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Academic exercises

August 11th, 2005

Sinclair Davidson had a piece in the Fin the other day, attacking the Australian Research Council, which pays my salary (Davidson also gets ARC Grant Money, as he notes). The argument turns, not on specific deficiencies of the ARC but on the general claim that pure research undertaken with government funding has little economic benefit. In the good old days, when confronted with this sort of claim, we research types would wheel out a few trusty examples like cactoblastis and ENIAC, but they’re getting a bit old and tired nowadays.

I remember talking about this a decade or so ago, and somebody said the universities were developing this great new communications system that would revolutionise the economy. What was it called? Interweb? WorldWideNet? Mosaica? Can anyone remember what happened to it? If someone could find any evidence that this idea had an economic impact, it might help to counter Sinclair’s argument.

To be serious, although the early development of ARPANet was funded by specific grants on the ARC model (in this case from the US Department of Defence), and the same was true of some aspects of the Internet in other countries, most of the development of the Internet was not the result of targeted funding but the outcome of all sorts of spare time activities and voluntary contributions, reflecting the general belief among academics that free interchange of information is a Good Thing. Still, this doesn’t seem to help Davidson’s argument, since he wants tighter political controls over research funding and (I presume) more of the kinds of market pressures that discourage any activity that doesn’t contribute directly to a university bottom line. The development of the Internet was just such an activity, and it came, almost entirely out of publicly funded research institutions[1]

fn1. The one important exception was Unix which came out of Bell Labs, the kind of quasi-public institution that flourished in the US corporate sector before the days of shareholder value.

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  1. August 11th, 2005 at 21:37 | #1

    Global communications can result in a phase transition of macroeconomic perspectives.
    I enjoy your site. Gary Lammert USA.

    Feel free to visit

    The Economic Fractalist

  2. Dave Ricardo
    August 11th, 2005 at 22:04 | #2

    It’s all very well citing the internet as a counterexample, but maybe when Sincs said that nothing good comes from publicly funded research, he was referring to the research he knows best, which is his own.

    It may seem strange that Sincs should be biting the hand that feeds him, but I detect a cry for help: stop me, before I waste taxpayers’ money again!

  3. doug
    August 11th, 2005 at 23:08 | #3

    Then there’s a little technology developed by CSIRO (Australia’s govt-funded research organisation, the Commonwealth Scientific and Industrial Research Organisation) called the gene shears…

  4. August 11th, 2005 at 23:29 | #4

    Most CSIRO projects would fail a BCA. They cherry-pick their best projects to get evaluated — and even some of them fail.

    The START grant and the tax concessions for R&D likewise fail a BCA. Details of this aren’t available because the government hid the reports.

    Most CRC are unprecidented wastes of money. Most would fail a BCA. The record of government supported R&D isn’t pretty.

    It’s not hard to find some things that went right with any scheme. That’s not an argument. We don’t know the counter-factual, and you’re not counting all the failures.

    The amazing thing about government schemes is that if they have any success (even if it would have happened anyway, or if the costs exceed the benefits) then this justifies the government spending… and if they have no success, then this is used as proof that you need more government spending!

  5. abb1
    August 12th, 2005 at 04:40 | #5

    The Human Genome Project?

    …An important feature of the HGP project was the federal government’s long-standing dedication to the transfer of technology to the private sector. By licensing technologies to private companies and awarding grants for innovative research, the project catalyzed the multibillion-dollar U.S. biotechnology industry and fostered the development of new medical applications.

  6. jquiggin
    August 12th, 2005 at 05:55 | #6

    John H, I suggest you try weighing rather than counting. It’s in the nature of research that most projects fail, but the computer and the Internet could pay for an awful lot of failed CRCs. In fact, as I implied, they could pay every CRC that’s ever been funded many times over.

    Similarly, CSIRO’s big hits are more than enough to pay for its misses. I haven’t checked lately but that was certainly the conclusion of BCA exercises undertaken at ABARE when I was there.

  7. August 12th, 2005 at 08:30 | #7

    I find these tired arguments about commercial value of research a great frustration, since they evidence a total misunderstanding of how research finds itself used.

    In my part of Computer Science, I spend my days designing artificial communications languages and protocols for intelligent machines to talk to one another. If you know HTTP — Hyper-Text Transfer Protocol — you know a simple version of such an artificial language.

