[Ip-health] Government R&D, Private Profits and the American Taxpayer

Jamie Love james.love at keionline.org
Wed Jul 1 02:05:28 PDT 2015


>From the article:

* -----------Still, the argument that the government has a stake in
innovation could be exploited further. At a minimum, why not embed rules
into federally funded discoveries to ensure that companies that profit from
these ideas reinvest some share of their profits into additional research,
rather than use it for stock buybacks? Taxpayers have a large,
unacknowledged role in the nation’s innovation. They deserve some credit.
And perhaps more, if that’s what it would take to power innovation’s future.
---------

Note that in early 1980s, the NIH required Bristol-Myers to fund roughly
$40 million in cancer research through non-profit research institutions, as
a condition to extending the term of exclusive rights to sell the cancer
drug cisplatin.  Shortly thereafter, Congress stripped the federal
government of the right to put such conditions on the term of exclusive
rights.

Jamie


http://www.nytimes.com/2015/05/27/business/giving-taxpayers-a-cut-when-government-rd-pays-off-for-industry.html

Government R&D, Private Profits and the American Taxpayer
MAY 26, 2015

Economic Scene
A column by Eduardo Porter that explores the world’s most urgent economic
challenges.

-------------
The SpaceX Dragon capsule launched earlier this month at Cape Canaveral.
SpaceX, a private company, "is free-riding on NASA technology," says
Mariana Mazzucato, an economics professor.

-----------


The Academy of Radiology Research has resorted to a creative tactic in a
bid to halt the decline in public funding for science: It showed Congress a
picture of how much the nation earns from the government’s research dollar.

Every $100 million invested in research by the National Institutes of
Health, according to the R&D consulting firm Battelle, generates almost six
patents. At the National Science Foundation $100 million generates more
than 10. At the National Institute of Biomedical Imaging and Bioengineering
— which finances research in radiology — it produces almost 25 patents. And
these patents sparked $578.2 million worth of additional R&D further
downstream.


Charles A. Haas, an engineer, inspects a model of the Telstar experimental
communications satellite at the Bell Telephone Company lab in 1962.Economic
Scene: American Innovation Lies on Weak FoundationMAY 19, 2015

A dam in Guanacaste Province, Costa Rica, drives a hydroelectric plant.
Developing nations will require large amounts of new energy to achieve
American and European living standards.Economic Scene: A Call to Look Past
Sustainable DevelopmentAPRIL 14, 2015

"N.I.H. research has helped lower the burden of disease, and people in both
parties recognize its importance," said Jonathan Lewin, chairman of the
department of radiology at Johns Hopkins University and head of the academy
of radiology. "We decided to look at the economic value of our research to
make the argument about this value, too."

----------------
SpaceX’s Dragon cargo capsule docked to the  Harmony module of the
International Space Station. SpaceX has profited from using NASA
technology. Photo Credit NASA
----------------

Radiologists hope this sort of analysis could help prioritize public
funding in a tight budget era: National Institutes of Health budgets are
almost 20 percent smaller than they were 10 years ago.

But beyond the narrow objective of allocating a shrinking budget, the
analysis offered by the radiologists raises another possibility to
consider. Taxpayer-financed research can generate large rewards down the
road. Perhaps the taxpayer could reap a share? In an era of tight budgets,
this could finance the research to power American innovation.

The argument has been made most forcefully by Mariana Mazzucato, a
professor of economics at the University of Sussex in Britain who
specializes in science and technology policy.

She argues that the distribution of risks and rewards in the American
economy looks nothing like the myth spun by free-marketeers, which posits a
nation populated by entrepreneurial risk-takers overcoming the obstacles
thrown up by an overbearing, bureaucratic state to produce the innovations
that spark economic growth.

Her book "The Entrepreneurial State," published in Britain in 2013, will
arrive in the United States this fall. In it, Professor Mazzucato notes
that government often takes the biggest risks, financing early scientific
breakthroughs and providing early support to companies and organizations
that will eventually become champions of innovation.

Science is, of course, a public good. It produces better health, first rate
universities and a robust economy supporting more jobs and tax revenues.
The government’s investment in basic research can be justified by these
social benefits. Private companies are unlikely to invest in such risky
projects, which at best offer a long shot at financial rewards many years
down the road.

