In “The Case against Public Science”, Terence Kealey makes a compelling argument against the “well established” principle that science is a public good and therefore must be funded by the government:
HERE is the current dogma: scientific research is fundamentally a public good because new ideas, unlike private goods, cannot be monopolized for long, but in practice we can treat research as a merit good (which is good that requires only some of its funding from government) because conventions such as patents or industrial secrecy, to say nothing of institutions such as universities and research societies, have evolved to bolster a certain—if inadequate—degree of private funding.
THE difficulty with this new story of science as a merit good is that there is no empirical evidence that research needs any funding from government at all.
Kealey is well known for his outspoken opposition to public funding of science.
In a new NBER working paper, The Effect of Public Science on Corporate R&D1, the authors make an effort to supply empirical evidence (emphasis mine):
[Paul] Romer (1990) and [Charles I.] Jones (2022) stress that the non-rivalrous nature of ideas is a potent source of increasing returns and productivity growth. It should follow that the most powerful sources of increasing returns are ideas that are broadly usable, and whose production is publicly funded so that they can be placed in the public domain, available to all. This is the basic argument underlying the case for public support for scientific research in universities.
Yet the history of technical progress teaches us that abstract ideas are also difficult to use. Ideas have to be tailored for specific uses, and frequently, have to be embodied in people and artifacts before they can be absorbed by firms. However, such embodiment also makes ideas less potent sources of increasing returns, turning non-rival ideas into rival inputs, whose use by rivals is easier to restrict. Our findings confirm that firms, especially those not on the technological frontier, appear to lack the absorptive capacity to use externally supplied ideas unless they are embodied in human capital or inventions. The limit on growth is not the creation of useful ideas but rather the rate at which those ideas can be embodied in human capital and inventions, and then allocated to firms to convert them into innovations.
The paper is a tour the force in Econometrics, combining data from three main sources:
- Dimensions: Digital Science’s Dimensions project provides data on scientific publications, grants, patents, and citations. The dataset contains over 131.5 million publications from various sources, including 107,000 journals and 62 pre-print servers, 42.8 million patent to-publication citations, and 6.3 million grants totaling $2.3 trillion from 656 funding agencies globally.
- The American Men & Women of Science (AMWS) directory, which provides information on prominent scientists working in various scientific fields in the United States and Canada. The first edition was published in 1906, 40th edition was published in 2022. They combine data from the 17 editions to create a comprehensive dataset with information on 200,706 living scientists from the 2021 edition as well as 17,657 deceased scientists from the 2005-2020 editions.
- ProQuest Dissertations & Theses Global (PQDT): a comprehensive collection of over 5 million PhD dissertations and master’s degree theses from thousands of universities worldwide.
Their conclusion are:
- Abstract public knowledge per se—publications in scientific journals—has little effect on the various components of corporate R&D.
- Public invention reduces corporate R&D.
- Public funding has a positive effect of human capital on corporate R&D.
These effects vary across firms and industries. In particular, firms on the technology frontier appear to respond less to public invention as compared to followers and to benefit more from human capital. Similarly, public science appears to stimulate corporate research in life sciences to a greater extent than in other industries.
Taken together, our findings indicate that the public science that matters for corporate
innovation—the science developed into patented inventions and embodied in the human capital of people—is both excludable and rivalrous.
A previous NBER paper (also by Arora et. al.) studies The Rise of Scientific Research in Corporate America2.
Corporate science in America emerged in the interwar period, as some companies set up state-of the-art corporate laboratories, hired trained scientists, and embarked upon basic research of the kind we would associate today with academic institutions.
We argue that it was driven by companies trying to take advantage of opportunities for innovation made possible by scientific advances and an underdeveloped academic research system in the United States.
We find that large firms, business group affiliated firms, and firms close to the technological frontier were more likely to initiate scientific research. We also find that companies in monopolistic or concentrated industries were more likely to engage in basic research. Corporate research was positively correlated with novel and valuable patents, and with market-to-book ratios. For companies choosing to do so, investment in corporate research seems to have paid off. The results shed light on the link between corporate organization, market structure and corporate science.
Based on these ideas, The Economist makes this week another compelling case about the old good corporate lab (emphasis mine).
Universities have boomed in recent decades. Higher-education institutions across the world now employ in the order of 15m researchers, up from 4m in 1980. These workers produce five times the number of papers each year. Governments have ramped up spending on the sector.
… growth in university research convinced many bosses that they no longer needed to spend money on their own. Today only a few firms, in big tech and pharma, offer anything comparable to the DuPonts of the past.
… however, the great expansion of higher education has coincided with a productivity slowdown.
Why do companies struggle to use ideas produced by universities? The loss of the corporate lab is one part of the answer.
Free from the demands of corporate overlords, research focuses more on satisfying geeks’ curiosity or boosting citation counts than it does on finding breakthroughs that will change the world or make money. In moderation, research for research’s sake is no bad thing; some breakthrough technologies, such as penicillin, were discovered almost by accident. But if everyone is arguing over ho
All these statements dwell on two key (beautiful) ideas which have been dancing for years across the huge hall of our limited understanding on scientific research, technological development, innovation and progress. Those two ideas are:
- The value of basic science, unfettered research, and useless knowledge.
- Tacit knowledge
Kealey’s attack to Francis Bacon, Vannebar Bush and the RAND Corporation ideas is super provocative, and worth reading carefully, Arora et. al.’s work is impressive. And yes, the challenge is… complex:
The relationship between the state of academic research and corporate investment in science is complex.
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(1) Arora, Ashish, Sharon Belenzon, Larisa C. Cioaca, Lia Sheer, and Hansen Zhang. ‘The Effect of Public Science on Corporate R&D’. Working Paper. Working Paper Series. National Bureau of Economic Research, November 2023. https://doi.org/10.3386/w31899.
(2) Arora, Ashish, Sharon Belenzon, Konstantin Kosenko, Jungkyu Suh, and Yishay Yafeh. ‘The Rise of Scientific Research in Corporate America’. Working Paper. Working Paper Series. National Bureau of Economic Research, September 2021. https://doi.org/10.3386/w29260.
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