    My research is very theoretical and at the same time has enormous commercial potential: I expect a future generation of e-commerce systems will use this work. Yet, the research depends crucially on speech act theory, a branch of the philosophy of language, developed by Oxford philosophers John Austin and John Searle a half century ago. So essential is speech act theory to agent communications languages that it would probably be necessary for us computer scientists to invent it, if it did not already exist.

    So what type of research is speech act theory? Was it pure or was it applied? Austin and Searle (to my knowledge) received no funding for their research, and undertook it without any idea of the purpose to which we computer scientists are now putting it. But I have no doubt that, were I to seek funding to develop something like it today, our funding agencies would fall over themselves to pay for it.

    The economic benefit of speech act theory is likely to be enormous, although it will only arise at least 60 years after the work was first done.

  8. Nick Caldwell
    August 12th, 2005 at 08:36 | #8

    John, I’m interested in the footnote:

    the kind of quasi-public institution that flourished in the US corporate sector before the days of shareholder value

    Are there any useful historical discussions of how “the days of shareholder value” came about?

  9. Peter McB.
    August 12th, 2005 at 08:38 | #9

    Another example of delayed economic benefit is Object-Oriented Programming. The first OO language was Simula, created in Norway in 1962. It took until the 1980s for the concepts to become popular, and only in the 1990s was a popular OO language (Java) created. The economic benefits of OO ideas only appeared with the rise of the WWW and e-commerce.

    How many funding agencies are happy with a 40-year return on research investment? Perhaps only the US’s DARPA, whose establishing law requires it to ensure that the USA does not fall behind other countries in technology.

  10. Fyodor
    August 12th, 2005 at 08:54 | #10


    If your benchmark for government-funded research is the Internet then, as you say, its success would pay for any number of failures – a posteriori. A priori, however, the fact that the Internet has proved to be successful does not mean that lavish government funding on any and all research is a good use of resources.

    On a technicality, the ARPANET may have been a government project, but the Internet didn’t take off until commercial applications (e.g. Netscape) were created to facilitate its use. These were not government-funded (aside from the implicit subsidy embedded in the Internet’s infrastructure), so the success of the Internet is not attributable to government funding alone.

  11. Uncle Milton
    August 12th, 2005 at 09:10 | #11

    “It’s in the nature of research that most projects fail”

    Most research by pharmaceutical companies fails, but the research that succeeds, succeeds very well indeed. That’s one of the reasons (unsubsidised) drug prices are so high – to pay for all the failed projects.

    Anyway, there’s no need to speculate about the worth of ARC research. The ARC commissioned a report which asked this very question a couple years ago and found that “the social rate of return on ARC-funded research to Australia is conservatively estimated to be 39%”.

    media release: http://www.arc.gov.au/news/media/media_oct03.htm

    report: http://www.arc.gov.au/publications/arc_publications.htm#wealthof

  12. Peter McB.
    August 12th, 2005 at 09:27 | #12

    Fyodor: The applications which enabled commercial exploitation of the Internet were not developed initially by commercial firms — HTML and HTTP were developed by Tim Berners-Lee at CERN to enable physicists to share research papers, and the tech people behind Netscape (Marc Andriessen et al) developed their first web-browser not for Netscape but while working at University. Both these projects were Government funded, if perhaps unwittingly.

  13. Fyodor
    August 12th, 2005 at 11:15 | #13

    Acknowledged, Peter McB, but my point is that the takeoff of the Internet required commercial distribution of (relatively) user-friendly software to the mass-market. Netscape was a different beast to Mosaic, and the success of the Internet is due as much to its users as its original creators. ARPANET was around for a long time before somebody thought it would be a neat idea to let people without pointy heads use it.

  14. jquiggin
    August 12th, 2005 at 11:30 | #14

    Netscape was given away free, rather than being commercially distributed in the usual sense of the term, and wasn’t radically different to Mosaic, though of course HTML was evolving rapidly at that time, and the evolution of Mosaic/Netscape reflected this.

