The Socio-Economic Importance of Scientific Research To Canada

The Socio-Economic Importance of Scientific Research to Canada Page 13© David A. Wolfe and Ammon Saltershowing that technology (however measured or treated) does play a substantial role in thegrowth of private sector firms (Verspagen 1993).Zvi Griliches has stressed that the relationship between technological change and economicgrowth remains problematic for economic research. It is difficult to find a set of usefulindicators of technological and economic performance. Moreover, these indicators are hard tocombine with the econometric problem of drawing inferences from non-experimental data(1995, p. 52). It has also been difficult for economists to develop a realistic model to explainthe links that do exist. As Richard Nelson points out, the models do not describe the linkbetween publicly–funded basic research and economic performance in a direct way; theysimply look at inputs (such as patents) and then outputs (firm sales) without probing theprocess (Nelson 1982).Measuring the Social Rate of Return to Investments in Basic Research:Most studies of the social and private rate of return to publicly–funded research stress thepositive rates of return. What, however, is a private and what is a social rate of return onbasic research? Private rates of return refer to the return on investments in research that flowfrom the success of the individual research project. Social rates of return to research, incontrast, have “benefits which accrue to the whole society” (Smith 1991, p. 4). The differencebetween the two stems from the simple fact that frequently the results of a specific researchproject, or even a firm–based innovation, do not accrue entirely to one firm. The scientificbenefit of a piece of basic research may be appropriated by more than one firm, or imitatorsmay flood into the market and replicate the new product or technology developed by a specificfirm, without having to shoulder the substantial cost of the original research. However, bylowering the costs incurred in developing new technologies or products through investing inthe inputs, ie. the basic research, publicly–funded projects generate a broader social benefit.Because of this difference, estimates of the private rate of return to research and developmenttend to be much lower than those for the social rate of return (Mansfield 1996, pp. 118–119).This difference underscores the necessity of estimating the social rates of return forinvestments in scientific research, despite the methodological problems involved.Estimates of social and private rates of return to privately–funded R&D vary between 20 and50 per cent (Griliches 1995, p. 56). These estimates are summarized in Table 1. In a surveyarticle, Hall suggested the gross rate of return on privately–funded R&D in the United States is33 per cent. If the computing sector is removed then the rate of return falls to 12 per cent.Hall suggests that the private return to R&D spending is not as profitable as it once was and13