The Role of the Government in Research - A Response.

A few days ago, Timothy Sandefur posted his second entry in our ongoing debate on the benefits and pitfalls of government funding for the sciences. I've been a bit busy, and I'm just finding time to respond now - I apologize for the delay. While I was doing other things over the weekend, he also posted a response to an article by Steven Quake that I blogged about earlier. This is my response to his rebuttal to my earlier post. I may or may not find the time to reply to his examination of the Quake article later on.

The Internets:

In my first post in the debate, I pointed out that this debate is taking place on the internet. I mentioned that because I thought - and still think - that the internet represents a fantastic example of why it can be really good to fund scientific research. Sandefur disagrees on both philosophical and pragmatic grounds.

Philosophically, he points to the issue of choice:

To assess the costs and benefits of a government subsidy, it's necessary to keep in mind the unseen costs: that is, the things that might have been created if the money had not been taken out of the hands of private individuals and spent on things that they actually wanted. Sure, military research created Arpanet in the 1960s. But if that money had been left in the hands of private investors, what would they have done with it? Maybe they would have created a super-duper Arpanet that would have been far cooler and we would have had Wikipedia twenty years earlier. Or maybe they would have wasted it on weekend trips to Vegas. Nobody knows, and nobody can know. But the one thing we can be sure of: taxpayers in the 1960s got Arpanet instead of what they would have spent that money on if they had had the choice. That means that they were forced to pay for something they didn't want--and by definition, that means it was economically inefficient. Now, maybe we think that it was still wiser for the government to deprive people of their freedom of choice in this way--but it's not logically possible to say that people benefited from this, when they were deprived of any say in the matter.

I find it difficult to agree that it is not logically possible to say that people benefit from something if they have no say over the matter. Education, for example, strikes me as a clear benefit - both to the individuals concerned and society as a whole. Parents are required to provide their children with an education, and the government (using taxpayer dollars) ensures that they will be able to provide their children with at least a certain minimum level of knowledge and skills. Children receive a certain level of training in a range of basic skills regardless of the means or inclination of their parents, which provides them with more employment opportunities than they would have if not educated. Because all children are receiving at least a certain amount of education, employers have a larger pool of qualified potential employees to draw from. Even the parents might benefit - there's probably a greater chance that their kids will be able to provide for them in their old age if they're educated.

I may well be missing Tim's basic point here, and if so I'd welcome a better explanation, but at the moment it looks to me like it is possible for people to benefit, even in situations where they're deprived of a choice. If there is some definition of these terms that makes it impossible, I suspect that the problem lies with the definition, not with reality.

Tim continues by raising a couple of issues that are more pragmatic objections than philosophical. He starts by pointing to cases where the government has completely wasted funding:

Of course, we might also mention, to counterbalance the Arpanet example, all the many wastes of time and money that government subsidies have provided. After all, while government was funding Arpanet research, it was also funding some pretty wasteful things, like research into psychic warfare. In short, merely pointing to something good that government did, without keeping in mind the costs of that project--including the unseen costs; things that might have come into existence but didn't--is one of the oldest economic fallacies there is.

The government of the United States, like every government we know of, is composed of people. With one alleged exception, people are fallible. This is a simple fact of life, that applies as much in the private sector as it does within the government. Mistakes will be made. Tim can cite plenty of examples of this where government funding is involved; I'm sure I'll have no problems doing the same with private sector initiatives. Perfection does not exist, and everything has unseen costs.

Moving on, Tim effectively makes my case for me, by going back to the internet example:

Second, it's not true that government created the Internet. Arpanet was a fine enough invention, sure. But it bears about the same relationship to the modern Internet as the birth of Christ does to modern Christmas. In both cases, it's private enterprise and freedom of economic decision-making that have given us all the wonderful luxuries and delights that make these things so wonderful to us. While in their distant history they may be attributable to government or God, it is in the hands of private, human entrepreneurs--not government planners--that these things have become such a marvelous experience for us all. What's more, no government could possibly have sat down and created either of these things. Only decentralized, private decision-making could have created the marvelous multiverse of today's Internet.

