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Research and Development : A Comparison Between British and American Industry

Published online by Cambridge University Press:  26 March 2020

C. Freeman
C. Freeman*
Affiliation:
National Institute of Economic and Social Research
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Abstract

Throughout this article the word ‘research’ is, for convenience, used as short-hand for ‘research and development’—except in one or two instances where the context makes clear that development costs are being discussed separately. The comparison is restricted to manufacturing industry, and excludes capital expenditure.

Type
Articles
Information
National Institute Economic Review , Volume 20 , May 1962 , pp. 21 - 32
Copyright
Copyright © 1962 National Institute of Economic and Social Research

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References

Note (1) page 21 This should not be taken as implying that the distinction between ‘research’ and ‘development’ is unimportant; but in most of the available statistics the two are combined.

(2) FBI and NIESR, Industrial Research in Manufacturing Industry 1959-60; DSIR, Industrial Research and Develop ment, 1958; National Science Foundation, Funds for Research and Development in Industry, 1958, 1959, 1960.

(3) One of the main difficulties arises from the method of collecting research statistics in the two countries. In the United States these are collected on a company basis— according to the company's industrial classification. Inevitably there is some ‘blurring’ of the lines of division between industries, as companies may be active in several different industries, but are classified only to one. The British figures which are mainly used in this report, from the FBI Survey, were also collected on a company basis; but the’ blurring’ between industries is less sericus, as the largest companies gave separate figures for each of the major industries in which they are involved. The American statistics on research are also classified according to the object of the research, or product field; thus, on a product basis much more research is being done in electronics and aircraft than on a company basis, because companies classified to other industries are doing research in these fields. The British classification therefore falls somewhere in between the two American classifications. Wherever possible both sets of American figures are shown; the main comparisons which are made are valid whichever is used.

(4) The full justification of the exchange rate used is set out in the Appendix, page 33.

Note (1) page 24 In the United Kingdom 92 per cent of total Government research expenditure in industry was by the Service Depart ments and the AEA, and only 8 per cent by Civil Departments (Annual Report of the Advisory Council on Scientific Policy, 1959-60, Cmnd. 1167). In the United States, a rapidly rising proportion of total Government research expenditure in industry is accounted for by the National Aeronautics and Space Administration; but in 1959, which is the year of this comparison, well over 90 per cent of Federal Government expenditure in industry was accounted for by the Department of Defence and the Atomic Energy Commission (National Science Foundation, Federal Funds for Science, IX and X).

(2) See Appendix, page 34, for an explanation of these adjustments.

(3) In terms of the country's own definitions, these ratios were 15 and 3 for the United States and Britain respectively.

(4) The high share of research as a percentage of net output in America is largely due to the fact that research is relatively expensive there, and relatively cheap in Britain. The research exchange rate of $6.3 may be compared with a general production exchange rate of perhaps $3.5.

Note (1) page 25 D. C. Paige and G. Bombach, A Comparison of National Output and Productivity of the United Kingdom and the United States, OEEC, 1959, page 69. page 8.

(2) J. H. Dunning, ‘Anglo-American Research Co-operation and Industrial Progress’, District Bank Review, June 1956

Note (1) page 26 The comparison here is complicated by the fact that FBI membership is not representative of small firms; conse quently the surveys show 18 per cent of British small firms conducting research, compared with 4 per cent in the United States. There is little doubt that a representative sample in Britain would show that, as in the United States, 95 per cent of small firms do not conduct any organised research activity (excluding compulsory contributions to Research Associations).

(2) J. Jewkes, et al., Sources of Invention, Macmillan 1958, and J. Schmookler, ‘Inventors, past and present’, Review of Economics and Statistics, 1957.

(3) Using ‘research’ in the restricted meaning of the word.

(4) For example, there have been the agreements between Rolls-Royce and the British Motor Corporation, between Associated Electrical Industries and Reyrolle, and the agree ment on fuel cell development between British Petroleum, British Ropes, Guest, Keen & Nettlefolds and the National Research Development Corporation.