But with tax rates falling and high technology companies becoming ever more
adept at avoiding taxes, a plausible argument can be made that American
taxpayers are being shortchanged.

"We must change the distribution of rewards to innovation," Professor
Mazzucato told me. "We socialize the risks but privatize the rewards." This
not only contributes to our persistently widening inequality, it undercuts
support for scientific discovery.

Had the government received an equity share in Tesla in exchange for
taxpayers’ financial support, for example, it might have paid for the
government’s failed investment in Solyndra.

Had it gotten even a minute stake in Google — whose search algorithm was
financed by the National Science Foundation — or in GPS, rocket
development, touch-screen technology or the many drugs that flowed from its
investment in basic science, the government might have a stable, richer pot
to finance the next generation of scientific discovery.

"SpaceX is free-riding on NASA technology," Ms. Mazzucato said.

It is easy to get this wrong, though. Experts in the economics of
innovation warn that sticking the government’s arm into the future in
search of profits flowing from its original research might actually slow
innovation.

A telling illustration of this risk comes from the competition to decode
the human genetic blueprint between the public Human Genome Project — which
put every gene it sequenced straight into the public domain — and the
private company Celera Genomics, which patented the genes it sequenced
first for up to two years.

Heidi Williams, an economist at the Massachusetts Institute of Technology,
found that there was substantially less subsequent research and product
development based on the genes sequenced by Celera than on genes
immediately put up for free public use. Had governments also patented their
discoveries, gene science could have been slowed substantially.

David Mowery, a professor at the Haas School of Business of the University
of California, Berkeley, raises another question: How can we disentangle
the government’s early contribution to a technological product down the
pipeline?

If the government became more like a venture capitalist — with a stake in
the profits of future technologies — might it not become, under political
pressure to avoid further Solyndras, as risk-averse as any other private
investor, unwilling to bet on the moonshots that might never yield a cent
but might also revolutionize our societies or our understanding of the
universe?

And while the Internet and GPS yielded huge rewards, Professor Mowery
points out that the experience of American universities commercializing the
fruits of their research suggests there may not be that much money there.

"The likely returns are very small relative to the scale of the need for
research funding," he told me. "There are great anecdotes but it may not be
sufficiently remunerative to justify the creation of what may be a
ponderous auditing apparatus."

And yet Professor Mazzucato’s proposal is worth pondering.

Demand for scientific breakthroughs, particularly in matters of great
public concern like climate science and health care, is as urgent as it has
ever been. And funding alternatives are scarce.

Andrew Lo, a professor of finance at M.I.T.’s Sloan School of Management,
has suggested dedicated funds to draw institutional investors into
supporting biomedical research.

Philanthropy is another option. Philanthropy contributes some $2 billion a
year to basic research — less than a tenth of the research budget of the
National Institutes of Health. But in five to 10 years, Marc Kastner,
president of the Science Philanthropy Alliance said, the alliance might
"make an impact of about that size."

Perhaps tweaking the rules on executive compensation — extending the
vesting period of options, say, if they are to be considered tax-preferred
performance-related pay — might encourage companies to take a longer-term
view on their investments, encouraging riskier research.

Still, the argument that the government has a stake in innovation could be
exploited further. At a minimum, why not embed rules into federally funded
discoveries to ensure that companies that profit from these ideas reinvest
some share of their profits into additional research, rather than use it
for stock buybacks?

Taxpayers have a large, unacknowledged role in the nation’s innovation.
They deserve some credit. And perhaps more, if that’s what it would take to
power innovation’s future.

Email: eporter at nytimes.com; Twitter: @portereduardo

A version of this article appears in print on May 27, 2015, on page B1 of
the New York edition with the headline: Public R&D, Private Profits and Us.

Economic Scene
A column by Eduardo Porter that explores the world’s most urgent economic
challenges.


-- 
James Love.  Knowledge Ecology International
http://www.keionline.org/donate.html
KEI DC tel: +1.202.332.2670, US Mobile: +1.202.361.3040, Geneva Mobile:
+41.76.413.6584, twitter.com/jamie_love



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