Universities are failing to boost economic growth

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Universities are failing to boost economic growth

The Economist | Fe 5, 2024

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Universities have boomed in recent decades. Higher-education institutions across the world now employ in the order of 15m researchers, up from 4m in 1980. These workers produce five times the number of papers each year. Governments have ramped up spending on the sector. The justification for this rapid expansion has, in part, followed sound economic principles. Universities are supposed to produce intellectual and scientific breakthroughs that can be employed by businesses, the government and regular folk. Such ideas are placed in the public domain, available to all. In theory, therefore, universities should be an excellent source of productivity growth.  In practice, however, the great expansion of higher education has coincided with a productivity slowdown. 

To see why, turn to history. In the post-war period higher education played a modest role in innovation. Businesses had more responsibility for achieving scientific breakthroughs: in America during the 1950s they spent four times as much on research as universities. Giant corporate labs emerged in part because of tough anti-monopoly laws. These often made it difficult for a firm to acquire another firm’s inventions by buying them. So businesses had little choice but to develop ideas themselves. The golden age of the corporate lab then came to an end when competition policy loosened in the 1970s and 1980s. At the same time, growth in university research convinced many bosses that they no longer needed to spend money on their own. Today only a few firms, in big tech and pharma, offer anything comparable to the DuPonts of the past.

The new paper by Mr Arora and his colleagues, as well as one from 2019 with a slightly different group of authors, makes a subtle but devastating suggestion: that when it came to delivering productivity gains, the old, big-business model of science worked better than the new, university-led one. 

Why do companies struggle to use ideas produced by universities? The loss of the corporate lab is one part of the answer. Such institutions were home to a lively mixture of thinkers and doers. In the 1940s Bell Labs had the interdisciplinary team of chemists, metallurgists and physicists necessary to solve the overlapping theoretical and practical problems associated with developing the transistor. That cross-cutting expertise is now largely gone. Another part of the answer concerns universities. Free from the demands of corporate overlords, research focuses more on satisfying geeks’ curiosity or boosting citation counts than it does on finding breakthroughs that will change the world or make money.

At some point, though, governments will need to ask themselves hard questions. In a world of weak economic growth, lavish public support for universities may come to seem an unjustifiable luxury.

3 key takeaways from the article

1. Universities have boomed in recent decades. Universities are supposed to produce intellectual and scientific breakthroughs that can be employed by businesses, the government and regular folk leading to productivity growth, in theory.  In practice, however, the great expansion of higher education has coincided with a productivity slowdown. 
2. In the post-war period higher education played a modest role in innovation. Businesses had more responsibility for achieving scientific breakthroughs: in America during the 1950s they spent four times as much on research as universities. Giant corporate labs emerged in part because of tough anti-monopoly laws.  So according to a recent confirmatory study when it came to delivering productivity gains, the old, big-business model of science worked better than the new, university-led one. 
3. Why do companies struggle to use ideas produced by universities? The loss of the corporate lab is one part of the answer. Such institutions were home to a lively mixture of thinkers and doers.

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Topics:  Universities, Research, Patents, Innovation, Productivity