The Case for Reinvesting in Public R&D
Ethan Gray / Nov 10 / Domestic Policy
To quote economist Marina Mazucatto, “In 2012, China announced its plan to produce 1,000 GWs of wind power by 2050. That would be approximately equal to replacing the entire existing US electric infrastructure with wind turbines. Are the United States and Europe still able to dream so big?” At the moment, anyone would be hard-pressed to argue they are. If the United States and all Western governments wish to stay at the forefront of innovation and industry for the sake of public good, they must find a renewed sense of risk-taking.
Concerning innovation, critics often lambast governments as ineffective, slow, and uninventive without accrediting them for inventions their investments make possible. Why have we seen a continued rise in private sector R & D accompanied by a decrease in public sector R & D? Research off the back of public funds has led to products like Google Maps, smartphones, and vaccines, but somehow, those funds are increasingly at risk. Not only does the government seldom receive any credit for these innovations, but it is also often chastised for any occasion in which it fails. This mindset must shift to accompany a more active industrial policy to tackle the 21st century’s problems.
Public Research & Development
It is important to first place this topic in a historical context by emphasising some examples in which publicly funded research had a demonstrable impact on public good and private sector innovation. Take first the internet. Started initially under DARPA, a US defence research agency, scientist Lawrence Roberts published a plan outlining a connected computer network. Over time, the project and completed work was taken over by the National Science Foundation, expanded to include public universities, and European Agencies such as CERN became involved, which eventually unveiled the world wide web in 1991 for communication on nuclear research. Thus, laying the groundwork for all internet-based services, something we are increasingly grateful for during COVID-19. Public funds also spearheaded the Human Genome Project, which sequenced human DNA. In 2000, the first draft was released and has led to new treatments for cancer and allows us to understand how mutations lead to disease.
The point here is not to highlight individual achievements. It shows that public research matters to all of us because it aims not to profit. But instead, desires to further our understanding of the world which usually benefits humanity, not only shareholders. Enabling, not hamstringing, the public sector to forge a deliberate industrial policy that invests in new and innovative potential technologies can lay the groundwork for a higher standard of living, economic expansion, and the next 50 years of industry.
This leads to the increasingly troubling reality faced by many nations today. According to the House of Commons Library, UK public R&D was 2.0% of GDP. It now rests at 1.7%. According to the National Science Foundation, it has been a case of stagnation in the US, with spending rising an anemic 0.08% of GDP from 2011 to 2017. Increasingly pressing challenges require bolder investment to solve, both in technology and industrial capacity itself. The two most salient issues are the ongoing COVID-19 pandemic and climate change. A robust and dynamic private sector is crucial to a healthy economy, but these are challenges that cannot be tackled only by a diverse set of profit-driven firms, but rather, coordinated action and deliberate planning. That is not synonymous with command and control economics, only a state that engages more proactively in fostering new markets themselves and playing a more active role in tackling those issues that require a national scale. Lets expand the argument outside innovation and briefly look at two recent examples where more forward-thinking government planning would have been useful.
The lack of personal protective equipment at the start of the pandemic led to the deaths of frontline workers, and tragically it was preventable and took too long to fix. Nations, both developed and developing, were severely lacking adequate resources at the start of the pandemic, and many still are. Even in developed countries such as the US, there are ongoing shortages. Governments must intervene in situations like this. Further support for this argument is found in the UK’s failed bid to tackle the pandemic with its track and trace system. The government outsourced much of the testing capacity and contact tracing to Deloitte, a consultancy, and Serco, a government contractor. Systems siloed health data, central authorities did not keep local officials in the loop, and IT mistakes led to the entire system being mostly ineffective. Allowing underfunded and poorly planned state efforts to persist is averse to a nation’s citizens across a host of issues. These are but two examples that highlight why more governments need more pragmatic policies to prevent and alleviate crisis’.
Digressions aside, just as critics frequently call into question government competence, so too has the narrative that public innovation is a driving force for human progress that has been lost. One of the most renowned success stories in business is that of the late Steve Jobs and a resurgent Apple. In her book The Entrepreneurial State, Mazzucato contextualises the development of Apple, “Without the massive amount of public investment behind the computer and internet revolutions, such attributes might have led only to the invention of a new toy.” Take also the success of Tesla, which most attribute solely to the vision of Elon Musk. But even he could not build Tesla without a little help. History often ignores that Tesla could barely scrape together investments to make it where they are today until the company secured a loan from the Department of Energy under the Clean Energy Loan Guarantee Program. Both examples demonstrate the symbiotic relationship public policy can have with the private sector to create space for innovation.
Sometimes that relationship is not always as successful. Solyndra, formerly a solar cell manufacturer, failed in 2011 after receiving a $535 million loan, and the aftermath was a consistent barrage of attacks on wasteful government spending. Solyndra received this loan in the wake of the financial crisis alongside Tesla. After going bankrupt, critics called for a reigning in on public expenditures for risky ventures. Representative Fred Upton said, “This is just a classic case of fraud and abuse and waste” Senator Lisa Murkowski called it a “colossal failure.” While the Solyndra case was indeed a mistake, painting government risk-taking as inherently wrong is disingenuous. Without it, Tesla would not be creating $25 billion in economic activity and pushing new technologies’ limits.
What next?
As the nations move further into the 21st century, governments need to lay the groundwork for what will come next. Climate change is not going away, a pandemic is still stifling the globe, and authoritarian actors are a growing threat to global democracy. A new form of industrial policy and investment in high growth potential industries is needed.
First, the narrative on public investment must change. The Reagan era quote that “The nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help” needs to die. We cannot tackle these problems by simply leaving the market to its devices and ignoring the benefits state action can bring. Foresight and a certain level of collaborative planning are crucial in addressing issues that impact an entire country, let alone transcend international borders.
Second, government agencies & departments with vested interests in new technology or an industry’s production capacity need the resources to invest at a greater scale. One potential solution could be earmarking fixed investment budgets that increase at a rate relative to government spending, but policymakers must debate it further. In the United States, examples of agencies could include the Department of Education, Department of Energy, and NASA. The arguments pushing back on wasteful government spending should note where officials allocate public funds before becoming hyper-critical. Deficit spending in areas that will create new economic growth tends to pay for itself.
Third, a robust industrial plan to kickstart this new initiative should come in the wake of COVID-19. The global economy could shed up to $12 trillion in economic output, and we are seeing acute poverty rise for the first time in decades. Transforming the energy sector to accompany green energy is part of that. But this plan does not need to be the same as the intensely divisive Green New Deal. The original New Deal was a form of coordinated and pragmatic industrial policy. It helped end a global crisis in the 20th century. We need something of the same nature to tackle contemporary problems and propel democracies worldwide out of the pandemic and into the 21st century.