Funding R&D at Local Universities: What is Our Commitment to the Innovation Pipeline?

Research and development expenditures at local universities is an indicator of our nation’s commitment to seeding the innovation pipeline.  New ideas—some with commercial applications—flow forth from U.S. academic centers, particularly in strong innovation regions like Silicon Valley.  So, how are we doing?  The latest numbers are in.  The story is mixed.

The long-term trend nationally has been positive.  Over the past decade, between 2005 and 2014 (the latest data available), R&D expenditures at U.S. universities grew an inflation-adjusted 17%.  However, between 2013 and 2014, the amount of total R&D funding at U.S. universities actually dropped from $68.1 billion to $67.2 billion.

R&D Growth Total August 2016

 

Some innovation regions have done much better than the nation as a whole over the past decade.  New York City metropolitan area substantially outperformed the national average over the past decade, increasing its university-based R&D expenditures by 68% between 2005 and 2014.  So too did Boston (+34%) and Seattle (+26%).

Silicon Valley, however, did not kept pace with the national average, increasing its R&D expenditures only 12% during the past decade.  Our region did outpace Austin (+10%) and Southern California (+9%).

Was the New York City metro area’s rapid rise really the result of a large percentage gain from a small base?  No, the region recorded a total of $3.6 billion in university-based R&D funding in 2014, larger than the totals in Boston and Silicon Valley, and well ahead of those in Seattle and Austin.

Taking a closer look at what happened in 2014, only Silicon Valley and New York City metro universities did better than the nation as a whole. Silicon Valley’s R&D expenditure rose one percent between 2013 and 2014 while the R&D fell one percent across all U.S. institutions. New York City experienced the fastest annual growth in R&D expenditures of the comparison regions (+7%) while levels in Boston, Seattle, and Austin dropped.

Certainly, a lot of R&D takes place outside universities and those figures are not included in these totals.  So, these numbers are an indicator of our commitment to idea generation in academic settings, which has been an important source of innovation in Silicon Valley over the decades.  Does that fact that we have lagged the national average in long-term R&D growth a cause for concern?

Clearly, decreasing federal funding for basic research is an important factor.  Still, some regions have fared better than others – and this may be because universities in these regions have diversified and expanded their sources of R&D funds as the federal pie has shrunk. Universities increasingly leverage other non-federal sources of R&D funding including funds from state and local government, business, nonprofit organizations, and the institution’s own funds.

R&D Expenditures 8.2016

 

In 2014, 54 percent of total R&D expenditures in Silicon Valley’s universities came from the Federal government, the lowest of the innovation regions. At the same time, a diversified set of funding sources is likely to be a more sustainable source of R&D funds.

Silicon Valley does match Boston in overall university-based R&D expenditures, even though Boston has a larger number of institutions.  But, what about the fact that Southern California and New York City both have substantially higher levels of university-based R&D investment than Silicon Valley?  Does it matter and should we care?  If so, what should we be doing about it?  Let us know what you think.

 

John Melville is Co-CEO of Collaborative Economics.