  15. Stephen L
    August 12th, 2005 at 13:34 | #15

    I’d be fascinated to see some justification for JH’s claim that “Most CRC are unprecidented wastes of money”

    A couple of years ago the CRC for Forestry had an external consultant rate the value of their five top projects, and it came back as many times the total cost of operating the CRC for its history. Most CRCs don’t do this assessment, because it’s expensive to get external consultants in, but I think that there would be quite a few of the more commercial ones who could produce something similar.

    Some other CRCs produce little of direct commercial value, but the social and environmental significance of what they do is large, assuming you accept the notion that there can be such a thing as social and environmental value to knowledge that is not commercially useful. The CRCs for Reef and Rainforest spring to mind.

    In fact, there is not much to the Australian economy that does not depend on government funded research. Try breaking it down by sector and you’ll see what I mean:

    Agriculture – most Australian agriculture would be impossible without the work done by CSIRO and the CRC for Weeds to control things like rabbits, mimosa etc. The bulk of the industry would be simply unviable, and since much of the work cannot be directly commercialised (how do you make a profit from releasing calicivirus if it rapidly spreads from the farm on which it is released so lots of farmers benefit?) it would not have been done by the private sector if the government stopped funding it.

    Mining: Austrlalia’s early mines might have been found by people tripping over “welcome strangers” but mining these days requires sophisticated technology to find new mines. Australia is covered in a laryer of regolith, as is South America and Africa, but Europe and North America are not, so we need different technologies from them. Northern Hemisphere mining companies have been loath to do the work required to develop exploration technologies relevant for the southern hemisphere, so these have largely been done here, by fully or partly government funded bodies. We have a billion dollar industry in exporting these technologies to other countries that need them.

    Health – the pharmaceutical companies etc do lots of research, but most products are spin offs from work done in universities, CRCs or CSIRO. Consider CSL for example. An example of particular significance to me is Tamiflu. Developed by an overseas company, but based on research conducted at an Australian university. We haven’t made much money out of it, but when (not if) there is a global flu epidemic tens of thousands of Australian lives will be saved, not to mention millions around the world.

    IT – not much based on Australian research, but as Professor Q points out government funding overseas has been critical.

    Tourism – how much would the value of our tourism fall if the Barrier Reef or the rainforests were not properly managed. And how are we to know what is appropriate management without research. Given the competing interests of say fisheries and tourism that research can hardly be privately funded – its all government.

    I could go on, but as a humble scientist delving into areas of economics beyond my ken perhaps I had better stop.

  16. August 12th, 2005 at 14:10 | #16

    Q — what is your counter-factual? Without government involvement in R&D how many more amazing things would have been invented? I don’t know. Perhaps none? Perhaps the exact same things? Perhaps something 10 times better than the internet?

    I’ve done more of those BCAs than I care to remember… and I just don’t trust them. Most bad results are hidden. Projects are cherry-picked. Many BCAs are done very badly. And there is considerable pressure to come up with the “right” answers.

    This applies just as much to the quoted study about ARC-funded research. 39% for a social rate of return is not that high… and I wonder what the unpublished reports said?

    This goes to one of my pet peves about government tendering of contracts. They should be coordinated by a central agency (PMC?)… and they should be required to release the results publicly irrespective of the conclusions of the report. If the agency in question disagrees, they can write a formal response.

    Finally, giving things away for free is consistent with a free-enterprise-based approach.

  17. Stephen L
    August 12th, 2005 at 14:20 | #17

    JH says

    what is your counter-factual? Without government involvement in R&D how many more amazing things would have been invented? I don’t know. Perhaps none? Perhaps the exact same things? Perhaps something 10 times better than the internet?

    In some cases this might be a fair question to ask, but in some its pretty obvious. No body was going to invest the money required for the calicivirus on a commercial basis, because once released it could not be charged for – one release site in a region benefitted everyone. The funding had to be either government, or philanthropic.

    Unless your proposal is to have us rely on philanthropy for huge areas of our research you are left with a choice of government, or not having it happen. And since so much research in these areas is essential to our economic success, and often our very survival (can’t see non-government research revealing the dangers of CFCs for example) the case for government intervention is clear.

    I’m also interested in the contradiction between your first statement:

    “Most CSIRO projects would fail a BCA” followed by “Most CRC are unprecidented wastes of money. Most would fail a BCA” and

    “I’ve done more of those BCAs than I care to remember… and I just don’t trust them”.

