Research, Development, Manufacturing, and Imports
In the December 2005 edition of IEEE Spectrum magazine, they list the top 100 R&D spenders for 2004, worldwide. The top 10 are (or were):
As the statistics above show, the US produces lots of research, much of which benefits the rest of the world. The next time you hear that Americans are wasteful because they comprise 4% of the population but use 25% of the world's resources, remember that Americans actually helped in the production of those resources: Arabian Oil comes to the US and many other countries because the Arabian-American Oil Company (Aramco) developed the infrastructure. Of the Top 100 list's total of $254 billion in research, US companies spent $98.124 b or about 39%. The amazing thing is that although US companies are over-represented as a share of population in the Top 10, they are also increasingly dominant in the lower half of the Top 100. That is, while many foreign countries employ industrial policy that favors the support of a few mega-industries (corporatives they once called them), the more-or-less freewheeling US economy has lots of smaller actors. If we did the same analysis of the Top 200, I suspect that we'd find more and more American domination.
The Top 100 are dominated by Technology hardware ($64.8 b), Automobiles ($61.9 b), Pharmaceuticals ($51.7 b), Capital goods (airplanes) ($25.9 b), Consumer durables and apparel ($19.8 b), software and services ($8.9 b), Materials (chemicals)($8.4 b), and telecomm ($5.3 b). The article starts off with a naive statement: although the funding for the National Institutes of Health doubled between 1998 and 2003 (so much for ol' Cut Back on the Gubmint W. Bush myth) from $13.1 to $26.4 b, they ask
I heard a statistic the other day that I have since confirmed: manufacturing makes up only about 15% of the US economy. In that context, I heard someone else say that we are becoming more dependent on foreigners for our goods and our food. That isn't exactly a clear conclusion. Although the agricultural sector employment and share of the economy has decreased from something like 90% in 1776 to 2-3% today, we grow far more food then ever, both in absolute terms and per capita. The same is true of many manufactured goods. The US makes as much steel as we ever did, but it takes only 25% of the labor it did in 1990 to make the same amount. The difference isn't in output volume, it is in input. Technology and other factors have led to huge increases in productivity that allow us to make more with less. So much more that we have extra money to spend on things that we didn't even need and probably couldn't even get 30 years ago: PCs, cell phones, video games, hybrid cars. If we are importing these, it's most likely because of productivity increases that lead to increases in the national wealth and more disposable income. For reference, check out the figures in this (warning: large pdf) government report on manufacturing. Manufacturing output has remained steady, but the other parts of the economy have grown too, so manufacturing looks smaller as a percentage of the economy. For more reference, check out the latest data in the Statistical Abstract (another government report), which shows that although manufacturing is a lower percentage of total GDP (13.85% in 2004 vs. 14.19% in 1998 in chained dollars), the amount spent on it has gone up ($1.5 trillion vs. $1.39 trillion, chained dollars) even as the per unit prices have gone down (that is to say, we are not only building more, but we are getting more for our money). We may be producing as much steel for less money than 30 years ago, but we're also producing more steel substitutes that weren't even available, like carbon fiber.
And why would other countries spend more on health care R&D when they can free ride on the American taxpayer, the American health consumer, and American drug companies? It works like this: we pay taxes which are spent on NIH, Medicare, and Medicaid. We pay full price for drugs, including the amortized R&D costs. Foreign countries then strong-arm the drug companies to offer their goods in those countries at the marginal cost of manufacture; they pay only the manufacturing costs, not the production costs (which include both manufacturing and the amortized R&D). They strong-arm them by saying, "Play our game, and we won't declare your patents null and void and start really free riding on you." Nice deal if you can get it, but rather than thanking the American consumer, they sneer at our system. They tell us we should be like them; they want us to kill the Golden Goose and get all of the eggs for free. According to the IEEE figures, American drug companies spend 57% of the total amount spent on pharmaceutical R&D. That's a heck of a free ride by the other 96% of the world's population.
- Ford, $7.400 billion (US), 4.3% of sales, $23,000 per employee
- DaimlerChrysler (Germany), $7.187 b, 4.0%, $19k/emp
- Toyota (Japan), $7.052 b, 4.1%, 27 k/emp
- Pfizer (US), $6.613 b, 12.6%, $58 k/emp
- General Motors Corp. (US), $6.500 b, 3.4%, 20 k/emp
- Siemens AG (Germany), $6.431 b, 6.7%, 15 k/emp
- Microsoft Corp (US), $6.184 b, 15.5%, 108 k/emp
- Matsushita Electric Industrial Co. (Japan), $5.748 b, 7.1%, 17 k/emp
- GlaxoSmithKline PLC (UK), $5.251 b, 13.9%, 53 k/emp
- Johnson & Johnson (US), $5.203 b, 11.0%, 47 k/emp
As the statistics above show, the US produces lots of research, much of which benefits the rest of the world. The next time you hear that Americans are wasteful because they comprise 4% of the population but use 25% of the world's resources, remember that Americans actually helped in the production of those resources: Arabian Oil comes to the US and many other countries because the Arabian-American Oil Company (Aramco) developed the infrastructure. Of the Top 100 list's total of $254 billion in research, US companies spent $98.124 b or about 39%. The amazing thing is that although US companies are over-represented as a share of population in the Top 10, they are also increasingly dominant in the lower half of the Top 100. That is, while many foreign countries employ industrial policy that favors the support of a few mega-industries (corporatives they once called them), the more-or-less freewheeling US economy has lots of smaller actors. If we did the same analysis of the Top 200, I suspect that we'd find more and more American domination.
