Changing the framework for industrial policy

Here’s another one of the showcases of research from Sussex University. This one features Professor Mariana Mazzucato who debunks the myth of the state as a bureaucratic nanny that stifles creativity in industry, and instead recognizes the vital role of state-led investment in driving innovation and shaping and creating new markets from the internet to biotech to clean tech.

For what it’s worth this gives me an excuse to a view that I’ve expressed before that “commercially useful” research should not be funded by the taxpayer through research grants. If it’s going to pay off in the short term it should be funded by private investors or venture capitalists of some sort. Dragon’s Den, even. When the public purse is so heavily constrained, it should only be asked to fund those things that can’t in practice be funded any other way. That means long-term, speculative, curiosity driven research. You know, things like science…

This is pretty much the opposite of what the Treasury thinks. It wants to concentrate public funds in projects that can demonstrate immediate commercial potential. Taxpayer’s money used in this way ends up in the pockets of entrepreneurs if the research succeeds and, if it doesn’t, the grant will have been wasted if the research does not have any long-term fundamental significance. My proposal, therefore, is to phase out research grants for groups that want to concentrate on commercially motivated research and replace them with research loans. If the claims they make to secure the advance are justified they should have no problem repaying it from the profits they make from patent income or other forms of exploitation. If not, then they will have to pay back the loan from their own funds (as well as being exposed as bullshit merchants). In the current economic situation the loans could be made at very low interest rates and still save a huge amount of the current research budget for higher education. Indeed after a few years – suggest the loans should be repayable in 3-5 years, it would be self-financing. I think a large fraction of research in the Applied Sciences and Engineering should be funded in this way.

The money saved by replacing grants to commercially driven research groups with loans could be re-invested in those areas where public investment is really needed, such as pure science and medicine. Here grants are needed because the motivation for the research is different. Much of it does, in fact, lead to commercial spin-offs, but that is accidental and likely to appear only in the very long term. The real motivation of doing this kind of research is to enrich the knowledge base of the UK and the world in general. In other words, it’s for the public good. Remember that?

If it’s fair to ask students to contribute to their teaching, it’s fair to ask commercial companies to pay for the research that they exploit. Just as student grants should be re-introduced for certain disciplines, so should research loans be introduced for others. You know it makes sense.

However, if you want to tell me why it doesn’t, via the comments box, please feel free!

4 Responses to “Changing the framework for industrial policy”

  1. I agree except with “If it’s fair to ask students to contribute to their teaching” since I don’t think that this is fair; at least, I think it is not a good idea. So, even as an additional assumption, I wouldn’t use this argument, since it could be taken to mean that student fees are OK.

    Here is the summary of why they are a bad idea: If they are paid up front, then it disadvantages poor students. If they are paid later, it still disadvantages poor students. If they are paid back only if a certain level of income is reached, then the state is paying the poor students’ fees, so it would be better to do so directly. The argument that people who benefit financially should pay (back) their fees is wrong for several reasons. First, with a progressive income tax, those who earn more already pay more. Second, we benefit from many other state-funded things but one is not expected (at least, not in civilized countries) to repay the costs of an operation in a state hospital, say, if one earns more than a certain amount. Third, we also benefit from primary school, so by that logic charge fees there as well. Fourth, it casts higher education in economic terms, when the main reason for it is not to better one’s personal income: there is a danger that in the future we might know the price of everything but the value of nothing.

    Quote of the day:

    In answer to David Blunkett’s question “why should it be the woman getting up at 5 o’clock to do a cleaning job who pays for the privilege of them [graduates] earning a higher income?”, we should retort “why are you assuming that a woman doing a cleaning job will never want to enter higher education or to send her daughter there?”

    —Sue Blackwell [vice-president of Birmingham Association of University Teachers, criticising government plans to make students (or their families)
    pay university fees]

    • The way the UK student loan system functions is a essentially a tax on graduates that goes away if you earn enough money.

      A tax that goes away if you can earn enough money? Imagine if other taxes did that! It sounds ridiculous, because it is.

  2. Anton Garrett Says:

    “If it’s fair to ask students to contribute to their teaching, it’s fair to ask commercial companies to pay for the research that they exploit.”

    Yes, that’s what patents are for.

    I don’t actually agree with Professor Mazzucato as summarised in the first para above, but this is a debate that can be found copiously online and I’d simply add that for every economist who argues one thing it is easy to find another who argues the opposite!

    • Anton Garrett Says:

      For a well-argued alternative point of view, see The Economic Laws of Scientific Research by Terence Kealey, an academic biochemist who wrote a book on economics (better than most books on economics written by economists…) The 2nd edition had a rather snappier title: Sex, Science and Profits.

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