University research, its role and funding structure Aldo Geuna SPRU-University of Sussex &...

University research, its role and funding structure

Aldo GeunaSPRU-University of Sussex

&Politecnico di Torino

Content

University research funding. Why do we have universities? Traditional rationale: Post-WWII

approach. Changing characteristics of university

research. New rationale: Contractual-oriented

approach.

University research funding

Growing % of GERD performed by HE (in OECD countries)

% of GERD performed by HE

1981 1991 2001 2002 2003

France 16.4 15.1 18.9 18.9 19.4

Germany 17.1 16.2 16.4 17.0 16.9

Italy 17.9 21.5 32.6 32.8 ..

Japan 17.6 17.5 14.5 13.9 13.7

UK 13.5 16.7 21.8 22.6 21.4

US 9.7 14.5 14.5 15.9 ..

EU-25 21.2* 21.4 .. ..

OECD 14.5 16.3 17.5 18.2 17.4

Source: Elaboration

OECD, Main Science and Technology Indicators, November 2004;

Vincent-Lancrin (2006);

*: 1992

% of GERD performed by HE

1991 1998 1999 2000 2001 2002 2003

Argentina 29.8 28.5 30.4 33.5 35.0 33.9 27.4

China 11.3 10.4 9.4 8.6 9.8 10.1 ..

Israel 22.6 21.2 19.5 15.7 15.9 16.1 17.1

Russian Fed 5.4 5.2 4.8 4.5 5.2 5.4 6.1

Singapore 27.3 26.3 25.6 23.9 23.6 25.4 ..

Taipei .. 11.3 11.7 12.2 12.5 12.3 ..

Source : OECD, Main Science and Technology Indicators, November 2004


Growing % of GERD performed by HE HERD growing as a percentage of GDP

HERD as % of GDP

1981 1991 2001 2002 2003

France 0.32 0.36 0.42 0.43 ..

Germany 0.38 0.41 0.41 0.43 0.43

Italy 0.16 0.26 0.36 .. ..

Japan 0.51 0.51 0.44 0.43 ..

UK 0.32 0.34 0.41 0.42 ..

US 0.39 0.39 0.40 0.42 0.44

EU-25 .. .. 0.39 .. ..

OECD 0.36 0.37 0.40 0.41 ..


HERD as % of GDP

1991 1998 1999 2000 2001 2002 2003

Argentina 0.13 0.12 0.14 0.15 0.15 0.13 0.11

China 0.08 0.07 0.08 0.09 0.11 0.12 ..

Israel 0.71 0.70 0.75 0.74 0.80 0.82 0.84

Russian Fed 0.06 0.05 0.05 0.05 0.06 0.07 0.08

Singapore 0.41 0.48 0.49 0.45 0.49 0.55 ..

Taipei .. 0.22 0.24 0.25 0.27 0.28 ..




Slowing growth (decreasing) % of HERD financed by industry; increase % of HERD financed by own funds, foundation and abroad (more diversified system).

HERD Source of Funds

HERD Source of Funds for and Aggregate of 7 EU Countries (%).

Total Gov. Business Abroad NPO HE 1983 94.0 2.9 0.6 1.5 1.1 1985 92.7 3.7 0.7 1.7 1.3 1989 89.9 5.4 1.4 2.1 1.2 1991 89.4 5.5 1.6 2.3 1.2 1993 87.7 5.8 2.5 2.7 1.4 1995 85.6 5.7 3.2 3.7 1.8 1997 85.2 6.4 3.2 3.6 1.6 1998 6.9 3.9 3.6

Source: Elaboration OECD data. The 7 countries are: Denmark, France, Germany, Italy, Ireland, The Netherlands and the UK.

F G I J UK US

1981 98 98 96 61 81 74 GOV 1992 93 92 93 52 70 67

2003 90 85 .. 51 65 68 1981 1 2 3 1 3 4

Business 1992 4 8 5 4 8 7 2003 3 13 .. 3 6 5 1981 0? ..? ..? 0 5 7

NPO 1992 0? ..? ..? 0 12 7 2003 0? ..? ..? 1 17 7 1981 1 .. 0 37 9 15

HE 1992 2 .. .. 44 5 18 2003 4 .. .. 46 4 19 1981 0 .. 1 0 2 ..

Abroad 1992 1 1 2 0 6 ,, 2003 2 2 .. 0 8 ,,

Source: Vincent_Lancrin 2006

HERD SOURCE OF FUNDS %



Slowing growth (decreasing) % of HERD financed by industry; increase % of HERD financed by own funds, foundation and abroad (more diversified system)

Switch from institutional core funding (GUF) to project-based funding (although not in Italy yet?)

