Government Investment In R&D Questioned

Something to think about when deciding to publicly fund research.

Do Government "Investments" in Scientific Research Pay Off?
Ronald Bailey <http://reason.com/staff/hitandrun/133.html>

July 20, 2009, 2:19pm research funding The Pew Research Center for the People and the Press released the results of a poll that, among other things, asked Americans what they thought of government spending on scientific research. The poll found that a majority of Americans are big believers in the efficacy of government-funded research. As the Pew Center reported: For its part, the general public endorses the idea that government outlays for research are necessary for scientific progress. Six-in-ten (60%) say “government investment in research is essential for scientific progress”; only about half as many (29%) say “private investment will ensure that enough scientific progress is made even without government investment.”

As is often the case with opinions about the role of government, there is a substantial partisan divide in views of government investment in scientific research. Fewer than half of conservative Republicans (44%) say that government investment in research is essential for scientific progress; 48% of conservative Republicans say private investment will ensure that scientific progress is made.

By comparison, 56% of moderate and liberal Republicans, 59% of independents and a much larger majority of Democrats (71%) say that government investment in research is essential.

Scientific progress is a somewhat nebulous idea, but the Pew pollsters went on to ask if Americans thought that government "investments" in science "pay off" in the long run or not? The pollsters found: Regardless of whether they see government investment as essential to scientific progress, large majorities say that government investments in science do pay off. Nearly three-quarters of the public (73%) say that government investments in basic scientific research pay off in the long run, while a similar percentage (74%) holds that investments in engineering and technology pay off in the long run.

Opinions about these investments vary little across political and demographic groups. Eight-in-ten Democrats (80%) say that government investments in basic science research pay off in the long run, as do 72% of independents and 68% of Republicans. Views about whether government engineering and technological investments pay off largely mirror those about basic science investments.

One way to think about how government "investments" in science might "pay off" is to ask whether or not they end up increasing the growth rate of a country's gross domestic product. However, there is some evidence that government-funded scientific research is not the engine for growth the proponents claim it is. As I reported more than a year ago: The issue is complicated, but what evidence is available is damning. In particular, Kealey cites a 2003 Organization for Economic Cooperation and Development (OECD) report, /The Sources of Economic Growth <http://www.oecd.org/dac/ictcd/docs/otherdocs/OtherOECD_eco_growth.pdf>/, which finds "a marked positive effect of business-sector R&D, while the analysis could find no clear-cut relationship between public R&D activities and growth, at least in the short term."

This finding mirrored a 2001 OECD working paper <http://www.oecd.org/dataoecd/29/29/1891403.pdf> which showed that higher spending by industry on R&D correlates well with higher economic growth rates. In contrast to the academic truisms about the need for federal funding, the study found that "business-performed R&D...drives the positive association between total R&D intensity and output growth."

The OECD researchers noted that publicly funded defense research crowded out private research, "while civilian public research is neutral with respect to business-performed R&D."

In other words, government funded civilian research didn't appear to hurt the private sector but there was not much evidence that it helped, at least in the short term. The report concluded, "Research and development (R&D) activities undertaken by the business sector seem to have high social returns, while no clear-cut relationship could be established between non-business-oriented R&D activities and growth." Economic growth associated with R&D was linked almost entirely to private sector research funding.

The OECD report did allow that perhaps publicly funded research might eventually result in long-term technology spillovers, but that contention was hard to evaluate. The 2003 OECD study also noted, "Taken at face value they suggest publicly-performed R&D crowds out resources that could be alternatively used by the private sector, including private R&D."

A 1995 analysis done by American University economist Walter Parker also finds that government funding crowds out private research. "Once private research is explicitly controlled for, the direct effect of public research is weakly negative <http://www.american.edu/academic.depts/cas/econ/faculty/park/park_econinq.pdf>, as might be the case if public research has crowding-out effects which adversely affect private output growth," concludes Parker.Go here <" target=_blank>http://people-press.org/report/?pageid=1548> for complete Pew survey results and here <http://www.reason.com/news/show/126584.html>for my column on "The Failure of Scientific Central Planning."