When studying the economics of STEM, it is important to understand the distinctions economists make between science and technology. In their vernacular, science is the act of discovery – the investment – while technology is the application of science as a product that has economic potential. The entrepreneur is the agent that then brings this investment to the point of economic viability. This entrepreneurial process is then core to all economic policies surrounding science – invest in basic science research, make gains on its technological output.
The economic output of a country was traditionally tied to the quality of quantity of its capital or labor. In 1957, Robert Solow tried to model the American economy’s growth, and found about a third of the total economic productivity could not be attributed to either capital or labor – instead it could be accounted for by the technological advances and efficient allocation of resources the nation had made. This, alongside major political events centered around scientific dominance like the space race and the cold war, became a catalyst for science to move from a societal benefit to a national imperative, and funding for science and technology research became an investment strategy instead of a transaction.
Science and Tech Development as a Mechanism of Economic Competitiveness
10% of grants through the NIH generate patents, and the number of patents that acknowledge government support are increasing. This follows after Vannevar Bush’s push for a federal investment in science so that the US could cultivate a workforce capable of producing “…new products, new industries, and more jobs…new and improved weapons”. The increase in patents that cite federal funding continued to increase, even as federal funding decreased in GDP percentage.
In 2017, for example, the Department of Defense (including the armed services) supported 6.2% of the total of U.S. inventions, HHS 5.4%, Department of Energy 3.9%, National Science Foundation 2.9%, NASA 1.0%, and Department of Agriculture 0.50% (others 5.5% and unspecified 2.5%;
There is, however, a considerable debate on the usefulness of patents. While they help the funders recoup costs of developing the innovation, they also impede the uptake of the technology on a community level. For those who are opposed to patent-based metrics, a look at research funding rates might be a better option.
Federal funds in 2016 covered 54% of academic research grant sources, on the decline from 64% in 2004. This is suspected to be due to the increased competitiveness of federal grants, and researchers opting for ‘easier’ funding sources. In it’s stead, private funding of academic research has been on the rise, through there are some considerations to be made for this privatization of research. This is a trend that can be seen globally, with private funding rising in the US as well as Denmark and Canada.
Maintaining, or even better – increasing, federal funds is an important factor in economic competitiveness on the global scale. Federal research increases the likelihood that new industries will locate in that country and provide jobs and productivity spillovers to other industries. Specifically, a 10% investment in federally funded R&D generates an additional 4.3% from private firms looking to adapt the innovation for themselves.
STEM Foresight :
How to determine what the future looks like
Federal resources aren’t infinite, and therefore the funding provided to research has to be allocated in the most optimal way possible. This attempting to guess the future, known as foresight analysis, can be done in a variety of ways.
The oldest foresight technique, and arguably the most popular, is the Delphi Method. Developed in the 1940s, the method involves collecting subject matter experts and having them fill out an anonymous questionnaire in which the experts are asked to predict trends and potential timelines for their field for the next 20-30 years. Once the questionnaires are complete, the predictions from all the experts are aggregated and they are asked to rank the importance of each trend, and provide a degree of uncertainty for it’s realization along with the reasons for their opinion. The accuracy of the Delphi Method varies wildly, with only a small fractions of predicted trends actually coming about. A modified version of the Delphi method has been suggested to improve research grant success, but it has not been implemented at a large scale.
The vast majority of US Federal Agencies use Horizon Scanning techniques. Horizon Scanning is the method by which experts look for ‘signals of things to come’. This foresight technique is much shorter term than the Delphi method, looking at the next 2-5 years. It is done by analyzing the research landscape for the precursors of a research boom – a sudden flurry of publications in a small, niche field, a looming crisis – and estimating what could come from it (Horizon 2). The primary purpose of horizon scanning is to help prepare for a near term future by diverting funds in anticipation of it’s impact.
Lastly, Backcasting, also referred to as Trend Impact Analysis, take the opposite approach. While the first two techniques discussed look into the future, aka forecasting, backcasting looks the other director. In this method the participants attempt to predict the steps required to reach a predetermined goal. This type of foresight study is typically used when trying to resolve enormous looming crises that might take decades or centuries to resolve, like climate change, urban planning, or the UN’s Sustainable Development Goals. This technique requires a significant knowledge of how previous crises were resolved and extrapolating them, and emerging technology, into policy decisions. One of the major flaws of this historical lens is that it ignores the possibility of any unexpected events – it is a ‘surprise free’ forecasting model and therefore subject to significant deviations over time.
If you want to try your hand at predicting the future, try the Foresight Activities provided by Proposal Analytics Inc. This activity will help you estimate where your field is headed, what topics will see an increase in funding, and more.
Innovation Policy
Investment in innovation have been directly linked to economic prosperity of a nation – for example a 10% increase in broadband infrastructure resulted in a 1.2+% increase in the country’s GDP. This type of investment doesn’t only have immediate implications for its populace, it also foreshadows increases in job creation, education and long-term quality of life growth. This idea that investments can propagate social and economic improvements for decades to come is the core theory behind innovation policies.
This is different from traditional economic policies because they are not focused on the trading of objects, but the potential of actions. These policies will have no immediate payoff, which often makes them unpopular, especially with the increasingly short timeframe of policy focus. Instead of rapid but small returns on investment, innovation policy is focused specifically on the building of spaces and institutions in which individuals can develop new technologies by funding the basic science and infrastructure they need to do so.
It is a much slower economic investment – typically innovation policies have significant upfront costs – but with immense potential gains decades in the future. The academic grant structure is a fundamental example of innovation policies – large sums are invested in initiatives on the hope that they result in future economic gain, as well as quality of life and capacity increases that can’t be measured in market transactions. And while many do not yield significant economic advantages, the occasional few that do create disruptive technologies can end up making many-fold the original investment.
If you want to try your hand at innovation policy Nesta created a free to download game called Innovation! where you can try to solve problems like air pollution, public health or data ownership ethics by enacting policies. There’s even a blank deck if you want to come up with your own theme
Equity, Diversity, and Inclusion and the Science Workforce
Intrinsically tied to innovation policies is the investment in the nation’s populace. Increasing quality of education and removing barriers to graduation help a nation respond to the impacts of recessions, as well as increase the country’s potential for economic growth. The value of human capital is estimated to be 62% of total wealth on the planet. This idea that investments in education produce economic growth is know as the Human Capital Theory, first formulated by Adam Smith in his book The Wealth of Nations and later elaborated by Gary Becker.
This 62% estimate is based on the potential economic capability of all people being educated, and therefore education initiatives aimed at the introduction and retention of women and underrepresented minorities into the STEM fields are a matter of national economic policy as much as equity. It has been demonstrated that a diverse workforce makes businesses more productive, enhances educational outcomes in the classroom, and produces higher quality and more innovative science.