Corporate spending on research and development remains the driving force behind innovation. Indeed, the five corporations with the largest R&D budgets alone spent $33.6 billion last year, more than the U.S. government spent on R&D conducted by federal agencies. But a troubling trend that began in 2001 continues: corporate R&D spending is on the decline. Last year's decrease of .6 percent is slight, but it follows sharper declines in 2001 and 2002, after more than a half-decade of robust growth. Perhaps most worrisome, the declines were not limited to a few obviously troubled sectors, such as telecommunications, but affected a cross section of industries and included some of the world's top spenders on R&D. In fact, three of the five largest corporate R&D spenders showed significant decreases in their 2003 budgets: the top spender, Ford Motor, cut its budget by $200 million, and Siemens, a long-time powerhouse in research and development, decreased spending by $900 million.

The picture, however, is far from being universally bleak. Technology Review's innovation index, which is calculated from four key measures, shows healthy -- and growing -- spending by leading pharmaceutical, biotech, and computer companies. Familiar names like Pfizer, Amgen, and Nokia lead the list. But the innovation index also contains some surprises. High on the list were BMC Software and Swiss biotech firm Serono. And Volkswagen and Nissan Motor ranked, unlike most of their competitors in the auto industry, right up with Merck and Intel.