25 March 2012

Manufacturing and Industrial R&D

UPDATE 3/37: In the comment Matt H. (Thanks!) points us toward a just-released  data update from AAAS -- here in PDF -- which has industrial R&D by total and as percent of GDP.

It's a common assertion among those who argue that manufacturing is special -- the decline of manufacturing in the economy will cause a commensurate decline in industrial research and development. Today that argument appears in the LA Times in an op-ed by
The United States also has put at risk its greatest asset: the return on its intellectual capital. We have let China learn by doing, South Korea innovate by manufacturing, India build new capabilities in design and research and development — much of it on the back of initial American innovation.

With manufacturing gone to China, for example, R&D followed Apple to Foxconn. Applied Materials set up a major R&D shop in China, where solar cells are being manufactured. GE, Texas Instruments, Cisco and others established major R&D and design centers in Bangalore, India.

Why? Because you can't do R&D offshore from a distance. The "look-see-do" of innovation depends on close ties to the manufacturing process. Proximity to manufacturing is the key to other higher-value activities — design, engineering and R&D. And with that, jobs.
One big problem with such arguments is that they lack a basis in actual data.

The graph at the top of this post shows data collated by the AAAS on industrial R&D (the type that Narayanamurti is worried about) which indicates that the period with the most precipitous drop in manufacturing jobs (after 2001) did not see a commensurate decline in industrial R&D. (See this Batelle report in PDF which says that US 2010 industrial R&D exceeded $400 billion, indicating that the trend shown by AAAS continued). The fact that other countries are building their R&D capacities is a good thing and does not diminish the US in any way.

The idea that the decline of manufacturing as a proportion of the economy and net jobs has also resulted in a decline in industrial R&D makes for a great talking point. Unfortunately, it is just not supported by the evidence.

9 comments:

MIKE MCHENRY said...

International corps set up "Technical Centers" in overseas operations to avoid being technically blind in those markets. There some things that just have to be local and there are often tax reasons. In the latter case India comes to mind. It's hard to get profits out. Its been going for a very long time. Just check out oldies like Exxon Mobil or GE. Journalists are making a story where there isn't one.

Dimitry Papkov said...

"Why? Because you can't do R&D offshore from a distance. The "look-see-do" of innovation depends on close ties to the manufacturing process. Proximity to manufacturing is the key to other higher-value activities — design, engineering and R&D. And with that, jobs."

Funny. Israel has one of the most advanced and booming R&D cultures in the world, but almost no major manufacturing. Strange dat.

Christopher said...

It would be especially interesting to see these numbers as a percentage of GDP.

Roger Pielke, Jr. said...

-3-Christopher

Here you go,

Thru 2007: http://www.aaas.org/spp/rd/usg07.pdf
2010: 2.85% http://www.rdmag.com/uploadedFiles/RD/Featured_Articles/2009/12/GFF2010_ads_small.pdf

MIKE MCHENRY said...

Roger #4

Is there a R&D/GDP trend line for the EU?

Roger Pielke, Jr. said...

-5-Mike McHenry

Yes, Europe has good data on this, see:

http://europa.eu/rapid/pressReleasesAction.do?reference=STAT/09/127&type=HTML&aged=0&language=EN&guiLanguage=en

About 1.85% in 2001 and 2007, and about 1% lower than in US

Matt H. said...

Roger and Mike - If you visit: http://www.aaas.org/spp/rd/presentations/aaasrd20120322.pdf

and scroll to slide #11, you'll an up-to-date R&D/GDP graph for the US, EU, and a handful of others, as of 2009.

Cheers,
Matt

Roger Pielke, Jr. said...

-7-Matt H.

Excellent, thanks ... I have added an update to this post.

(Small request: can you put the graphs on the AAAS site as jpg? For ease of linking. Thx!)

MIKE MCHENRY said...

Roger 6 and Matt 7 Thanks! The most anomalous country is Japan. High R&D spend sagging innovation and sluggish economy.

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