Big Government vs science

Part of the folklore of academia is that the state should fund universities to do fundamental research to advances the frontier of knowlege and then there is a spillover into into technology to deliver wealth and welfare.

Terrence Kealey wrote a book on the economic laws of scientific research which refutes that view. He compared the Baconian view (as above) with the Adam Smith view that technology advances mostly through “on the job” modifications of previous technologies. Scientists and research laboratories can be involved but they might just as well be privately funded as state-funded.

A summary of the book appeared in a series of posts on the Cat a few years ago and this is the consolidated summaries.

A few extracts to give the flavour. 

Chapter 5. The Agricultural Revolution.
The area of innovation shifted to Holland and England. Vital innovations such as crop rotation and systematic improvement of crops and pastures were driven by gentleman farmers such as “Turnip” Townsend and associations such as the Lunar Society which consisted of a mix of scientists, engineers and industrialists.  By 1850 agricultural productivity in Britain was increasing by 0.5% per annum, unprecedented in history. Laissez faire ruled (almost) and there was no state involvement in research or industry policy.
Chapter 6. The Industrial Revolution.
Between 1780 and 1860 the population of Britain tripled from 7.5M to 23M and the real per capita income double in real terms across all classes.
The drivers were increased productivity of machines and the movement of labour from the land (and Ireland) to the factories.  The driver of machine technology was NOT science as predicted by the Bacon but the improvement of existing technology by ingenious artisans such as Newcomen, Watt, Trevithic and Stephenson. Amazingly, the scientists were struggling to keep up with the tradesmen! Hooke (the scientist) told Newcomen that his idea would not work while he was developing it (fortunately he persisted) and Carnot’s work on thermodynamics was prompted by Watt’s steam engine which could not work according to the laws of science as they were understood by leading scientists at the time.
France followed the Bacon model and set up glittering science laboratories and institutions of learning, while the state ran on the basis of taxes extorted by an army of Farmers-General (tax farmers) working on a commission basis with draconian powers of search, detention and confiscation. Hence the Revolution, while the science laboratories produced scientific advances without any impact on technology or the wealth of the French people.
Chapter 7. Economic History since 1870
This chapter is about the comparative economic performance of nations with some warnings about the valid and invalid comparisons that are often made. Invalid comparisons are often used to promote the Baconian approach to science with the aim of getting more state involvement by way of industry policy and public spending on science and education. A classic example is the comparison of Germany and Britain post 1870. Bismark’s warfare/welfare state sudsidised and protected local industries, especially steel. With the inflated cost of German steel it made sense for England to produce less and buy from Germany, still a lot of people just saw the decline of an industry, not wealth transfer from Germans to Britons. They also misread the play on technical education, being over-impressed by the network of state-funded technical colleges in Germany and forgetting about the 700+ industry-funded mechanics institutes that were established  in Britain between 1820 and 1850.

There is a stunning table on the economic performance of the current (1980) 16 richest nations from 1870 to 1980. These figures indicate  GDP per capita in 1870 adjusted to the $US in 1970.
Australia at 1393 leads the UK 972, Belgium 925, Holland 831, Switzerland 786, US 764.
On an index of  productivity Australia scored 1.3 compared with UK 0.8, Holland US and Belgium 0.7. Australia was at the bottom in growth of productivity since that time.

Chapter 8.  Science Policies of the Twentieth Century

In this chapter Kealey traced the evolution of science policy in the US and Britain. They both started with a substantially laissez faire economy and also minimal state involvement in science, then during the 20th century the Baconians and the Czars of science took over and they went for central funding and control in a big way. For those who have been receptive to Kealey’s argument thus far, the results are  predictable (cw 18th century France).
Chapter 10.  The Real Economics of Research
In this chapter Kealey looks at the economics of R&D and then the economics of academic science, in each case asking whether government funding is required to optimise spending.
He confirms three Laws of  Funding for Civil R&D.
First Law. The % of national GDP  spent increases with national DGP per capita.
Second Law. Public and private funding displace each other (compete). So public funds tend to displace private funds.
Third Law. The public/private displacement is not equal. Public funds displace a larger volume of private funds than the public input. (net loss).
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6 Responses to Big Government vs science

  1. Winston Smith

    That was a great half hour of reading with the first couple of Friday Night beers, Rafe.

  2. Samson Agonistes

    Australian capitalism is not very science-intensive, that’s the problem.

  3. Jim Rose

    the notion that adoption, adaptation and workplace problem solving are the main drivers of economic growth are standard in schumpertarian growth theory and in Robert Lucas’s recent work.

    Boyan Jovanovic estimates that adoption costs exceed invention costs by 20 to 1.

    Lucas asked in a 2008 paper:

    It is widely agreed that the productivity growth of the industrialized economies is mainly an ongoing intellectual achievement, a sustained flow of new ideas.

    Are these ideas the achievements of a few geniuses, Newton, Beethoven, and a handful of others, viewed as external to the activities of ordinary people?

    Are they the product of a specialized research sector, engaged in the invention of patent-protected processes over which they have monopoly rights?

    Both images are based on important features of reality and both have inspired interesting growth theories, but neither seems to me central.

    What is central, I believe, is that fact that the industrial revolution involved the emergence (or rapid expansion) of a class of educated people, thousands–now many millions–of people who spend entire careers exchanging ideas, solving work-related problems, generating new knowledge.

  4. brc

    Of course, any serious big-government loving socialist can always list out all the great inventions by state-funded programs…


  5. Rafe

    Jim, this book pre-dated Lucas by a decade. Did Lucas cite it?

    The point about the industrial revolution as described by Kealey was that it was driven by ingenious artisans, with very little formal education.

    But as things moved along there was more need for another kind of research, the point is that it did not have to be state-sponsored.

    After all, my own fundamental work in soil plant relations was supported with industry funds from the Australian Meat Research Committee. And it was done in a research institute based on a farm in Adelaide that was donated to the university for research by the farmer (Mr Waite).

  6. Jim Rose

    rafe, no.

    Lucas’ ideas and growth is open access at;jsessionid=E17BB45E094FA426F76C0839E3A5BF8C.d03t02

    schumpetarian growth theory talks of the introduction of modern R&D by supposing that before some date all productivity advances were based on a pragmatic creativity occurring close to the production process, and involve less basic science, generate fewer spillovers to other countries, and contain a smaller element of novelty and a larger element of dependency on preceding innovations.

    Thereafter, an alternative method of technology investment, called R&D, became available to all countries. R&D draws more heavily on scientific knowledge and its institutions, and thus requires higher skill levels than implementation.

    good night.

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