Decline in R&D spending is predicted for this year

Experts fear effects on productivity, growth of economy

November 24, 2001|By BLOOMBERG NEWS

WASHINGTON - U.S. companies this year have begun shelving inventions and slicing outlays for science and engineering laboratories after five years of record growth in research and development spending.

Spending may decline for the first time in eight years in 2001, industry and government analysts say. Companies such as Compaq Computer Corp., 3Com Corp. and Lucent Technologies Inc. are making cuts as profits slip during what has been called the first recession in a decade.

Fewer new software programs, computer chips and medical devices may reach the market as a result, endangering productivity gains that make economic expansion possible without aggravating inflation.

"If you cut back too sharply today, you impair your growth tomorrow," said Robert B. Austrian, a senior technology analyst with Banc of America Securities in San Francisco. "This is a tricky balancing act."

From 1994 to 2000, research and development spending by the nation's companies, government agencies, nonprofit groups and universities grew 56 percent to more than $264 billion, according to the National Science Foundation, a federal agency.

The amount produced by each employee for every hour worked began to surge at about the same time. Productivity grew an average of 2.5 percent a year from 1996 to 2000, compared with average annual gains of 1.4 percent over the previous 20 years.

During that five-year span at the end of the 1990s, the U.S. economy grew an average 4.1 percent a year, a full percentage point faster than over the span from 1976-95. Consumer prices rose an average 2.5 percent from 1996-2000, less than half the inflation rate of the previous two decades.

Companies, which shelled out $197 billion of total R&D spending in 2000, may lower their contribution as much as 5 percent this year to about $188.5 billion, said F.M. Ross Armbrecht, president-designate of the Industrial Research Institute, a nonprofit organization that tracks such outlays.

"It's long-term, so it's considered to be expendable," said Armbrecht, a chemist.

A third-quarter survey of 157 executives of multinational companies by the consulting firm PricewaterhouseCoopers found 80 percent plan to cut research and development spending, or hold it steady, up from 63 percent in the second quarter who said they would do so.

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