The Failure of Centralized Scientific Planning

A review of Sex, Science and Profits: How People Evolved to Make Money

Does government funding of scientific research speed technological progress and spur economic growth? It is a truism among academic researchers that federal funding is necessary for fundamental research and that such funding is perpetually inadequate. In his 1945 report to the President, Science: The Endless Frontier, director of the federal Office of Scientific Research and Development Vannevar Bush argued that some areas of science "are likely to be cultivated inadequately if left without more support than will come from private sources." Given the economic and defense challenges faced by the United States after the Second World War, Bush claimed, "[W]e are entering a period when science needs and deserves increased support from public funds."

Bush did explicitly note that technological progress depended upon industry translating scientific discoveries into new therapies, products and services. "Industry will fully rise to the challenge of applying new knowledge to new products. The commercial incentive can be relied upon for that," wrote Bush. The problem, as he saw it, was that the profit motive was not strong enough to induce enough private investment in basic science. Part of the problem is that research results would be available to competitors, so a business could not profit sufficiently from its investment in basic research.

Now comes Terence Kealey to question these commonplaces in Sex, Science and Profits: How People Evolved to Make Money. Kealey is a biochemist and vice-chancellor of the University of Buckingham, the only independent university in Britain. To some extent, Sex, Science and Profits recapitulates the arguments Kealey made in his 1996 book The Economic Laws of Scientific Research (favorably reviewed in reason in 1997). What is new is that Kealey applies the gimlet eye of evolutionary psychology to his delightful romp through the history of human technological progress.

As human bands of hunter-gatherers improved their hunting technologies and grew in numbers, prey animals and other foods became increasingly scarce. So hunger encouraged the invention of agriculture and domestication of some animals. The New Stone Age saw a burst of technological innovation as people began to specialize and to trade. As goods proliferated and trade expanded, merchants invented writing systems, such as cuneiform and hieroglyphics, to keep track of grain, pots, sheep and goats, beer, spices, and cloth.

Kealey traces the fits and starts of technological progress through stagnant Bronze Age empires like Egypt and Assyria to the technologically innovative small merchant cultures such as the Phoenicians, Philistines, and Lydians that made crucial advances like the alphabet, ironworking, and coins. Technology stagnated under the Romans and surprisingly made headway during the Dark Ages which saw the invention of three-field crop rotation, the heavy plow and the horse collar which lifted food production by more than 40 percent. These inventions arose in areas of northern Europe where farmers sold food to city markets. This meant that they could specialize in growing food and obtain other goods they needed in trade from city dwellers. In the deep countryside where feudalism held sway, crop yields did not markedly improve for centuries. The period also saw the invention of windmills, trousers, butter, barrels, and buttons.

Then came the Renaissance in Italian merchant cities which invented double entry bookkeeping. This advance in accounting enabled enterprises to accumulate debts and credits in their own rights, making them entities separate from any individual. Italians also invented insurance to cover the risks of trading. The first stock exchange opened in Antwerp in 1460. Kealey then takes us to the dawn of the Industrial Revolution which again took off in small trading countries, especially the Netherlands and England. The common thread that he identifies is that technology takes off when individual and property rights are recognized.

Kealey shows in nearly every case the crucial inventions of the past two and half centuries were called forth by markets, not invented by scientists working from ivory towers. These include the steam engine, cotton gin, textile mills, railroad engines, the revolver, the electric motor, telegraph, telephone, incandescent light bulb, radio, the airplane—the list is nearly endless.

The story of the airplane is instructive. After the Spanish-American War, the federal government supplied a grant of $73,000 to the director of the Smithsonian Institution, Samuel Pierpont Langley to develop heavier-than-air craft. All six of Langley's prototypes crashed, the last one on October 7, 1903. Two months later, Ohio bicycle mechanics, Orville and Wilbur Wright, launched their first successful flight at Kitty Hawk, N.C. Their R&D budget? About $1,000.

But what about now? Governments are spending more than ever on scientific research. Isn't government-funding of basic research crucial to the development of new technologies? What about the Manhattan Project? Nuclear power? The Apollo moon-landings? The Internet? Kealey isn't claiming that government-funded research achieves no breakthroughs, but he is questioning if those breakthroughs are worth the cost. Surely government R&D funding must be helping to increase economic growth? That is the received wisdom argued centuries ago by Bacon, half a century ago by Bush, and is heard nearly every week at Congressional hearings today.

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, 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 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, as might be the case if public research has crowding-out effects which adversely affect private output growth," concludes Parker. Weakly negative? Government funding may retard technological progress? Is it possible that the funding for NASA has crowded out private space transport research and development? Or more currently, that private companies are not investing in carbon capture and sequestration research as a way to mitigate man-made global warming because they are waiting for the federal government to fund such research?

There is much more controversy and evidence to savor in Sex, Science and Profits, e.g., his argument that patents should be abolished except for those covering pharmaceuticals and that technological innovation often precedes scientific discovery. Everyone now agrees that centralized planning fails to produce economic progress. Kealey may well be on to something when he argues that centralized planning also fails to produce scientific progress.

Ronald Bailey is reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.