The United States Needs Both Public and Private R&D Funding

Public and private research and development (R&D) funding play complementary roles in the U.S. innovation ecosystem, and both are vital to sustaining long-term technological leadership. 

1. While both the public and private sectors fund basic research, applied research, and experimental development, the proportion of funding to each varies significantly. Private firms tend to invest most heavily in applied research and experimental development, where outcomes are more immediate and commercially viable. They invest fewer resources in basic research, which is riskier, longer-term, and harder to monetize.
2. The federal government, on the other hand, is the principal funder of basic research. It supports work that may be difficult to commercialize quickly yet is essential for generating new knowledge. Publicly funded basic research, in turn, promotes private investment into applied research and experimental development, “crowding in” funding as firms work to transform scientific insights into new capabilities and products.
3. As China and other nations increase their investments in innovation, the United States should sustain robust funding across all three stages of R&D to remain globally competitive. The recent update to the R&D tax credit in the reconciliation bill is a positive step toward strengthening private-sector investment. But federal support, particularly for basic research, remains irreplaceable. It provides the foundation for the United States’ technological and economic strength today, and is its path to growth and security in the future.