(FORTUNE Magazine) – Everyone knows that leveraged buyouts clobber research and development. Right? You've heard the argument. To bolster all-important cash flow, managers choke off discretionary spending like R&D. Says Margaret Blair, a senior research analyst at the Brookings Institution: ''It's hard for me to imagine a scenario where LBOs don't hurt R&D. What other purpose do they serve?'' And last month the National Science Foundation released a survey that seemed to confirm this line of thinking. But there is another side to the issue. Alfred Rappaport, a professor at Northwestern University's Kellogg School of Management who specializes in mergers and acquisitions, argues that most candidates for LBOs aren't high- tech or research-intensive outfits like Apple Computer or Merck. They are more likely to be companies such as Stop & Shop supermarkets or Fruehauf truck trailers. Says he: ''LBOs involve cash cows.'' The National Science Foundation study turns out to be rather ambiguous. The NSF, the main government agency keeping track of research spending, looked at data for 24 unidentified companies in 1986 and 1987. Sixteen companies that had undergone mergers showed a 4.7% drop in R&D spending. Eight companies that had undertaken LBOs or other restructurings showed an even steeper 12.8% drop. But the agency was careful to say that ''currently available information does not permit an assessment of long-term effects'' of LBOs and mergers on R&D spending. LBOs boomed in the past few years, and their track records are skimpy. It may well be, NSF continued, that companies that cut R&D funds are ''eliminating duplication and inefficiency.''

That was surely the case with Reliance Electric, a maker of electric motors that is one of the few relatively high-tech LBOs. Exxon, Reliance's parent, sold the company to an investor group led by management at the end of 1986 in a $1.19 billion deal. The company had been spending $30 million a year on a variety of overlapping research divisions. Now, says vice president Peter Tsivitse, ''we don't have three people working on the same thing.'' Reliance cut R&D spending 17% to $25 million in 1987. The outlay for last year was similar. But looked at another way, Reliance is investing in competitiveness. To tailor more products to specific customers, Reliance increased spending on such things as computer software and custom chips. When these costs are figured in, Reliance spent $74.1 million in 1987, an increase of 6% from the year earlier, and expects to have spent at least $77 million in 1988. It is also emphasizing applied research, such as development of an ultraquiet motor for U.S. submarines (below). Says Tsivitse, who owns a piece of Reliance: ''We're executing projects faster, more efficiently, and experiencing less waste because we have to. Our livelihood depends on it. We're more competitive after the LBO, no question about it.'' Revenue in the first nine months of 1988 rose 12% to $1.2 billion, and profits before interest and taxes were up 12% to $120 million. Is Reliance focusing only on short-term competitiveness and ignoring the future? Not according to the Electric Power Research Institute, which awarded Reliance a contract to figure out how to make a 21st-century electric motor, one that uses the latest superconductors.