    So CRCs and CSIRO would fail a test you don’t trust, and on this basis we should throw abandon government research.

  18. derrida derider
    August 12th, 2005 at 14:37 | #18

    Nick –
    For the change in corporate attitudes in recent decades, and the forces driving them, this blogpost and subsequent discussion is worth reading:

  19. jquiggin
    August 12th, 2005 at 14:48 | #19

    ” 39% for a social rate of return is not that high…”

    I find this a startling claim. If you assume a 20 per cent welfare cost of taxation, the equivalent private rate of return is about 30 per cent – which is huge.

    Note that in adjusting for the welfare cost of tax you need to divide the gross rate of return by 1.2, not subtract 20 percentage points. This is a common error among critics of public investment.

  20. Dave Ricardo
    August 12th, 2005 at 15:51 | #20

    “the equivalent private rate of return is about 30 per cent”

    I can only wish that my super fund would invest in companies whose average return is 30%. The problem is, they don’t exist.

    “they should be required to release the results publicly irrespective of the conclusions of the report.”

    This report is released. Click on the link in Milton’s comment.

  21. August 12th, 2005 at 16:44 | #21

    Then again, the academic mindset (like the corporate one) also sidelines certain types of idea from not being able to connect to instititutional incentive structures. I am constantly reminded of this by the existence of the computer language Forth. A more accessible example is that Wirth had to cut loose from academia somewhat to bring in existing sound ideas that he showcased in Pascal; they didn’t start with him, but the academic mindset tended to over elaborate and over abstract what was needed.

  22. jquiggin
    August 12th, 2005 at 16:51 | #22

    PML, your point is valid in general, but I don’t see its application to Pascal. Pascal was popular among academics and students from the beginning – it was the practical COBOL types who dismissed it. Could you explain what you mean by “cut loose from academia somewhat”.

  23. August 12th, 2005 at 20:58 | #23

    Pascal was popular in academia once it existed, but it represented Wirth’s breakaway from the tendency to get more and more involved and intricate, yet abstracted too much in advance of the problem sets. That is, Wirth had to break away from the increasing complexity that was coming in with successive descendants of Algol-60. He had to show that simplifying out some things, while putting in other things like IO in the light of experience, was worth while. He had to that on the back of his existing reputation; if he had been required to justify it in advance, he would have faced problems. His work has often represented a resimplifying, a consolidation, and Pascal was no exception. He had to push against the ossification that w

    I also mentioned Forth, mainly because it finds few friends within either academia or the corporate world – yet it plays a useful part in the repertoire. That’s not calling it a panacea, but rather a demonstration that there are other ways than ours. Similar thinking led to Von Thun’s work on functional programming, with concatenative languages – you can find out a little about it via my own page on this area (it needs updating for my more recent researches).

  24. August 12th, 2005 at 21:00 | #24

    Strange – longer paragraphs don’t get through. That should have ended “…ossification that comes from academic approaches through standards committees”, or something like that.

  25. SJ
    August 13th, 2005 at 01:00 | #25

    “Pascal was popular in academia once it existed…”

    It’s hard to resist countering that statement with an observation that non-existent tools aren’t usually all that popular.

    I guess that you’re trying to make a more subtle point, that he might have had difficulties getting financial support for yet another programming language. And I guess you’re right. So he went ahead anyway, and Pascal was popular for a while, and here we are in 2005 and Pascal is just another one of those legacy things, like Cobol, Algol, etc.

    I can’t really understand your point about Forth. It sounds like one of those whinges about how Beta was better than VHS, except that Forth was much less successful than Beta.

  26. econwit
    August 13th, 2005 at 11:08 | #26

    “the universities were developing this great new communications system that would revolutionise the economy”

    We now have 3/4 of the public sector and academia spending copious otherwise “productive” hours blogging and surfing the internet looking at God knows what everyday. More a evolution in the form of bludging than a economic revolution. The “net” benefit of the internet is debatable.

  27. August 13th, 2005 at 14:20 | #27

    You can use Forth as whinge material, but I was trying to make the point that it emerged from – and is in fact still used in – a different development/implementation/use environment than either academia or the corporate world. I wanted to show that these do not exhaust the spectrum, and that therefore recommending an academic approach to pick up what the corporate approach misses would be worth it but would still not reach all the possible lines of enquiry. That’s because of the intrinsic structures of academia, just as real as those of the corporate world.

