EKIP– Expert Club for Economics and Politics A Different Opinion
Should taxpayer money be used to fund scientific projects? Is there a better way to fund research? What are the problems with government spending?
Maria Neeva
Traditionally, governments spend a significant amount on scientific research and projects (Fig. 1). In the case of Bulgaria, we observe a trend towards a decrease in budget expenditures for research and development, which has negative connotations for most citizens (Fig. 2). However, does more funds allocated for research and development (R&D) guarantee more appropriate spending of budget funds and better results in the respective area? Is it fair for someone else to decide on what and how to spend foreign money collected through taxes?
Fig. 1. Research expenditure as a percentage of GDP ( http://epp.eurostat.ec.europa.eu/portal/page/portal/science_technology_innovation/introduction )
Fig. 2. Relative share of budget expenditures for R&D in GDP, source National Statistical Institute http://www.nsi.bg/EPDOCS/GBAORD2012_BJ3IPDK.pdf
Nowadays, a large part of R&D is state-funded, and most people are of the opinion that only the state can provide sufficient funds for basic science, for the following reasons:
- R&D is a public good
- The costs of public R&D funding are lower than those of private funding.
- Basic scientific research has no short-term application
- More reliable selection of “winners”
The conclusions that can be drawn from a more detailed examination of each of these reasons can be used to challenge the widespread opinion about the proper and effective financing of R&D.
For a good to be public, it must meet two conditions: it must be non-alienable and non-excludable. That is, everyone can freely use it without its use by one person reducing or limiting the possibility of another to also use it. It is believed that as a public good, R&D will not be undertaken by any private company, simply because its competitors will benefit from what has already been achieved. And this, in turn, will destroy the incentive for the development of scientific research activity.
Such logic is inapplicable in the realm of scientific research. Take, for example, GlaxoSmithKline's drug Zantac (for heartburn and ulcers). James Black of GlaxoSmithKline first discovered the role of histamine blockers in the treatment of ulcers, spending years of research to develop the drug Tagamet. This discovery won him a Nobel Prize, but Tagamet's success was soon overshadowed by Zantac. After attending a lecture by Black, another scientist (David Jack) developed the better drug, Zantac.
In this case, there are no losers, only winners. Everyone benefits from improving the original discovery. On the one hand, the discoverer himself wins, and on the other hand, all consumers benefit because of the opportunity to consume a better quality product. We cannot accuse D. Jack of theft or plagiarism. In order to improve what has been achieved so far, he was prepared for this, he had the necessary knowledge, skills and experience. The one who “takes advantage” of someone else’s discovery in order to improve it, in no way takes away the fame and authority of the original discoverer.
The next assumption that public funding of R&D is “cheaper” is completely wrong. To get the full value of the costs of public funding, we must add to the costs of private funding those of taxation. In practice, it turns out that for the same project a private company will pay less than if this project were funded by the government. Alex Robinson has conducted a study 2 that estimates that the loss of personal income tax is more than 200 percent for the United States. Similar estimates for Australia, for example, are in the order of 19 to 65 percent. This means that the costs of public funding are equal to the costs of private funding multiplied by a factor of between 1.19 and 1.65. 3
In the attempt of most governments of developed countries to allocate more funds for science, we observe the effect of "crowding out". Increasing government spending in a given sector (in this case R&D) acts as a disincentive for private investors. The effect of government intervention in the financing of R&D is that it destroys the incentive of entrepreneurs to improve and compete, since they have the state as a rival. This leads to a refusal to invest in the relevant sector, because of the "peace of mind" and security brought by the state, which takes full care of it.
The other argument, that basic scientific research has no direct application in business, seems logically sound at first glance, but a deeper reflection gives reason to dispute it. An economist from the University of Pennsylvania, Edwin Mansfield, studied the behavior of 16 large American oil companies in 1960-1970. He found that all sixteen invested in basic science. The larger these investments, the more the productivity of the company increased. Another study by Zvi Griliches of Harvard University shows that companies that fund basic science perform better than those that do not invest in such projects. 4
Thinking about the activity of the entrepreneur and the relationship with basic science, we can find a very simple relationship. The task of the entrepreneur is, by investing his own money, to provide what people will find useful and would pay for. Every day he has to plan for years ahead, without being sure of his success, and the eventual profit is expected at an indefinite future moment. Why then do we think that this person, ready to take risks without having taxpayers' money at his disposal, will not invest in basic science? And at the same time, we are convinced that only rulers with foreign money can cope with such a task.
The allocation of money between state funds and government budgets is a particularly dangerous task. Tax money belongs to all citizens (in theory), and as much as some have the right to benefit from it, so do everyone else. When it comes to scientific research, the government has to decide which projects deserve funding, or who will be the “winner” in the competition for a government subsidy. Here comes a particularly delicate question: how do the people who allocate our money know which projects and research are good and useful? Most great scientific discoveries are made by chance and long after their application has been found. So who can determine whether a project deserves funding?
