What does the retreat of public research mean for welfare and innovation?

This article was written by Professor Daniele Archibugi and Dr  Andrea Filippetti, from Birkbeck’s Centre for Innovation Management Research

research-and-developmentAn increasing proportion of knowledge is generated in the private sector, rather than in public research institutions like universities.  For many, this is cause for concern; public research and private research differ economically in terms of public access, potential for future technological innovations and in the criteria of resource allocation. Does it matter whether research is conducted by  private business rather than in universities or government research centres? And will the retreat of public research have negative effects on welfare and innovation?

These are just two of the questions we considered in our recent research . While science and innovation policy in the last decades has focused on exploring the relevance of the interconnections between public and business players in enhancing knowledge-based societies, we argue that a major trend has been ignored: both the quota of public Research and Development (R&D) and its share over the total R&D investment has shrunk in most OECD countries.

The shift from public R&D to business R&D

The evidence for a shift in R&D is reflected in the most visible and measurable component of knowledge creation –  the resources allocated to R&D. In most OECD countries a significant shift in the effort to finance public R&D has occurred: as shown in the tables below, from 1981 to 2013 the share of public-financed R&D to GDP has been reduced from 0.82 per cent to 0.67 per cent. By contrast, the industry-financed R&D has increased from 0.96 per cent of GDP in 1981 to 1.44 per cent in 2013.

Gross R&D (GERD) expenditure as a percentage of GDP by source of funds (G-7 countries plus South Korea and OECD average), rate of change 1981-2013

Industry-financed GERD as a percentage of GDP Government-financed GERD as a percentage of GDP
rate of change 1981-2013 rate of change 1981-2013
Canada 53.06% -6.56%
France 63.16% -21.21%
Germany 38.81% -13.27%
Italy 33.33% 38.46%
Japan 85.82% 15.38%
South Korea* 86.90% 126.19%
United Kingdom -19.15% -59.26%
United States 48.21% -29.63%
OECD – Total 50.00% -18.29%

Source: OECD Main Science and Technology Indicators (MSTI).

*  Data for South Korea refer to 1995 instead of 1981.

 

Table 2 – Percentage of Gross R&D (GERD) expenditure by source of funds (G-7 countries plus South Korea countries and OECD average)

 

Percentage of GERD financed by industry Percentage of GERD financed by government
year 1981 2013 rate of change 1981 2013 rate of change
Canada 40.77 46.45 13.93% 50.61 34.86 -31.12%
France 40.92 55.38 35.34% 53.4 34.97 -34.51%
Germany 56.85 65.21 14.71% 41.79 29.78 -28.74%
Italy 50.08 44.29 -11.56% 47.21 42.55 -9.87%
Japan 67.71 75.48 11.48% 24.91 17.30 -30.55%
South Korea* 76.26 75.68 -0.76% 19.04 22.83 19.91%
United Kingdom 42.05 46.55 (70)** 10.70% 48.1 26.99 -43.89%
United States 49.41 60.85 23.15% 47.8 27.75 -41.95%
OECD – Total 51.64 60.76 17.66% 44.19 28.28 -36.00%

Source: OECD Main Science and Technology Indicators (MSTI). Data for South Korea refer to 1995 instead of 1981; the sum of the shares does not add up to 100% since there are other minor sources that are not considered, namely “other national sources” and “abroad”.

* Data for South Korea refer to 1995 instead of 1981.

** In the UK a significant higher proportion of R&D funding comes from overseas. When this is taken into account the share of private-funded R&D stands at 70% (Economic Insight, 2015, p. 7)

 

This data also indicates significant differences across countries. Japan and South Korea exhibit a virtuous trend where both  business and  government have increased their R&D expenditure; in South Korea, particularly, government expenditure increase has been spectacular. In the US, the UK, Canada, France and Germany, by contrast, we see simultaneously the growth of industry-financed R&D and  the decline of government-financed R&D.

Beyond the knowledge-as-a-public-good view

The current privatisation of research activity and knowledge (which is often praised) can have major consequences on innovation and, ultimately, on long-term economic growth and social welfare. But why is the threat to knowledge largely ignored or under-estimated?  We believe that it is due to an unclear understanding of the economic characteristics of knowledge. Historically, knowledge has been considered to be a public good; Nobel Prize winner in Economics, Kenneth Arrow, is cited arguing that knowledge is costly to produce but could be disseminated as information at zero or very low costs. While this view recurs frequently in literature, and is repeated by another authoritative Nobel Prize winner, Joseph Stiglitz, a great body of research has demonstrated that knowledge has both public and private components.

Public-generated knowledge and private-generated knowledge have different economic characteristics, which will shape future knowledge-creation and innovation. The way in which knowledge production is funded – public or business – matters for subsequent application for innovation, particularly in:

  1. Resources allocation
  2. Excludability in consumption
  3. Excludability in production
  Private-generated knowledge Public-generated knowledge
A.