That is exactly why the internet is such a fantastic example of what's good about government funding for basic research. Government funding created the basic structure of the internet, and government-funded researchers using the internet created a great deal of the initial culture of the internet and the initial content that was available when private companies began to introduce non-academic users to this world. The private companies were not operating or innovating in a vacuum. They were building on - and benefiting from - the basic foundation that had been provided by government funding.

As far as I'm concerned, that's about as close to the way I think things should work as we're likely to find. I'm not a fan of public control or public planning, and I think that you'd have to be almost totally blind to avoid seeing just how good a job entrepreneurs can do when it comes to creating things. I don't think that the proper role for government is to try to control or dictate all, or even most, research. When things reach a point where private firms see potential, I think they should be allowed - encouraged - to develop things further.

That's exactly what happened with the internet. No one company expended - or had to expend - the tremendous research and development funding required to develop the basic foundation of the internet. The public development of the basic infrastructure made it possible for people to try new things with relatively low start-up costs. With a little bit of programming skill and a little bit of marketing skill, any geek could make it big.

Of course, there are unseen costs to allowing this sort of free-market innovation as well. For a while there, it felt like anyone with access to a high-speed connection and their mother's garage was getting insane amounts of venture capital, and a lot of people - including some innocent bystanders - got hammered when the resulting dot com bubble burst.

The Public Good Argument:

Mr. Sandefur is also not a fan of my "public good" argument:

There are a couple problems with this. The first is that most of the time, the alleged public good isn't a public good at all. ("Public goods" doesn't mean "good for the public," which science obviously is. It means something that is non-rivalrous in consumption and non-excludable: something you can't keep people from stealing and something that everyone can enjoy at the same time.) It is not true that scientific research is necessarily a public good. There are all sorts of ways to prevent people from stealing your proprietary research. One of these ways is in the form of a particular kind of government subsidy, and that is, patents and copyrights. What's noteworthy here is that when the Constitution's authors decided to provide federal authority for this particular kind of subsidy, they did so by explicitly granting Congress the power to grant patents and copyrights. They did not grant Congress the authority to devote taxpayer money to running a federal research apparatus. In other words, the founders thought about the public goods argument, and chose only one way of responding to it: patents and copyrights--not government funding.

Part of the problem with that is that Sandefur is conflating two subtly different concepts: scientific research in general, and government-funded scientific research in particular. Intellectual property law creates an incentive - or at least removes a disincentive - for private research funding. Investors know that if the research they are funding yields something with economic benefits, their right to profit from their investment will be protected. Government funded research, on the other hand, should be generally available to the public - and most of it is, in the form of peer-reviewed scientific literature.

Here, again, the government funded work is available to anyone and everyone to build upon. There's no way, in fact, to realistically prevent someone from further developing an idea that he or she got after reading an article produced by a government-funded scientist, and someone else could, in theory, come up (and run) with a different concept based on the same original work. Under the circumstances, I'm having a hard time seeing how the body of peer-reviewed scientific literature isn't a public good.

On a practical matter, there are some issues that interfere with this particular view. One glaring example would be the Bayh-Dole Act of 1980, which allows universities to seek patents on the products of government funded research. I would agree that allowing universities - or other entities - to direcly reap financial gain from research conducted with our money, without providing us with some sort of compensation, is unreasonable. I'd be thrilled to see that act overturned or repealed. But that's a reason to fix the problem, not toss out the system.

Mr. Sandefur also points out that private companies can provide public goods: it true that government must provide public goods? No. Private industry provides public goods all the time. I've already mentioned the tremendous amount of money that private charitable foundations devote to scientific research, for example. There are plenty of other examples, both in science and outside of it. Celera gave away many of its genome sequences--sequences produced faster, better, and cheaper than the sequences produced by the government HGP.

This is true, as far as it goes. Private industry is entirely capable of providing public goods, and they frequently do so, when it is in their interests. And there, as the bard said, is the rub. Celera gave away many of the genome sequences they produced, after determining which ones they wanted to keep for themselves. That might be a public good, but it's a limited one - essentially, the public good in this case consists of whatever is left after Celera claimed their private goods.

In both the case of Celera and private foundations, funds are often available only for certain narrow purposes - either ones related to the foundations' charters, or spin-offs from the corporation's main focus. They may create a public good, but that does not mean that it's the same one that the government funding creates, or even that the two are equivalent.

