Science Innovation Debate Paper

Public (taxpayer) funding for basic scientific research should be decreased in order to accelerate private sector R&D

This statement is correct, and basic scientific research should be primarily financed through private funding. In fact, this is the most effective way of organization of the scientific process.

It is generally recognized that scientific research is important for the long-term development of the country and society. There are different points of views regarding the financing of scientific research. According to one view, the majority of scientific research should be financed through government. It is supposed to stimulate the social development as governments may fund research for the sake of knowledge rather than profit. Moreover, government-funded research is supposed to be more objective that privately funded one. However, this conclusion is unsupported both from theoretical and experience-based perspectives.

The distinctive feature of all government-funded researches is that all of them are financed through taxes. It means that the financing is not voluntary, but compulsory. At the same time, all privately financed projects are voluntary and are not based on taxes. It does not mean that all privately financed researches are always effective. There is a possibility that some of them may appear ineffective and will be unable to generate the expected results. However, all of them are efficient from the ex-ante perspective, i.e. people voluntarily prefer to finance a specific research as the expected utility from its implementation exceeds the utility of money. In addition, all government-funded researches are inefficient even from the ex-ante perspective as taxation is not voluntary, and people do not prefer to finance a specific research.

Government-funded research includes the research provided by the government and some projects that are directly financed by the state. Both of these types seem to be ineffective from an economic point of view. Government-funded projects are selected on an arbitrary basis and are supported by involuntary savings. It is difficult to analyze the effectiveness of the government-funded research as it is claimed that they are provided for the sake of profit. Therefore, any result may be considered as satisfactory as it may contribute to the future progress. However, in the absence of market indicators, it is impossible to allocate resources rationally. There are a large variety of projects that may have some positive effect in the future. However, the economic resources are scarce, and they should be used in the most efficient way. Government has no objective criteria of selecting and financing projects.

The majority of privately funded researches are aimed at maximizing the future profits. Thus, the projects are selected on the basis of maximizing future profits under a given level of risk or minimizing future risks under a given level of profit. This selection is subjective, but it is closely related to the objective price system. Moreover, it is possible to analyze the effectiveness of a particular project or group of projects. If the project is able to generate the expected amount of profit, the scientific research may be considered as being rational and efficient. They may be developed and intensified in the future. At the same time, if the project is unable to generate the expected amount of profit (or even leads to losses), then it is reasonable to terminate this research. Although if the economic situation changes, it may be continued in the future. In any case, the privately-funded institutions use price system and market mechanism in the process of decision-making. They are able to allocate resources rationally and correct the existing problems and mistakes as they are evident through a profit-and-loss mechanism.

However, not all privately funded researches are aimed at receiving profit. There are a large number of non-profit institutions that finance specific scientific researches. The voluntary character of their funds provides a justified reason for the financing. Only those individuals and organizations, which voluntarily contribute to the particular research, participate in it. By the contrast, all tax-payers have to participate in all government-funded researches even if they are not considered some projects to be potentially efficient and with a reasonable amount of risk. Thus, involuntary essence of taxes leads to inefficient results from the point of view of consumers and tax-payers.

There is a strong connection between the levels of public- and privately funded research as they do not function separately. The increase in government-funded research typically leads to the decrease in privately-funded research. It may be the case for a number of reasons. First of all, as all public-funded researches are financed through taxes, governments usually have to increase the existing level of taxation in order to finance new scientific projects. Thus, private individuals have less income available for their private-based funding. Moreover, if the government finances some areas of the economy, the private institutions may decide not to invest in such areas even if it may be profitable in the absence of government intervention. Thus, the practice of public-funded research leads to less amount and misallocation of privately funded projects.

It should be stressed that the effectiveness of public and privately funded research is not the same. Public-funded research cannot use the price mechanism to such degree as it is possible with privately funded research. Therefore, it is incorrect to analyze the financing of research in a given country or region only on the basis of its total or gross amount. It is reasonable to analyze public and privately funded research separately as they produce different results for the economy. It seems that the public access to the government-funded research should be increased (Holdren). As a result, it will allow increasing the public control and effectiveness of the majority of government-funded projects (CED).

The empirical evidence also demonstrates the comparative effectiveness of public-financed scientific research. Even the most significant fundamental researches were conducted by individuals and private organizations rather than by the government employees. For instance, Henry Ford revolutionized the automobile industry with the help of his personal understanding of the technological process. The theory of relativity by Albert Einstein was also discovered without any government funding. Thus, individuals in different periods of history were able to make great discoveries without additional tax-funding. At the same time, those scientists, who were financed by the government, were unable to reach similar results. The situation is the same in the 21st century as well. For example, Grigori Perelman was able to solve the Poincare conjecture at the beginning of the century. He was awarded the Fields Medal in 2006. He also worked without government assistance. It seems that privately funded researches have “in-built” mechanism of effectively selecting projects and allocating resources. Though privately funded institutions can make errors, they are much more efficient in comparison with public-funded ones. The only problem is that the experience of privately funded institutions cannot be fully used by public institutions, because government funding is based on taxation that is not voluntary. The system of subsequent economic relations is different, as well. Therefore, it seems incorrect that long-term government commitment to support scientific research will facilitate the global development in the long run (Main).

In order to support the long-term development of science and society, it is necessary to decrease the amounts of public funding in relation to different spheres of basic scientific research. Privately funded researches should become more widespread. Consequently, it will allow maximizing the rates of economic growth in the long run.
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