Research and Development Equals ProductivityByRaymond D. Matkowsky
There is widespread interest in productivity growth. Increasing productivity is considered the tide that lifts most economic boats. But, the pace of productivity is also very important to a nation’s financial well-being. Nations, businesses, and individuals strive to increase productivity. The last U.S. Federal Balanced Budget was under the Clinton Administration and followed years of productivity growth of around 3.0%. Sadly, research budgets have been cut sharply since then and studies have shown that there is a direct link between R&D and productivity. Productivity in the United States is now growing at a pace of about 1.0% a year and the U.S. Budget has been in deficit since productivity has been decreasing.
Traditionally, the most productive firms have had long term visions. This is not the case now. Take for example the recent merger between DuPont and Dow Chemical. Historically, both these companies brought us hundreds of innovations over the years that have made everyone’s life that much better (aka productivity). However, activist investors are now arguing that R&D spending isn’t putting money in their pockets fast enough and have forced the merger of these two productive firms. This is short sighted!
It is very true that much of the time it takes 20 to 30 years to bring a product from a lab to the consumer. But, what about all of the innovations that do occur in between the start and getting to the final goal? A good example of this is the U.S. space program and medical technology or communications. There have been huge advancements in both although that wasn’t the initial goal. Hasn’t this resulted in millions of dollars of profits to these very same investors? Cutting R&D is really just “cutting off your nose to spite your face.” It is a short term gain at the expense of long term prosperity.
This is not only a financial question, but a patriotic one also. There are many countries investing much more in R&D than the United States. They see this investment as a way for their nation to lead the world economically and politically. Just as countries benefit, R&D benefits “activist investors” also, if they choose to take part. Not taking part is “leaving money on the table.”
Small business owners and managers do very little basic research but they are quick to adopt new technology. Keep adopting that technology. However, don’t take your eye off of the long term. If you stick with the long term your small business of today maybe tomorrow’s DuPont or Dow Chemical. You may be the next Steve Jobs, Jeff Bezos or Elon Musk. You will also do your country a favor.
Do you have any other suggestions, please share them with your fellow readers. Email me at rdm@datastats.com.
Copyright © 2016 Raymond D. Matkowsky
Raymond D. Matkowsky is the Chief Executive Officer of Data Stats, a consulting firm specializing in system or product improvement through mathematical and scientific modeling. He can be reached at rdm@datastats.com or through Data Stats’ web site at www.datastats.com |