Friedrich Hayek pondered the issues of optimal use of available resources, knowledge (dispersed among all people), and central planning. In his article "The Use of Knowledge in Society" 5 he spoke of "unorganized knowledge, which probably cannot be called scientific in the sense of knowledge of general rules - knowledge of the specific circumstances of time and place", the possession of which makes each person unique. Left to make decisions freely on the basis of this "unscientific" knowledge, people arrive at rational decisions, and no individual, organization, or machine can replace this mechanism, possessing knowledge dispersed among all people.
The rulers, however, believe that they are endowed with superpowers to foresee the future, to possess all the knowledge in the world, which allows them to make estimates and dispose of the money of all citizens. There is no one who can predict with certainty the outcome of a given project or study. Does this mean that scientific research should not be done? Of course not! When the money is yours personally (or entrusted to you voluntarily), you can quite safely do whatever you want with it, and invest it even in seemingly meaningless research. But when it comes to common money, as much mine as everyone else's, who can say how it is best spent?
1 www.24chasa.bg/Article.asp?ArticleId=2118050
2Alex Robson, 2006, ‘How high taxation makes us poorer’, In Peter Saunders (ed), Taxploitation: The case for income tax reform, Sydney: The Centre for Independent Studies.
3 „Back to Basics: Why government funding of science is a waste of our money“ Profesor Sinclair Davidson, Institute of Public Affairs, IPA Backgrounder, Sept 2006, Vol. 18/4
4 http://www.cato.org/publications/commentary/end-government-science-funding
5 The Use of Knowledge in Society” FA Hayek, American Economic Review, XXXV, 4, 1945. The article is available in English at www.econlib.org/library/Essays/hykKnw1.html
Not only do state commissions not know which projects are worth sponsoring with taxpayer money, they also don't know which sciences are worth funding at all. Example - Egyptology.
Almost all of the greatest Egyptologists are sponsored by private donations. Among the mega-biggest names sponsored by donations are: Flinders Petrie, the founder of Egyptology in England and creator of modern archaeology, Howard Carter, who discovered the tomb of Tutankhamun, Jean-François Champollion, who deciphered hieroglyphs. Even the only Bulgarian mission so far is sponsored by the NBU.
Apart from universities, today most field research institutions are supported by donations - the Egypt Exploration Society, the Oriental Institute ...
In the 19th century, state involvement was quite modest before the Egyptomania began. Then governments thought of starting to loot antiquities, many of which Egypt still claims to this day. So we can imagine what the state of science would have been if it had been left to the state in the first place...
I have a question for the author: how do we privately fund science in the field of linguistics or history? or ethnography? or literature? What companies, in what way, can show interest in humanitarian disciplines that cannot be applied to marketing?
Linguistics, for example, can be financed by companies developing various types of software. The development and financing of History (including historical finds and museum exhibits) are in the interest of tourism, and private companies can still be found that see the benefit of such an activity. The same applies to ethnography. Literature, in my opinion, is getting closer to the arts, and that is another topic. In addition, we should not forget about donations, which in my opinion would be greater if there were no state intervention in any human activity.
My point is to read it as a gift, not a 'deductible gift' from everything you do, like taxes, but a voluntary one. (sorry for the Cyrillic script)
If someone explains to me which company will fund CERN with over $1 billion every year so they can discover some tiny particles that currently have no practical application that would return their investment + profit, I will award them the Nobel Prize in Economics.
But it's always easier said than done. I would send the writer of the article to find private funding for her scientific project. Good luck! 😀
No company would fund CERN on the free market in modern times. However, that would not be a bad thing, but a good thing.
Right now, you see how CERN works and produces some scientific output and you think that this is good and was worth it. And therefore, the state investments there are worth it and therefore they are necessary.
What you don't see, however, is more important. Namely: that $1 billion was taken from businesses. Businesses didn't invest that money, overall growth was weaker. Fewer and less important goods were produced than the market would have wanted. All of the above is invisible. This is a story that never happened.
In short: if the market distributed money, CERN would not exist, but people would live better (according to their personal view, not yours). Business would develop projects that would contribute more to the well-being of humanity than CERN's contribution.
No one denies that it is possible that at some point CERN could come up with something that would revolutionize the economy, but that is just a slim possibility. Businesses would invest in things that would be very beneficial, or at least have a high probability of benefiting from them.
CERN is a project that is happening before its time. The state artificially collects a huge amount of capital and invests it in a place with a low possibility of return. When business (after, say, 50 years) becomes more powerful (i.e., when more is produced), then business itself would invest in a CERN and no state would be needed.
