Following the Dollar – How Spending on R&D, Engineering & Innovation Can Make or Break Economic Growth

Features

  • Author: Lillian Pierson, P.E.
  • Date: 07 Jul 2014
  • Copyright: Image appears courtesy of iStock Photo

World Bank’s recent reports uncover global economic statistics showing that China’s economy is flourishing in the area of high-tech manufacturing, while the USA and EU nations steadily loose ground by failing to adequately increase their annual R&D expenditures. When statistics clearly show that China’s approach is quickly putting the country towards the front of the global pack, why are western nations so hesitant to adopt similar practices?

thumbnail image: Following the Dollar – How Spending on R&D, Engineering & Innovation Can Make or Break Economic Growth

Lots of Money is Coming in From Foreign Direct Investments (FDI)

Back in the early 1980s, the USA and EU nations were leading the charge in terms of international econometrics and investment money coming from foreign nations (FDI). The USA and EU nations were getting far more FDI money than other countries. But then, around 1993, things made a sudden change. From about 1992 onward, the amount of FDI money invested in China began increasing at a surprising rate. Although, the USA and EU still had the rest of the world beat in terms of Foreign Direct Investments, China was making up for a slow start by receiving sizable annual increases of FDI funding. In fact, between 1982 and 2012, China has enjoyed average FDI increases of $8.2 Billion per year, while the USA’s FDI funding only increased by $6.2 Billion per year on average. By 2013, China had effectively “caught up” with the USA and EU nations in terms of how much investment money it receives every year from foreign nations.

China Uses Its Foreign Investment Money to Encourage R&D Advancement

This is where things get interesting. Although USA, China, and EU nations have enjoyed comparable average annual increases in foreign investments, there’s a pretty stark contrast in the amount of money being spent on annual R&D expenditures from 1996 to 2011. Each year, China has seen average increases in its R&D expenditures that are four times greater than the average R&D expenditure increases in both the USA and EU nations. And China has over 1.5 times as many mouths to feed as both the USA and the EU combined! That shows some pretty serious dedication to the advancement of R&D and innovation within China – or just a complete lack of commitment to R&D in the USA and EU nations, you decide.

Each year, China has seen average increases in its R&D expenditures that are four times greater than the average R&D expenditure increases in both the USA and EU nations. And China has over 1.5 times as many mouths to feed as both the USA and the EU combined!

Where does R&D Money Go?

According to the World Bank, R&D money is money used on “expenditures for research and development (…) current and capital expenditures (both public and private) on creative work undertaken systematically to increase knowledge, including knowledge of humanity, culture, and society, and the use of knowledge for new applications. R&D covers basic research, applied research, and experimental development.”

Money spent on R&D pays for work being done in all types of engineering, but particularly work done in automotive, mechanical, chemical, electrical, computer, energy, aerospace, and mining engineering. Some of the top R&D spenders in the years 2005 to 2013 included companies like GM, Ford, Toyota, IBM, Intel, Siemens, and Microsoft. Decreases in R&D annual expenditures generally mean lay-offs and pay cuts for hard-working, well-deserving engineers.

Investing in R&D, Innovation, and Engineering Equals Real Economic Value-Added

How has intense investments in R&D benefited the Chinese economy? Well, if economic value-added means anything, then a lot! Across the first decade of the 21st century, the USA and EU nations respectively saw average annual increases of $6.1 Billion and $9.3 Billion in economic value-added due to high-tech manufacturing, but China weighed in at hefty average increases of $19.4 Billion per year.

And while investments in engineering and innovation provide the rocket fuel that’s propelling the Chinese economy to take over the world, R&D funding cuts in western nations are simply putting engineers out of work. Western engineers are confronted with a demand for greater innovation – but not the type of innovation you’d expect. Due to lack of stable or adequate funding for their work, many western engineers are being forced to find innovative ways to make extra money using their engineering skills in non-engineering applications. 

Just look at the recent “engineering” sub-Reddit. Western engineers there are supplementing their engineering incomes by doing math tutoring, automotive repairs, or appliance repairs on the side of their full-time engineering work.

While hard-earned and valuable engineering skills are being under-utilized in Western nations, China continues pumping large portions of its FDI money to fund advancement in Chinese R&D, engineering and innovation.

While hard-earned and valuable engineering skills are being under-utilized in Western nations, China continues pumping large portions of its FDI money to fund advancement in Chinese R&D, engineering and innovation. As western nations tend to invest their FDI money elsewhere and rest in the spoils of yesterday’s reputation, China is approaching for a fast and furious takeover. Since there isn’t a shortage of willing and able engineers and scientists in western nations, one has to wonder why leaders of USA and EU nations aren’t taking the necessary steps required to stay on top of the global innovation game?

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