RALEIGH – As North Carolina struggles to reconcile its spending promises to its tax collections, public officials would be well advised to rethink one growing area of public subsidy: research.
Lobbyists for big university subsidies, special research grants for “strategic industries,” and the like argue that government must support both basic and applied research because the private sector will not do so on its own. This argument has a long and distinguished pedigree, and I am very familiar with it (hint to RTP propeller-heads and UNC minions: please don’t send me another batch of finger-wagging emails on the subject).
Unfortunately for those who think uncritically that ever-increasing piles of taxpayer dollars “invested” in university research generate big economic returns, economists and policy analysts have come a long way since the 1950s, when the argument was first hatched in the midst of a Cold War-era expansion of the government’s role in research. They have hashed out a variety of competing arguments, looked closely at the empirical evidence for signs that states or countries with larger government budgets for research grow faster than their competitors, and reexamined old debates about public goods, externalities, and how productivity gains really occur in free-market economies.
The debate is far from over, but Cato Institute scholars Ronald J. Sutherland and Jerry Taylor write about one conclusion that has virtually become a consensus. And, perhaps surprisingly given the libertarian publisher of their recent paper, the conclusion isn’t that all government research funding is bad. Rather, as Sutherland and Taylor write, modern-day economic analysis has established that, because it is difficult to exclude users or charge beneficiaries of the findings of research, “the private sector tends to underinvest in research that provides public benefits.” On the other hand, “the government tends to overinvest in research that yields insufficient public benefits.”
In other words, just because the competitive market doesn’t generate an outcome that is theoretically perfect doesn’t mean that government can successfully fill in the gap with wise decisions of its own.
I can’t do justice to their argument, so you’ll just have to read it here.
For purposes of state policy, however, I can say that the Cato paper argues for changing at least the way government research dollars are distributed – introducing some competitive grantmaking processes and linking more closely the desired social goal and the expenditure. In North Carolina, we pretty much shovel huge amounts of money at the UNC system, plus legislators earmark little dollops of research pork on top.
The result is a kind of research Devil’s Triangle, if you’ll pardon the expression. A lot goes in, but not much of measurable value comes out.