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Prisoner’s Dilemma of Basic Science

In class I chatted about the challenge of funding basic science in a world of which the US is an ever-smaller slice.Note 1 The economic gains to basic research remain highly uncertain, and applications may not come for decades.Note 2 Furthermore, science is mobile: conventions are international in nature, results – as in working papers in economics – are disseminated rapidly. At the level of a US state there’s no obvious need to fund basic science, yet the focus of “flagship” universities is just that (and liberal arts colleges face pressures from accreditation, reputation and faculty peer pressure to follow in their footsteps).

One retort is that while Science may be borderless, tacit knowledge remains important and “lab rats” aren’t as mobile. Ready access to specialists and their labs create benefits from co-location. So there’s a body of work on the location of biotech firms and semiconductor firms, whether you get clusters of high-value-added enterprises with high growth potential centered around universities. I don’t know the current state of the literature, but I strongly suspect that if you could undertake a cost-benefit analysis, the magnitude of the benefits of such spin-offs is a fraction of the cost of funding PhD programs.

Now in fact states have been dropping their funding, in both Virginia and Michigan the public funding component of UVA and UofM is modest. In effect, they’ve become private schools building upon large investments in plant and equipment funded by state taxes but reliant on grants and endowments for ongoing operations. What of a University of South Dakota or a University of Arkansas? Have they maintained funding? I don’t know – it might be a good term paper topic!Note 3

Another way in which research universities look to benefit financially from R&D is from technology licensing, which if of patents can be tracked.Note 4 Now I’m not sure that’s a great argument when approaching the state legislature – doesn’t that translate into a case for cutting support? But it certainly is part of the wider discussion of the benefits of funding R&D. So here the NYTimes science section reports that “Patenting … Does Not Pay…“. The underlying Valdivia Brookings study is part of a larger project on technology – see for example Rothwell et al. Brookings paper on the regional nature of R&D. But what Valdivia focuses upon is the growth of Technology Transfer Offices. His 1999 base consists of TTOs in 174 institutions, up from 30 in 1979; he tracks their performance through 2012. Only 8 of these universities generated substantial revenue; most TTOs did not even cover staff expenses.

So should states fund university research? The thrust of the Brookings project is that their are a lot of spinoffs. But to me the small number of winners (most patents come from a handful of metropolitan areas) suggest that it’s good national policy but not good local policy – indeed Brookings work also shows that Federal R&D is more productive. That leaves open the question of who should fund “STE” (science-technology-engineering) training.

Note 1. Cf. Einstein’s 1905 work on the photoelectric effect, which lies behind the xerox machine. The first patent drawing upon that did not come until 30 years later – Chester Carlson’s first “electrophotography” patent of 1938. Practical development did not start until 1946 and the first plain paper copier was not launched until 1959, though along the way the Haloid Corporation (later renamed xerox) developed specialized copiers for lithography and microfilms. [Photomultiplier tubes date back to 1934, building on a 1919 patent, and related experiments aimed at developing a TV camera using the photoelectric effect go back at least to 1926, so the “first” above is specific to copying technologies.]

Note 2. With a population of 316 million, we remain a large slice of the global economy even with the rise of China and Brazil and {hopefully} India.

Note 3. Brookings claims that state R&D funding is increasing, Federal declining. See here. It’s a brief note so provides no data, but outlines a version of the public good externality motivating this post.

Note 4. One anecdote – which is not “data” only an indication that exceptions exist – is flu vaccines. The underlying R&D was done at the University of Michigan (mea culpa: my brother worked in that lab for many years), and it continued to do the legwork of turning out the actual base vaccine, which includes various flu strains basic on work predicting which would be prevalent in the next flu season. Actual production was then handed off to commercial vaccine companies. When the head of the lab retired, it was closed and all work was transferred to outside commercial firms – none in Michigan. We as a society benefit enormously from that work, and likely most of the funding was Federal. But the commercial benefits didn’t come back to benefit Ann Arbor.

One Comment

  1. reilly reilly

    Our text focused on innovations in technology from small firms vs large corporations. The large corporations had extensive capital available to finance the r&d, yet smaller firms seemed more likely to come up with a new idea and transform their business to use the innovation. Large corporations do not want to cannibalize their sales by throwing in a competing product. They might patent and never use the new product where as a new firm in the market would use the product to gain an advantage.

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