Should governments fund research?

June 1, 1998
In an industry where much research is funded directly or indirectly by the US government, I make no apology for raising this question once again. Should governments fund scientific research? I think a case can be made for saying that government funding and direction of scientific research does not necessarily produce the economic benefits generally attributed to it.

In an industry where much research is funded directly or indirectly by the US government, I make no apology for raising this question once again. Should governments fund scientific research? I think a case can be made for saying that government funding and direction of scientific research does not necessarily produce the economic benefits generally attributed to it.

A particularly strong case is made out by Terence Kealey, a Cambridge University lecturer in clinical biochemistry, in his book The Economic Laws of Scientific Research (St. Martin's Press, New York, NY, 1996). I've mentioned this book before in this column, but I recommend it again, particularly now that it has been issued in paperback.

Kealey devotes a large part of his book to the development of science and technology from the ancient Egyptians to modern times. He blames Francis Bacon, the 16th-century British author and Attorney-General, for inventing a "linear model" of technological advance. In this model, government-funded academic research feeds pure science, which in turn leads to applied science or technology and hence to economic growth. Kealey much prefers the work of Adam Smith, the 18th-century Scottish economist whose famous book, The Wealth of Nations, showed that free trade promotes the creation of wealth. Kealey claims that Smith suggested that advances in science flow from the technological advances made by industrialists. Smith, of course, had the benefit of personally observing the rapid strides made in technology during the early days of the industrial revolution.

The laws of funding

In his book, Kealey gives many examples from 20th-century US and UK science policies that support his thesis, the great majority of which are anecdotal in nature. But, in a chapter entitled "The Real Economics of Research," Kealey examines national statistics from the 1970s and 1980s collected by the European Organization for Economic Cooperation and Development (OECD) and comes up with what he terms "The Economic Laws of Funding Civil R&D." I don't have space to go into all the details here but he shows that public and private funding displace each other. However the displacements are not equal: public funds displace more than they provide.

When governments fund civil R&D, notes Kealey, there is an implicit assumption that the funding will be additive. But Kealey's examination of the OECD data shows that governments actually displace more than they themselves provide, so he argues that government spending on R&D does more harm than good. Kealey sees this mechanism as being quite simple: private money is displaced because industry is taxed so that the government might spend its own money. But because companies are taxed, their ability to fund their own R&D is reduced. Of course, the knowledge that the government makes funding programs available creates an expectation in industry that companies should lobby actively for government support rather than providing their own R&D funds.

Research pays off in the USA

But Kealey's arguments are based on examination of statistical data from European countries only. Since World War II, government expenditure on research and development has increased dramatically, particularly in the UK, France, and Germany. But these countries have not shown any particular ability to turn R&D into successful manufactured products. By contrast, particularly in electronics and communications, the USA has succeeded in generating economic wealth from R&D. I suggest that a similar study of the returns from US private and government funding of research and development would contradict Kealey's Laws. I suspect that there are a few openings here for some good doctoral theses.

It would be interesting to trace the research funding of the laser and its economic benefits, though that might be a near-impossible task. It's clear that government funding played a key role in the development of the first lasers as Contributing Editor Jeff Hecht describes in his book The Laser Pioneers (Academic Press, San Diego, CA, 1992). But can the case be made for continued government funding of laser research through such expensive projects as the Airborne Laser Laboratory (Laser Focus World, April 1998, p. 68)? I'd have to say "I don't think so."

About the Author

Jeffrey Bairstow | Contributing Editor

Jeffrey Bairstow is a Contributing Editor for Laser Focus World; he previously served as Group Editorial Director.

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