Commercially-driven research should be funded by loans, not grants

I couldn’t resist a very quick comment on an item in yesterday’s Financial Times. The article may be behind a paywall, so here’s a short extract giving the essential point:

Ministers are considering proposals to replace research grants to industry with loans, in a move that business leaders fear would damage Britain’s ability to innovate.

The reason for mentioning this is that I suggested the very same idea on this blog about five years ago. My general point was the logical inconsistency in swapping grants for loans in the case of university students on the grounds that they are the beneficiaries of education and should be able to pay back the investment through earnings, when the same argument is not applied to businesses that profit from university-based research. I wonder if BIS have been reading this blog again?

For what it’s worth I’ll repeat here my personal opinion view 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, scientific research.

This is pretty much the opposite of what the Treasury seems to have been thinking for the last five years. 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 has effectively been wasted. My proposal, therefore, is to phase out research grants for groups (either in universities or in business) 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?

Most of you probably think that this is a crazy idea, but if you do I’ll ask you to now think about how the government funds teaching in universities and ask yourself why research is handled in such a different way.

5 Responses to “Commercially-driven research should be funded by loans, not grants”

  1. “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.”

    But the public purse being as heavily constrained as it is now is the fundamental error: a policy choice rather than a policy constraint. It’s ideologically motivated economic quackery and there’s no real need for us to eschew (and forgo the benefits of) a Mariana Mazzucato approach to public research investment any more than there was a need for us to suffer the damage done by pro-cyclic austerity.

    • telescoper Says:

      I agree, but the public purse will always be constrained to some extent…

      • I am skeptical that if funding is removed for commercially driven research, that the money will be redirected into other science. I would suspect its more likely is the money would just be removed entirely as part of the austerity program, leaving everyone fighting over an even smaller pot than before.

    • That’s right. The older model, back when our economies were growing was that the government funded research, then got its payback via taxes. We only have these constraints because corporate and high income taxes are too low. Granted, the “free lunch” crowd is too powerful politically to expect this to change soon.

  2. Jesus Torrado Says:

    I wonder: if the results of publicly funded research in the UK have to be made open access, shouldn’t that mean that the results of industry research grants should not be patented, or the patents be licensed for free? (maybe it does mean so, and I just didn’t know it.)

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