The Socio-Economic Importance of Scientific Research To Canada

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The Socio-Economic Importance of Scientific Research to Canada Page 7© David A. Wolfe and Ammon Salterstructure is missing, distortions abound and the policy problem is to identify andcorrect those distortions. [Yet] the innovation process both generates and is influencedby uncertainty and this aspect of market failure is particularly damaging to thepossibility of Pareto efficient allocation of resources to invention and innovation . . . .[T]hus innovation and Pareto optimality are fundamentally incompatible (1995, p. 4).Metcalfe offers the evolutionary approach as an alternative for analyzing and prescribing in thecase of government–funded basic research. In evolutionary theory, the focus of attentionceases to be “market failure per se and instead becomes the enhancement of competitiveperformance and the promotion of structural change” (1995, p. 6). 3 The broader perspectiveafforded by evolutionary theory, with its focus on both the public and private dimensions ofthe innovation system, is a more promising approaching (Nelson 1995). 4Using this distinction between the market failure approach and that offered by evolutionaryeconomics, we can distinguish between the type of analysis and the implications that followfrom each. The old approach, based on the theory of market failure, tends to focus on theimportant role of information in economic activity. Drawing on the work of Kenneth Arrow,it underlines the informational properties of scientific knowledge, suggesting that thisknowledge is non–rival and non–excludable (1962). Non–rival means that others can use theknowledge without detracting from the knowledge of the producers and non–excludable meansthat other firms cannot be stopped from using the information. In this sense, the main productarising from government–funded scientific research is seen to be economically usefulinformation, freely available to all firms in a non–exclusionary fashion. By increasinggovernment funding for basic research, it is deemed possible to expand the pool ofeconomically useful information available for industrial firms to draw upon. This informationis seen to be durable, freely available, and costless to use. Government funding overcomes thereluctance of firms to fund their own research (to a socially optimal extent) due to itsnon–appropriability; new packets of economically–useful information are created; and thedistribution of this information enhanced through the tradition of public disclosure in science.Relatively few economists would support the purely informational approach today in anunamended fashion. Yet, in much of the economic writing on the relationship between3 For an evolutionary perspective on science and technology policy, cf. Nelson 1993, Lundvall 1992, and Edquist 1997.4 The market failure argument is misleading because it presumes the presence of a market relation where often none exists. As Karl Polbecome institutionalized in societies over time. They do not just come into existence through the agency of some external force; rather,both public and private actions (1957).7
The Socio-Economic Importance of Scientific Research to Canada Page 8© David A. Wolfe and Ammon Salterpublicly–funded research and economic growth, there remains a presumption of theinformational properties of basic research. For example, Adams developed a series of industrymeasures of the stock of knowledge by looking at articles in public journals and theemployment of scientists. He found a twenty to thirty year gap in the uptake of scientificpapers (the knowledge stock) to productivity growth, as the number of papers produced byresearchers fell over time. He suggested that the decline in the productivity of scientists andthe subsequent fall in the stock of knowledge (measured by total papers) was related to theSecond World War and speculated that 15 per cent of the economic slowdown in the 1970scould be explained by this earlier decline in the knowledge stock (Adams 1990, p. 699).The evolutionary approach to the economics of publicly–funded research suggests that theinformational view of knowledge substantially undervalues the extent to which knowledge isembodied in specific researchers and the institutional networks within which they conduct theirresearch. It compounds this error by misreading the nature of the innovation process. AsRosenberg states, the information–based view tends to regard scientific knowledge as being“on the shelf, costlessly available to all comers” (1990, p. 165). But this view fails toappreciate the extent to which scientific or technical knowledge requires a substantial capabilityon the part of the user. To paraphrase the OECD, knowledge and information abound, it is thecapacity to use them in meaningful ways that is in scarce supply (1996, 231). Often thiscapacity is expensive or difficult to acquire and maintain (Pavitt 1991, p. 112; Cohen andLevinthal 1989). In an influential survey, Cohen and Levinthal suggest that one cancharacterize the R&D of firms as having two faces: R&D both allows the firms to create newpools of knowledge and it enhances their ability to assimilate and exploit existing knowledge. 5They refer to this second dimension as the firm's absorptive capacity.In many respects, the informational view of scientific research closely parallels the linearmodel of innovation which predominated in studies of technological innovation during thepostwar period. The linear model has its roots in debates in the UK in the 1930s over theappropriate role of science policy. One side stressed the need for autonomy andself–governance on the part of the scientific community in the conduct of scientific research;while the other argued the need for a more targeted and publicly–directed approach toscientific research. The former view was adopted in Vannevar Bush’s famous report toPresident Truman, Science: The Endless Frontier (1945), that established the guidingprinciples for much of postwar US science policy. The linear model conceived of innovation5 In their paper, Cohen and Levinthal refer to information rather than knowledge. We have replaced information with knowledge here to8
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