R&D pays: Economists suggest 20% return on public investment for research and innovation

27 Jun 2017 | News

New economic review by Science|Business finds strong evidence of R&D impact – but huge variation in estimates, and uncertainty over which programmes work best

Funding science and technology is a good economic bet. In fact, a new Science|Business report suggests, the long-term payback is on the order of 20 per cent a year.

The report, based on a review of economic studies around the world, finds wide variation in how economists estimate the impact of public R&D investment – ranging from a dead loss in some cases to 14,000 per cent in others, depending on the type of technology, the nature of the programme, and the way the impact is measured.

But over the past decade, the report finds, a preponderance of broad economic analyses has pegged the long-term return on one euro of public investment in the area of 20 cents a year.  This compares to a 6.8 per cent annual return for the past 10 years of the US stock market (S&P 500) or 3.1 per cent for 10-year Euro Area Government Bonds.

The report, by the Science|Business Network for research and innovation policy, comes at a time of enormous political uncertainty. The Trump Administration has proposed drastic budget cuts for science and technology in the US, while in China the government continues to raise its public R&D budgets. In the European Union, member-states recently authorised the first joint EU military R&D programme, and are just starting to debate the next big civilian R&I effort, Framework Programme 9.

“Our economic review confirms that research and innovation can be one of the most valuable ways for a government to spend its money – but the details of how, when and where matter profoundly,” said Richard L. Hudson, Editor-in-Chief of Science|Business. “In most countries, decisions on where the money goes is a matter of political whim rather than hard evidence. As a society, we need much more economic research to identify what works, and what doesn’t, in R&I spending.”

Around the world, governments spend more than $1.7 trillion a year on research and development – but often have difficulty tracking the impact. Some investments have had profound impact, such as the US Human Genome Project in the 1990s which, by one estimate, for every dollar invested paid back $141 in new medicines, products, services and employment. Likewise, the European Union’s investment over 30 years in mobile technologies – funding more than 380 research projects, and in the 1980s and 1990s leading the charge for cross-border technology standards – catalysed the growth of mobile phone markets around the world.

But economic efforts to measure impact across multiple sectors, taking account of winner and loser programmes, have been harder. Nevertheless, a growing body of evidence on return on investment is clustering around 20 per cent. Because researchers have used different assumptions for their work, however, it is impossible to perform a so-called meta-analysis to make sense of them all at once.

The report, by Science|Business policy analyst Philip Hines, was released on 27 June in Brussels, at the annual meeting of the Science|Business Network. It brings together 58 companies, universities, and public-sector organisations dedicated to research and innovation.

The group also released a report on international cooperation in research and innovation, urging changes in the EU’s Framework Programme to boost global participation. As with all Science|Business policy and news reports, the opinions expressed are those of Science|Business itself and do not necessarily reflect the views of Network members.

About Science|Business:

The Science|Business Network, founded in 2004 by three prominent European science and technology journalists, brings leaders in academia, industry and policy together for regular private and public meetings to debate policy, share intelligence, and develop recommendations to government. It also publishes a regular newsletter and reports on EU research and innovation policy at www.sciencebusiness.net.

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