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Innovation: The Need for Government-Funded Basic Research
In 2019, the Chinese government announced the allocation of a $21 billion fund devoted to funding research for advanced manufacturing, new materials, information technology, and electrical equipment. It is part of China’s “Made in China 2025” plan to dominate technology.
While the US government invests in basic research, the way it invests is far less coordinated than the approach in China, and when compared with other countries like Israel, Japan, South Korea and Finland, the US is trailing in research investment as a percent of the total economy.
Is there a need for the US to worry? Is it the right thing for the US government to be involved with investing in basic research, and if so, do we need to up our game in order to better compete globally?
Most economists believe that leaving basic research up to the private sector won’t work. The problem is that often large investments are needed and the returns are risky.
Mariana Mazzucato, professor of economics at the University College London, commented that “public sector agencies have been needed to provide the patient, long-term, committed finance that uncertain innovation with long-time horizons requires… The investments that led to important innovations occurred irrespective of the business cycle. This is important because it is often believed that we simply need government to pull us out of the recession, with no real theory of government’s role in also driving the boom.”
Mazzucato wrote for the New Scientist that “recognizing the state as a lead risk-taker, and enabling it to reap a reward, will not only make the innovation system stronger, it will also spread the profits of growth more fairly. This will ensure that education, health and transport can benefit from state investments in innovation, instead of just the small number of people who see themselves as wealth creators, while relying increasingly on the courageous, entrepreneurial state.