The Environment and Corporate Effects:

Timothy goes on to dismiss the suggestion that corporations might not do a good job researching their own toxic output:

Dunford also argues that some kinds of research won't be provided by private industry because it is potentially inimical to their plans: "Few companies find researching the possible long-term effects their activities might have on their surroundings and neighbors to be commercially beneficial." I see no reason to believe this. In fact, in a free market--that is, a market where nuisance law is strongly enforced--it would actually be much more in their interest to research the possibility that their activities might lead to liability.

In effect, this is a request that I bet my life - and those of my family - on the free market. I'm a gambler, but not a fool, so that's a bet that I'm reluctant to make. Corporations, like the government, are ultimately human endeavors, and there's quite a bit of research (not to mention plain old experience) that suggests that people aren't always good at making the best long-term choices when faced with massive potential short term gains.

Sandefur's argument is even less sound when it comes to addressing an entire class of possibilities: instances where the potential harm is the cause of the cumulative effects of an entire industry of group of industries, but cannot be easily ascribed to the actions of any one company. In these cases, none of the companies has any incentive to do the research. If challenged, they can blame the competition for the harm, and if they do the research themselves, they may be helping their competition while hurting themselves.

Sandefur concludes this section of his argument with a statement that seems to fly in the face of quite a bit of experience - so much so, in fact, that I think the best response will consist of a single word.

The fact is, private industry today takes extreme steps to ensure the safety and cleanliness of their products--not because government makes them do it, but because they don't get rich by killing customers or pissing them off.


The Best We've Tried So Far.

Moving right along, Tim takes on my final argument:

In his conclusion, Dunford claims that government funding is better than "everything else we've tried" with regard to science research funding. I can't imagine he really means this. Private institutions were by far the leading investors in scientific research in the United States until the 1950s--and the United States became the scientific and technological leader of the world long before then. Certainly there's no reason to believe that the science they did was qualitatively worse because it was funded by private industry.

We didn't do badly before the 1950's. But the rate of advance certainly seemed to rapidly accelerate right around the time that big government funding opened up, and it's remained high since then.

In fact, let's consider a country that devoted a tremendous amount of its resources to government-funded science research: the USSR. There's no question that, whatever else the Soviet Union did, it certainly funded its science institutions! And yet, twenty years later, we know that Soviet science was a "dismal failure" and did very little that was not actually stolen from Western science and technology. If government-funded research really is the best method we've found, then surely we would have expected the Soviets to be ahead of us in scientific at least...something....

There is a valid point here, mostly because I wasn't clear enough at the outset. I do not believe that the government should be the only source of funding for science, or that the government should be heavily involved in all areas of science. I no more believe in unfettered government action than I do unfettered capitalism.

The current system of research funding that we have works well not because it's government money, but because of the balance that's been struck between government and private funding. The government provides the broad foundation, but tries to avoid dictating the details. Private industry is free to build on the foundation provided by the government research, and benefits from having the infrastructure available before they need to start spending money.

Concluding arguments:

Dunford has not even tried to respond to any of the theoretical points I raised--the rent-seeking problem, for example, or government's interference with scientists and their research.

Here, I think part of the problem is simply that Sandefur and I are coming at this from different directions. He wants me to show that government is better than industry at addressing these issues; I want him to show that it's necessarily worse. Yes, for example, the government can interfere with scientists, but so can industry (again, Tobacco). The government can engage in rent-seeking behavior, but so can industry. In both cases, the potential problems strike me as being more the product of humans being humans than government-specific issues.


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The discussion seems to have become "my example is better than your example" - and of course, there's no shortage of examples on both sides. What about the following theses?

That there exists a class of problem such that exploitation is far more profitable than resolution, and that a free market system will never voluntarily choose resolution, no matter how much stupidity/destruction/human suffering results from continuing it. Human slavery is the iconic example. Resolution requires external compulsion by a powerful agent whose motive is some variation on "the common good". Milder examples abound - consider the following under for-profit control: tobacco, car safety & reliability, police & military, financial regulation (!), education standards. And, yes, scientific research.

