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Public Support for Science and Innovation

Public Support for Science and Innovation

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Published by Joshua Gans
Joshua S. Gans, "The Economic Case for Public Support of Science
and Innovation" Submission to the Productivity Commission’s study on Public
Support for Science and Innovation, 18th July, 2006

Joshua S. Gans, "The Economic Case for Public Support of Science
and Innovation" Submission to the Productivity Commission’s study on Public
Support for Science and Innovation, 18th July, 2006

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Published by: Joshua Gans on Jan 18, 2010
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The Economic Case for Public Support of Scienceand Innovation
Submission to the Productivity Commission’s study on “PublicSupport for Science and Innovation” Joshua S. GansUniversity of Melbourne18
July, 2006
 Joshua Gans is Professor of Management (Information Economics) at theMelbourne Business School; Professorial Fellow in the Department ofEconomics; and Associate Director of the Intellectual Property ResearchInstitute of Australia, University of Melbourne. (Background available atwww.mbs.edu/jgans). The views expressed here are his own and do notreflect those of the above organisations. Research assistance from RichardHayes is gratefully acknowledged.
Executive Summary
This submission examines economic arguments in favour of the publicsupport of science and innovation. It emphasises three important points that Ibelieve that the Productivity Commission should take into account in itsstudy.First, arguments of the public support of science based on the idea that basicresearch’s economic benefits are derived from spillovers into applied researchare based on a false premise of that relationship. Instead, there are strongincentives to provide use-inspired basic research that are preserved byrecognising the distinct roles of pure science and commercial research asmechanisms to allocate resources to knowledge creation activities.Second, I refute the empirical findings in a recent PC working paper on therelationship between R&D and multi-factor productivity. Empirical work ispresented using data from a cross section of OECD countries that shows thatthe Australian domestic R&D stock has a positive and significant impact onmulti-factor productivity.Finally, I present results of the continuing study of the drivers of nationalinnovative capacity that shows econometrically what factors – includinggovernment policy variables – impact on the domestic rate of innovation.
The purpose of this submission is to offer economic arguments in favour ofgovernmental support of science and innovation. The submission here reflectsthe latest economic research on the impacts of science and innovation as wellas the structure of the institutions that favour it. It is intended more as a guideto key issues in the latest literature as opposed to a comprehensive re-statement of findings there. My purpose here is to identify issues and trade-offs rather than resolve them completely.There are three important conclusions that can be drawn from recent research:
(Science & Innovation)
Arguments for science based on the‘linear model’ of the production of innovation are false and alsolead to inadequate arguments for the public support of science.Instead, recognising the deeper linkages between pure scientificresearch and technological innovation gives a clearer andsubtler picture for support and how that support is bestachieved.
(Innovation & Growth)
There is a significant econometricrelationship between domestic expenditure on R&D andeconomic growth in Australia.
(Support & Science and Innovation)
Public decision-variablesare a key driver of national innovative capacity.In each of these cases, the argument is based on empirical findings and notmere conjecture or theorising. It is those findings that I will highlight in thissubmission.The outline of this submission is as follows and is structured with the abovethree conclusions in mind. Section 2 considers economic arguments forscience while Section 3 considers economic arguments for domesticinnovation. Section 4 looks at the drivers of national innovative capacity. Afinal section concludes.

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