The Wages of Science
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Written March 8, 2003
Updated November 2005
In the United States, Congress approved, In February 2003,
increases in the 2003 budgets of both the National Institutes of Health and
National Science Foundation. America is not alone in - vainly - trying to
compensate for imploding capital markets and risk-averse financiers.
In 1999, chancellor Gordon Brown inaugurated a $1.6 billion
program of "upgrading British science" and commercializing its products. This
was on top of $1 billion invested between 1998-2002. The budgets of the Medical
Research Council and the Biotechnology and Biological Sciences Research Council
were quadrupled overnight.
The University Challenge Fund was set to provide $100 million in
seed money to cover costs related to the hiring of managerial skills, securing
intellectual property, constructing a prototype or preparing a business plan.
Another $30 million went to start-up funding of high-tech, high-risk companies
in the UK.
According to the United Nations
Development Programme (UNDP), the top 29 industrialized nations invest in
R&D more than $600 billion a year. The bulk
of this capital is provided by the private sector. In the United Kingdom, for
instance, government funds are dwarfed by private financing, according to the
British Venture Capital
Association. More than $80 billion have been ploughed into 23,000 companies
since 1983, about half of them in the hi-tech sector. Three million people are
employed in these firms. Investments surged by 36 percent in 2001 to $18
billion.
But this
British exuberance is a global exception.
Even the - white hot - life sciences field suffered an 11
percent drop in venture capital investments in 2002, reports the MoneyTree
Survey. According to the
Ernst & Young 2002 Alberta Technology Report released in March 2003, the
Canadian hi-tech sector is languishing with less than $3 billion invested in
2002 in seed capital - this despite generous matching funds and tax credits
proffered by many of the provinces as well as the federal government.
In Israel, venture capital plunged to $600 million in 2002 - one
fifth its level in 2000. Aware of this cataclysmic reversal in investor
sentiment, the Israeli government set up 24 hi-tech incubators. But these are
able merely to partly cater to the pecuniary needs of less than 20 percent of
the projects submitted.
As governments pick up the monumental slack created by the
withdrawal of private funding, they attempt to rationalize and economize.
The New Jersey Commission of Health
Science Education and Training recently proposed to merge the state's three
public research universities. Soaring federal and state budget deficits are
likely to exert added pressure on the already strained relationship between
academe and state - especially with regards to research priorities and the
allocation of ever-scarcer resources.
This friction is inevitable because the interaction between
technology and science is complex and ill-understood. Some technological
advances spawn new scientific fields - the steel industry gave birth to
metallurgy, computers to computer science and the transistor to solid state
physics. The discoveries of science also lead, though usually circuitously, to
technological breakthroughs - consider the examples of semiconductors and
biotechnology.
Thus, it is safe to generalize and say that the technology
sector is only the more visible and alluring tip of the drabber iceberg of
research and development. The military, universities, institutes and industry
all over the world plough hundreds of billions annually into both basic and
applied studies. But governments are the most important sponsors of pure
scientific pursuits by a long shot.
Science is widely perceived as a public good - its benefits are
shared. Rational individuals would do well to sit back and copy the outcomes of
research - rather than produce widely replicated discoveries themselves. The
government has to step in to provide them with incentives to innovate.
Thus, in the minds of most laymen and many economists, science
is associated exclusively with publicly-funded universities and the defense
establishment. Inventions such as the jet aircraft and the Internet are often
touted as examples of the civilian benefits of publicly funded military
research. The pharmaceutical, biomedical, information technology and space
industries, for instance - though largely private - rely heavily on the fruits
of nonrivalrous (i.e. public domain) science sponsored by the state.
The majority of 501 corporations
surveyed by the Department of Finance and Revenue Canada in 1995-6 reported that
government funding improved their internal cash flow - an important
consideration in the decision to undertake research and development. Most
beneficiaries claimed the tax incentives for seven years and recorded employment
growth.
In the absence of efficient capital
markets and adventuresome capitalists, some developing countries have taken this
propensity to extremes. In the Philippines, close to 100 percent of all R&D is
government-financed. The meltdown of foreign direct investment flows - they
declined by nearly three fifths since 2000 - only rendered state involvement
more indispensable.
But this is not a universal trend.
South Korea, for instance, effected a successful transition to private venture
capital which now - even after the Asian turmoil of 1997 and the global downturn
of 2001 - amounts to four fifths of all spending on R&D.
Thus, supporting ubiquitous government entanglement in science
is overdoing it. Most applied R&D is still conducted by privately owned
industrial outfits. Even "pure" science - unadulterated by greed and commerce -
is sometimes bankrolled by private endowments and foundations.
