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The Myth of Under-provision of Science by the Free Market

Very nice piece by Anita Acavalos, writing for The Cobden Centre:

The Myth of Under-provision of Science by the Free Market

By Anita Acavalos, on 7 January 11

One of the recurring myths propagated by today’s mainstream economists is that scientific research requires government funding in order to give society the maximum contribution possible. They start from the correct argument that scientific research is a fundamental link in the chain leading to development, but arrive at the incorrect conclusion that due to its significance it necessitates government funding. This is due to the incorrect assumption that not enough research will be provided by the free market. However, this conclusion is based on faulty economic theory. The two biggest mistakes economists make when it comes to scientific research is that they assume that it is a so-called ‘public good’ and base their conclusions and analysis on a theory that neglects the role of the entrepreneur in this field. This paper aims to show that both of these arguments are wrong: not only is scientific research not a public good but also the entrepreneur, guided by profit and loss, is the most effective decision maker when it comes to the crucial questions of how much research is needed and how it should be provided. The fact that the entrepreneur works as a coordinator, guiding resources in their correct uses and making decisions about how scientific research should be carried out, makes the free market a much more efficient and effective provider of scientific research.

Economists widely hold that science is both non-excludable and non-rivalrous thus necessitating government funding. However, Terence Kealey, a scientist specializing in Clinical Biochemistry argues that in practice this is not so. This is because the cost of interpreting the ideas provided by science is not the same as ideas in other fields. Being able to use scientific research is not the same as copying a cooking recipe for instance (although some may argue even that is not perfectly replicable, as it depends on the skill of the cook). People are excluded from the benefits of theoretical science because of the fact that they are not all equipped with the necessary scientific background to understand it and be in a position to use it meaningfully.[1] I would argue this is analogous to wireless internet services which technically are non-excludable but can be made so with the use of a password. In the case of science this metaphorical password is the necessary training and academic achievement to become part of this scientific community. Moreover, in order to make important discoveries and get the benefit of access to other scientists’ research, scientists have to be published in order to build a reputation. Therefore, although ideas in science are not always exchanged for money, they are exchanged for other ideas. These ideas need to be provided freely by the scientist in order to increase his likelihood of gaining access to other scientist’s ideas that could further his work, thereby creating a pool of knowledge. Therefore, since people have had to incur a cost in order to be able to access this knowledge pool, Kealey defines science as an ‘invisible college good.’[2] Under this system scientific knowledge is used and distributed freely among scientists. Most advocates of patents say that this is problematic as scientists may have their ideas ‘scooped’ by others after publication and may not be able to reap the full profits from it. However, these people ignore that the first person to publish on a topic is the person to gain the academic credentials of this achievement. Also, by being the first person to make the discovery he gets to be the first person to profit from this discovery as it takes time for someone who scooped the idea to get to a point where he can produce something useful from it. However, even if we excluded this first mover advantage and assumed that replication of this person’s discovery was instant upon publication, he still benefits from this system. This is because although he incurs the risk of having his research scooped by someone else, he is more likely to in turn scoop someone else’s research as this free distribution system of science gives the scientist access to a greater pool of knowledge resources. This means that the speed by which scientists are able to adopt methods or ideas produced by other scientists and improve them in order to make greater profits in the area of applied research or improve their academic record in the area of theoretical research will be increased. After all, “technological progress is a gradual process, a chain of successive steps performed by long lines of men each of whom adds something to the accomplishments of his predecessors.”[3] Thus, we see that government funding is not necessary for science, as scientists have large benefits in terms of prestige and increased employment opportunities by publishing. Also there is no need for government protection of scientific discovery as the greater pool of knowledge emerging benefits all scientists alike and speeds up the implementation and development of new ideas.

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