Research and Development

Research and development (R&D) is defined by the Organisation for Economic Co-operation and Development as “creative work undertaken on a systematic basis in order to increase the stock of knowledge… and the use of this stock of knowledge to devise new applications.” As this definition indicates, R&D is more than just scientific inquiry; it is also the application of new knowledge (scientific or otherwise) for the generation of economically useful products and processes. The “research” part of R&D is often associated with scientific inquiry in one form or another. The “development” part of R&D utilizes engineering skills to apply research results to create new or improved products and processes. Development is also closely linked to commercialization, although these two activities can be, and generally are, distinct.

It is a mistake to conceive of R&D as a linear process; backward linkages typically occur. Often, issues arise in the development and commercialization phases that require kicking the project back to the research team for further study of the fundamentals of the mechanisms involved in hopes of improving the product or process. This type of iterative process has, in fact, proven quite successful in the past, resulting in such landmark innovations as nylon, catalytic cracking, Viagra, compact discs, and a host of other breakthrough technologies. Because these new technologies rapidly destroy the markets for existing products and processes, R&D is the source for the “creative destruction” witnessed throughout the 20th century. The typewriter, slide rule, vinyl record, fax machine, and many other familiar products have become (or are becoming) obsolete in the face of the output of corporate R&D. R&D is not the sole activity of high-technology firms, but is a presence as well in the service industry. Financial corporations undertake R&D to design and develop new financial products and new ways to deliver these products to the market. Over the last few decades, R&D conducted by the U.S. financial industry introduced such innovations into the international economy as ATMs, online banking, and smart credit cards.

Corporate R&D can be traced back to the German chemical industry in late 19th century. The results of these R&D efforts were impressive with Germany achieving leadership in the so-called coal-tar products including dyes, medicines, synthetic resins, and fuels. The United States in the 20th century expanded corporate R&D to an unprecedented scale. Prior to World War II, General Electric and Jersey Standard (Exxon) were early leaders in developing extensive and effective centers of R&D. Jersey Standard's R&D department, for example, was critical in the research and development of advanced catalytic cracking technologies and, during World War II, played a vital role in the synthetic rubber program. By the 1950s, most of corporate America emulated these earlier models and the R&D department proliferated throughout industry. It is no coincidence that these years also ushered in historic expansion of the American economy.

With the spread of globalization, a process that in fact can be traced to the years immediately following World War II, companies in other countries emulated the U.S. model. Through the second half of the 20th century, a country's R&D activity has been viewed as a prime indicator of its ability to compete on the global stage. By the first decade of the 21st century, the developed nations competed for primacy in resources dedicated to R&D activity. By 2006, all industrialized (or developed) countries undertook significant R&D activity at both the public and private levels. The United States leads all other countries in total R&D expenditures (US$343 billion in 2006), [Page 1361]followed in order by (2006 figures) the European Union (EU) (US$231 billion), Japan (US$130 billion), and China (US$115 billion). However, in terms of percentage of gross domestic product (GDP), China leads at 4.3 percent, followed by Japan (3.2 percent), the United States (2.6 percent), and the EU (1.8 percent). These figures indicate an Asia aggressively competing with Western countries in their commitment to an aggressive R&D initiative as a key strategy to advanced technologies and the economic growth that results.

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