The Wages of Science
By Sam Vaknin
Author of "Malignant Self Love - Narcissism Revisited"

In the United States, Congress approved, In February 2003, increases
in the 2003 budgets of both the National Institutes of Health and
National Science Foundation. America is not alone in - vainly -
trying to compensate for imploding capital markets and risk-averse
financiers.

In 1999, chancellor Gordon Brown inaugurated a $1.6 billion program
of "upgrading British science" and commercializing its products.
This was on top of $1 billion invested between 1998-2002. The
budgets of the Medical Research Council and the Biotechnology and
Biological Sciences Research Council were quadrupled overnight.

The University Challenge Fund was set to provide $100 million in
seed money to cover costs related to the hiring of managerial
skills, securing intellectual property, constructing a prototype or
preparing a business plan. Another $30 million went to start-up
funding of high-tech, high-risk companies in the UK.

According to the United Nations Development Programme (UNDP), the
top 29 industrialized nations invest in R&D more than $600 billion a
year. The bulk of this capital is provided by the private sector. In
the United Kingdom, for instance, government funds are dwarfed by
private financing, according to the British Venture Capital
Association. More than $80 billion have been ploughed into 23,000
companies since 1983, about half of them in the hi-tech sector.
Three million people are employed in these firms. Investments surged
by 36 percent in 2001 to $18 billion.

But this British exuberance is a global exception.

Even the - white hot - life sciences field suffered an 11 percent
drop in venture capital investments in 2002, reports the MoneyTree
Survey. According to the Ernst & Young 2002 Alberta Technology
Report released in March 2003, the Canadian hi-tech sector is
languishing with less than $3 billion invested in 2002 in seed
capital - this despite generous matching funds and tax credits
proffered by many of the provinces as well as the federal government.

In Israel, venture capital plunged to $600 million in 2002 - one
fifth its level in 2000. Aware of this cataclysmic reversal in
investor sentiment, the Israeli government set up 24 hi-tech
incubators. But these are able merely to partly cater to the
pecuniary needs of less than 20 percent of the projects submitted.

As governments pick up the monumental slack created by the
withdrawal of private funding, they attempt to rationalize and
economize.

The New Jersey Commission of Health Science Education and Training
recently proposed to merge the state's three public research
universities. Soaring federal and state budget deficits are likely
to exert added pressure on the already strained relationship between
academe and state - especially with regards to research priorities
and the allocation of ever-scarcer resources.

This friction is inevitable because the interaction between
technology and science is complex and ill-understood. Some
technological advances spawn new scientific fields - the steel
industry gave birth to metallurgy, computers to computer science and
the transistor to solid state physics. The discoveries of science
also lead, though usually circuitously, to technological
breakthroughs - consider the examples of semiconductors and
biotechnology.

Thus, it is safe to generalize and say that the technology sector is
only the more visible and alluring tip of the drabber iceberg of
research and development. The military, universities, institutes and
industry all over the world plough hundreds of billions annually
into both basic and applied studies. But governments are the most
important sponsors of pure scientific pursuits by a long shot.

Science is widely perceived as a public good - its benefits are
shared. Rational individuals would do well to sit back and copy the
outcomes of research - rather than produce widely replicated
discoveries themselves. The government has to step in to provide
them with incentives to innovate.

Thus, in the minds of most laymen and many economists, science is
associated exclusively with publicly-funded universities and the
defense establishment. Inventions such as the jet aircraft and the
Internet are often touted as examples of the civilian benefits of
publicly funded military research. The pharmaceutical, biomedical,
information technology and space industries, for instance - though
largely private - rely heavily on the fruits of nonrivalrous (i.e.
public domain) science sponsored by the state.

The majority of 501 corporations surveyed by the Department of
Finance and Revenue Canada in 1995-6 reported that government
funding improved their internal cash flow - an important
consideration in the decision to undertake research and development.
Most beneficiaries claimed the tax incentives for seven years and
recorded employment growth.

In the absence of efficient capital markets and adventuresome
capitalists, some developing countries have taken this propensity to
extremes. In the Philippines, close to 100 percent of all R&D is
government-financed. The meltdown of foreign direct investment
flows - they declined by nearly three fifths since 2000 - only
rendered state involvement more indispensable.

But this is not a universal trend. South Korea, for instance,
effected a successful transition to private venture capital which
now - even after the Asian turmoil of 1997 and the global downturn
of 2001 - amounts to four fifths of all spending on R&D.

Thus, supporting ubiquitous government entanglement in science is
overdoing it. Most applied R&D is still conducted by privately owned
industrial outfits. Even "pure" science - unadulterated by greed and
commerce - is sometimes bankrolled by private endowments and
foundations.

