American manufacturers are responsible for more than two-thirds of all private sector R&D, which ultimately benefits other manufacturing and non-manufacturing activities.\u00a0 More than 90 percent of new patents derive from the manufacturing sector and the closely integrated engineering and technology-intensive services.\u00a0 The U. S. economy has been the innovator of virtually all major technologies developed since World War II.<\/p>\n
Manufacturing R&D is conducted in a wide array of industries and businesses of all sizes.\u00a0 The heaviest R&D expenditures take place in computers and electronics, transportation equipment, and chemicals (primarily pharmaceuticals.)<\/p>\n
The competitive status of U. S. manufacturing is increasingly challenged by the state-of-the-art technologies being developed by established nations such as Japan, Germany, Korea, and Taiwan.\u00a0 Emerging economies, such as China, are acquiring advanced manufacturing capability through R&D tax incentives, incentives for direct foreign investment, and theft of intellectual property.<\/p>\n
According to the 2010 annual survey conducted by the Industrial Research Institute<\/a> (IRI), 53% of the companies responding said they plan to increase R&D spending in 2011.\u00a0 The managers expected this increase to be focused on new business projects while support of existing businesses and directed basic research would remain relatively flat.\u00a0 This is the first increase since 2008 after a 30% drop in R&D spending during 2009-2010.\u00a0 External collaborations through alliances and joint ventures continue to be an area of increased emphasis according to the managers surveyed.\u00a0 The most disturbing trend is that about 70% of companies surveyed now have R&D facilities overseas<\/strong>.<\/p>\n However, federally funded R&D has declined over the past two decades, with only a slight increase during the Bush administration from 2002 \u2013 2008.\u00a0 In 1985, federal R&D funding represented 1.25% of U. S. GDP compared to only .80% of GDP in 2004.\u00a0 In addition, federal R&D funding has shifted away from technology, engineering, physical sciences, and math and computer science, to life sciences.<\/p>\n America\u2019s manufacturing innovation process leads to investments in equipment and people, to productivity gains, the spreading of beneficial technology to other sectors, and to new and improved products and processes.\u00a0 It is an intricate process that begins with R&D for new goods and improvements in existing products.\u00a0 As products are improved in speed, accuracy, ease of use, and quality, new manufacturing processes are utilized to increase productivity.\u00a0 Education and training of employees is required to reap the benefits of such improvements in manufacturing processes.<\/p>\n Innovation is the hallmark of U. S. manufacturing, and it requires a certain mass of interconnected activities, which like a snowball rolling downhill grows in size as it proceeds towards end users.\u00a0 Substantial R&D is required to keep the ball rolling to ensure more successes than failures.<\/p>\n Innovation and production are intertwined.\u00a0 You need to know how to make a product in order to make it better.\u00a0 \u201cMost innovation does not come from some disembodied laboratory,\u201d said Stephen S. Cohen<\/a>, co-director of the Berkeley roundtable on the International Economy at the University of California, Berkeley.\u00a0 \u201cIn order to innovate in what you make, you have to be pretty good at making \u2013 and we are losing that ability.<\/p>\n In his book Great Again<\/em>, Hank Nothhaft, recently retired CEO of Tessera Technologies writes that \u201cIn our arrogance and our own naivet\u00e9, we told ourselves that so long as America did the \u2018creative\u2019 work, the inventing, we could let other nations do the \u2018grunt\u2019 work \u2013 the manufacturing.\u00a0 We did not yet understand that a nation that no longer makes things will eventually forget how to invent them.\u201d<\/p>\n Manufacturing is an incubator for technology and science, which require proximity to facilities where innovative ideas can be tested and worker feedback can fuel product innovation.\u00a0 Without this proximity, the science and technology jobs, like customer service jobs, follow the manufacturing jobs overseas.<\/p>\n The ability to fund R&D comes largely from the profits that a company can invest back into its business.\u00a0 Thus, the available cash flow of manufacturing companies is closely linked to their ability to conduct R&D as well as make capital investments.\u00a0 The severe recession of 2008-2009 dramatically reduced corporate profits and resulted in a drop in corporate R&D.\u00a0 In addition, when multinational companies keep their profits in offshore divisions in order to avoid paying \u00a0U. S. corporate income taxes, it reduces their funds for conducting R&D in the U. S. and encourages them to conduct R&D overseas.<\/p>\n The process through which R&D promotes economic prosperity is complex and multi-faceted.\u00a0\u00a0 First, there are direct benefits to companies from their own R&D investments.\u00a0 Second, other companies derive benefits from the R&D of the innovating company in a \u201cspillover\u201d effect.\u00a0 A \u201cspillover\u201d is where R&D performed by one company benefits other companies without direct compensation for the innovation. Third, the feedback from R&D and its spillovers improves other products, processes, and distribution networks.\u00a0 Fourth, one industry\u2019s investment has a beneficial effect on other industries and the U. S. economy as a whole.\u00a0 \u201cSpillover\u201d effects are increased through sales transactions and knowledge transfers when the parties involved are interdependent and closer in geographic proximity. (Securing America\u2019s Future:\u00a0 The Case for a Strong Manufacturing Base, by Joe Popkin and Company, June 2003, prepared for the NAM Council of Manufacturing Associations)<\/p>\n The maintenance of an effective U. S. R&D network is essential for attracting domestic and foreign R&D funds and the subsequent manufacturing that results from the innovation process, which increases U. S. value-added resulting in economic growth.<\/p>\n The problem today is that with the offshoring of so much manufacturing, certain tiers in the high-tech supply chain are disappearing in the U. S.\u00a0 This is the case for certain electronic components, such as capacitors and resistors.\u00a0 When a tier in a supply chain has been moved offshore, domestic research and other supporting infrastructure are degraded, which can be a major problem for U. S. manufacturers transitioning to the next product life cycle.<\/p>\n In the past, technology would flow from the new domestic R&D-intensive industries into the remainder of the economy, boosting overall national productivity.\u00a0 Today, such emerging technologies are flowing at least as rapidly to the innovators\u2019 foreign partners or suppliers.<\/p>\n