When you hear the word innovation, you might think of Silicon Valley: a place where inventors, engineers, and scientists — funded by deep-pocketed venture capitalists and led by plucky entrepreneurs — build new products and industries from thin air. There’s an increasing sense that the private sector is leading the charge; budget director Mick Mulvaney has even mused that we may not need government-funded research at all.
Nothing could be further from the truth.
In the first comprehensive analysis of all U.S. patents going back to 1926, we and our co-authors found that the private sector’s reliance on government support has recently risen dramatically and is now close to one-third of all U.S. patents. And it’s more than a third for venture-backed startups, especially for the high fliers that fuel job growth — for example, Google’s patent on its PageRank search algorithm acknowledges an NSF grant in library science.
After analyzing linkages between tens of millions of patents and science papers, exhaustive accounting shows that federal research increasingly fuels the innovation that ultimately leads to jobs, industrial competitiveness, and entrepreneurial success. Smartphones are a case in point (sorry, Apple): They employ liquid-crystal displays (NIH, NSF, DoD), GPS (DoD), Lithium-Ion batteries (DoE), and DRAM (DARPA).
Patents that rely on federally-funded science are more important: They are more novel, more likely to be cited by future patents, and more often renewed. Groundbreaking technologies in all industries — from textiles and paper (approximately 20 percent of all patents in the field) to materials and chemistry (almost 60 percent, and growing) rely on federally-funded science. And U.S. inventors are increasing their reliance on federal funding at a faster rate than foreign inventors, indicating that American research is not wasted overseas.
It may not be a surprise that corporations are primarily responsible for this trend. Yet these commercial firms aren’t simply free riding on government investments in basic science: Corporations continue to invest heavily in research (though they are publishing less in the scientific literature). Furthermore, firms have to do science to understand science — corporations must invest merely to understand the benefit and accomplish the challenge of development — they simply don’t pull down ready-to-build products from a government-subsidized shelf. Federal science creates a delightfully wonderful public good — everyone can use it, for a very long time (it never gets “used up” — we can see recent references to very old government-backed science in our data), and incorporate it into a wide variety of products.
We’re not accountants or tax economists, but it would surely be a very good investment to take a small portion of the corporate tax revenue and keep funding public science. We made no claims in our research on the financial value of federally supported patents, but when we applied one recently developed method from our finance colleagues, the yearly value of corporate patents which rely on federal science was at least on par with (and sometimes much greater than) the yearly federal research budget. This implies that corporate innovation alone justifies the entire federal science budget.
And that was just patents — we ignored even more important benefits of basic research, such as the training of our technical work force, improved health (in drugs, devices, and better medical practices), unpatented trade secrets, higher productivity of our farms and factories, better weapons for soldiers, and a much higher chance that the industries of the future will be based in the United States. We ignored these other benefits simply because we don’t trust our methods yet to make a comprehensive claim. When we can quantify such benefits accurately, it’s likely we’ll see ROI in the many hundreds of percent.
Basic science doesn’t prop up the stock market today, but it is the goose that lays a variety of golden eggs for many years to come. In the face of slowing economic growth and probable recession, pulling back on funding for scientific research will ultimately gut our capacity for innovation and long-term economic competitiveness.
It’s clear that America’s biggest rival gets this: China has dramatically and rapidly ramped up its spending on science. It’s not unlike the space race — only now it’s the global economy, everyone’s health, high-paying tech jobs, and the future of our environment that’s at stake.
Lee Fleming is the Faculty Director of the Fung Institute for Engineering Leadership in UC Berkeley’s College of Engineering and Professor at the Haas School of Business. Matt Marx is Dean’s Research Scholar and Associate Professor in Strategy and Innovation at Boston University. Both have worked in Silicon Valley and hold patents in a variety of fields. Their three co-authors on the original article are Guan Cheng Li from UC Berkeley, Hilary Greene from the University of Connecticut Law School, and Dennis Yao from the Harvard Business School. All five have received funding from the National Science Foundation; Fleming an LI have a patent pending that was a research product of an NSF grant.