Moreover, the conduits of government involvement in research, the
universities, are only weakly correlated with growing prosperity. As
Alison Wolf, professor of education at the University of London
elucidates in her seminal tome "Does Education Matter? Myths about
Education and Economic Growth", published in 2002, extra years of
schooling and wider access to university do not necessarily
translate to enhanced growth (though technological innovation
clearly does).

Terence Kealey, a clinical biochemist, vice-chancellor of the
University of Buckingham in England and author of "The Economic Laws
of Scientific Research", is one of a growing band of scholars who
dispute the intuitive linkage between state-propped science and
economic progress. In an interview published in March 2003 by
Scientific American, he recounted how he discovered that:

"Of all the lead industrial countries, Japan - the country investing
least in science - was growing fastest. Japanese science grew
spectacularly under laissez-faire. Its science was actually purer
than that of the U.K. or the U.S. The countries with the next least
investment were France and Germany, and were growing next fastest.
And the countries with the maximum investment were the U.S., Canada
and U.K., all of which were doing very badly at the time."

The Economist concurs: "it is hard for governments to pick winners
in technology." Innovation and science sprout in - or migrate to -
locations with tough laws regarding intellectual property rights, a
functioning financial system, a culture of "thinking outside the
box" and a tradition of excellence.

Government can only remove obstacles - especially red tape and trade
tariffs - and nudge things in the right direction by investing in
infrastructure and institutions. Tax incentives are essential
initially. But if the authorities meddle, they are bound to ruin
science and be rued by scientists.

Still, all forms of science funding - both public and private - are
lacking.

State largesse is ideologically constrained, oft-misallocated,
inefficient and erratic (the recent examples being stem-cell and
cloning research in the USA). In the United States, mega projects,
such as the Superconducting Super Collider, with billions already
sunk in, have been abruptly discontinued as were numerous other
defense-related schemes. Additionally, some knowledge gleaned in
government-funded research is barred from the public domain.

But industrial money can be worse. It comes with strings attached.
The commercially detrimental results of drug studies have been
suppressed by corporate donors on more than one occasion, for
instance. Commercial entities are unlikely to support basic research
as a public good, ultimately made available to their competitors as
a "spillover benefit". This understandable reluctance stifles
innovation.

There is no lack of suggestions on how to square this circle.

Quoted in the Philadelphia Business Journal, Donald Drakeman, CEO of
the Princeton biotech company Medarex, proposed In February 2003 to
encourage pharmaceutical companies to shed technologies they have
chosen to shelve: "Just like you see little companies coming out of
the research being conducted at Harvard and MIT in Massachusetts and
Stanford and Berkley in California, we could do it out of Johnson &
Johnson and Merck."

This would be the corporate equivalent of the Bayh-Dole Act of 1980.
The statute made both academic institutions and researchers the
owners of inventions or discoveries financed by government agencies.
This unleashed a wave of unprecedented self-financing
entrepreneurship.

In the two decades that followed, the number of patents registered
to universities increased tenfold and they spun off more than 2200
firms to commercialize the fruits of research. In the process, they
generated $40 billion in gross national product and created 260,000
jobs.

None of this was government financed - though, according to The
Economist's Technology Quarterly, $1 in research usually requires up
to $10,000 in capital to get to market. This suggests a clear and
mutually profitable division of labor - governments should picks up
the tab for basic research, private capital should do the rest,
stimulated by the transfer of intellectual property from state to
entrepreneurs.

But this raises a host of contentious issues.

Such a scheme may condition industry to depend on the state for
advances in pure science, as a kind of hidden subsidy. Research
priorities are bound to be politicized and lead to massive
misallocation of scarce economic resources through pork barrel
politics and the imposition of "national goals". NASA, with
its "let's put a man on the moon (before the Soviets do)" and the
inane International Space Station is a sad manifestation of such
dangers.

Science is the only public good that is produced by individuals
rather than collectives. This inner conflict is difficult to
resolve. On the one hand, why should the public purse enrich
entrepreneurs? On the other hand, profit-driven investors seek
temporary monopolies in the form of intellectual property rights.
Why would they share this cornucopia with others, as pure scientists
are compelled to do?

The partnership between basic research and applied science has
always been an uneasy one. It has grown more so as monetary returns
on scientific insight have soared and as capital available for
commercialization multiplied. The future of science itself is at
stake.

Were governments to exit the field, basic research would likely
crumble. Were they to micromanage it - applied science and
entrepreneurship would suffer. It is a fine balancing act and,
judging by the state of both universities and startups, a precarious
one as well.


Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Global Politician,
Central Europe Review, PopMatters, Bellaonline, and eBookWeb, a
United Press International (UPI) Senior Business Correspondent, and
the editor of mental health and Central East Europe categories in
The Open Directory and Suite101.

Until recently, he served as the Economic Advisor to the Government
of Macedonia.

Visit Sam's Web site at http://samvak.tripod.com