(5) Four-fifths of the respondent firms in the FBI inquiry reported that research projects had been rejected or postponed because of lack of resources; this is not in itself conclusive as there must always be some limitation.

(6) These divisions are in broad terms only. Thus the first group includes some consumer durable goods industries and the third group includes some industries producing basic industrial materials.

Note (1) page 27 The British figures of the proportion of Government expenditure in industry are estimates based on incomplete data, and until official figures are published showing, as the American figures do, a breakdown by industry, only tentative conclusions can be drawn.

(2) In comparing the British and American chemical ratios the product figures are probably a more reliable guide, as the company figures for United States employment include a rather high proportion of employees outside the chemical industry; this results in a low ratio per employee in the United States.

(3) Man-made fibres are included in chemicals.

(4) This contradicts some of the comments which were made on the FBI Survey—for example : ‘… some might say that the situation it reveals is a good and reassuring one; after all the R and D effort of British industry is found to compare well with that of American industry.’ Research and Development for Industry, February 1962, no. 6.

Note (1) page 28 FBI and NIESR, Industrial Research in Manufacturing Industry, 1959-60, table 13; ASLIB Proceedings, January 1962; Report of EPA Information Mission. This is not to say that the Research Associations do not perform useful services, or that they do not have some substantial advantages over other forms of organisation of research. Some of these advantages are discussed later in this article.

(2) FBI and NIESR, Industrial Research in Manufacturing Industry, 1959-60, pages 42 and 50.

(3) J. H. Dunning, ‘Anglo-American Research Co-operation and Industrial Progress’, District Bank Review, June 1956.

Note (1) page 29 The development of penicillin, fluorescent lighting, com puters and silicone are examples. J. H. Dunning, ‘Anglo- American Research Co-operation and Industrial Progress’, District Bank Review, June 1956.

(2) National Research Development Corporation, Report and Statement of Accounts, HMSO, 1961.

(3) R. Solow, ‘Technical Change and the Aggregate Production Function’, Review of Economics and Statistics, 1957, vol. 39, page 312. B. F. Massell, ‘Capital Formation and Technological Change in US Manufacturing’, Review of Economics and Statistics, 1960, vol. 42, page 182. S. Fabricant, ‘Resources and Output Trends in the US since 1870’, American Economic Review, May 1956, vol. 46. W. E. G. Salter, Productivity and Technical Change, Cambridge, 1960. D. C. Paige and G. Bombach, A Comparison of National Output and Productivity of the United Kingdom and the United States, OEEC, 1956.

(4) This was the conclusion reached by J. W. Kendrick in the most detailed study of United States productivity changes which has yet been undertaken : ‘Although we cannot measure it precisely, research and development activity is our best indication of the investment in scientific and technological advance that sooner or later results in productivity growth. We should not forget, however, that the volume and relative trend of this type of intangible investment depends on funda mental social values and institutions’. Productivity Trends in the United States, National Bureau of Economic Research, 1961, page 110.

(5) Correlations have also been found between changes in productivity and research expenditure. For example, a study by Terleckyj, quoted by Kendrick, correlated productivity changes from 1948-53 with research activity measured as a percentage of net sales. This showed a correlation coefficient of 20 industries of 0.62. (Kendrick, Productivity Trends in the United States, National Bureau of Economic Research, 1961, page 110). Several cases studied have also demonstrated an association between research activity, profitability and growth : Larrabee et al., Profit, Performance and Progress, American Telephone, 1959 and L. Silk, The Research Revolution, McGraw Hill, 1960. The FBI Survey also showed some positive association between research, profitability and the growth of firms.

Note (1) page 30 This is because authoritative surveys of research and development activity and full census of production data for both countries are available for 1958.

Note (1) page 32 These advantages are, for example, the more rapid dissemination of technological knowledge to all member firms within an industry, the avoidance of duplication and the possibility of greater concentration of effort on the principal problems confronting an industry.

(2) Economic Report of the President, January 1962, page 123.