From Grant to Direct Funding

GUF DGF1983 73% 27%1985 70% 30%1989 67% 33%1991 69% 31%1993 69% 31%1995 67% 33%1997 67% 33%

Source: Elaboration OECD data. The 7 countries are: Denmark, France, Germany, Italy, Ireland, The Netherlands and the UK.

F G* I J UK US

1981 46 20 .. 39 19 100 Direct 1992 51 .. 28 35 100 Gov. 2003 35 28 .. 22 43 100

1981 54 80 .. 61 81 ? GUF 1992 49 .. 72 65 ?

2003 65 72 .. 78 57 ?

From Grant to Direct Funding

University research funding: Main findings

Increasing importance of HE (University) research (relative and absolute).

Relative decrease in government funding (associated to an absolute increase from mid late 1990s, mainly direct funding).

More diversified sources (not only business!!).

Data problems!

Why do we have universities?

Changing roles of university

1. To reproduce and transmit existing knowledge (Paris).

2. To improve critical reasoning and other skills of individuals:(i) as input to their work (Bologna); (ii) to develop democratic, civilised society (Cambridge/Oxford).

Changing roles of university

3. To increase knowledge base: (i) by pursuing knowledge ‘for its own sake’; (ii) by developing useful knowledge. Berlin: the Humboldian university

4. To serve training and research support needs of economy (at regional and national levels).

The entrepreneurial university

Post-WWII Rationale

The post-1945 rationale

Public good

Linear process Budgetary expansion Academic quality increasing with funding

Ex-ante judgement of research promises Evaluation by academic community (peers)

Market-failure - Public good

Nelson (1959) and Arrow (1962) laid foundations of economics of science

Emphasised certain characteristics of scientific knowledge as a public good:

– non-rival – others can use the knowledge without detracting from the knowledge of the producers

– non-excludable – other firms cannot be stopped from using the information

MORE– expansibility - The possibilities of multiple transfers make it

possible to distribute information very widely without loss.=>– Non-appropriable at least completely (see patents).


=> Private benefits less than social benefits.

Also long timescale of basic research while firms usually have short-term investment perspective.

Social benefits also wider than private benefits– Firms would not have invested in research on e.g. smoking-

cancer link, ozone hole, global warming

=> Firms tend to under-invest in research (less than socially optimal – free riding)


To raise research funding to socially optimum level, government needs to invest.

Main product from govt-funded research = economically useful information, freely available to all.

By increasing funds for basic research, govt can expand the pool of economically useful information.

This information published – assumed to be durable and costless to use.

Close connection between university teaching and research means universities also produce graduates with up-to-date knowledge and skills.

Linear model

Scientific discoveries in early 20th Century & WW2 belief in linear model of innovation.

Basic research App. res. Devlpt Innovation.

Government responsibility = to fund basic research – will eventually wealth, health & nat. security.

Contract not very explicit re exact form of benefits nor when.

Used to justify substantial increases in gov’t funding. Viewed as investment in future welfare.

V Bush ‘Social Contract’: The endless frontier

Science also seen as inherently unpredictable (‘serendipity’), ex-ante judgment.

Scientists in best position to judge which research best to fund (peer review).

Essential characteristics of V Bush social contract– high level of autonomy – few strings attached– institutionalisation of peer review to allocate funds– belief that basic research best done in universities

Main funding mechanisms

Institutional core funding for universities (not US) – general university funding (GUF)

– block grant for teaching and research– allocated on incremental or formula basis – provides funding for research infrastructure (labs, equipments,

technicians, libraries etc.) – “the well found laboratory”

Project funding– for specific research projects – additional costs– proposals submitted – ‘responsive mode’– judged by peer review– funding decision by committee of scientists (often discipline-

based)

What about mission-oriented research?

Ignores university research funded by government departments and ‘mission-oriented’ agencies

– e.g. defence, health, energy, agriculture, space Areas chosen reflected political priorities - ‘demand-pull’

model– US – defence, space, health– Japan – agriculture, energy– UK – defence, aerospace– France – defence, nuclear energy

‘Mission-oriented research’ (cf. curiosity-oriented’)– very large funding (especially in US but also UK and F)– not just confined to technical universities

Changing characteristics of university research.

Changes in 1980s – 1990s

Driving forces– Economic problems (recession, inflation,1970s);– Growing costs of welfare state – health, education, social

security;– Liberal versus social-democratic views of government (new

public management; the EURO);– Globalisation and growing economic competition;– Growing importance of scientific and technological

knowledge – the ‘knowledge economy’;– ‘Massification’ of HE;– Growing cost of research;

Changing public research systems

Governments introduced new/revised policies:

– To enhance quality and efficiency of public research;

– To stimulate business investment in research;– To strengthen research links/collaboration

between public and private sectors;– To increase supply of QSEs;


– To adapt to needs of service sector (increasingly important in OECD countries);

– To achieve a target level of R&D spending (e.g. 3% in EU);

– To fund research in priority fields;– To stimulate public understanding/engagement.


