As the FT notes this morning:
A handful of multinationals control close to 70 per cent of global private sector research and development, while government R&D budgets have fallen to levels not seen since the turn of the century.
Three thoughts follow. First this means that the majority of the tax reliefs now given for R & D go to just 250 companies worldwide. No surprise there then: that the tax system is rigged in this way is just another indication of its capture by big business.
Second, the OECD finds strong support for Mariana Mazzcuacto's arguments:
A growing body of evidence shows that government support for R&D has been central to the digital innovations now transforming the way people live, learn and work.
In other words, the R & D we really need is being hindered by a lack of funding as a result of giving tax reliefs to those doing the R & D we may not need so much (such as adding an S to your phone's name).
Third, where is the blue sky thinking? In any area this is the hardest of all to fund. We need more of that.
As it is, the profile of current R & D lends support to my hypothesis that the current wave of capitalism is running out of steam: business has no real idea what to do with its money and little inclination to to more than product iterations whilst government is giving up its role in this area just when the need for new thinking is greatest.
In that case I'm not sure we need R & D right now: maybe paradigm shifts are required instead.
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I am very happy about the S getting added to my phone name. I largely like what Apple do. It’s extremely low risk though. They do also do a lot of research you never see, or that you see a decade later. Frankly though, such companies don’t need help to do that. Blue sky research does need help, so I agree with your thesis – subsidies would be better used for public funded research (and the results should largely be in the public domain).
The balance of research between public and private is not the key issue. The total volume of research that is carried out is more important, as is the split between high and low risk research.
At present, big business is very risk averse because CEOs can make more money by buying small companies ( which have already taken research risks and have survived). They then make the companies more ‘tax efficient’ – a very low risk and profitable process. High risk investment (early stage / big potential benefit) should also be made by the public sector, but cuts are throttling the supply of new ideas.
The country is still benefitting from previous basic science and high risk, early stage investments. However, the well will soon run dry if new high risk ideas get no funding.
In the UK at least, £70 of qualifying expenditure by large companies will get £7 of RDEC, which gives them a net credit of £5.60.
£30 of qualifying expenditure by SMEs gets a super-deduction of £39, worth £7.80 in tax relief.
Clearly the situation is more complex than set out above: a lot of companies outside the 250 will be large for R&D, although on the other hand a greater proportion of an SME’s total R&D spend is likely to qualify for relief (as they have a greater variety of categories of qualifying expenditure). But the broad outline is clear.
Overall, the UK R&D scheme is very much set up to favour small companies – giving them much more tax relief for much less expenditure.
I can’t speak for regimes outside the UK, of course.
The regime may favour smaller companies
But just follow the money
I am following the money. Of the tax money, more seems to go to smaller companies and less to these big 250 – from the numbers given it seems quite likely that in absolute terms more relief goes to smaller companies, even though they only have half of the expenditure of the bigger firms.
I’d have thought that if the R&D regime had been captured by big business it would have a flat system across all companies, rather than favouring small ones by giving them 26% cash back instead of the 8% that large companies get.
Oh dear Stephen. Wrong again. Do you really think the OECD have not asked
And please note their report is global
But you’re not good at noticing what things are about
Where there is money, there is a fiddle.
Not always
But sometimes, yes
“Oh dear Stephen. Wrong again. Do you really think the OECD have not asked And please note their report is global But you’re not good at noticing what things are about”
I’m slightly confused by this response to my comment – principally because my name’s not Stephen, but mostly because I’m not sure how it relates to what I said. Can you elucidate?
Maybe this is why technological change has been so slow compared with 1945-75 or, for that matter, the second half of the 19th Century. Technology seems to produce more and more gizmos of limited shelf life and purposefulness. With Government funded R&D I wonder if we would be in a post-digital phase by now?
The computer and the internet both came about through state funding. This was primarily for military purposes, but it was developed through state funding nonetheless.
In the US, and probably over here too, R&D in medicines is largely funded by government.