YOUuniversities have has boomed in recent decades. Higher education institutions around the world now employ approximately 15 million researchers, up from 4 million in 1980. These employees produce five times as many articles annually. Governments have increased spending on the sector. The justification for this rapid expansion is partly based on sound economic principles. Universities are supposed to achieve intellectual and scientific breakthroughs that can be used by companies, the government and ordinary people. Such ideas are placed in the public domain and available to everyone. In theory, universities should therefore be an excellent source of productivity growth.
In practice, however, the major expansion of higher education coincides with a productivity slowdown. While in the 1950s and 1960s the hourly output of workers in the rich world rose 4% per year, in the decade before the Covid-19 pandemic 1% per year was the norm. Even with the wave of innovation in artificial intelligence (ah), productivity growth remains weak – less than 1% per year, according to a rough estimate – which is bad news for economic growth. A new paper by Ashish Arora, Sharon Belenzon, Larisa C. Cioaca, Lia Sheer and Hansen Zhang, five economists, suggests that the blistering growth of universities and the stagnant productivity of the rich world may be two sides of the same coin.
To see why, turn to history. In the post-war period, higher education played a modest role in innovation. Companies had a greater responsibility for achieving scientific breakthroughs: in America they spent four times as much on research as universities in the 1950s. Companies like bee&T, a telecom company, and General Electric, an energy company, were as scientific as they were profitable. In the 1960s, research and development (R&D) unit of DuPont, a chemical company, published more articles in the Journal of the American Chemical Society than the Massachusetts Institute of Technology and Caltech combined. About ten people did research at Bell Labs, once part of bee&Tfor which they won Nobel Prizes.
Large corporate laboratories emerged partly as a result of strict anti-monopoly laws. These often made it difficult for one company to acquire another company’s inventions by purchasing them. Companies therefore had little choice but to develop ideas themselves. The golden age of the corporate lab came to an end when competition policies relaxed in the 1970s and 1980s. At the same time, the growth of university research convinced many bosses that they no longer needed to spend money themselves. Today, only a few companies, in the big tech and pharmaceutical sectors, offer anything comparable to the DuPonts of the past.
The new paper by Mr. Arora and his colleagues, as well as a 2019 paper with a slightly different group of authors, makes a subtle but devastating suggestion: that when it came to realizing productivity gains, the old, big-business model of science was working . better than the new university-led one. The authors draw on a huge range of data, covering everything from censuses to PHDs for quotation analysis. To identify a causal link between public science and business R&Dthey use a complex methodology that analyzes changes in federal budgets. Broadly speaking, they believe that scientific breakthroughs from public institutions have “evoked little or no response from established companies” for a number of years. A technician in a university laboratory might publish brilliant article after brilliant article, pushing the boundaries of a discipline. However, this often has no impact on companies’ own publications, their patents or the number of scientists they employ, with the exception of the life sciences. And this in turn indicates a small impact on productivity across the economy.
Why do companies struggle to use ideas from universities? The loss of the company lab is part of the answer. Such institutions were home to a vibrant mix of thinkers and doers. In the 1940s, Bell Labs had the interdisciplinary team of chemists, metallurgists, and physicists needed to solve the overlapping theoretical and practical problems associated with the development of the transistor. That transversal expertise has now largely disappeared. Another part of the answer concerns universities. Freed from the demands of corporate executives, research focuses more on satisfying nerds’ curiosity or increasing citations than on finding breakthroughs that will change the world or make money. In moderation, research for research’s sake is not a bad thing; some breakthrough technologies, such as penicillin, were discovered almost by accident. But when everyone argues about how many angels are dancing on the head of a pin, the economy suffers.
When higher education institutions produce work that is more relevant to the real world, the consequences are disturbing. As universities produce more freshly minted PHD graduates, companies seem to find it easier to come up with new things, the authors find. Yet university patents have a compensating effect, causing companies to produce fewer patents themselves. It is possible that established companies, concerned about competition from university spin-offs, will cut back R&D in that area. While no one knows for sure how these opposing effects balance out, the authors point to a net decline in the number of corporate patents of about 1.5% per year. In other words, the enormous budgetary resources spent on public science are likely to make companies in the rich world less innovative.
If you’re so smart, why aren’t you rich?
Perhaps over time, universities and industry will work together more profitably. Tougher competition policies could force companies to behave a little more like they did in the post-war period and strengthen their internal scrutiny. And researchers from industry, rather than universities, are the driving force behind the current generation ah innovation boom: in some cases the company lab has already risen from the ashes. But at some point governments will have to ask themselves hard questions. In a world of weak economic growth, abundant public support for universities can seem like an unjustifiable luxury. ■