Do we still need public research funding?

This article was written by Dr Federica Rossi from Birkbeck’s Department of Management and Professor Aldo Geuna from the University of Torino

r-and-dThe last few decades have witnessed the increasing privatisation of the public sphere – even in the realms of education and research, which, until recently, almost exclusively pertained to the public sector. Evidence from Organisation for Economic Co-operation and Development (OECD) countries shows that the slow but steady increase in private sector Research & Development (R&D) expenditure as share of GDP has been accompanied by a parallel drop in public R&D expenditure since the 1980s. A mere handful of economies buck the trend, such as that of South Korea. This has recently been referred to by Birkbeck’s Professor Daniele Archibugi and Dr Andrea Filippetti in their new paper as the “retreat of public research”. In the most advanced economies this retreat might seem, at face value, to support the claim that public intervention in research is unnecessary, if not completely counterproductive to sustain technological progress.

Most economists agree that public research funding is crucial for economic growth…

The mainstream view that public funding of basic research is necessary for technological progress to occur, relies on two, intertwined arguments that were first put forward in the 1940s and 1950s, and have been reiterated in various forms ever since. The first is the argument, which is embraced by scientists but originated in management schools, that innovation is a linear process whereby basic research discoveries pave the way for subsequent applied research and technological development. The second is the argument put forward by economists that basic research is characterised by large externalities and extreme uncertainty in the timing and nature of its outcomes, which make the computation of returns extremely difficult and discourages private companies from investing. Basic research outcomes tend to be very abstract and codifiable; this vulnerability to copying further discourages private investment in their production.

Together, these arguments suggest that, in order to sustain a rate of technological progress that is sufficient to drive continuous growth, the economy needs to produce a continuous amount of basic research outcomes, which would not occur in the absence of public funding.

…but some think that public research funding is unnecessary…

Those calling for a reduction in government funding of science have, in turn, put forth several arguments to oppose the mainstream view. The first is that the linear model of innovation is not only too simplistic, but wrongly organised: throughout history, technological developments have more often than not originated from efforts to solve practical problems without prior scientific basis. Rather than underpinning technological development, basic research has a habit of following promising technological developments. As Matt Ridley interprets in a recent article on the Wall Street Journal: “The steam engine owed almost nothing to the science of thermodynamics, but the science of thermodynamics owed almost everything to the steam engine.” The second is that basic research effectively crowds out private funding. In the absence of public funding, private companies would still invest in basic research to further consolidate their knowledge of how previously invented technologies actually work, which assists further innovation, and would want to do so in-house, rather than free ride on competitors’ basic research outcomes, to generate tacit knowledge which would give them a competitive advantage over rivals. Indeed, free from the crowding-out effect of public funding, private companies might have invested in basic research, which may have yielded more productive outcomes than the basic research funded by government.

…The middle ground: public research funding for the knowledge economy

As  is the case for most complex social phenomena, the nature of technological progress is probably best understood by combining different theoretical perspectives. Suggesting that all technological developments would have occurred in the absence of prior scientific knowledge is just as simplistic as the opposing argument – that basic research is always the first step of a linear innovation process. While the rich history of technology can be mined for examples of each of these extremes, most innovations tell a complex story of coevolution between basic research and technological development, where both private and public research funding play a role. For example, Dosi and Nelson (2010) have suggested that, while the development of the steam engine in the early 18th century preceded scientific developments in thermodynamics and the theory of heat, this technology was indeed built on the foundations of earlier scientific developments (the understanding of the properties of atmospheric pressure investigated by Torricelli, Boyle and Hooke in the 17th and 18th century). This coevolution between science and technology would explain why the steam engine was not invented in China, where all its components (pistons, cylinders, etc,) were known and employed.

