Summary of Kealey on the economic laws of scientific research

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This is a 1400 word summary and go here for a more extended account of the main arguments and evidence. 

Summary of Terence Kealey, The Economic Laws of Scientific Research, Macmillan, 1996. pb, 380 pages.

The take-home message from this book is that governments should pull back from their dominant position in funding and from trying to direct research and development. The historical record indicates that wealth-generating technology is mainly developed on site, not in academic research laboratories and private enterprise can supply most if not all of the funds required for both pure and applied research.

The first chapter on Francis Bacon and Adam Smith spells out the two competing models of the optimum relationship between state funding, basic research, technology and human welfare.

The Baconian model is linear.

State support -> Basic Research -> Technology -> Progress in human welfare

Adam Smith   

Old technology -> New Technology -> Wealth and Welfare

In this model, Basic Research has a give and take (arrows each way) relationship with New Technology. The State has no special role to play in the process.

Chapter 2. Research and Development in Antiquity. The early development of technology by the Egyptians, Babylonians, Chinese, Greeks and even the Romans did not have any dynamism and remained arrested for long periods. In the case of the Greeks the leading philosophers such as Plato and Aristotle had contempt for trade and commerce, which is where practical developments in technology occur. The Roman empire degenerated into a tax-extraction machine and lost population by defection to the “barbarians” and by natural attrition as the productivity of nation declined.

The third chapter on The Dark Ages indicates that decline set in before the fall of the Roman empire and although arty types are scornful of this period it was a time when many economically important innovations occurred, notably the saddle, horse collar and tandem harness which increased the power from horses by a factor of four, and the crank which permitted many kinds of machines to be driven from a rotating shaft.

Chapter 4. The Commercial Revolution.

The small Italian states led the way with advances such as premium insurance, double-entry bookkeeping and the cheque. Merchants were the thin end of the wedge that opened  up the way from feudalism towards more open and productive societies. Italy was located in a good climate on the cross-roads of many trade routes by land and sea. The small principalities, protected for some time by mountains and the sea, permitted merchants to thrive and become the leaders of the small republican states.

Chapter 5. The Agricultural Revolution.

The Italian states were eventually invaded from all sides and the area of innovation shifted to Holland and England. Vital innovations such as crop rotation and systematic improvement of crops and pastures were driven by gentleman farmers such as “Turnip” Townsend and associations such as the Lunar Society which consisted of a mix of scientists, engineers and industrialists.  By 1850 agricultural productivity in Britain was increasing by 0.5% per annum, unprecedented in history. Laissez faire ruled (almost) and there was no state involvement in research or industry policy.

Chapter 6. The Industrial Revolution.

Between 1780 and 1860 the population of Britain tripled from 7.5M to 23M and the real per capita income double in real terms across all classes.

The drivers were increased productivity of machines and the movement of labour from the land to the factories.  The driver of machine technology was NOT science as predicted by Bacon but the improvement of existing technology by ingenious artisans such as Newcomen, Watt, Trevithic and Stephenson. Amazingly, the scientists were struggling to keep up with the tradesmen! Hooke (the scientist) told Newcomen that his idea would not work while he was developing it (fortunately he persisted) and Carnot’s work on thermodynamics was prompted by Watt’s steam engine which could not work according to the laws of science as they were understood by leading scientists at the time.

France followed the Bacon model and set up glittering science laboratories and institutions of learning, while the state ran on the basis of taxes extorted by an army of Farmers-General (tax farmers) working on a commission basis with draconian powers of search, detention and confiscation. Hence the Revolution, while the science laboratories produced scientific advances without any impact on technology or the wealth of the French people.

Chapter 7. Economic History since 1870

This chapter is about the comparative economic performance of nations with some warnings about the valid and invalid comparisons that are often made. Invalid comparisons are often used to promote the Baconian approach to science with the aim of getting more state involvement in science and education. A classic example is the comparison of Germany and Britain post 1870.