So: industry avoids asking questions that endanger profits (e.g. ensuring that they do not accidentally find out about sweatshop conditions in a Far East factory), and do not publish scientific research (smoking beagles) that would endanger profits.

By Lurker #753 (not verified) on 17 Feb 2009 #permalink

You also don't describe those things that are otherwise listed as "externalities" of concern by business. Things like public goods or club goods.

For example, air and water quality affect many people, but the pollution of it is also caused by many people. (You could also argue that the people affected create a feedback loop of creating more pollutant because the want to buy stuff, the manufacture of which causes pollution.) However, there are two problems with air quality (or water quality) versus profit.

1) Air quality is a public good that is not (or not completely) considered in the course of business. These are costs that are spread out among the public, that are effectively paid by no one and suffered from by everyone.

2) Shifting baselines. (I don't mean the SciBlog.) People's memories are not good at remembering what things were like a long time ago, and completely fail at remembering what things were like before they were born, even when it is described to them.

Pollution of large public-goods like air and (large bodies of) water mean that changes occur slower than the ability of the human brain to acknowledge on its own (reducing us to use numbers and graphs to show long-term trends, and we all know where that argument can lead to -- just look at the AGW 'debates'). Therefore, one cannot bring a free market argument against industry on long-term incremental negative changes without an infusion of funding of science.

Incorporating the externalized factors of pollution is not something that is popular for business to do, especially if the subject is not shown to have 'serious scientific consensus' or if people don't see it as clearly as the nose on their face (again, look at the issue of AGW -- or cigarettes).

Furthermore, the first company to change to incorporate higher production costs relative to its competitors will likely be the first one to have the highest financial burden of shifting, and not likely to increase the loyalty of its purchasers (at least not until the reason for the switch becomes highly accepted in society -- again, look at shifts to CFLs and how it's framed in the AGW vs. energy efficiency meme). Due to this high cost burden of shifting (not to mention the need to change or upgrade manufacturing or training infrastructure), companies are likely going to put off the option until the option to change is better than the option of not changing (not the many reasons given for the failure of the US's Big Three).

On the other hand, governmental science can be used to help protect the access and quality of public goods, such as air quality and water quality. After all, there is little incentive for private industry to maximize public goods, unless they are allowed a monopoly on them and required to minimize profits. Then they become only slightly more expensive than the government, but still aching to change toward higher profit-margins (see how Blue Cross/Blue Shield of Michigan has been moving from non-profit to for-profit over the past couple years).

Of course, one could well argue that one job of government is to protect public goods from destruction or decimation. However, entrusting the management of public goods to a government that has few checks, balances, or oversight means that we can get things like China's "Blue Skies" indexes, or Bush 43's forest 'management' and air pollution [non]reduction measures.

Winston Churchill said something about democracy being the worst form of government (save for all the others). I would say that government is the worst form of company to manage public goods (save for all the others). There's my 2 pennies. Now I'll stick this on my own blog. :)

Sandefur's argument is so full of stacked assumptions and argument by assertion that I find it difficult to imagine why you felt it worth responding to. For instance, there is this nonsense:

"What's more, no government could possibly have sat down and created either of these things. Only decentralized, private decision-making could have created the marvelous multiverse of today's Internet." if the government is some monolithic entity that is being asked to "sit down and create" things. Public initiative is much more complicated than it is in this Boorish Hayekian caricature. In the case of the internet, not only were the basic protocols and original Mosaic web browser developed in public universities and other institutions, the infrastructure on which it was and continues to be deployed is highly subsidized by the government.

We don't need to imagine some scenario in the future where private online networks existed to compete with the internet, they existed in the early 90's with AOL, Juno, etc. They were closed, proprietary networks with nowhere near the freedom or universal accessibility of the internet, and gradually they all lost out.

I'm not sure that taking government research failures along with government research successes is really a meaningful metric unless we can also get an idea of what percentage of private industry R&D goes nowhere. One doesn't need to go far to find the private industry equivalent of psychic warfare research.

Let's take the example of privately funded science being at the cutting edge until the 1950s. The interesting question for me is, why did that change? I can only think of two reasons:

1) Pure research divisions are the first things to get cut when a company feels competitive pressure.
2) Publicly funded institutions took over, crowding out private research.

