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End Government Science Funding
By Terence Kealey
April 11, 1997
The big myth about scientific research is that government must fund it. The argument is that private companies will not fund science, especially pure science, for fear that their competitors will “capture” the fruits of that investment. Yet, in practice, companies fund pure science very generously, and government funding displaces private research money.
When University of Pennsylvania economist Edwin Mansfield studied the 1960-70 behavior of 16 major American oil and chemical companies, he found that all 16 invested in pure science. The more a firm invested in basic science, the more its productivity grew.
Zvi Griliches of Harvard University, in a study of 911 large American companies, discovered that the companies that engaged in basic research consistently outperformed those that neglected it.
Most of the benefits of a company’s basic science are indeed “captured” by competitors. When Hiroyuki Odagiri and Naoki Murakimi studied the 10 largest Japanese pharmaceutical companies, which collectively enjoyed $13 billion sales in 1981, they found that on average each company had an annual return of 19 percent on its own investment in research and development. But each company obtained the equivalent of a 33 percent annual return on the R&D done by the other nine companies. Each company was, therefore, apparently free riding on the other nine.
But there is no such thing as a free ride in R&D. Only highly skilled research scientists can capture other people’s science. And since the best scientists are those who are actually doing research, to retain their services, companies have to fund them with considerable generosity and considerable freedom.
Thus we see that “capture” is the solution to, not the problem of, the industrial exploitation of pure research. Basic science is so vast, worldwide, and so unpredictable that no individual company can hope to cover its own needs. So companies have to fund scientists’ in-house pure research to retain their services as agents of capture.
Consequently, the quality of industrial science is remarkable. “Current Contents” magazine recently reviewed the institutions that produced the largest number of cited papers in biology, and two of the top seven were private companies: Genentech and Chiron. The others were charitable foundations. One, the Howard Hughes Foundation, is totally private, while the others three (the Salk and Whitehead Institutes and the Cold Spring Harbor Laboratory) do accept some government money.
That destroys another myth: that only governments will fund scholarship. The rich, as Nietzsche wrote, have a need to give. Only last year David Packard, of Hewlett Packard, left $4 billion to his research foundation. His thousands of philanthropic predecessors include Howard Hughes (whose foundation spent $332 million on research in 1991); W. M. Keck ($95 million); John D. Rockefeller (whose foundation funded both the discovery of DNA as the genetic messenger and the development of penicillin); and Andrew Carnegie.
Ordinary people, too, will fund academic research. Witness the great charities such as the American Heart Association ($105 million in 1991) and the American Cancer Society ($94 million).
Without government funding of science, the United States overtook Britain around 1890 as the richest country in the world. So strenuously did Congress disapprove of federal involvement in research that it refused James Smithson’s bequest in 1829 and only grudgingly accepted it in 1846. (His gift helped establish the Smithsonian Institution.)
War changed everything. The National Academy of Sciences was created in 1863, at the height of the Civil War, to help build ironclads to beat the South. The Office of Scientific Research and Development, which ultimately spawned the National Science Foundation and the National Institutes of Health, was created in 1941.
Then the USSR launched Sputnik, the first artificial satellite, in 1957. The Soviets were going to destroy us from space! So in 1958 the National Aeronautics and Space Administration was created, and the U.S. Congress passed the National Defense Education Act to pour money into higher education and science. Yet, remarkably, U.S. economic growth was unaffected. The U.S. per capita gross domestic product has grown at around 2 percent a year since 1820, and the government largesse of the last 50 years has not altered that. Why not?
The funding of science is not a political decision; it is economically determined. There is a very tight correlation between the per capita wealth of a country and the quantity and quality of its scientific papers, and of its investment in civil R&D. That is because nations get richer by introducing new technology. A rich country can do that through research, but a poor one can only copy.
Thus leading companies in advanced countries spend increasing amounts of money on research to develop new products. If a company is sited in a country that has low taxes, it simply invests its own money; if it lies in a country with high taxes, it lobbies its government to fund its R&D. Either way, successful companies in rich countries ensure that their research needs are met (though, in practice, companies in low-tax countries can find more money than can those in high-tax countries).
Companies in poor countries, however, ignore research, as their technology is borrowed and they are more interested in basic infrastructural needs such as roads and electricity. Thus the funding of science is an industrial, economically based decision, which only appears to be political.
Further, government funding of university science is largely unproductive. When Edwin Mansfield surveyed 76 major American technology firms, he found that only around 3 percent of sales could not have been achieved “without substantial delay, in the absence of recent academic research.” Thus some 97 percent of commercially useful industrial technological development is, in practice, generated by in-house R&D. Academic science is of relatively small economic importance, and by funding it in public universities, governments are largely subsidizing predatory foreign companies.
Scientists may love government money, and politicians may love the power its expenditure confers upon them, but society is impoverished by the transaction.
Terence Kealey is professor of clinical biochemistry at the University of Cambridge, England, and author of The Economic Laws of Scientific Research.
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