OECD: Research funding cuts threaten global innovation

A decline in government funding of science and technology research in some countries – including four of the world’s 10 biggest economies – could pose a threat to innovation at a time when global challenges such as climate change and ageing populations demand solutions, according to a new Organisation for Economic Co-operation and Development, or OECD, report.

Spending on research and development, or R&D, in government and higher education institutions in OECD countries fell in 2014 for the first time since the data were first collected in 1981, the report says. Countries with declining public R&D budgets include Australia, France, Germany, Israel, the Netherlands, Poland, Sweden, the United Kingdom and the United States.

In a thinly veiled reference to the political situation in the UK, US and across Europe, where anti-elite, anti-immigration sentiment has been growing in popularity, the report warns that a backlash against globalisation and migration in some countries could also become a cause for concern given that innovation is increasingly driven by cross-border cooperation and the ability of scientists, students and entrepreneurs to move about and work in different countries over their careers.

The report, OECD Science, Technology and Innovation Outlook 2016, says R&D spending in government and higher education labs, most of which is provided by governments, began flattening out in 2010 following three decades of growth.

A separate indicator, total R&D spending by governments – most of which is carried out by public entities but may also be done by the private sector funded by public grants – is receding in many countries as other policy priorities such as state pensions, health and social care are absorbing a growing share of public resources, the OECD says.

Data on the percentage of government budgets dedicated to R&D for 2000 and 2015 show that while countries like Germany, Japan and South Korea are spending more now on R&D than in 2000 as a share of total expenses, others including Finland, France, Italy, Spain, the UK and the US have reduced their R&D efforts.

Total government spending on R&D in the OECD area has been declining since 2009, following the global financial crisis.

“Economic growth depends on innovation, and innovation will be vital to solve the big global headaches of the 21st century, from ageing populations and dementia to climate change and inequality,” said OECD Science, Technology and Innovation Director Andrew Wyckoff.

“Maintaining public funding of R&D, open science and international mobility for researchers is absolutely fundamental for the future of innovation and our future in general.”

The report says government funding of R&D is likely to plateau at current levels or decline further given pressure on public finances in many countries and sluggish economic growth.

Tilting away from universities

A tendency among governments to focus more on offering R&D tax incentives to firms than funding R&D in universities and public laboratories is also tilting the balance towards the private sector. That can mean funds are allocated to where new products or profits are most likely rather than to less directly focused research which is often the source of unexpected breakthroughs. Business R&D tends to favour development over pure research.

Although they carry out less than 30% of total R&D in the OECD area, universities and public research institutes perform more than three-quarters of basic research. They often undertake longer-term and higher-risk research, as well as the kind of projects that have more potential to translate into tangible societal benefits, the OECD says.

Artificial intelligence and personalised medicine are two examples of innovations that came about thanks to scientific and technological developments enabled by public research.

Key findings of the report include:
  • • Over a third of the research done globally in government and higher education institutions takes place in non-OECD economies. China spent around twice as much on public R&D as Japan in 2014. India, Russia, Chinese Taipei, Iran and Argentina have some of the world’s biggest public science systems.

  • • Five countries – the US, China, Japan, Germany and India – accounted for 59% of global public R&D in 2014, while 25 countries were behind 90% of the total. This dominance by a few partly reflects their large size. In the future, economies with fast-growing populations and gross domestic product, as in Africa, may become more important players.

  • • Charities, foundations and philanthropists have become increasingly prominent funders of university research in recent years, particularly in the area of health where they often fund research into rare or tropical diseases. This will have an impact on future public research agendas.

  • • Different countries currently have different specialisations: for example, health and medical science takes up 24% of public R&D spending in the US, 22% in the UK and 17% in Canada, while energy R&D is 19% of the total in Mexico, 11% in Japan and 9% in Korea. Country priorities are changing and increasingly reflect the growing societal challenges mentioned above such as climate change and demographics.
Powerful forces

The report warns: “Powerful forces, rising from deep socio-economic, environmental, technological and political trends – so called megatrends – are influencing developments in economies and societies, shaping our future, often in unexpected ways.

“These multidimensional, mutually reinforcing and sometimes opposing megatrends will affect the direction and pace of technological change and scientific discovery and influence future science, technology and innovation activities and policies.”

The report says ageing societies, climate change, health challenges and growing digitisation are, among other factors, expected to shape future R&D agendas and the scope and scale of future innovation demand.

Novel markets are likely to emerge, creating new skills needs and new growth and job opportunities. New approaches to sustainable growth, such as the circular economy, are emerging.

“The megatrends raise urgent issues that demand policy responses, but the capacities of governments to intervene will likely face major constraints, including high public debt, increasing international security threats, a possible erosion of social cohesion, and the rise of influential non-state actors that challenge their authority and ability to act,” the report says.

Public sector science will continue to play pivotal roles in developing knowledge and skills for exploitation in the wider economy. But it will undergo its own transformation, the OECD says.

“Emerging technologies are opening up a new age for research. Big data and algorithms are generating huge amounts of data, changing scientific methods, instruments and skills requirements and creating new fields of research,” the OECD says.

The next frontier

“Open science is the next frontier. Open data access priorities are increasingly widespread. Encouraging the sharing and re-use of research data could generate more value for public money.”

As a result science is becoming a “less institutionalised endeavour”, with citizens conducting their own research alongside the scientific community. However, “deep changes in academic culture will be necessary to realise the full potential of a more open science”.

The OECD warns that funding issues will evolve. The proportion of public spending that goes to R&D is unlikely to increase, and a decline in the public funding of universities is already noticeable in many countries.

“Public science will need to find new sources of funding, including from philanthropists and private foundations, and this will have impacts on future public R&D agendas."

Precarious careers

“Research careers will also remain precarious, especially for women, with consequences for attracting future generations of researchers,” the report says.

Despite the gloomy outlook for OECD countries, several emerging economies such as China have increased R&D spending in recent decades and OECD countries account for just a small portion of the increase in R&D capacity worldwide and their share of global gross spending is in decline, a trend that is likely to continue.

China, with the second-largest science base in the world, spent around twice as much on public R&D as Japan in 2014. “A more multipolar global research landscape is therefore likely to emerge, with Asia in particular set to play an increasingly prominent role,” the report says.

Some OECD countries in particular are suffering from slower economic growth and ageing populations putting pressure on public spending, which could see the share of public R&D budgets in gross domestic product fall as governments pursue anti-austerity policies.

But other OECD countries are fast increasing public R&D budgets. These include Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, Iceland, Japan, South Korea, Luxembourg, Portugal and Spain, the report says.