- Reason Awakes -

Support for Research and Development

 

The appropriate amount and the allocation of federal support for scientific research and development is a complicated topic.

The production of knowledge, is a classic public good. Once the knowledge is produced each individuals consumption of that knowledge does not diminish the ability of anyone else to consume it. In a totally unconstrained market no one would be able to profit from their ideas for long. For this reason we grant patent rights to individuals to commercially exploit new ideas exclusively for a period of time, in order to create an incentive to pursue commercially valuable research. For the same reason we provide property rights to books, music, and  movies in the form of copyright protection.

Basic research is the production of knowledge with no known, immediate, commercial application. As such even with patent protection to little of it would be done. For this reason it is appropriate for government to directly subsidize basic research, since we know from experience that the production of knowledge produces substantial benefits for society, over time, even though we are not sure what that might be when the research is undertaken.

The problem is that knowledge cannot be contained for long. Others benefit from the research without paying for it. This is called the "free rider" effect in economics. For this reason, we rarely see local governments subsidizing basic research because they would effectively be subsidizing benefits to the entire world at the expense of a small population.

For a long time after WW II and until the end of the cold war, the U.S. was such a large part of the industrialized world, we could safely ignore the free rider effect and act like the U.S. was the entire world. This was especially true because our major strategic competitor, the Soviet Union, was, by virtue of its economic system, inept at transferring anything other than military technology. This is no longer true and, overtime, it is likely to become less and less true.

For some kinds of research this is not an issue. For example, we actually like the world to take advantage of our research for the prevention and treatment of communicable diseases. Research that increases crop yields and thereby reduces world poverty is also in our best interest. So too is research in alternative energy technologies that could reduce the presence of carbon in the atmosphere by producing energy with less carbon or by sequestrating it during the production process. In all of these cases and many others, we want our ideas to be taken and used as quickly as possible.

The problem comes when we think of basic research as a tool for increasing America's economic competitiveness. In the later half of the twentieth century this was a viable strategy. We were large relative to the rest of the world and technology transfer happened rather slowly by modern standards. Today we account for a shrinking part of the world's economy and technology transfer is occurring at lightening speeds. Because of this publicly supported, and therefor publicly available, basic research is likely to yield limited benefits in terms of American competitiveness.

This does not mean that we should not publicly support basic research and development. We just need to be more thoughtful than in the past about how we do it and where we allocate the funds. If we are really hoping to use R&D as an American competitive advantage we should subsidize it within the private sector so that the transfer of knowledge outside of America is slower. Technology for competitive advantage is complicated because making that technology available outside of the firm that develops it usually makes it available to the entire world. The best alternative that works as a competitiveness tool is to provide tax credits for R&D, within the private sector, and not to try and direct that R&D in any particular direction. This is a blunt instrument since many things can be characterized as R&D.

We don't oppose public support for R&D, in fact we applaud it, however, we must do it mindful of the fact that, in terms of competitiveness, the game has changed.

 



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