Basic science and technological development coevolve, and the problem begins to look like the chicken and egg situation. Nonetheless, there are several compelling reasons for continued public funding of basic research. On the one hand, private companies in the main cannot commit to continued funding of a research programme in the long or even medium term; not only because they tend to respond to short term investor concerns, but also because their very survival is not guaranteed. Even if some companies committed to keep their lines of inquiry open in the absence of early promising research outcomes (something which few companies appear willing to do) there is no guarantee that that programme would not be destroyed by business failure – an increasingly frequent and rapid occurrence even in larger corporations. Public funding provides a buffer to research exploration, which opens up to society a range of research avenues that simply would not occur in its absence, and whose results may be reaped many decades later, benefitting the economy in unexpected ways. Sometimes, basic research is so distant in time and origins from the innovations it contributes to, that such contribution goes unnoticed; current developments in text mining and even speech recognition technology owe a huge debt to many decades of obscure publicly funded research carried out in linguistics departments but this contribution is hardly something that springs to mind when thinking of Siri or Alexa bots. On the other hand, as Archibugi and Filippetti point out, private companies and governments have different incentives in the dissemination of research outcomes: private companies as a rule will give away as little as possible or will only give away knowledge under certain conditions, which again limits the range of research avenues that can be explored starting from existing research.

What the knowledge economy needs is a functioning ecosystem where both public and private research contribute to the creation of new knowledge, its dissemination and commercial exploitation, and create the conditions for further knowledge production. The better interconnected the two spheres, the better the system can promote an efficient division of labour between privately funded and publicly funded research, and the better it can discourage the duplication of research effort. Moreover, the better it can ensure that knowledge can be freely disseminated as much as possible without hurting commercial interests. The economic impact of the “retreat of public research” might not be negative if it has been accompanied by the growth of a more interconnected research system in which public research has become a more efficient complement to private research. However, this is a rather unexplored hypothesis at the macro level – and even if this were the case, it would still not imply that the latter can replace the former. Public research continues to play a vital role in the knowledge economy.

Professor Aldo Geuna and Dr Federica Rossi are the authors of The University and the Economy Pathways to Growth and Economic Development Cheltenham: Edward Elgar (2015). Now available in paperback.

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TEF, REF, QR, deregulation: thoughts on Jo Johnson’s HE talk

This post was contributed by Dr Martin Eve, senior lecturer in Literature, Technology and Publishing at Birkbeck’s Department of English and Humanities. It was originally posted on Dr Eve’s personal blog on Wed 9 September. It was then reblogged by Times Higher Education.


Universities minister, Jo Johnson

I feel fairly drained today reading the speech given by the minister for Higher Education, Jo Johnson.

The inferences I make about the speech are that:

  1. There’s a massive coming wave of shake-ups to HE finance, both research and teaching, implemented through a Teaching Excellence Framework
  2. Critiques of the REF have backfired as they are used in a deft rhetorical move to cut state funding for research through QR

This is all just my reading of the speech. It doesn’t represent my employer’s views and it is speculative.


Even while decrying REF as “bureaucratic and burdensome to academics”, Jo Johnson wants a TEF. There’s so much talk of “deregulation” in the speech, even while the crux of it is to introduce a massive top-down regulatory mechanism. The core of TEF is financial, though, regardless of what Johnson says about “teaching quality”. It is to be incentivized by allowing institutions to raise their tuition fees:

there will be financial incentives behind the TEF, with those offering high quality teaching able to increase fees with inflation

Another way of putting this is from the flip side: there will be real-term cuts to the funding of institutions that do not fare well under this system. Since assessment will presumably be relative from a single budgetary pot, this is a zero-sum game in which some universities are to be slowly de-funded.

There’s also the problem of private providers for the government. These were fairly disastrous before. TEF gives a way to control this expansion, though. It seems that the government wants to decouple fee increases from social mobility while at the same time controlling the expansion of private provision according to teaching metrics. The end point looks likely to be to cut all public support for teaching outside the fee loan system and to squeeze the loan system to drive up competition (while getting rid of social mobility regulators like OFFA). Lots of universities won’t survive that kind of move, but will be replaced by new teaching providers.

On REF and Research Councils

The current modelled spending cuts in BIS are unlikely to leave research funding untouched. The Minister for HE used a deft rhetorical elision to couple academics’ critiques of the REF with removal of state funding for teaching and research:

“To deliver our ambitions, we also plan to reform the higher education and research system architecture. […] Our regulatory regime is still based upon a system where government directly funds institutions rather than reflecting the fact that students are the purchasers. […] It is also clear to me that there are many in the sector demanding a process for assessing the quality of scholarly output that is less bureaucratic and burdensome to academics.”

