The Scientific State

The state is crowding out private funding of scientific research

Open Season Science
The Industrial Revolution, here depicted in the opening ceremony of the 2012 Olympics, was achieved under laissez-faire conditions

  When a government minister (David Willetts) and his shadow (Liam Byrne) unite in praising a deeply politicised book, and the praise is echoed by glowing reviews in publications ranging from the Financial Times and the Economist to the New York Review of Books and the Guardian, then the Standpoint reader knows only one thing: the book is a misleading one.

The book in question is The Entrepreneurial State by Mariana Mazzucato (Anthem Press, £13.99), published last year but now accumulating encomiums at an accelerating rate. Mazzucato, a professor at the Science Policy Research Unit of the University of Sussex, is the Thomas Piketty of entrepreneurship, and like M Piketty she believes she has identified a problem from which only the state — oh, that lovely institution, the state — can rescue us.

The Entrepreneurial State made its media breakthrough when Martin Wolf lauded it in the FT. The book is “a brilliant exploration” of how government rather than the private sector is “the entity that achieves the greatest breakthroughs”. The book established, he wrote, that it is the state which provides the research and investment that underpins the drugs and biotechnology industries. The state underpinned the achievements of two iconic companies, Google and Apple. And it is the state’s research that gave us fracking.

The book does indeed make those claims and they are, in a narrow sense, true. The state did give us those things — but only because that self-same state had crowded out the private funding that would otherwise have funded them. And, moreover, the state wasted its (our) research money in ways the private sector would never have done.

Mazzucato trades in anecdotes, but in a damning rebuttal of the anecdotal school of science policy the OECD published in 2003 its “Sources of Economic Growth in OECD Countries”, a systematic review of the factors that accounted for the differential growth rates of the world’s leading industrialised nations between 1971 and 1998. It found that only privately funded research and development led to economic growth. Publicly funded R&D provided no economic benefit and, indeed, seemed only to crowd out privately funded R&D.

That piece of contemporary econometric research is compatible with the history which shows, for example, that the US was laissez faire in research until 1940, even though by 1890 it was the richest (and most technologically advanced) country in the world, having — in the absence of government money for R&D — produced scientific and engineering giants such as the Wright brothers, Edison and Tesla. The introduction of government money for research since 1940 has not increased its long-term rates of economic growth nor of total-factor productivity. The UK’s record of successful research before 1914 (the Industrial Revolution was achieved in a laissez-faire environment) which subsequent government funding has not fructified, is similar.

Oddly, Mazzucato provides examples of crowding out — which she then denies. She writes that “top pharmaceutical companies are spending decreasing amounts of funds on R&D at the same time that the state is spending more” but rather than acknowledge that this is crowding out she denounces it as “free riding”, for which her bizarre solution is yet more government money for research. Even more bizarrely, she then employs a definition of crowding out that specifically excludes “free riding”. The two are of course the same.

We have been here before. In 1986 Correlli Barnett, a historian much loved by Margaret Thatcher and all points left, published his Audit of War to cross-party and multi-media acclaim, arguing that governments needed to fund more R&D. In 1945 Roosevelt’s friend Vannevar Bush published, to universal approbation, Science: The Endless Frontier to argue the same, in a tradition that dates back to Francis Bacon’s 1605 Advancement of Learning via Babbage’s 1830 Reflections on the Decline of Science in England. The case has to be advocated repeatedly because the systematic evidence never supports it.

The problem is that no vested interest is sufficiently offended by the works of Mazzucato, Barnett, et al. There are enough billionaires in the English-speaking world to create an intellectual climate in which Piketty’s plans to tax the rich can be challenged, but today every vested interest wants the government to fund science.

So governments love funding science because it makes them seem important (remember how Clinton and Blair claimed the credit for mapping the human genome) while companies love the idea of science for free, scientists love the idea of doing science with no accountability to anyone but themselves in their government-funded bubbles, and the public loves David Attenborough. Only Adam Smith had the courageous disinterest to explode the idea that science is a public good which thus requires public funds, but the relevant passages in The Wealth of Nations are now carefully ignored.
Yet all taxpayers should worry because, in advocating yet more government action, Mazzucato never considers opportunity cost. Indeed, she never invokes the concept: she only praises government for its courage and risk-taking which, she freely acknowledges, means it’s not worrying about the costs and likely commercial returns on its (our) money being spent by politicians and bureaucrats. For her, the state’s indifference to cost-effectiveness is a virtue. Yet there is no systematic — as opposed to anecdotal — evidence that science is a public good, and it needs no government support.