R&D is Not Innovation

From Prof. Pielke (Jr's) blog:

During the 1950s and 1960s, advocates for government investments in science and technology (mainly basic research at universities) pulled off a remarkable coup. They successfully integrated conceptions of "basic research" with a linear model of innovation, making R&D a key variable in expectations for what led to national economic competitiveness.

The most recent science policy statement of the US National Academy of Sciences, ominiously titled, Rising Above the Gathering Storm (RAGS), led off with this warning (here in PDF), which illustrates such expectations:

The prosperity the United States enjoys today is due in no small part to investments the nation has made in research and development at universities, corporations, and national laboratories over the last 50 years. Recently, however, corporate, government, and national scientific and technical leaders have expressed concern that pressures on the science and technology enterprise could seriously erode this past success and jeopardize future US prosperity.

But does R&D spending correlate with economic success? Not necessarily says John Bussey in the WSJ:

Asia is spending so much on R&D that this year it will pull ahead of total spending in the Americas for the first time.

Advantage Asia?

Maybe not. In the world of R&D spending, more doesn't necessarily mean better. And R&D may not describe all the innovation that matters.

"I think the numbers are pretty useless," says Michael Schrage, a research fellow at MIT's Sloan School who has studied the subject. "What matters more is the kind of innovator you are. If it were really true that the people who spent the most on R&D were the most successful, we wouldn't be subsidizing General Motors.""There's no statistically significant relationship between how much a company spends on R&D and how they perform over time," adds Barry Jaruzelski of Booz & Co.

Why do we believe that R&D is the wellspring of economic growth? Because we have been seduced by an incorrect reading of economic theory that has distorted Schumpeterian economics and the so-called Solow residual....MORE