US Outpaces rest of world by large margin in R&D Spending, and our patent system helps us keep the advantage

Today the Wall Street Journal reported that the US leads the world in R&D spending – at $450 billion – by a wide margin, outpacing Japan by a 3 to 1 margin, and most of the rest of the industrialized world by a factor of 4-10 to one.  (“How China Chases Innovation”, U.S. News – The Outlook, by Bob Davis, WSJ)  About 2/3 of all R&D spending in the US is privately funded.  China was the closest in R&D spending, at about 1/2 the level of the US.  Only Japan, Germany and South Korea spent more as a percentage of GDP.   Interestingly, all the top R&D spending countries ,as a percentage of GDP, had strong patent systems.  The lowest spending countries, Brazil and India, have notoriously weak patent systems.  Interestingly, despite its large R&D spend, China lags the world in “new ideas”, still focusing on imitating Western technologies and producing them more cheaply.

With the US leading in R&D spend, and China and other developing nations leading in low cost production, common sense tells us the patent system plays a vital role in protecting the US’s R&D spend against free-riding, low wage, imitator nations.

If you want a look at what competition in the US would be like without a strong patent system, just take a look at China, where copying is rampant, and a large percentage of innovators are rewarded with having their products cloned and their business destroyed.

While a lot of time is spent focusing on the perceived unfairness of paying a so-called “troll” (more fairly called non-practicing entities or NPE’s) for the right to make or sell a product, the reality is that the intellectual property rights asserted by NPE’s typically do not come cheap.  For example, companies like Microsoft and IBM Corporation spend heavily on advanced R&D, and without the patent system to help protect their investment and obtain a reasonable return, they would no doubt greatly reduce their spend.

The reality is that the US now exists in an entirely different world than it did even 30 years ago – a world in which power and wealth are tied more closely to ownership of intellectual property than to manufacturing production.   Is this a world in which the US wants to lead the effort to reduce the value of intellectual property protection?  I don’t think we need a Ph.D. in economics to answer that question for us.  What we need to do is take a step back and look at the patent system as a whole, and realize that all in all, the patent system heavily favors innovator nations like the US, not imitators in low wage countries.  While you can always find examples of where the patent system didn’t work as hoped for, there are many more examples for each of these where it did.

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