Mystery Of The Wages of Science
In the United States, Congress approved increases in the 2003 budgets of both the National Institutes of Health and the National Science Foundation in February 2003. America is not alone in trying – in vain – to compensate for imploding capital markets and risk-averse financiers.
In 1999, Chancellor Gordon Brown launched a $1.6 billion program to "upgrade British science" and commercialize its products. This was on top of the $1 billion invested between 1998-2002. The budgets of the Medical Research Council and the Biotechnology and Life Sciences Research Council quadrupled overnight.
The University Challenge Fund was to provide $100 million in seed capital to cover costs associated with recruiting management skills, securing intellectual property, constructing a prototype or preparing a business plan. Another $30 million went to start-up funding for high-tech, high-risk companies in the UK.
According to the United Nations Development Program (UNDP), the 29 largest industrialized countries invest more than $600 billion annually in research and development. The majority of this capital is provided by the private sector. In the UK, for example, government funds are dwarfed by private funding, according to the British Venture Capital Association. Since 1983, more than 80 billion dollars have been invested in 23,000 companies, about half of them in the hi-tech sector. Three million people are employed in these companies. Investments increased in 2001 by 36 percent to 18 billion dollars.
Even the life sciences field suffered an 11 percent drop in venture capital investment in 2002, according to MoneyTree research. According to the Ernst & Young 2002 Alberta Technology Report, released in March 2003, Canada's hi-tech sector is languishing with less than $3 billion invested in 2002 in seed capital – despite generous matching funds and tax breaks offered by many provinces. as well as the federal government.
In Israel, venture capital fell to $600 million in 2002 – a fifth of the level in 2000. Aware of this cataclysmic turn in investor sentiment, the Israeli government established 24 hi-tech incubators. However, they are only able to partially satisfy the financial needs of less than 20 percent of the submitted projects.
As governments absorb the huge shortfall created by the withdrawal of private funding, they attempt to rationalize and save.
The New Jersey Commission of Health Science Education and Training recently proposed a merger of the state's three public research universities. Growing federal and state budget deficits are likely to put further pressure on the already strained relationship between academia and the state—especially given research priorities and the allocation of increasingly scarce resources.
This friction is inevitable because the interaction between technology and science is complex and poorly understood. Some technological advances give birth to new scientific fields – the steel industry gave birth to metallurgy, computers to informatics and the transistor to solid state physics. Scientific discoveries also lead, albeit usually circuitously, to technological breakthroughs – consider the examples of semiconductors and biotechnology.
So it is safe to generalize and say that the technology sector is only the more visible and attractive tip of the dull research and development iceberg. Military, universities, institutes and industry around the world invest hundreds of billions annually in basic and applied studies. However, governments are the most important long-term funders of purely scientific activities.
Science is widely seen as a public good – its benefits are shared. Rational individuals would do well to sit back and copy research findings—rather than produce widely replicated discoveries themselves. The government needs to step in to give them incentives to innovate.
Thus, in the minds of most lay people and many economists, science is associated exclusively with publicly funded universities and the defense establishment. Inventions such as jet aircraft and the Internet are often touted as examples of the civilian benefits of publicly funded military research. For example, the pharmaceutical, biomedical, information technology, and space industries—although largely private—rely heavily on the fruits of state-sponsored non-competitive (i.e., public domain) science.
Most of the 501 corporations surveyed by Finance and Revenue Canada in 1995-6 reported that government funding improved their internal cash flow - an important factor in R&D decisions. Most of the beneficiaries used the tax benefit for seven years and saw employment growth.
In the absence of efficient capital markets and venture capitalists, some developing countries have taken this tendency to extremes. In the Philippines, almost 100 percent of all research and development is funded by the government. The collapse of foreign direct investment flows – down by almost three-fifths since 2000 – has only made the involvement of the state more necessary.
But it is not a universal trend. For example, South Korea made a successful transition to private venture capital, which now—even after the Asian turmoil of 1997 and the global recession of 2001—accounts for four-fifths of all R&D spending.
So the support for pervasive government involvement in science is overdoing it. Most applied research and development is still carried out by privately owned industrial enterprises. Even "pure" science—unadulterated by greed and commerce—is sometimes funded by private grants and foundations.
Furthermore, the channels of government involvement in research, universities, are only weakly correlated with increasing prosperity. As Alison Wolf, Professor of Education at the University of London, makes clear in her seminal volume, Does Education Matter? The Myths of Education and Economic Growth', published in 2002, years of schooling and greater access to university do not necessarily translate into increased growth (although 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 group of scientists who question the intuitive connection between state-sponsored science and economic progress. . In an interview published in March 2003, Scientific American recounted how he discovered that:
"Of all the leading industrial countries, Japan - the country that invests the least in science - grew the fastest. Japanese science grew extraordinarily under laissez-faire. Its science was actually cleaner than that of the UK or the U.S. The countries with the least investment were France and Germany, and they grew the fastest. And the countries with maximum investment were USA.