Progress, despite what you have heard lately from some environmentalists and populists (of the left and right), is good. Really good, in fact. The new working paper “A Calculation of the Social Returns to Innovation” by Benjamin F. Jones and Lawrence H. Summers opens with several reminders of that reality: “Standards of living in advanced economies have risen dramatically over the last two centuries, with U.S. income per-capita currently 25 times its level in 1820. … Scientific and technological advances, ultimately delivering valuable new products and services, are thought to be critical drivers of these gains. … Innovative advances also appear central to improving human health and life expectancy.”
So given the tremendous impact of innovation, especially technological advances, it makes sense for a society to invest considerable resources in boosting innovation. But how much exactly? As the economists note, “Yet measuring the social returns to scientific and technological advance has proven difficult.” And a key finding from their attempt at measure those returns:
Overall, we find that the average social returns to innovation investments appear very large. If formal R&D and new venture creation drive the bulk of productivity gains, then the social returns to these investments appear enormous. If a much broader set of investments, including capital embodiment, are needed to fulfill these productivity gains, then the social returns to these broader activities still appear large. Even under very conservative assumptions, it is difficult to find an average return below $4 per $1 spent. Accounting for health benefits, inflation bias, or international spillovers can bring the social returns to over $20 per $1 spent, with internal rates of return approaching 100%. … The implication is that policies to support further innovation investment are broadly well motivated. Innovation investments can credibly raise economic growth rates and extend lives, paying for their costs many times over. And because the social returns exceed the private returns, public policy has a central role, and opportunity, in unleashing these gains.
Both private and public investment are important here, though one takeaway from this paper is that government should be doing more. And there are lots of proposals floating around these days to do just that. Democratic nominee Joe Biden, for example, is promising $300 billion in new investment in R&D and “breakthrough technologies — from electric vehicle technology to lightweight materials to 5G and artificial intelligence — to unleash high-quality job creation in high-value manufacturing and technology.” And last spring, a bipartisan group of federal lawmakers unveiled the Endless Frontiers Act, which would invest $100 billion in emerging technology. The Trump White House also recently announced a new $1 billion initiative to “ensure American leadership in the industries of the future.”
One concern is that too much of any new federal investment will be on “applied research” or on mission-specific “moonshots.” Let’s not forget about basic research. As Jones and Summers note, “A basic research insight like Einstein’s general relativity turned out to be an essential tool underlying the Global Positioning System (GPS), which in turn is essential to many technology applications, including new business models like Uber and Lyft. Similarly, basic research 30 insights into extremophile bacteria in Yellowstone National Park provided the essential gene replication technologies that underpin the biotechnology industry. The connections between basic research and its ultimate applications appear broad, deep, and hard to predict.”
More on this in a great new piece by Tony Mills (whom I chatted with back in May), a resident senior fellow and director of science policy at the R Street Institute, and a senior fellow at the Pepperdine School of Public Policy:
Not all scientific discoveries lead to technological breakthroughs. And it is usually difficult or impossible to predict which ones will. Those that do — like the atomic model developed by Ernest Rutherford and Niels Bohr in 1913 or the 1956 discovery of DNA polymerase (without which we couldn’t use RT-PCR to test for SARS-CoV2 today) — can take decades to bear technological fruit. That’s why, historically, the government rather than the private sector has taken the lead in funding basic science.
Unfortunately, U.S. R&D has become increasingly biased against basic science over the last few decades. This is partly because the private sector — which funds vastly more applied research and development than basic science — has overtaken the public sector as the largest funder of R&D. But even within the public sector, applied research and development comprises a larger and larger share of research dollars. The result is that, for all our talk about science today, we are massively underinvesting in scientific research.
Policy proposals calling for more R&D spending are right to highlight the importance of federal funding of science. Historically, however, our country’s ability to develop and deploy innovative technologies, as in World War II and the ensuing decades, resulted from not just federal funding, but also progress in our basic understanding of nature. It is here that government should focus its efforts, rather than simply spending more money on technology. To ensure America’s scientific and technological preeminence — and to better prepare for the next public health (or other) emergency — lawmakers should prioritize basic science.