Obviously, (1) is not a great argument for private research only. If (2) is true, why did it happen, and how? Did all of the best researchers go to public institutions? Did the government raise taxes to pay for it and cause private corporations to cut their research divisions?

By Troublesome Frog (not verified) on 17 Feb 2009 #permalink

The claim that the United States became the leader in science and technology "long before the 50s" is a funny one. To put responsibility for that to private enterprise, is, sorry, historical revisionism of the most disgusting kind possible. The only reason it is not holocaust denial is that it doesn't mention the holocaust specifically, it simply acts as if WWII and the Nazi regime never happened in toto. It has very little to do with private enterprise when scientific and technological leadership comes by means of a)refugees and b)those who don't flee bashing each other's head in.

Let's look at, say, 1930
Nobel prize in physics goes to India
Nobel prize in chemistry goes to Germany
Nobel prize in physiology and medicine goes to an Austrian in New York

Let's look at 1935
Physics to the UK
Chemistry to France
Physiology to Germany


Physics to Italy
Chemistry to Germany
Physiology to Belgium

US prizes were scattered on and off again. Only with WWII did the situation change dramatically.

TS says that maybe something better than the Arpanet might have been invented had the relevant taxes not been collected, and we'll never ever know one way or the other, therefore somehow we're all supposed to know the government should not support scientific research? This is beyond incompetent and beyond stupid. TS gives nothing here but attitude and noise, phrased in the format of an argument. One could just as brainlessly argue we should triple taxes, because we'll never ever know one way or the other whether government research just possibly might have invented something ten times better than Google had they only taken all that extra money. Sheesh.

TS is bald faced lying when he says the people of the time did not "want" the Arpanet, and would rather have kept their tax money. The people of the time voted for high taxes and military research. End of discussion. In brief, a libertarian who tells us that the market is always right, except when we talk about the extremely significant part where people decide the fate of their tax dollars, is nothing but a liar. That super brilliant efficiency TS claims somehow is always right did not create a low tax low military investment low scientific investment slew of candidates in the 1960s.

Worse, TS is making up his own definition of "economic efficiency". Efficiency refers to Pareto optimality. And since there were people at the time who prefered the Arpanet being invented to keeping a few extra bucks of income--I too can win arguments by making up random plausible assertions!--the historical outcome was efficient.

More to the point, TS is confusing reality with one particular model, possessing a conveniently ill-defined time frame. At what point do I model that my 1979 tax dollars have bettered me in 2009? The obvious answer is 2009, but 1979 is probably correct: my 1979 utility from that dollar that went to furthering the Arpanet along instead of buying a hamburger is not what I thought it was, but the lifetime benefit derived from that dollar, regardless of my 1979 inability to calculate it. And yes, the famous 1953 Arrow-Debreu models that "proved" the invisible hand really does work treat the future this way. So TS, by having his cake and eating it too is actually choking on it when he uses the models inconsistently.

In general, the question of lifetime optimality is extremely difficult in economics. There are no pat answers, and to make an argument as if this is some trivial issue, as TS has done, is, at best, merely assuming TS's conclusions. More likely it's just boneheaded ignorance of economics, which is something libertarians are proud to display. They are unwilling to acknowledge that our understanding of economics has actually progressed beyond Adam Smith and John Stuart Mills.

For the record, Adam Smith was explicitly in favor of government expenditure for the general public good.

That's the long answer. The short answer: libertarians are crackpots, pure and simple. They are as worthless to the understanding of economics and politics as any other crackpot in any other discipline.

By william e emba (not verified) on 18 Feb 2009 #permalink

I don't think you were strong enough in pointing out the Tim was flat out wrong about the environment issue. We tried that experiment and the "individuals" with economic clout used their research dollars to exploit that natural resources of the poor, maybe not intentionally. However the pattern was pretty clear the companies only gave minimal investment to environmental concerns and the exploited have little recourse because in the end they still need government research dollars to prove that the damage is caused by the company in question. I'm far from a Greenpeace activist, but I can still recognize that a freeer market scheme has been tried a failed in this case, and would again fail in the future.