Spend Smarter on R&D Before Spending More

by Reihan Salam

Brad Plumer of Vox is worried about the fact that large corporations are investing fewer resources in basic research, and then he frets about declining federal spending on research and development:

I’ve written before about the coming decline in federal spending on R&D – it’s set to stagnate in the years ahead thanks to budget caps imposed by Congress. When combined with the decline in corporate-funded science, it points to a potential stagnation in US basic research.

First, I’ll note that while it is literally true federal spending on R&D is set to grow at a more modest rate due to budget caps, these budget caps have been imposed in part because spending on health entitlements is set to rapidly increase as the U.S. population ages, and rising medical expenditures threaten to crowd out not just R&D spending but spending on a wide array of other priorities as well. The budget caps Plumer references didn’t appear out of thin air. Then there is the fact that raw spending totals aren’t really the most pressing issue.

In “The New American System,” Jim Manzi describes his own experiences at Bell Labs, one of those corporate R&D entities that Plumer looks back on so fondly, and he explains why this older model was eventually supplanted by what “trial-and-error innovation”:

The innovations that have driven the greatest economic value have not come from thinking through a chain of logic in a conference room, or simply “listening to our customers,” or taking guidance from analysts far removed from the problem. External analysis can be useful for rapidly coming up to speed on an unfamiliar topic, or for understanding a relatively static business environment. But analysts can only observe problems and solutions after the fact, when they can seek out categories, abstractions, and patterns. Our most successful innovations have come almost without exception from iterative collaboration with our customers to find new solutions to difficult problems that have come up during the course of business. At the creative frontier of the economy, and at the moment of innovation, insight is inseparable from action.

More generally, innovation in our time appears to be built upon the kind of trial-and-error learning that is mediated by markets. It involves producers and providers trying different approaches with relatively few limits on their freedom to experiment and consumers choosing freely among them in search of the best value. And it requires that we allow people to do things that might seem stupid to most informed observers — even though we know that most of these would-be innovators will in fact fail. This is an approach premised on epistemic humility. Because we are not sure we are right about very much, we should not unduly restrain experimentation.

Manzi acknowledges the important contribution of long-term public investment in R&D, which can serve as a foundation for innovative start-ups. Yet he also describes how poorly government-backed research bodies deploy their existing resources, which leads one to believe that simply increasing their budgets isn’t the smartest way to go. There are, thankfully, other ways to square the circle.