The Social Value of Science and Innovation Investments and Sources of Breakthroughs.

• Author: Jones, Benjamin

Per capita income in the United States today is about 50 times greater than it was in 1820, and life expectancy is decades longer. Amidst these impressive gains, there is a broad appreciation that science and innovation--the discovery and implementation of new ways of doing things--is critical. Yet there is also substantial skepticism about the value of investments in research and development, including those in science. Many R&D investments fail to yield successful outcomes, whether in science or the marketplace. Most pharmaceutical development projects and new business ventures fail, most patents have little apparent market value, and most scientific research projects, even if they are published, receive very few citations.

Uncertainty about the value of R&D investments makes it difficult to answer fundamental questions about R&D policy, including the appropriate direction and scale of research spending. The US economy invests between 2 and 3 percent of GDP annually in R&D. Is that the right amount ? The economy now appears to be caught in a productivity growth slowdown. If innovation is key to productivity gains, can R&D policy accelerate the rate of progress? And how might we do this ?

Answering these questions is both important and challenging. A central difficulty is the issue of spillovers: the value of scientific and innovative outputs accrues not just to the original creator but in substantial part to others, including those who use, imitate, or build further upon the advance. Think of calculus, the internet, and the smartphone. Tracing streams of benefits to disparate parties, including future parties, is a fundamental challenge. So is selection. Studies of R&D sometimes compute returns by picking winners, assessing the value of R&D through the lens of developments like mRNA vaccines, or Moore's Law. Such studies show extremely high returns, while the return to R&D projects more generally may look very different, and be much lower. On the other hand, skeptical observers of science funding often pick losers, emphasizing the regular failures in R&D efforts. Think of Senator William Proxmire's Golden Fleece Awards, which pilloried public investment in frivolous research, or more recent criticisms of the US Department of Energy's $535 million in loan guarantees to Solyndra, a solar-panel maker that failed.

In a recent series of projects, my colleagues and I have been tracing the costs and benefits of R&D in a more comprehensive fashion and assessing the overall social returns to the R&D enterprise. This work builds in part on the availability of remarkable new datasets that provide increasingly detailed and wide-ranging views of scientific and innovative activity. Further, beyond "bottom-up" approaches from microdata, novel "top-down" measurement frameworks can help step past microdata limitations and elucidate macroeconomic implications. In this summary, I describe several recent studies that speak to the value and scale of scientific and innovative activities, and also consider new insights about key sources of...