The Top 100 are dominated by Technology hardware ($64.8 b), Automobiles ($61.9 b), Pharmaceuticals ($51.7 b), Capital goods (airplanes) ($25.9 b), Consumer durables and apparel ($19.8 b), software and services ($8.9 b), Materials (chemicals)($8.4 b), and telecomm ($5.3 b). The article starts off with a naive statement: although the funding for the National Institutes of Health doubled between 1998 and 2003 (so much for ol' Cut Back on the Gubmint W. Bush myth) from $13.1 to $26.4 b, they ask
Why hasn't all this government largesse motivated the private sector to spend more of its own money on life sciences R&D?Two responses come to mind. First, duh! -- it's called "corporate welfare". Why should the companies increase their own spending when they can free ride? In fact, their benefit at the public trough is the trojan horse by which many would nationalize pharmaceuticals. Second, all spending ain't the same. In the early twentieth century, the federal government back Samuel P. Langley's attempts to build a heavier-than-air flying machine. While his taxpayer-supported efforts failed spectacularly, the Wright Brothers succeeded on their own dime. Why don't we learn? As many readers may recall, the government started the Human Genome Project in 1988 to map human DNA at a planned cost of $3 billion and schedule of 18 years. The task was actually accomplished by a private firm (Celera) in 3 years and using $300 m of their own money.
After all, government spending on R&D isn't supposed to replace that of the private sector but to complement it -- by fostering an increase in general scientific understanding, honing the skills of graduate students, and correcting for market failures that would result in underinvestment... Given that the NIH funding increases began almost eight years ago, it stands to reason that pharmaceutical and biotechnology firms should be increasing R&D spending to exploit new discoveries and technologies generated by NIH-funded projects.
I heard a statistic the other day that I have since confirmed: manufacturing makes up only about 15% of the US economy. In that context, I heard someone else say that we are becoming more dependent on foreigners for our goods and our food. That isn't exactly a clear conclusion. Although the agricultural sector employment and share of the economy has decreased from something like 90% in 1776 to 2-3% today, we grow far more food then ever, both in absolute terms and per capita. The same is true of many manufactured goods. The US makes as much steel as we ever did, but it takes only 25% of the labor it did in 1990 to make the same amount. The difference isn't in output volume, it is in input. Technology and other factors have led to huge increases in productivity that allow us to make more with less. So much more that we have extra money to spend on things that we didn't even need and probably couldn't even get 30 years ago: PCs, cell phones, video games, hybrid cars. If we are importing these, it's most likely because of productivity increases that lead to increases in the national wealth and more disposable income. For reference, check out the figures in this (warning: large pdf) government report on manufacturing. Manufacturing output has remained steady, but the other parts of the economy have grown too, so manufacturing looks smaller as a percentage of the economy. For more reference, check out the latest data in the Statistical Abstract (another government report), which shows that although manufacturing is a lower percentage of total GDP (13.85% in 2004 vs. 14.19% in 1998 in chained dollars), the amount spent on it has gone up ($1.5 trillion vs. $1.39 trillion, chained dollars) even as the per unit prices have gone down (that is to say, we are not only building more, but we are getting more for our money). We may be producing as much steel for less money than 30 years ago, but we're also producing more steel substitutes that weren't even available, like carbon fiber.
And why would other countries spend more on health care R&D when they can free ride on the American taxpayer, the American health consumer, and American drug companies? It works like this: we pay taxes which are spent on NIH, Medicare, and Medicaid. We pay full price for drugs, including the amortized R&D costs. Foreign countries then strong-arm the drug companies to offer their goods in those countries at the marginal cost of manufacture; they pay only the manufacturing costs, not the production costs (which include both manufacturing and the amortized R&D). They strong-arm them by saying, "Play our game, and we won't declare your patents null and void and start really free riding on you." Nice deal if you can get it, but rather than thanking the American consumer, they sneer at our system. They tell us we should be like them; they want us to kill the Golden Goose and get all of the eggs for free. According to the IEEE figures, American drug companies spend 57% of the total amount spent on pharmaceutical R&D. That's a heck of a free ride by the other 96% of the world's population.
Labels: health-care
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