The Socio-Economic Importance of Scientific Research To Canada

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The Socio-Economic Importance of Scientific Research to Canada Page 15© David A. Wolfe and Ammon SalterThe studies cited in Table 2 focus on relatively ‘successful’ examples of government programs.They infer that “no alternative method could have generated the economic returns associatedwith the products and processes attributed to the basic research in question. . . . mosteconomists would find this assumption to be an uncomfortable one, inasmuch as there are fewnew products and processes completely lacking substitutes” (David et al. 1992, p. 77). Thecosts and benefits of government–funded projects need to be compared with the costs andbenefits of alternative solutions, according to Paul David and his collaborators. Tracing thebenefits of a particular project involves a retrospective look back at a technology and does nottake into account expenditures and investments made in complementary assets needed to bringthe technology to market (Teece 1986). One consequence of this tunnel vision is that theresulting measures of return on investment may significantly underestimate the costs oftechnological development.Using industry–level productivity growth rates as an indicator of the social rates of return togovernment–funded basic research is also problematic. Studies using this method demonstratea statistically significant impact for government–funded basic research on productivity growthat the sectoral level. However, most of these studies have relied on a high degree ofaggregation, rarely controlling for inter–industry differences. “Moreover, they do not revealhow the economic returns of basic research (and development) are [actually] realized” (Davidet al. 1992, p. 79).Table 2. Estimates of Rates of Return to Publicly Funded R&DStudies Subject Rates of Return to Public R&D(%)Griliches (1958) Hybrid Corn 20-40Peterson (1967) Poultry 21-25Schmitz-Seckler (1970) Tomato harvester 37-46Griliches (1968) Agricultural Research 35-40Evenson (1968) Agricultural Research 28-47Davis (1979) Agricultural Research 37Evenson (1979) Agricultural Research 45Davis and Peterson (1981) Agricultural Research 37Huffman and Evenson (1993) Agricultural Research 43-67Source: Griliches 1995 and US Office of Technology Assessment 198615
The Socio-Economic Importance of Scientific Research to Canada Page 16© David A. Wolfe and Ammon SalterOther econometric studies in this area have reached some intriguing additional conclusions.Link and Rees suggest that small firms take advantage of university research more effectivelythan large firms (1990). Hall has also shown that the major impact of publicly–funded basicresearch may be to increase a firm's own R&D spending (1994).Despite the problems encountered with this line of research, Mansfield has made the mostsubstantial contribution to these attempt to measure the benefits of basic research. His studiesfocus on recent academic research, i.e. research occurring within fifteen years of thecommercialization of whatever innovation is being considered (Mansfield 1991, p. 1). Using asample of 75 major American firms in seven manufacturing industries (information processing,electrical equipment, chemicals, instruments, pharmaceuticals, and metals and oils), heobtained estimates from R&D managers about what proportion of the firm's products andprocesses over a ten year period could not have occurred without the results of the academicresearch. The survey results suggest that about 11 per cent of these firms’ new products and 9per cent of their new processes could not have been developed without substantial delay in theabsence of the academic research. These percentages of products and processes accounted for3 per cent and 1 per cent of sales respectively for the firms concerned. Mansfield alsomeasured those firms’ products and processes which were developed with ‘substantial aid’from recent research (last fifteen years). He suggests that 2.1 per cent of sales for newproducts and 1.6 per cent of new processes would have been lost in the absence of theacademic research.Mansfield concludes that the economic benefits of academic research are spread over sevenyears. By the eighth year, such research would have been realized by the firms themselves.These benefits accrue only to American firms and they provide benefits to only the innovatingfirm. Using these figures, Mansfield estimates the benefit from academic research to be 28 percent. The figure represents “the present value of the stream of benefits associated with theresearch equal to costs. (In other words, it is the annual profit rate on society's investment inacademic research)” (Mansfield 1991, p. 10; cf. also 1996).Mansfield admits to the limitations of his approach: the time lag is short (fifteen years); nobenefits accrue to firms outside the US; there are no indirect benefits of research, such asskilled researchers; the estimates rely on the opinions of large firm managers; and they do not16
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