Sunday, May 05, 2013

Government and Basic Research

A friend had this on his Facebook wall leaving me a bit conflicted:

I have had this conversation almost word-for-word with a historian friend before.

I would also respond by saying that we have no clue where curiosity driven research will lead us. A lot of cures and medical breakthroughs (X-Rays, fMRI, penicillin) came from research that seemed esoteric and silly to outsiders.

What should the role of government be in basic research? On one hand I'm not sure it should be zero, but given limited resources, what's the limit?

I also made the mistake of assuming that business doesn't do basic research because of its intangible benefits and large costs - but that's not quite true (Cato):
When University of Pennsylvania economist Edwin Mansfield studied the 1960-70 behavior of 16 major American oil and chemical companies, he found that all 16 invested in pure science. The more a firm invested in basic science, the more its productivity grew.

Zvi Griliches of Harvard University, in a study of 911 large American companies, discovered that the companies that engaged in basic research consistently outperformed those that neglected it.

Most of the benefits of a company’s basic science are indeed “captured” by competitors. When Hiroyuki Odagiri and Naoki Murakimi studied the 10 largest Japanese pharmaceutical companies, which collectively enjoyed $13 billion sales in 1981, they found that on average each company had an annual return of 19 percent on its own investment in research and development. But each company obtained the equivalent of a 33 percent annual return on the R&D done by the other nine companies. Each company was, therefore, apparently free riding on the other nine.

But there is no such thing as a free ride in R&D. Only highly skilled research scientists can capture other people’s science. And since the best scientists are those who are actually doing research, to retain their services, companies have to fund them with considerable generosity and considerable freedom.

Thus we see that “capture” is the solution to, not the problem of, the industrial exploitation of pure research. Basic science is so vast, worldwide, and so unpredictable that no individual company can hope to cover its own needs. So companies have to fund scientists’ in-house pure research to retain their services as agents of capture.
There's also another pretty comprehensive argument at the Cobden Centre.

Depending on who you ask, in the case of the Large Hadron Collider that led to the discovery of the Higgs Boson particle, the cost was as much as $14 billion dollars (StackExchange). It's clearly a discovery that few if any private firms could have undertaken on their own - but that also presumes that the funds were spent efficiently.

On the other hand, we've also seen interesting discoveries/innovation as a result of the X-prizes - but these are defined outcomes when some important discoveries, as noted above, have happened by accident (not that this precludes other unintended discoveries from happening). On the privatize everything side of the argument, it's unclear that these discoveries wouldn't have been achieved in the private sector - and if governments weren't involved, maybe they would have happened earlier (or the counter argument might be given the state of intellectual property rights, some patent troll may have sat on these much needed innovations and/or prevented their development - but that's more a call for a rethink of how property rights are rewarded in the first place).

There are a number of private foundations that aim to fund breakthrough research like Peter Thiel's Breakout Labs that gives grants for early-stage scientific research that is too speculative or long-term to interest the for-profit sector (Wikipedia). I also don't think that scientists are immune to waste and the creation of costly bureaucracies. Further, whenever government is a funder, it tends to crowd out other funds - whether it be in competing for researchers or picking favorites. So what's the balance to strike and are governments currently striking that balance?

Update: Is the LHC a worthwhile project? (

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