Companies may have chopped capital investment, marketing and payrolls during the steep recession, but new studies suggest that research and development spending and patent activity held up remarkably well.
In its annual survey of the 1,000 largest corporate spenders on research and development, released this week, Booz & Company reported that their R&D budgets rose 5.7 percent in 2008. The rate of increase was less than in 2007, when R&D spending rose 10 percent. Still, it was an increase. And the consulting firm's survey found that 70 percent of the companies plan to maintain or increase R&D outlays in 2009.
"The thing that surprised us was that R&D spending didn't actually drop," said Barry Jaruzelski, a Booz partner. "But innovation is a fundamental strategy for these companies to hold onto their markets and gain an edge on their competitors. So it's sort of an arms-race issue. They don't want to disarm, despite the short-term economics."
Spending patterns, to be sure, varied by industry. Nine of the top 10 R&D spenders in the auto industry cut back, battered by the swoon in car sales worldwide. But software and Internet companies, Booz said, generally regarded the recession as a time to bolster research efforts. Eight of the top 10 R&D spenders in the software and Internet sector, the study said, increased their spending.
Many companies, according to Mr. Jaruzelski, did consolidate their research efforts, focusing spending around fewer, larger projects.
How unusual is the resiliency of innovation activity in economic downturns? In fact, it seems to be more the pattern over the years rather than an exception.
I asked the intellectual property research unit of Thomson Reuters to look at patent activity and economic slumps, going back to 1925. Patent applications either continue apace during recessions or are a lagging indicator during lengthy downturns.
In the Depression, for example, patent applications rose 25 percent from 1929 to 1932, which turned out to be the worst year for the economy, and only fell afterward. And the Depression years yielded fundamental advances in technologies of the future like television, nylon, neoprene, photocopying and electric razors, according to the Thomson Reuters analysis.
A similar trend is true around later, far shorter recessions, when basic work on personal computing and later Internet-related technologies were done. During the last year, patent activity in the United States has continued to increase, with 505,596 applications filed in 2008. The current pace suggests a total count for 2009 of about 520,000 applications. Alternative energy, energy conservation, nanotechnology, and smartphone hardware and software are hot areas now.
"Innovation works on a different time scale than economic recessions," said Bob Stembridge, an analyst at Thomson Reuters.