Even more briefly: CERN is an inefficient use of economic resources.
you talk about business and businessmen as if they are fully and timely informed and able to process information always adequately and logically; and this is not the case; people are short-sighted and short-sighted and since people make both the state and business, don't forget that business also makes mistakes; in principle I am on your side, but you write things quite like learned mantras and as "this is so", but you don't continue with "because" or "under other potential circumstances", that is, you are straightforward and as if there is nothing like darkness and fog on this straight line
I see CERN in particular as connected not to business, but to Space - the last place to colonize - therefore it is connected to the army, and you cannot wait for business to finance (foreign) political affairs; if European science waits for European business to develop to the level of American business to start financing it, America will have blown us away once again in the 21st century; there are simply some things that are intertwined with the economy, but not the economic is the most important thing in them, but the political, social or cultural - as aspects of social existence; and it doesn't work to say "but we are economists, what do we care about the other aspects" either, it doesn't work, because the center of all this is Man in his entirety; here again I come to the fact that you are a bit like horses with caps in your tales, and I.P.I. are like that, there is no need to be the second I.P.I.
It is obvious that YOU have never had any contact with real science. You have never done science, you do not know what science is. Only a scientific incompetent would claim such things.
I'm sorry, but valuing science with money is ridiculous.
If the US government hadn't funded the military with public money, which in turn invested it in science, we wouldn't have the internet today where you could write your attempts at economic analysis on a field you don't understand.
Linguistics, for example, can be financed by companies developing various types of software. The development and financing of History (including historical finds and museum exhibits) are in the interest of tourism, and private companies can still be found that see the benefit of such an activity. The same applies to ethnography. Literature, in my opinion, is getting closer to the arts, and that is another topic. In addition, we should not forget about donations, which in my opinion would be greater if there were no state intervention in any human activity.
@maria ivanova
I just want to add that not everything that is currently funded with government funds would be funded if there was a free market. The free market funds those sciences/areas that it considers important for some reason. These reasons can be purely financial (to make money and produce useful goods), as well as purely non-financial, for example: studying butterflies. There are people who are interested in a given area and have the financial opportunity to devote time to it. Historically, such people have driven science throughout most of history. People with interests and opportunities.
@maria ivanova
I get the impression that you think I'm a member of the TEAM. Well, I'm not. I just largely support their opinion.
"you talk about business and businesspeople as if they are fully and timely informed and able to process information always adequately and logically; and this is not the case;"
You are right. However, no one will be more informed than businessmen and people taken individually. If they are not up to date, then should the state be? Where does the state get its information from? That is, if we do not leave it to them to make decisions, i.e. to the people who have first-hand information, then to whom? Should we trust God to make decisions?
"therefore it is connected to the military, and you cannot wait for business to finance (foreign) political affairs;"
You are right to note that businessmen themselves would not invest in armies. If it were not for the state to organize and pay for armies, there would certainly not be so many wars.
"If European science waits for European business to develop to the level of American business to start funding it, America will have blown us away once again in the 21st century."
On the contrary. As I said above, investing in things like CERN is a poor use of capital. And if the US does it (and businesses there don't have that much money to do it on their own) then they are also lagging behind in their economic development. And if Europe doesn't invest in projects like CERN, then it will grow faster and start catching up with the US (a separate issue is that the US has an artificially high standard of living).
"but it is not the economic that is most important in them, but the political, social or cultural - as aspects of social existence; and it is not right to say "but we are economists, what do we care about the other aspects" either, because the center of all this is Man in his entirety; "
I'm not arguing about what is most important to people. But how do you know what it is? What do you base your decision on? I argue that the state has no way of knowing what is important to people because it cannot collect information and process it, let alone do something about it. However, this is what the free market does, and it does it very effectively. It decides what is important to people, because the market is the people themselves. In most cases, these are useful things: food, clothes, water, and so on. However, sometimes these are also bad things (objectively speaking) such as: cigarettes, drugs, etc.
The free market (in the Austrian sense, not in the popular understanding of Marx) allows people to make their own decisions about "social or cultural" (the political will be missing). Currently, these decisions are made by the state to a large extent. That is, over the heads of many people, despite their disagreement.
I want an honest answer. Which of you has ever done science, what scientific product have you produced, and who and what was its evaluation? Then give competent opinions on funding!
EE: Again, I catch you in scientific illiteracy in this comment: "CERN is a project that is happening ahead of its time. The state artificially collects a huge amount of capital and invests it in a place with a low possibility of return."
CERN is the source of a huge amount of patents and discoveries. Starting from physics and chemistry, all the way to medicine. God, without CERN, medicine would not be the same.
Please, save your "competent" opinions for areas you have no experience in.