 

Resources allocated through market mechanism.

The main purpose is to contribute to profits though knowledge-based products, services and processes.

Resources allocated through political process.

The main purpose is to contribute to the advancement of knowledge and social welfare.

B. Excludability in consumption pursued through active strategies such as industrial secrecy and proprietary forms of intellectual property. Non-excludability in consumption implemented through technology transfer policies and full disclosure (e.g. open science and non-proprietary forms of intellectual property).
C. Excludability in production associated to firm-specific technical knowledge and tacit knowledge. Non-excludability in production actively sought reducing tacit knowledge.

Our research suggests that, up until now, little attention has been given to the major shift from public to private consequences. We are calling for a change: while the long-term consequences of this shift have not yet been discussed at length, they have the potential to be extremely relevant to long-term technological opportunities, the role of major scientific breakthroughs, and vital knowledge exchange from basic research in the public sector.

Further reading:

  • Archibugi, D. and Filippetti, A. (2016) ‘The Retreat of Public Research and Its Adverse Consequences on Innovation’. CIMR Research Working Paper Series Working Paper No. 31.
  • Archibugi, D. and Filippetti, A. (2015) The Handbook of Global Science, Technology, and Innovation, John Wiley & Sons.
  • Mazzucato, M., 2013. The Entrepreneurial State: Debunking Public vs. Private Sector Myths. Anthem Press, London.
  • I.T., 2015. The Future Postponed. Why Declining Investment in Basic Research Threatens a U.S. Innovation Deficit. M.I.T. Washington Office, Washington D.C.

Further information:

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Unpacking the Triple Helix: Universities, industry and government

This blog was contributed by Helen Lawton Smith, Professor of Entrepreneurship, Director, Centre for Innovation Management Research, Department of Management, Birkbeck.

Nearly 300 people — academics, policymakers and business practitioners — from 35 countries attended the beginning of the 2013 Triple Helix International Conference yesterday.

Why did they travel from across the globe to the three-day event hosted in Bloomsbury by the Big Innovation Centre, Birkbeck and UCL?

The first answer is that they came to be part of the debate on the conference theme: The triple helix in a context of global change: continuing, mutating or unravelling? The conference engages with the challenges for each of the three component spheres, of the triple helix model — universities, industry and government — as they co-innovate to solve global economic and social challenges. Discussions focused on  different contexts and ways of building an ‘enterprising state.’

The second is that they came to network. This is the best bit of every conference. Who knows who you will sit next to on the river cruise, at the dinner at Lincoln’s Inn or in a parallel session or workshop?

The third answer is that they came to hear outstanding speakers. They came to listen to the originators of the Triple Helix metaphor, Henry Etzkowitz and Loet Leydesdorff, and David Willetts, Minister of State for Universities and Science, and Will Hutton, the political economist and writer. They also wanted to hear from other distinguished keynote speakers from high-profile organisations, including the European Commission, the OECD, Unilever, EDF, GlaxoSmithKline,  about the relevance of the triple helix model to their thinking and practice.

What three things will they have learned?

1.That the triple helix model is continuing to be central to the economic, social and technology policy agenda in many countries of the world, such as Brazil and Russia, and to international bodies, such as the European Commission’s Europe 2020 Smart Specialisation agenda. Alongside this is an increasing interest in how the impact of actions which follow from the agenda can be mapped, measured and evaluated in order to identify baselines for policy decisions.

2.That the model is not so much mutating but changing the forms it takes in the relationships between actors. Its inter-relationships are key to businesses, such as Unilever. In the cloud industry the basis of innovation in the market place is changing and requires a ‘convergence of capabilities’.  Whether this counts as ‘open innovation’ is a debate that will continue long after this conference. An emphasis on the broader role of universities in the economy includes employability, an agenda which links all three of the spheres. This can take the form of entrepreneurship education, both formal through teaching programmes and through student and alumni support such as Birkbeck’s Enterprise Hub, and the mentoring programmes organised by Birkbeck’s Entrepreneur-in-Residence, Andrew Atter,  based in the Centre for Innovation Management Research in the School of Business, Economics and Informatics.  Professor David Latchman, Birkbeck’s Master, is himself an entrepreneur and believes that there should be more entrepreneurship.

Changing forms present challenges including the ever-present need for finance for entrepreneurs and innovation, and for universities to maintain their standards and diversify their activities to be more responsive to society’s needs.

3.The triple helix model is also a political agenda. It takes a variety of meanings depending on context for each of the three spheres in an uncertain world, nationally, regionally and locally. Whether the model will unravel will depend on how mismatches between the institutional arrangements in each of the three spheres are resolved. The coordination problems are considerable.  Moreover, it is an issue of prioritisation. How the different stakeholder interests fit with the increasing pressures on universities to recruit students and  enhance their learning experiences is a question yet to be answered.

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