Monday, March 17, 2008

USA High Tech R&D Trending Down

We've come a long way since Thomas Edison, baby! Among other things, the Wizard of Menlo Park (the one in Joizee, not California) also invented the concept of the modern industrial research lab; existing outside and independently of the cloisters of academia, where most significant research was done prior to Edison. So effective was Edison's Yankee ingenuity, that it was ultimately embraced by such emblematic American corporations as AT&T (Bell Labs), HP (Labs), IBM (Watson Labs), and Xerox (PARC), as well similar companies in Europe (Philips, Siemens) and, of course, Japan. In fact, 25 years ago, Japan had the USA so threatened by its growing economic clout that it would have been considered suicidal for the U.S. not to invest heavily in R&D.

Now, we read that U.S. high-tech R&D is trending downward even further; the PC language is "narrowing our focus" . Like the continual reduction in the Fed Prime Rate, how low can you go before you have no effect? Moreover, how can such trends have been considered suicidal 25 years ago but embraced today? Japan has not gone away, and now China and India also loom as respectable tech competitors in their own right. Not being an economist, I can only think of one explanation: Wall Street. Actually, it's not exactly a new trend because it began more subtly around 15-20 years when the aforementioned corporations slowly started to divest themselves of the large-budget Edison model. Why would they do that? It's around that same time that the U.S. population at large started becoming more invested in Wall St., either directly or indirectly (e.g., retirement accounts). This trend has since been adopted in places like Europe and Australia.

The Street demands short-term gains be reported quarterly, no matter how that goal is accomplished; witness the current sub-prime banking debacle as one potential outcome of trying to meet such insane demands. But if profits in the USA are up (as they measureably are--or have been until very recently), why is there less money going into R&D? Shouldn't the percentage of profits, at least, remain constant? To answer this question, I would point to none other than "Mr. Capitalism" himself, Warren E. Buffet (see if you can guess his point before clicking on the link). Just as the deregulated financial industry has imploded (again--lest we forget the S&L debacle of the late 80's), I think Edison would be appalled at the self-destructive shift of profits out of R&D and into executive compensation packages. Sadly, it seems the Wizard of Menlo Park continues to be overshadowed by the Wizards of Wall Street. OK, end of rant.

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