Reforms aiming to make the contribution of public research systems more effectively to innovation (were they successful?):– Universities given increased autonomy and/or

transformed into quasi-private agencies (e.g. Italy, Japan, Denmark, Slovak Republic);

– Decreased reliance on block funding and more on competitive project funds;

– More emphasis on evaluation of HEIs and PROs (RAE early developed in the UK/NL);


– More emphasis on mobility of students and researchers;

– Encouragement to protect and exploit intellectual property (IP);

– Changes to IPR for universities and public research organisations (e.g. Germany, Denmark, Norway, Switzerland)

– Technology/knowledge transfer made formal ‘third mission’ of universities (e.g. UK, Denmark, Norway)

Growth in patents during 1990s although slowed since 2000

New rationale: Contractual-oriented approach

The contractual-oriented approach 1

Implementation:– Competitive mechanisms for resource allocation;

– Financial quasi-market incentives to steer university behaviour to meet societal needs and increase efficiency (GUF declined in relative terms, and in some cases e.g. UK, Australia now allocated on basis of performance see RAE);

– Policies to increase selectivity and concentration;


– Project-based funding increased in importance with a shift from responsive mode to directed programmes and to research linked to needs of ‘users’ (though decrease in recent years in UK);

– Growing emphasis on ex post evaluation;

– New government funding initiatives based on ‘challenges’ and competition e.g. Joint Infrastructure Fund (especially UK).


Implicit assumptions– Possible to evaluate quality of research output

reliably (is it? S&T indicators, ISI, citations, metrics);

– Possible to identify most promising research avenues (is it? Discussion on foresight);

– Costs can be reduced without sacrificing quality (is possible? teaching versus research);


– Due to existence of economies of scale and scope, concentration increases output of overall system (do they exist? At what level?);

– Admin and other costs associated with more competitive system are small cf. benefits.

The Entrepreneurial University

The entrepreneurial university: “The rhetoric”

A producer not only of knowledge but also of technology;

Working not only with but also for industry; Not any longer a non-for-profit public or semi-public

institution mainly financed by the state, but a private some times for profit (increasingly so) institution only partially supported by the government;

Active in the production and management of IPRs; Engine of growth at the local and national level.

The entrepreneurial university“the reality”

Does the entrepreneurial university exist? It is something new or a version of it always

been there?– Triple helix versus historical accounts,– University-owned versus university-invented

patents; The “rhetoric” model can exist? And can it

survive?– The university patenting example.

University patenting

Do they make money?

Do they transfer technology in a more efficient way?

Unintended effect of becoming technology producers and service sellers:

Do they make money?

Increased financial means (through increased licensing and royalty) that could be allocated on a discretionary base

– See the Cohen-Boyer Patents by Stanford;– See list of top earner in the US; BUT see OECD

survey and evidence from AUTUM of long tail with very few univ making money.

– UC net income from IPR is < 1% R&D budget.

The Cohen-Boyer PatentFeldman et al. (2005)

• Nonexclusive licence. •468 licensees – companies.• $254 millions of which 90% ($228) from royalties.•10 companies accounted for 77% of royalties ($197):

•Amagen $54.7•Lilly $36.6•Genentech $34.7•Schering $17.9•J&J $13.4•Merk $10.0

Licensing Revenue*:Licensing Revenue*: Fiscal Year 2001 Fiscal Year 2001

1 Columbia University $143,342,000

2 MIT $77,040,976

3 University of California System $72,899,000

4 Florida State University $62,077,749

5 Stanford University $41,167,000

6 Michigan State University $30,397,759

7 University of Rochester $29,589,000

8 University of Florida $28,683,282

9 University of Washington/WRF $26,446,297 10 New York University $25,691,655

University patenting

Do they transfer technology in a more efficient way?– Little evidence/support, Crespi, Geuna & Verspagen

(2006)

Unintended effect of becoming technology producers and service sellers:– Research Exemption– Increase in salaries of employees

Conclusions

Concluding remarks

The second (third) academic revolution or Brave new world and path to ruin? Humboldian university; Vannevar Bush’s “Science,The Endless Frontier” -

post WWII massive increase in university research funding;

Entrepreneurial university? What are the consequences of a move toward for-profit for

the governance of the university?

University research, its role and funding structure Aldo Geuna SPRU-University of Sussex &...

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