These critiques, of course, were of REF as a reductive quantifying procedure. They were not meant to justify the removal of QR, just the removal of the process by which it was assigned. Be careful what you wish for. REF was the way that QR was saved. Regardless of whether you like REF or not (I hate the procedure, but want universities to continue to receive state funding for research), QR gives institutions the freedom to allow their researchers and teachers to fulfil both roles. It is naive to think that this government would continue to fund universities in this way without a procedure like REF. So, I don’t like REF, but I accept it as the pragmatic/political compromise negotiated with a centre-right government to continue funding. This is my view of a messy political compromise, not my pure ideal.

The problem is that there are now several different ideologies competing here and the government must weigh its alleigance to each before deciding what route to pursue to achieve its aims. While Johnson says that he is “committed to the maintenance of dual funding support”, i.e. Research Councils and QR, something has to give. So, the ideologies competing are:

  1. An ideology of cost-effectiveness
  2. An ideology of deregulation
  3. An ideology of strategy

REF/QR is cost-effective compared to the Research Councils:

The REF assessed the outputs and impact of HEI research supported by many types of funders. In the context of £27bn total research income from public sources in the UK over a six-year period, the £246M total cost for REF 2014 is less than 1%. In the context of dual support, the total cost amounts to roughly 2.4% of the £10.2 billion in research funds expected to be distributed by the UK’s funding bodies in the six years, 2015-16 to 2020-21. This compares with an estimate of the annual cost to the UK HE community for peer review of grant applications of around £196M or around 6% of the funds distributed by the Research Councils.

So there’s a drive to maintain REF and QR for cost effectiveness.

But REF/QR has been massively slammed by academics as “bureaucratic and burdensome”, so it doesn’t fit the ideology of deregulation (however contradictory). Furthermore, REF/QR can’t be directed, as can Research Council funding; institutions can spend it on whatever research projects they like.

So the government has to work out what it really wants. If there is to be state funding for research, does it value a cost-effective route (REF.); a de-regulated route (maybe Research Councils? Or just cut REF but keep QR? Yeah, right.); or a route that it can control (Research Councils)?

Finally, the Research Council rejection rate is massive. Only a small number of applications go through. If we’re all forced to apply for funding via this route because there is no QR, then this will get even worse. Research funding will only be available at a very small number of places as concentration rises. This protects the golden triangle while exposing everyone else.

In conclusion

Johnson said, in his speech, that he has “no target for the ‘right’ size of the higher education system”. However, we can infer from this that he does not believe the size to be “right” at the moment because of all the changes he wants to make. Indeed, he said that we need changes to ensure “that more [people going to university] does not mean worse [quality of education]”, which presumably is what he thinks happens at the moment. I speculate, from reading this talk:

  • that the government continues its policy of protecting prestigious institutions while sharpening severe financial competition among all others.
  • that TEF is a financial move, not a teaching quality move, even if you think that teaching should be better rewarded in the academy.
  • that real-term de-funding of existing institutions through TEF will be the way in which the expansion of private providers is regulated.
  • that as long as the student loan system stands, the government can have it both ways: it can claim that it does not fund universities and that this is private income, even while having a regulatory say over them because taxpayers “underwrite” the RAB charge.
  • that REF/QR and the Research Councils are up for debate but the government is to use academics’ calls for its abolition as a justification to cut QR.
  • that there are several competing motivations for the government’s actions in the research funding space that it must weigh.
  • that the stability of operation for many institutions is to be upset.
  • that the talk of de-regulation here is only possible by the introduction of massive new regulatory bodies.
Dr Martin Eve

Dr Martin Eve

None of this is new, of course. I haven’t here, also, gone into liberal humanist defences of the university, of which we will surely see many in the light of this talk. I find myself supportive of the goal to get a more diverse student body – I can’t argue with that, just the methods by which it might be achieved. For instance, while there are talks of supporting those who don’t go through a “traditional route” to HE, the government’s recent policies on funding led to a period of severe financial difficulties for institutions like Birkbeck that cater exclusively for those non-traditional students. So, again, the rhetoric is confused.

But now we have it from the Minister and I suspect we will see action on the ground very soon.

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