definitive because of
confounding factors. For example, science-intensive cities may be
different from other cities, or workers may have different abilities across
cities. “The literature hasn’t really addressed the underlying challenges
convincingly,” he said.
“If I were to summarize the literature, I would say there is some
evidence that science or research impacts wages, industrial composition,
and patenting, but these estimates are weak,” Weinberg concluded. For
the future, it is important to think about productivity spillovers not
simply in terms of job creation but by doing studies that “unpack the
mechanisms by which science and research impact economic outcomes.”
BEYOND CITATIONS AND PATENT REFERENCE COUNTS
A common way to measure knowledge flows among universities,
government laboratories, and firms is through citations in patents to
patent references (PR) assigned to universities, federal laboratories, or
research institutes and citations to non-patent references (NPR) with an
author affiliated with a university, federal laboratory, or research
institute. Such references provide “rich data that can be used across
industries and firms and over time,” said Michael Roach, Assistant
Professor of Strategy and Entrepreneurship at the Kenan-Flagler
Business School at the University of North Carolina.
However, patent citations also suffer from some limitations, Roach
acknowledged. Not all inventions are patented or even patentable, so
such studies are limited in what they can observe. Similarly, not all
knowledge flows are citable or cited. Firms may not want to disclose
important developments, or industrial authors may overuse citations,
which is a trend Roach has found in his research. As a result, citations
likely mismeasure knowledge flows, either randomly or with a
systematic bias.
OCR for page 23
23
IMPACTS ON THE U.S. ECONOMY AND QUALITY OF LIFE
In particular, NPR citations capture knowledge flows through
channels of open science (such as publications), direct use of
technological opportunities in new R and D projects, and knowledge
flows to firms’ applied research. NPR citations do not but should capture
knowledge flows through contract-based relationships, intermediate use
in existing projects, and knowledge flows to firms’ basic research
activities. All things considered, Roach concluded that citations likely
understate the impact of public research on firms’ performance.
Roach described a study done with Wesley Cohen (Roach and
Cohen, 2011) that used the Carnegie Mellon R and D Survey of
manufacturing firms to measure a firm’s use of public research. The “key
takeaway,” according to Roach, was his calculation showing that the
unobserved contribution of public research to innovative performance is
comparable to what is observed. They estimate that observed knowledge
flows account for about 17 percent of firms’ innovative performance
while unobserved flows account for about 16 percent.
Future research should concentrate on NPRs, Roach said. Though
such data are costly to obtain, they are one of the best measures available
to measure knowledge flows. He suggested that the National Bureau of
Economic Research and the U.S. Patent and Trademark Office make
NPR data more readily available to scholars.
Other external data could be used to measure knowledge flows, such
as NSF’s recently expanded Business R and D and Innovation Survey
(BRDIS). Also, the origins of citations need to be better understood. “We
need to be looking at the micro level,” Roach said, echoing points made
in the previous panel. Research needs to look at inventors, scientists, and
firms— “trying to get inside that black box.”
DISCUSSION
Alfred Spector of Google commented on Corrado’s description of
the change in national accounts making R and D a capital investment.
Spector noted that firms currently expense research because they do not
know what the results of the research will be. Corrado replied that while
some business accountants are resisting the change, those who favor it
say it can provide a ”holistic picture of how and where firms make their
investments. . . . What you set aside today to generate future
consumption— in other words, what you forego today— is your
OCR for page 24
24 MEASURING THE IMPACTS OF FEDERAL INVESTMENTS IN RESEARCH
investment.” She explained that national accounts do not have to line up
with firms’ accounting practices.
The session moderator, Bronwyn Hall, said that publicly held firms
use Financial Accounting Standards Board (FASB) policy for expensing
R and D. An advantage is that expensing R and D offsets current income.
The problem from an economic analysis perspective, Hall said, is that “in
the United States, the value of firms even when the market is down is
substantially higher than the value of their tangible capital assets.” When
one looks for what explains the difference, “capitalized R and D is the
first thing” one sees.
In response to a question about how research funders can generate
more positive spillover effects from research, Weinberg pointed out that
research funding is more likely to have positive effects in nearby location
than distant locations. Improvements in dissemination could enhance
information flows, and there are many ways to study the impacts of this
dissemination.