Bismark’s warfare/welfare state sudsidised and protected local industries, especially steel. With the inflated cost of German steel it made sense for England to produce less and buy from Germany, still a lot of people just saw the decline of an industry, not wealth transfer from Germans to Britons. They also misread the play on technical education, being over-impressed by the network of state-funded technical colleges in Germany and forgetting about the 700+ industry-funded mechanics institutes that were established  in Britain between 1820 and 1850.

There is a stunning table on the economic performance of the current (1980) 16 richest nations from 1870 to 1980. These figures indicate  GDP per capita in 1870 adjusted to the $US in 1970.

Australia 1393, UK 972, Belgium 925, Holland 831, Switzerland 786, US 764.

On productivity Australia scored 1.3, UK 0.8, Holland US and Belgium 0.7. Australia was at the bottom in growth of productivity since that time.

Chapter 8.  Science Policies of the Twentieth Century

In this chapter Kealey traced the evolution of science policy in the US and Britain. They both started with a substantially laissez faire economy and also minimal state involvement in science, then during the 20th century the Baconians and the Czars of science took over and they went for central funding and control in a big way. For those who have been receptive to Kealey’s argument thus far, the results are  predictable (cw 18th century France).

Chapter 9.  The Economics of Research: Why the Linear Model Fails

The purpose of  the chapter is to test the linear (Baconian) model.

Government money -> academic science -> technology -> wealth

 There are some case studies of Government projects to develop and implement high tech systems and infrastructure. These include the European Community plan to develop High Definition TV, the Japanese fifth generation supercomputer program, the European Airbus project. In each case the lesson is clear. Massive sums of taxpayers money were wasted, or would have been wasted if the TV project had gone ahead.

What about the benefits of state funding for basic research. Kealey provides evidence that (a) basic research contributes next to nothing to progress in industry, compared with the on-site modification of existing plant and (b) industry will fund basic research anyway.

Chapter 10.  The Real Economics of Research

In this chapter Kealey looks at the economics of R&D and then the economics of academic science, in each case asking whether government funding is required to optimise spending.

He confirms three Laws of  Funding for Civil R&D.

First Law. The % of national GDP  spent increases with national DGP per capita.

Second Law. Public and private funding displace each other (compete). So public funds tend to displace private funds.

Third Law. The public/private displacement is not equal. Public funds displace a larger volume of private funds than the public input. (net loss)

Chapter 11.  The So-called Decline of British and American Science

In this chapter Kealey describes the regular explosions of anger by British scientists over the last three decades and the way they some of them regularly fudged the figures to give the impression that science is going down the drain for want of public funds. The evidence appears to indicate the contrary, namely robust growth and sustained quality.

British boffins medaled in productivity and quality of publications! On papers per capita of population Britain took bronze behind the US and Canada. In the most cited papers Britain took silver behind the US in life sciences and total citations, and bronze behind the US and Canada in chemical science and physical science.

If Britain did that well in the Olympic Games there would not be a lot of talk about the decline of British sport.

CHAPTER 12.  Dr Pangloss was Right

“If this book has a message, it is this: relax. Economic, technical and scientific growth are free lunches. Under laissez faire they just emerge, like grass after the rain, through the efforts of individual entrepreneurs and philanthropists. Once the State has initiated the rule of law and sensible commercial legislation, the goodies will flow – and laissez faire is morally superior to dirigism as it maximises the freedoms and responsibilities of the individual.”

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8 Responses to Summary of Kealey on the economic laws of scientific research

  1. Lord Keynes says:

    You say:
    These include the European Community plan to develop High Definition TV, the Japanese fifth generation supercomputer program, the European Airbus project. In each case the lesson is clear. Massive sums of taxpayers money were wasted, or would have been wasted if the TV project had gone ahead.

    And pointing to a handful of failed examples hardly refutes the idea that, in general, government projects to develop and implement high tech systems are successful.
    Where is your reference to nuclear power, modern aviation, the modern computer, the internet, and the vast number medically useful compounds discovered in state funded research?