  28. August 13th, 2005 at 14:22 | #28

    Oh, Forth is still around while Betamax isn’t.

  29. August 13th, 2005 at 18:58 | #29

    Stephen — there are plenty of examples of the free market coming up with technology that didn’t make commercial sense. Lots of technologies were effectively accidental biproducts of other experiments… and the free market is full of experiments.

    Philanthropy is always a good cause. And fame. As is human curiosity… which is probably responsible for more break-throughs that the market and the government combined. I know I do a lot of my research for fun and curiosity. It is simplistic to assume that the choice is between government research and no research or that government activity does not crowd out private activity.

    My statement about research failing BCAs and my lack of faith in BCAs are consistent… just badly worded. I think they would fail a good BCA. 🙂

    Q — I can get a 39% social rate of return for most things. Adding the word social lets me play lots of silly games with huge uncertainty to get you whatever number you want. Also, it would be interesting to see if that is an internal or external rate of return. Most people report IRR, but that is a shockingly unhelpful concept and prone to much confusion (such as comparing it with the welfare cost of tax).

    Of course, the most common mistake with DWL is not to consider it at all.

    Also, if DWL is 20c for one dollar and the program is making 39c in the dollar… isn’t the net return 19c? Depends on how they reported their return (but I can’t read it at this computer).

    Further, that return needs to compensate for risk as well… which makes it even less impressive.

    Dave — I live on interest of about 3% a month… so it can be done. 🙂 And I am aware that the positive reports are released (though I can’t open it at this computer for some reason). It’s the negative reports that are hidden. Further, in comparing with your investments your confusing welfare return with financial return.

  30. jquiggin
    August 13th, 2005 at 20:43 | #30

    “Also, if DWL is 20c for one dollar and the program is making 39c in the dollar… isn’t the net return 19c? Depends on how they reported their return (but I can’t read it at this computer).”

    Work it out. If $1 worth of post-tax investment costs $1.20 pretax, then an annual return of 39 cents per post-tax dollar gives you a rate of return of 0.39/1.20 which is a little over 0.32.

    That’s what is meant by a rate of return (internal or external). If the report said that an investment of $1 gave a once-off return of 39 cents, then you would be justified in subtracting the 20 cent deadweight loss.

    As regards social rate of return, my point went the other way. If the projects produce a cash return to governments, then there’s no need to worry about the welfare cost of tax.

  31. SJ
    August 13th, 2005 at 22:10 | #31

    Dave—I live on interest of about 3% a month… so it can be done. 🙂

    I don’t believe you.

  32. August 14th, 2005 at 01:43 | #32

    Without reading the report I wasn’t sure if they hadn’t simply reported the B/C ratio as the return. It wouldn’t be the first time. But as you can read the report and I can’t… I defer to you.

    I didn’t understand your last point about the social rate of return. My point was that the concept is easy to abuse, especially when the research institutes are asking for a bunch of questionable intangibles to be included as social benefits. If the projects are returning a cash return, then there is no need for the government.

    Not wanting to labour the point… but the difference between the IRR and ERR is not trivial.

    SJ — I retired last year. I’m living off returns of about 3% a month. Believe it. If it’s not true… then I don’t know who is paying for my travels, but I thank them. 🙂

  33. August 14th, 2005 at 02:15 | #33

    It’s possible to live off real interest of 3% per year while conserving capital (read the Forsyte Saga, all that talk of consols), provided there was enough capital to begin with. It’s possible to live off nominal interest at that level while drawing down one’s capital, but then one is betting on not outliving the capital.

    On the other hand, 3% per month would conserve capital, but is probably very risky financially (unless it was some sort of sweetheart deal).

    And of course none of this works very well if there wasn’t enough capital.

  34. Nick Caldwell
    August 14th, 2005 at 09:33 | #34

    derrida derider, thanks for the link. I’ve had a quick skim and it looks very interesting.

  35. SJ
    August 14th, 2005 at 23:54 | #35

    SJ —I retired last year. I’m living off returns of about 3% a month. Believe it. If it’s not true… then I don’t know who is paying for my travels, but I thank them. 🙂

    So you’re saying returns now, not interest. OK.

