Testimony on SB 580

Steve BucksteinBefore the Senate Business, Transportation and Workforce Development Committee

on the establishment of signature research centers

Good afternoon Chair Metsger and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a public policy research organization based in Portland.

Directing the Oregon Innovation Council to establish signature research centers is poor public policy because politics is simply an inferior way to decide what should be researched and who should fund that research. I’ve given you some examples of spectacular government research failures, and some sources discussing how basic research done by private firms correlates better with economic growth than does government funded research.

Government-funded research relies on the wrong incentives. I know that the Oregon Innovation Council members are bright people, but they’ll be using other people’s money to fund research they hope will succeed. They won’t lose any personal funds if their projects fail, and they won’t directly benefit financially if their projects succeed. Human nature being what it is, they simply have less incentive to get it right than their counterparts in the private sector.

Determining what innovations will help our economy thrive should be a function of science and economics, not politics. I’m reminded of another hearing in this building, back in July of 1995. The House Interim Task Force on Light Rail heard from some national experts who were skeptical that Portland area light rail could deliver on its promises. University of Southern California economist James Moore testified that a better and much cheaper alternative to reduce congestion would be to use innovative new transponders to enable “congestion pricing.”

The professor made a convincing scientific case, but he was brought back to the reality of the situation when Task Force Co-Chair Neil Goldschmidt told him, ”Professor, the technology is way ahead of the politics here.” I’m afraid the same problem is with us today; technological innovation is moving faster and faster, but our political system is not well suited to rapid change, and the two simply don’t go well together.

No matter how hard the Oregon Innovation Council tries to facilitate the development of new technologies, it’s still a political animal. It won’t be as nimble as scientists, entrepreneurs and investors risking their own funds.

Rather than create new government-sponsored research centers, the legislature could help Oregon’s economy more by removing political barriers that keep innovation from occurring here naturally. Reduce income and capital gains taxes. Remove other barriers to entry so that innovators will want to come to Oregon and investors will want to fund them. These moves will likely benefit Oregonians more than any targeted political moves like the ones you’re considering here today.

Thank you for the opportunity to testify before you today. I’ll be glad to answer any questions.

Government-funded research has had its share of spectacular failures:

  • The U.S. Synthetic Fuels Program expended about $2 billion between 1970 and 1984.
  • In 1980 the US Agency for International Development began directing over $60 million to help find a vaccine for malaria. More than 20 years later we’re still waiting for a vaccine to materialize.

Sources on the economic impact of basic research, and on why it can be performed more successfully in the private sector than through government:

  • Griliches, Zvi, “Productivity, Research-and-Development, and the Data Constraint,” American Economic Review 84 (1): 1-23 Mar 1994
  • Kealey, Terence, “The Economic Laws of Scientific Research.” St. Martins Press, 2005 (Kealey argues that the free market approach rather than that of state funding has proved by far the most successful in stimulating science and innovation.)
  • Kealey, Terence, “End Government Science Funding,” Cato Institute, April 11, 1997, (Includes mention of Harvard economist Zvi Griliches’s study of 911 large American companies which finds that the firms engaged in basic research consistently outperformed those that neglected it.)

Basic discussion of why government econmic development programs underperform:

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