The Federal Government Should Not Fund Research

The growth rate of the Chinese economy is astounding: something like 9 % per year. This compares to a growth of more like 2 % in industrialized Western countries. What, if anything, are we doing wrong?

Terence Kealey's The Economic Laws of Scientific Research analyzes how government involvement affects scientific research. This topic is of immense importance: science in the United States is in great part done by academic scientists, who must take time out of research and advising the junior scientists in their care, to write grant proposals. These proposals are usually submitted to the National Institutes of Health or the National Science Foundation, but sometimes the Department of Energy or the Department of Defense and other agencies. The proposals are judged by a panel of scientists (taking time out of their research and advising) to be worthy or not of funding; some of the worthy proposals are funded. Thus the submitting scientist can fund further research by purchasing equipment, recruiting graduate students, and hiring research scientists.

Kealey claims that this model is the philosophical descendant of Baconism, where the flow of government money fuels basic research, which then fuels applied science, which then generates technological innovation that makes everyone wealthier and our lives better. He points out that the Baconian idea is not the only possible model; in fact, another possibility is that the free market can drive scientific research. In this model, companies and individuals see possible profit in applied science; for instance, if some innovation can make the company more efficient, then the company can make more money. At times, learning the applied science requires funding basic research, so capitalists will fund that as well.

As a good scientist should, Kealey proposes these two models, in the form of two hypotheses: which system is better at producing innovation, and thus creating wealth? He then examines the available evidence to decide between the two hypotheses. There are several issues implicit in this test, however.

1. Usually, in science, when we want to test between two alternatives, we need to do an experiment. In the case of deciding between government-funded and industry-funded science, the experiment would be setting up two countries which are the same in all ways, except the way that science is funded. Since this is impossible, we are left with historical evidence only: the data available is the progress of science in the past couple of centuries. This might seem like a drawback, but geologists do this kind of thing all the time! (In a few days, I'll be posting a description of how evidence--derived from experiments or from historical sources--is rationally used to test hypotheses.)
2. The evidence available is usually only economical. The easiest things to look at are correlations between how much government funds science (in total dollars or as a fraction of total funding), and things like wealth and economic growth (for example, gross domestic product per capita). We really want to know which system is makes peoples' lives better, but "better" is subjective. I'll get back to this point further along.
3. "Government funding" and "industrial funding" may not be the only possibilities. For instance, wealthy people might give money to scientists for the fun of it, or because they might find the results interesting. For instance, Mary Herbert (nee Sidney) did this kind of thing. But since government and industry are the biggest, it's a good approximation that there are only two possibilities.
   

However, in examining historical economic evidence, Kealey finds several trends that he describes as the economic laws of scientific research:

1. "[T]he percentage of national GDP spend on science increases with national GDP per capita" (italics original) regardless of the source of funding, government or industry.
2. "[P]ublic and private funds displace each other." This means that if the government increases money spent on research, then industry will decrease its spending.
3. "[P]ublic and private displacements are not equal: public funds displace more than they do themselves provide."

Number 3 is the kicker. Kealey has found evidence that the more government spends on science, the disproportionately less that industry spends on it. Taken to its logical conclusion, if government spend nothing on science then industry would spend the maximum amount it ever would on research--after all, it's how they're going to make more money! And it would mean more money for scientists, too. Furthermore, since individuals and industry are taxed so that the government can fund science, taxes would be lower, meaning more immediate wealth, and, for industry, the ability to hire more people.

There is actually an analogy to welfare that makes me extremely angry. Some people (possibly my hero, Walter E. Williams) believe that a rule like Kealey's #3 happens with welfare. This would read: the more that government spends on welfare, the disproportionally less that individuals spend on it. You can believe that supporting government-sponsored social programs helps poor people, but I doubt it would help as much as helping them your own damn self.

Now, Kealey has assumed that wealth is a measure of scientific success, but there may be other reasons beyond wealth for doing science that justify government intervention. Like, science is cool, it can be fun, it can teach kids to think critically in school. It can generate culture by allowing cultural achievements (perhaps, maybe, possibly NASA is a good example, but doesn't it really seem more like comparing penis size with the Soviets?). The government may have better control over things like environmental policy. However, as Kealey argues, economic arguments cannot support government funding of science. Libertarian philosophy would go further, saying that government funding should not be involved in culture or environmental policy, and what's more actually diminishes the ability of individuals (who are really what make up culture) to contribute to these kinds of achievements.

Oh, and China? Kealey figured that one out, too, although his book was published (1996) before the Chinese economy achieved those huge growth rates. The explanation is the same one that includes the observation of the "slow" growth of first the British economy, then the US economy, starting in the 19th century. These were the economic and scientific powerhouses. Their scientists were doing basic (industry-sponsored) research. When you have to invent brand new things, of course your economy will grow slowly, compared to those that can copy your old innovations! This explains the fast growth of French, Swedish and Japanesse economies in the middle of the 20th century, until they saturated at the same old "slow" growth rate of 2 %, the same as the British and American economies. Kealey: "the countries that emerge into capitalism late enjoy higher rates of growth than do the pioneers [Britain and the United States]," until they saturate at the natural growth rates of innovative countries.

So it's not that Western countries are doing something wrong, it's that China is doing something right: copying, and adopting more free market approaches to technology. If they continue this trend, and peel away the central planning, then the Chinese will benefit, as will the rest of the world. Go China!