    The belief that industry will fund basic sciences research is not convincing.
    The large particle accelerators that really do advance basic physics are mainly publically funded, like the Large Hadron Collider.
    And in fact the US government was going to build a larger, far more powerful particle accelerator in the early 1990s called the Superconducting Super Collider (SSC), which would have allowed us to solve a good many problems in basics physics years ago by creating the so-called “God particle” and dark matter. It may even have allowed some empirical testing of string theory.

    But the Republican controlled Congress in 1993 cut off funding.

    If the private sector was really interested in advancing science, why hasn’t it constructed a particle accelerator on a similar scale?

    The answer: it hasn’t, because investment on that scale and time period in basic science is nearly always done by government, not by business looking for short term profit.

  2. Lord Keynes says:

    Correction: the Republicans controlled the senate in 1993, they didn’t get the house until 1994.

  3. Rafe says:

    Kealey’s point is that the private sector would have a great deal more money to spend on research if the entreprenneurs are not taxed to pay for things that could be done more efficiently with private funding.

    How scientifically important is the particle accelerator?

  4. Lord Keynes says:

    Kealey’s point is that the private sector would have a great deal more money to spend on research if the entreprenneurs are not taxed to pay for things that could be done more efficiently with private funding

    And it is still unlikely they would do the necessary investment.
    As I said: if the private sector was really interested in advancing science, why hasn’t it constructed a particle accelerator on a similar scale as the scrapped Superconducting Super Collider (SSC)?

    How scientifically important is the particle accelerator?
    I am surprised you even ask that question.
    A big enough particle accelerator will give us the empirical data to unify quantum mechanics and general relativity – probably by verifying M-theory (if you take an inductivist view of science) or by falsifying the other competing theories (if you take a Popperian view of science).
    A unified field theory is the holy grail.
    Who knows what technologies will flow from it? If we understand what dark matter and dark energy are, and how to manufacture and manipulate them, gods knows what technical achievements will be possible.

  5. Lord Keynes says:

    At any rate, your blog is well written and an excellent resource – I’ll read as many post as I can.

    If you are interested, I have just written something on my blog about the problem of induction and a Popperian methodology for economics:

    http://socialdemocracy21stcentury.blogspot.com/2010/12/risk-and-uncertainty-in-post-keynesian.html

    Thanks

  6. Rafe says:

    I know all about dark matter from Futurama!

    Thanks, that is a nice link! You are asking the right questions.

    Just a note on the critical realists, I would say they are are coming closer to Popper rather than the other way around!

  7. hsearles says:

    “And pointing to a handful of failed examples hardly refutes the idea that, in general, government projects to develop and implement high tech systems are successful.”
    It certainly corroborates the point – Rafe is a good Popperian so he wouldn’t even bother saying that any amount of evidence can prove his points.

    “Where is your reference to nuclear power, modern aviation, the modern computer, the internet, and the vast number medically useful compounds discovered in state funded research?”
    Human civilization could survive without nuclear power, and perhaps we would be living in a far better world if governments never researched the atomic bomb.

    Modern aviation is much more the product of the free market than it is a product of military-expenditures. Just because it received a boost by military-research in WW2 does not mean that modern aviation would have not merged on the free market. Furthermore, it would have emerged without all of the senseless economic waste that occurred during that war.

    The modern computer, like the internet, is a product of the free market. Government produced a primitive versions of both, but the vast majority of the innovations leading to the modern versions of both were done on the market.

    Is there any reason to believe that those very same compounds would not have been invented on the free market? Actually, allow me to answer my own question: they would have eventually been invented, but in a fashion that is more in-line with market needs. Research in a government facility has no accountability to market-demand hence resulting in a less desirable allocation of resources than had they been allocated using the market mechanism.

