Federal R&D Funding: Corporate Welfare?

by Terry Costlow

Federal funding for high-tech R&D wasn’t a major focus during the recent election, but funding decisions made by the new Congress will spark debate in the electronics industry in coming months. While some believe funding could drive the emergence of exciting new technologies, others view many federal grants programs to be nothing short of welfare for corporations.

Executives in Silicon Valley and elsewhere push for open markets and a hands-off policy on hiring employees from overseas. But the industry also benefits when Congress doles out money for development programs. “Ninety billion (dollars) is our estimate for corporate welfare in the federal budget,” said Chris Edwards, director of tax policy at the Cato Institute in Washington, D.C. Farming gets the largest share of this largesse, while on the more technical side, the National Institute for Health receives $12 billion, he explained.

These handouts are layered atop other R&D benefits. “On the tax side, businesses can write off R&D — another reason we’re against funding research,” Edwards said.

Even those who think government must play a role in R&D funding agree that government money might be better used elsewhere. “Some programs have the perception of being corporate welfare,” said Clifford Lau, chairman of the IEEE-USA’s R&D Policy Committee. However, any large government program might have questionable aspects, and Lau believes government support for technology is critical for America’s future. “Industry is scaling back funding for research; therefore, government’s role is to stimulate basic pre-competitive research,” he said.

The innovation that derives from this basic research “is the engine that drives our economy,” Lau continued. “History demonstrates that innovative technologies pay back far more than the amount the government invests.” Government funding helped create the Internet and Doppler radar, and played a significant role in the development of nanotechnology and high-tech ceramics, among other things.

The Changing Face of Research

Though most federal R&D funding is earmarked for basic studies, researchers note that basic research has changed since the 1960s. “Back in the old days, I was given free rein,” said Nick Holonyak, a University of Illinois professor and IEEE Medal of Honor winner. “You can’t get that type of exploratory work anymore. Almost everything today is aimed at solving a specific problem.”

Some proponents say that changes in the global market, particularly the growing openness of China and the Soviet countries, should dictate increased government funding. “Half the world that was closed off a few years ago is now competing with us,” said Matthew Kazmierczak, research director at the American Electronics Association. “That also means they’ve opened markets, but it is increased competition.”

But Kazmierczak doesn’t believe the message is being heard in Washington. “Research in the United States is waning. In 1985, the U.S. spent 1.25 percent of GDP on R&D. Today we’re spending 0.75 per cent.” Holding constant for inflation, the $75 billion spent in 1987 represents the largest U.S. investment, he said.

Though on the decline, government spending was still $71 billion on R&D in 2002, Edwards said, noting that the entire semiconductor industry is expected to see $200 billion in revenues this year. However, observers note that the $71 billion got distributed to many different fields, most of those only loosely related to electronics.

“Much of the revenue has shifted to life sciences, particularly biology,” Kazmierczak said. Others say that most government funding goes to fields that have little to do with technology, partly because many executives have been outspoken about not wanting government aid.

“Silicon Valley has always been somewhat averse to that. They don’t get subsidies like farming and manufacturing,” Edwards said.

Instead, much of the federal funding goes to universities and research facilities, not to corporations. U.S. companies provide their own R&D funds. “Corporations spend twice as much on research as the federal government,” Edwards said.

The ultimate question may be whether this federal money, which could be spent on roads, medical care or elsewhere, actually provides any real benefit to industry. These determinations are always difficult, but observers note countries that have been more actively involved in technical fields still lag American corporations. “Europe has always subsidized high technology, but the United States continues to be the leader in many high-tech areas,” Edwards said.

Terry Costlow has been writing about engineering issues for more than 20 years. He can be reached at todaysengineer@ieee.org.