    My own portfolio has returned almost three times that much over the past two years. I have the sense not to refer to that (mostly) capital gain as interest. I also have the sense to recognise that the post Iraq-invasion run up on the Australian stock market is a rather peculiar circumstance, one which may result in you trying to live off negative “interest” in the future.

    SJ, MApp Fin

  36. August 15th, 2005 at 22:08 | #36

    I don’t invest in the stock market and I wasn’t talking about capital appreciation. 3%/month has been pretty consistent so far.

    Anyway — my point was simply that it can be done (getting >30% a year in private investment)… not to get into a semantic debate.

    690% return over the past 2 years is very good. Congratulations — hope you keep it up.

  37. Stephen
    August 15th, 2005 at 22:09 | #37

    JH, Sure there are plenty of examples of the private sector technologies that were good, but not that commercially viable. But these fall into three classes. There are those that are accidentaly spinoffs from research for other things, there are those that are basically philanthropic, and there are those that are prestige technologies, done for marketing purposes.

    However, none of these categories can cover the bulk of things government research does. There is not enough philanthropic money to go around. Getting government out of research might increase this a little (in the short term – it would cause it to go down in the long term as the economy collapsed taking philanthropy with it) but nothing like the amount needed to fill the gap. Prestige technologies are few and far between by their nature, and only a few companies can afford the expensive ones.

    Accidental spin-offs are the most interesting really. Sure its true that sometimes a company is looking for one thing and finds another. But what is far more common is when basic research leads to something unexpected (remember pennicillin? I seem to recall it was quite good for society). And who funds basic research – governments. A few corporations do – I think the work for high temperature superconductors was done by IBM, but they’re never going to cover the range. All that the spin-off arguement does is emphasise just how valuable government research really is.

  38. SJ
    August 15th, 2005 at 22:55 | #38

    690% return over the past 2 years is very good. Congratulations—hope you keep it up.

    I don’t think your grasp of the math is very good.

    You claim you’re getting paid interest of 3% per month. You also say you’re living on this, so you aren’t re-investing. That gives you about 36% p.a.

    My claim is for about 100% p.a., i.e., almost 3 times 36%. I can’t see where a number resembling 690% drops out.

    I think there are a few possibilities here:

    a) you’ve got a sweetheart deal, as P.M. Lawrence suggested

    b) you’re being conned

    c) you’re involved in the type of money lending that involves broken kneecaps

    d) you have no idea what you’re talking about

    e) you’re onto something good that no-one else knows about.

    I think that (e) is the least likely proposition.

  39. August 17th, 2005 at 00:21 | #39

    Stephen… I think the idea of the economy collapsing without government research is up there with communists (or terrorists) under the bed. At worst (assuming all the typical leftie assumptions) it would slow growth.

    How much government research was involved in sparking the industrial revolution? And I would be genuinely curious about how much government R&D existed in the eastern block countries.

    SJ… no need to be bitchy about this. My maths is fine.

    I am claiming 3% a month… and you claimed 3 times my amount. If you were getting 9% a month (word to the wise, 3 * 3 = 9) then you would have 690% over two years.

    The fact that I now withdraw some money bi-monthly is hardly relevant. Of course if you re-invest, then your annual returns will look better than a person who isn’t re-investing… but that’s kinda side-stepping the issue.

    No sweatheart deal. No broken kneecaps. The money is definitely there. I guess I’m being conned. Poor me. I’ve already made my money back and them some… so it’s a strange con. I guess I’ll just continued getting conned if that’s OK with you.

  40. jquiggin
    August 17th, 2005 at 09:41 | #40

    “Stephen… I think the idea of the economy collapsing without government research is up there with communists (or terrorists) under the bed. At worst (assuming all the typical leftie assumptions) it would slow growth.”

    Who has advanced this idea, JH? It is obvious that if government research was the only source of productivity growth, stopping research would slow growth in the short run, and halt it in the long run, but would not cause the economy to collapse.

    And, as you say, the Industrial Revolution, unlike the Internet, was not primarily the product of public sector research.

    But if these are your strongest claims, there doesn’t seem to much in the original post that you would disagree with.