    “The belief that industry will fund basic sciences research is not convincing.”
    Why not? Do more than just point at the fact that its a “public good.” Perhaps you should do some research on James Prescott Joule, and it was because of his job as a brewer that he had the tools necessary to do the experiments necessary to discover that heat is equivalent to energy. Or how James Watt helped to further scientific knowledge through his work on steam engines. Of course, both examples are examples in which entrepreneurs in science were able to use their tacit knowledge in order to further the body scientific knowledge rather than the centrally planned “big science” that is the only thing most recognize as science today.

    “The large particle accelerators that really do advance basic physics are mainly publically funded, like the Large Hadron Collider.”
    This is wrong. Science already knows “basic physics,” the LHC is advancing a very specialized branch of physics that will not have much affect, if any at all, on our understanding of physics above the molar level.

    “If the private sector was really interested in advancing science, why hasn’t it constructed a particle accelerator on a similar scale?”
    Perhaps it does not advance our scientific understanding enough at this point in order to warrant the costs? That is a perfectly fine answer. If there is the desire to advance scientific understanding, and it isn’t being provided by any business, perhaps the scientists whose work would depend on something like the LHC ought to go around taking donations, or they should write popular books in order to make the money. There are other means of getting money for science other than going to the government.

    “The answer: it hasn’t, because investment on that scale and time period in basic science is nearly always done by government, not by business looking for short term profit.”
    Did not Joule, and Watt do actually basic science, you aren’t speaking the truth calling what the LHC does “basic science” (as I said above), with the knowledge, and tools they had from business? Do you think scientific discussions of energy came merely from the government, and not from concerns about the efficiency of steam engines?

    “‘How scientifically important is the particle accelerator?’
    I am surprised you even ask that question.
    A big enough particle accelerator will give us the empirical data to unify quantum mechanics and general relativity – probably by verifying M-theory (if you take an inductivist view of science) or by falsifying the other competing theories (if you take a Popperian view of science).
    A unified field theory is the holy grail.”
    Will it? Tell me then, what predictions do M-Theory, or its competitors (like there are any competitors – you have to be working on string theory in order to receive government funding) make? Name a couple, please.
    In fact, the only reason the LHC was built was to find the Higgs, and it is doubtful it is powerful enough to do much more.
    I bet a unified field theory will not come out of the data the LHC produces, I bet a more powerful one will be needed.

    “‘Kealey’s point is that the private sector would have a great deal more money to spend on research if the entreprenneurs are not taxed to pay for things that could be done more efficiently with private funding’
    And it is still unlikely they would do the necessary investment.
    As I said: if the private sector was really interested in advancing science, why hasn’t it constructed a particle accelerator on a similar scale as the scrapped Superconducting Super Collider (SSC)?”
    Again, provide reasons why entrepreneurs would not do research, and then explain away the anomolies of Joule, and Watt.
    Furthermore, perhaps the construction of a LHC-type particle accelerator is not what is really needed to advance science. It is also true that entrepreneurs now live in an environment in which they can expect that the government will do such tasks so it is idiotic to point towards the nonexistence of a private LHC as proof that a private LHC would never have been produced.

  8. Lord Keynes says:

    I bet a unified field theory will not come out of the data the LHC produces, I bet a more powerful one will be needed.

    That’s what I already said when I referred to the scrapped Superconducting Super Collider (SSC).

    Furthermore, perhaps the construction of a LHC-type particle accelerator is not what is really needed to advance science.

    How would a bunch of business people with no physics degrees, no background in theoretical physics possibly know what is needed to advance basic sciences?
    This reasoning is flawed.

    And at any rate the arguments offered for Austrian/pro free market economics are also severely flawed.

    The Rothbardian, anarcho-capitalist system is justified by the laughable fable of natural rights/natural law.

    Misesian limited government Austrian ideology contains a severe flaw, because of its utilitarianism:

    http://socialdemocracy21stcentury.blogspot.com/2010/10/rothbard-on-mises-utilitarianism-why.html

    http://socialdemocracy21stcentury.blogspot.com/2010/10/was-mises-socialist-why-mises-refutes.html

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