Government research spending will threaten innovation

The minister for universities and science, David Willetts, has announced that a £85m capital fund will be created with government money for research purposes. The sum will fund research in advanced materials, energy storage and robotics. This is a classic example of a government strategy of picking winners. Marc Sidwell argues that such industrial policy is unnecessary, markets do embrace uncertainty without government intervention:

The economics of filmmaking is terrifying – 70 per cent of movies lose money and are paid for by the success of the other 30, but no one know what films will be the breakout hits. Who would have predicted that a black and white silent movie, The Artist, would be one of 2012’s success stories?

The lesson here, which politicians like Cameron show no sign of learning, is that picking winners can prove a disastrous strategy. And yet it is a message of hope as well – a sector as fruitful and innovative as the modern motion picture industry can thrive despite the total uncertainty as to whether any of its products will find an audience until they are released. The wit and invention of Pixar, the depth of The Man Who Shot Liberty Valance, the sour timelessness of Chinatown – all have been made possible by embracing uncertainty.

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Willetts admitted that government could get it wrong, saying that “some of the technologies for which we have high hopes today will turn out to be clunkers tomorrow.” While £85m might be a small sum, that money may still do more harm than good. Terence Kealey argues against government funding of research:

The big myth about scientific research is that government must fund it. The argument is that private companies will not fund science, especially pure science, for fear that their competitors will “capture” the fruits of that investment. Yet, in practice, companies fund pure science very generously, and government funding displaces private research money.
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Further, government funding of university science is largely unproductive. When Edwin Mansfield surveyed 76 major American technology firms, he found that only around 3 percent of sales could not have been achieved “without substantial delay, in the absence of recent academic research.” Thus some 97 percent of commercially useful industrial technological development is, in practice, generated by in-house R&D. Academic science is of relatively small economic importance, and by funding it in public universities, governments are largely subsidizing predatory foreign companies.
Scientists may love government money, and politicians may love the power its expenditure confers upon them, but society is impoverished by the transaction.