Stop valorizing public research
Our society faces significant challenges, including the energy transition and the increasing worldwide shortage of water. An important enabler for tackling these challenges is productivity growth. Yet, that factor has been a miserly 1-1.5 percent over the past decades in the developed world, significantly lower than the 4 percent in the decades after World War II. Economists have been racking their brains over why significant innovations, especially in IT, haven’t led to a high productivity growth rate.
A recent article in The Economist points to a rather unsuspected culprit: massive public funding of universities and research institutions. The piece is based on extensive work by a group of researchers from Duke University and the National Bureau of Economic Research in the US. They conclude that the only positive effect of universities comes from the people trained there: they enhance innovation in firms. Inventions paid for by public money are found to lead to fewer innovations by corporate labs and reduce internal corporate research, two very important sources of economy-wide productivity gains. Hence, the staggering growth of universities over the past decades didn’t result in notable increases in productivity.
This effect of public research on corporate inventiveness may reflect the competition corporate R&D entities experience from startups that commercialize university inventions, the researchers note. However, especially in deep tech and med-tech, startups have nowhere near the capabilities in cross-disciplinary R&D, engineering and productization that corporate R&D organizations (used to) have. Their impact on productivity growth can be expected to be rather limited.
The Netherlands is a case in point. Over the past decades, I’ve seen the dominant labs of Shell, Unilever, Akzo, Philips, Organon, PTT (KPN) and DSM wither away. I’ve been directly involved in the innovation powerhouses of Philips’ Natlab and the Philips spinoffs FEI (now Thermo Fischer) and ASML and witnessed their commercial savvy and impact. And I’m well immersed in the world of deep tech and med-tech startups. Hardworking and very focused on the killer application, they’re unable to fill the void left by the corporate R&D organizations. They tend to miss the broad, embedded R&D skills needed to bring innovations to market, such as establishing a solid system architecture, assessing the critical parts of the design, risk assessment and mitigation planning, setting up the critical path of development, designing for manufacturability and serviceability, and so on.
Can we go back to stronger corporate labs and higher productivity growth? In light of the results of the study, several options come to mind. First, recognize our technology-driven companies to be important contributors to societal well-being, and work with them to improve their (technological) ecosystem. Second, invest in universities to deliver excellent professionals for corporate labs. This also means attracting foreign talent with courses in English. Denmark recently made this a priority. Third, and very importantly, stop valorizing public research.
Looking at the Dutch National Growth Strategy from this perspective, I can see some areas of further focus for it to have an impact: omit the priority areas that lack a sizeable Dutch corporate champion to deploy them on a significant scale, like integrated photonics or quantum technologies; use government funds to assist indirectly in upscaling new technologies by enabling companies in doing so, not by investing directly into upscaling facilities and market access; and lastly, stop valorizing the outcomes of university research.
