Private Funding of Science?

According to textbook economics, government funding is crucial to scientific progress and technological innovation.  The reasoning is that pure science (e.g., the structure of DNA) underlies most applied science (e.g., genetic testing).  Pure science, however, is easily copied once discovered, so it cannot earn significant profits. Private actors therefore underinvest in pure science, and applied science suffers. In economics lingo, pure science is a public good because knowledge is non-excludable.

This perspective is reasonable but hardly decisive. Government funding suffers bureaucratic inefficiences and risks politicization of the nation’s research agenda (e.g., an excessive focus on defense research). And even if some role for government makes sense, the right amount is hard to gauge; no evidence shows that current amounts are insufficient.

In addition, the textbook argument assumes that private actors will not fund basic research. Yet as this New York Times piece documents, private actors contribute mightily to scientific research:

Paul G. Allen, a co-founder of Microsoft, .. set up a brain science institute in Seattle, to which he donated $500 million, and Fred Kavli, a technology and real estate billionaire, … then established brain institutes at Yale, Columbia and the University of California. …

The new philanthropists represent the breadth of American business, people like Michael R. Bloomberg, the former New York mayor (and founder of the media company that bears his name), James Simons (hedge funds) and David H. Koch (oil and chemicals), among hundreds of wealthy donors. Especially prominent, though, are some of the boldest-face names of the tech world, among them Bill Gates (Microsoft), Eric E. Schmidt (Google) and Lawrence J. Ellison (Oracle). 

So far, Mr. Ellison, listed by Forbes magazine as the world’s fifth-richest man, has donated about half a billion dollars to science. …

The philanthropists’ projects are as diverse as the careers that built their fortunes. George P. Mitchell, considered the father of the drilling process for oil and gas known as fracking, has given about $360 million to fields like particle physics, sustainable development and astronomy — including $35 million for the Giant Magellan Telescope, now being built by a private consortium for installation atop a mountain in Chile. …

Eli Broad, who earned his money in housing and insurance, donated $700 million for a venture between Harvard and the Massachusetts Institute of Technology to explore the genetic basis of disease. Gordon Moore of Intel has spent $850 million on research in physics, biology, the environment and astronomy. The investor Ronald O. Perelman, among other donations, gave more than $30 million to study women’s cancers — money that led to Herceptin, a breakthrough drug for certain kinds of breast cancer. Nathan P. Myhrvold, a former chief technology officer at Microsoft, has spent heavily on uncovering fossil remains of Tyrannosaurus rex, and Ray Dalio, founder of Bridgewater Associates, a hedge fund, has lent his mega-yacht to hunts for the elusive giant squid. 

Whether a role remains for government funding is not clear; perhaps the projects funded by private investors will not address the breadth of important questions in basic science.

And government funding has undoubtedly supported huge amounts of valuable research; that is not in dispute, only whether the research would have occurred even without government.

The wealth of private funding nevertheless suggests that outrage over cuts to science budgets is misguided. The private sector will fill much, perhaps all, of the gap.