Guys, the communication here has become very heated and, above all, many posts have piled up and I have neither the time nor the good orientation to answer everything. Otherwise, I read you. I also have the feeling that the people who criticize the funding of science have never done science ;o) Nor have they read books outside of economics ;o) State and Politics have existed since the dawn of humanity and no matter how much we spit on them, they will not disappear, they remain a factor that must be incorporated into the analysis and models, we cannot wait for them to die out as ineffective. But that's enough. My opinion is that all extremes are harmful and one must make concessions and unite.
Now excuse me, but I have to work to earn money, to finance the next 2-3 years of my life, in which I will do science, because I am interested in things that no businessman will give money for, because they are not directly related to his work. ;o)
@Steph
I'm afraid you didn't understand what I was saying. I'm NOT saying that CERN has no use. There's probably one that I'm not familiar with. I'd be curious to know what it is (you're clearly an expert).
I CLAIM that the money put into it would bring MORE benefit to people if it were used in a different way.
The value of a free market is that people decide for themselves what benefits them. And when they decide that something benefits them, they start looking for it. This raises the price of the product and signals to producers that this product is needed. Profits in this area rise and more companies start producing it. The quantity of this product increases and human needs are better met.
The fact that no one wants to finance the creation and existence of CERN suggests that businessmen understand that their money can be used in a better way, i.e. to satisfy more pressing needs than CERN's scientific output, for example: cheaper food, better communications, etc.
Will you explain to me by what criteria you assessed that CERN's scientific output is more important than: food, water, clothing, communications, entertainment, etc.?
As I said, it's clear that there is SOME benefit from CERN, BUT HOW MUCH?
Now I think of your "patents and discoveries". Patents and discoveries are of no use if they are not applicable. I know people with patents that are just that: pieces of paper. Discoveries that cannot contribute to the good of people at the moment are also useless.
If CERN's output were that useful, there would be many companies and people willing to pay for it. The fact that there aren't any suggests that the market (and that means everyone) believes that this output is of little or no utility.
Let me give you an example of discoveries that have remained:
Thermonuclear fusion. It's been known since the beginning of the 20th century. And they're only now trying to use it. It's expensive and requires so many other technologies that it hasn't been practically usable until now.
Fourier transforms: known for many decades. And completely inapplicable, until the development of the computer. Only with it was it possible to calculate them. However, before the invention of the computer, no one would have paid a single lev for them.
@maria ivanova
"I also have the feeling that people who criticize the funding of science have never done science ;o)"
Your feeling, at least as far as I'm concerned, is wrong.
"My opinion is that all extremes are harmful and one must make concessions and unite."
The above view is not true. Sometimes the truth lies in the extremes. Example:
Not smoking is an extreme. Smoking two or more packs of cigarettes every day is also an extreme. By your logic, both are bad. That is, one should smoke less.
Killing people is an extreme, but not killing them is also an extreme. In order not to fall into extremes, we should beat them according to your logic.
Not stealing at all is also an extreme.
Both white and black are extremes. Look, gray is OK 🙂
"Now excuse me, but I have to work to earn money, to finance the next 2-3 years of my life, in which I will do science, because I am interested in things that no businessman will give money for, because they are not directly related to his work. ;o)"
They told me about a university in the UK. There, people get some minimally permanent salaries, and the rest they earn with scientific production. Companies pay for what they produce. New ways of purifying water, new polymers, etc. So, in business work, professors earn most of their salary. As you can see, science can be done without direct state sponsorship.
I'm sorry that it's not possible in your area.
Not to mention that there are so-called venture capitalists and companies like Nokia, for example. They finance a huge amount of development. It turns out that this is a working business, because the principle that the winner takes all applies there. That is, you sponsored 100 studies at a loss (i.e. nothing useful came out of them), but the 101st not only returns your money for the previous 100 but also brings you as much or much more in addition. That is, the risk is worth it.
@Steph
Now I see a previous post that I apparently missed. Comment:
"It is obvious that YOU have never had any contact with real science. You have never done science, you do not know what science is."
On the contrary, I have done science and lived for a long time in a scientific environment. I recommend that you do not make statements about your opponents without knowing them.
"Only someone incompetent in the scientific field could claim such things."
The above is and remains just a bare statement.
"I'm sorry, but valuing science with money is ridiculous."
It's not funny at all. Science exists to improve people's lives, not just to have fun with. If it doesn't benefit us, what's the point?
Science wants money. And this money has to come from people. By giving this money, people have deprived themselves of many desirable things. It is normal for these people to expect something in return for their money. And what happens when they get little or nothing?
"If the US government hadn't funded the military with public money, which in turn invested it in science, we wouldn't have the internet today where you could write your attempts at economic analysis on a field you don't understand."
And how do you know that we wouldn't have the internet? Are you a clairvoyant? What exactly prevented the private sector from inventing the internet? Yes, the government was lucky (and quite lucky) to be able to invent something before the clocks. We write it a red dot. What about all this money buried in projects from which nothing has come out, where do we see it? And what is the use of them?