Moreover, the conduits of government involvement in research,
the universities, are only weakly correlated with growing prosperity. As Alison
Wolf, professor of education at the University of London elucidates in her
seminal tome "Does Education Matter? Myths about Education and Economic Growth",
published in 2002, extra years of schooling and wider access to university do
not necessarily translate to enhanced growth (though technological innovation
clearly does).
Terence Kealey, a clinical
biochemist, vice-chancellor of the University of Buckingham in England and
author of "The Economic Laws of Scientific Research", is one of a
growing band of scholars who dispute the intuitive linkage between state-propped
science and economic progress. In an interview published in March 2003 by
Scientific American, he recounted how he discovered that:
"Of all the lead industrial
countries, Japan - the country investing least in science - was growing fastest.
Japanese science grew spectacularly under laissez-faire. Its science was
actually purer than that of the U.K. or the U.S. The countries with the next
least investment were France and Germany, and were growing next fastest. And the
countries with the maximum investment were the U.S., Canada and U.K., all of
which were doing very badly at the time."
The Economist concurs: "it is hard
for governments to pick winners in technology." Innovation and science sprout in
- or migrate to - locations with tough laws regarding intellectual property
rights, a functioning financial system, a culture of "thinking outside the box"
and a tradition of excellence.
Government can only remove
obstacles - especially red tape and trade tariffs - and nudge things in the
right direction by investing in infrastructure and institutions. Tax incentives
are essential initially. But if the authorities meddle, they are bound to ruin
science and be rued by scientists.
Still, all forms of science funding - both public and private -
are lacking.
State largesse is ideologically constrained, oft-misallocated,
inefficient and erratic (the recent examples being stem-cell and cloning
research in the USA). In the United States, mega projects, such as the
Superconducting Super Collider, with billions
already sunk in, have been abruptly discontinued as were numerous other defense-related
schemes. Additionally, some knowledge gleaned in government-funded research is
barred from the public domain.
But industrial money can be worse.
It comes with strings attached. The commercially detrimental results of drug
studies have been suppressed by corporate donors on more than one occasion, for
instance. Commercial entities are unlikely to support basic research as a public
good, ultimately made available to their competitors as a "spillover benefit".
This understandable reluctance stifles innovation.
There is no lack of suggestions on
how to square this circle.
Quoted in the Philadelphia Business
Journal, Donald Drakeman, CEO of the Princeton biotech company Medarex, proposed
In February 2003 to encourage pharmaceutical companies to shed technologies they
have chosen to shelve: "Just like you see little companies coming out of the
research being conducted at Harvard and MIT in Massachusetts and Stanford and
Berkley in California, we could do it out of Johnson & Johnson and Merck."
This would be the corporate
equivalent of the Bayh-Dole Act of 1980. The statute made both academic
institutions and researchers the owners of inventions or discoveries financed by
government agencies. This unleashed a wave of unprecedented self-financing
entrepreneurship.
In the two decades that followed,
the number of patents registered to universities increased tenfold and they spun
off more than 2200 firms to commercialize the fruits of research. In the
process, they generated $40 billion in gross national product and created
260,000 jobs.
None of this was government
financed - though, according to The Economist's Technology Quarterly, $1 in
research usually requires up to $10,000 in capital to get to market. This
suggests a clear and mutually profitable division of labor - governments should
picks up the tab for basic research, private capital should do the rest,
stimulated by the transfer of intellectual property from state to entrepreneurs.
But this raises a host of
contentious issues.
Such a scheme may condition
industry to depend on the state for advances in pure science, as a kind of
hidden subsidy. Research priorities are bound to be politicized and lead to
massive misallocation of scarce economic resources through pork barrel politics
and the imposition of "national goals". NASA, with its "let's put a man on the
moon (before the Soviets do)" and the inane International Space Station is a sad
manifestation of such dangers.
Science is the only public good
that is produced by individuals rather than collectives. This inner conflict is
difficult to resolve. On the one hand, why should the public purse enrich
entrepreneurs? On the other hand, profit-driven investors seek temporary
monopolies in the form of intellectual property rights. Why would they share
this cornucopia with others, as pure scientists are compelled to do?
The partnership between basic
research and applied science has always been an uneasy one. It has grown more so
as monetary returns on scientific insight have soared and as capital available
for commercialization multiplied. The future of science itself is at stake.
Were governments to exit the field,
basic research would likely crumble. Were they to micromanage it - applied
science and entrepreneurship would suffer. It is a fine balancing act and,
judging by the state of both universities and startups, a precarious one as
well.
About the Author
Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and
"After the Rain - How the West Lost the East". He is a columnist in "Central
Europe Review", United Press International (UPI) and ebookweb.org and the editor
of mental health and Central East Europe categories in The Open Directory,
Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor
to the Government of Macedonia.
His web site:
http://samvak.tripod.com