  41. August 17th, 2005 at 17:15 | #41

    jq: “Who has advanced this idea JH” (refering to the idea of the economy collapsing without government R&D)

    Stephen said: “it would cause it to go down in the long term as the economy collapsed taking philanthropy with it”

  42. StephenL
    August 17th, 2005 at 17:16 | #42

    My use of the word “collapse” was a bit ambigous. I didn’t mean that a lack of government research would reduce us to the point where there was no effective economy.

    However, I do believe that if Australia was to halt all government research, while other nations did not, we would be left with a shrinking economy which would severely impact on philanthropic funding for research.

    I’m not an economist, and I’d bow to Professor Q’s opinion here, but without government funded research many of our industries would quickly become uncompetitive. In some cases we could rely on buying in research from overseas, but in some cases that’s not really viable because overseas research does not address our local conditions. For example, how much research is done overseas on farming on saline soils. Not a lot, because most other nations with a lot of salt affected farmland are too poor to do much research. Without research in this area, which inevitably will have to be mostly government funded, huge areas of farmland will become unproductive, and I would think this would have to have a fairly significant affect on our economy.

    Whether such an effect would count as “collapse” is a different question, and I agree I should have chosen my words more carefully.

    BTW, I saw reference to a study comparing why Australia and Argentina, which in 1900 had quite similar ecomonies, went in such different directions since. The study concluded that the major difference was the scientific research in Australia which enabled us to increase the productivity of our agricultural, mining and manufacturing sectors, while Argentina largely failed to do this. I can’t speak of the validity of this study (can’t find it and probably wouldn’t be able to assess it’s accuracy anyway). However, what I can say with confidence is that if this research had not been done by the government most of it would not have been done by industry instead. The notion that industry will just rush in to fill the gap left behind when the government defunds science is in complete contradiction to experience.

  43. August 18th, 2005 at 15:19 | #43

    I think the fallacy in that last part is the idea that government and industry are the only two players. In a world – as it once was – with less government involvement there would be more truly private wealth, applied to the personal interests of its owners, and more independently resourced academia and charitable foundations (often endowed by the former group over time).

    In other words you would have more of the likes of Joseph Priestley, as well as a collection of prodigal sons wasting their substance (and who can pick the winners well enough to assess whether something is valuable research or another form of frittering on something crank? I heard of the engineer Ricardo before I ever heard of the economist of that name). None of this means that simple government withdrawal would be immediately and sufficiently replaced, but rather that the cumulative effect of governments has included this sort of pernicious crowding out (to misapply a phrase).

    For what it’s worth, I don’t suppose this research effort has much to do with the differing histories of Argentina and Australia, economic or otherwise.

  44. August 20th, 2005 at 19:20 | #44

    The fact that Argentina had a more socialist (and politically unstable) government also may have something to do with their relative decline vis-a-vis Australia. I would be fascinated to learn about the relative R&D spending (private and public) between Argentina and Australia.

    StephenL — talking about experience… experience is that the free market is capable of creating a vibrant and growing economy without the “help” (sic) of bureaucrats and tax-and-spend merchants handing out their pork to every corporation with a new idea or a powerful friend.

    Companies have learnt that corporate welfare is easier to sell if they rap it in the funky clothing of R&D. I guess the trick is working.

  45. Ian Gould
    August 21st, 2005 at 09:56 | #45

    >experience is that the free market is capable of creating a vibrant and growing economy without the “help� (sic) of bureaucrats and tax-and-spend merchants handing out their pork to every corporation with a new idea or a powerful friend.

    It has?

    Examples please.

  46. August 21st, 2005 at 15:58 | #46

    It arrived somewhat late for this thread, but there’s now a relevant rant here.

  47. August 21st, 2005 at 19:35 | #47

    Ian, if you want an example of a perfectly free-market economy, you’re obviously more interested in rhetoric than real argument.

    If you want general examples of free markets creating more vibrant and growing economies than less free markets, please not the last two centuries. Note that government R&D spending is not the differentiating feature between Nth and Sth Korea… nor was it the differentiating feature between China and Hong Kong, or East and West Germany.

    It would take a brave (and, in my opinion, silly) person to attribute China’s recent economic growth to a boost in government R&D as opposed to the liberalisation of their economy.

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