Which industries do the most R&D? Some suprising US data...

 I was always of the view that R&D was concentrated in a few manufacturing industries: chemicals (including pharma), computer manufacturing and transport equipment (planes, cars etc.).  Not any more.  The  US data  in "Research and Development: U.S. Trends and International Comparisons, NSB-2024-6, May 21, 2024, tells the story.

It's information, in particular R&D into software.  Data from the US shows the below 

 and the accompanying text shows the importance of information (the dark blue line above):

The rest of this section focuses on R&D activities by businesses with 10 or more domestic employees from the NCSES BERD Survey. Five industries accounted for 79% of the $602.5 billion of U.S. business R&D performed by these companies in 2021: information (including software publishing) at 25%; chemicals manufacturing (including pharmaceuticals and medicines) at 18%; computer and electronic products manufacturing (including semiconductors) at 17%; professional, scientific, and technical services (including R&D services) at 11%; and transportation equipment manufacturing (including motor vehicles and aerospace products and parts) at 8% (Figure RD-12; Table RD-6).16 Machinery manufacturing companies performed another 3%.

 

At the four-digit NAICS level, the industries with the largest R&D intensities were scientific R&D services (41%), semiconductor and other electronic components manufacturing (20%), pharmaceuticals and medicines manufacturing (16%), and software publishers (13%)."

 

The report continues:

 

"Software R&D, over half of which is performed in the information services industry, is an increasingly large

technology area of U.S. business R&D expenditures. In 2021, software R&D accounted for $257.0 billion, or 43% of $602.5

billion. In 2021, a separate 5% ($28.9 billion) was classified by businesses as R&D specifically devoted to AI

applications."

That's a staggering number. To repeat from the table, 42% of US R&D spending is on software products or embedded software in the R&D.  See the table below.  Of the manufacturing sector's spend of 326bn, 50bn is on software or related. 

Finally, a useful cross-section snapshot, including the R&D/sales ratio

notes: a Dollar values are for goods sold or services rendered by R&D-performing or R&D-funding companies located in the United States to customers outside of the company, including the U.S. federal government, foreign customers, and the company's foreign subsidiaries. Included are revenues from a company’s foreign operations and subsidiaries and from discontinued operations. If a respondent company is owned by a foreign parent company, sales to the parent company and to affiliates not owned by the respondent company are included. Excluded are intracompany transfers; returns; allowances; freight charges; and excise, sales, and other revenue-based taxes.

b Domestic R&D is the cost of R&D paid for and performed by the respondent company and paid for by others outside of the company and performed by the respondent company.

Update. 

Here are the comparable UK figures on a product basis. I take this from "expenditure on R&D performed in UK businesses: detailed product groups.  2023, from here.  

on Industries, we have 

62. Computer  progr, consultancy and related = 13% 

72. Scientific R&D 25%

21. Pharma mfring 0.9%

26. computer mfring 3.8%

 

The Creative Industries

 I often struggle to remember who is in and out of the official definition of the creative industries. Here is the table:

And the source of all this is here: taken from the DCMS Sectors Economic Estimates Methodology

 

Various teaching links

1. Opponents of capitalism tell you that the market system promotes greed. selfishness and rapacious behaviour by firms.  Proponents say no: its the opposite as firms have to understand what consumers want. A view from Tim Harford's great book Fifty Things that Made the Modern Economy" http://amzn.eu/aWaeGcn. about the founder of Selfridges, Mr. Selfridge

"He saw that female customers offered profitable opportunities that other retailers were bungling, and made a point of trying to understand what they wanted. One of his quietly revolutionary moves: Selfridge’s featured a ladies’ lavatory. Strange as it may sound to modern ears, this was a facility London’s shopkeepers had hitherto neglected to provide. Selfridge saw, as other men apparently had not, that women might want to stay in town all day, without having to use an insalubrious public convenience or retreat to a respectable hotel for tea whenever they wanted to relieve themselves. "

File as well under innovation.

2.  Via Tim Taylor, this is a very good review:§ "Immigrants, Productivity, and Labor Markets," by Giovanni Peri

3.  Do our banks still need fixing? yes they very much do says Martin Sandbu. 

 Some points

"

A rather worrying consensus emerged in a recent conference held by the Centre for Economic Policy Research, in which top names from the economics profession (their presentation materials are available on the conference web page) assessed the state of the financial system 10 years after the crisis.

The consensus was that we still fall far short from what would be a safe financial system."

For as John Vickers pointed out, “the general . . . opinion among economists outside the financial sector is that banks should be required to have at least twice as much equity capital . . . as the prevailing regulatory settlement”, but “regulators, not just banks, [think] that reform since 2008 has got us to about the right place”.

Martin Wolf sums up the economists’ consensus in a recent op-ed, where he advocates equity requirements four to five times higher than today’s rules.

..... Vickers has strongly criticised the Bank of England for its judgment that the required push for more equity funding in banks is largely completed. (To be fair, the BoE is also adding requirements for non-equity funding that can be “bailed in” to bear losses in a crisis.) Across the Atlantic, the US Treasury has plans under way to weaken rather than strengthen capital requirements — plans that, in William Cline’s analysis, could cost the US economy $2.7tn in increased risks over 10 years

 Vickers and Tucker are critical of equity measures (something for intangible reserachers to bear in mind) 

Second, the way it [equity] is constructed means the inherent instability of measured bank equity is unstable in just the wrong way. Paul Tucker, the former BoE deputy governor, has explained this in a rather chilling, if technical, speech. Before the crisis, he says, “‘common equity’ was measured without adjustments for items recorded by accountants as assets but which don’t — can’t — help in a crisis”, such as “goodwill” (the assumed extra value acquired when assets are taken over for more than their prior accounting value) or future tax credits.

That means improvements in regulations made to sound impressive — Vickers highlights BoE governor Mark Carney’s point that equity requirements are 10 times higher than before the crisis — are true only because of how absurdly low the requirements were then.

Here's a key calculation: 

In Tucker’s calculation, “when tangible common equity is measured in a way that is more fit for purpose, the minimum risk-asset ratio requirement was about 1 per cent” and even less when not discounting supposedly safe assets with low risk-weights (which has its own problems). Consequently, the ability of banks today to have assets 25-30 times as large as the equity intended to absorb losses on them is only 10 times stricter than before the crisis because they could then get away with gearing up their own (their shareholders’) money by three-digit multiples. Vickers is surely right that “10 times better than hopelessly lax is not a useful measure”.

 4. Related, here is Catherine Mann on how the wrong type of lending distorts growth.
Catherine L. Mann (OECD) Slides