V-P_28Mar02

Reprinted with the permission of the author and Today's Life Science (http://www.vLIFEScience.com.au) March/April 2002 pp.22-24.

Why government should invest public money in science and technology? This article looks at some of the potential benefits in supporting this.

Major statements on initiatives in science and technology from both sides of politics saw for the first time in living memory science become a major theme of the 2001 election campaign. The Government launched Backing Australia's Ability earlier in the year, and the Labor Party responded with the memorable Knowledge Nation (in which the unfortunate spaghetti and meatballs diagram dominated the meat of the message). With both sides seemingly recognising that investment in science and technology is important, this paper looks at the benefits, both tangible and intangible that such public investment in science and technology can bring to a nation, and looks at the question - 'Why should government invest public money in science and technology?'

The potential benefits to the nation from supporting public sector science and technology research can be distilled into three major groups:

3. Global marketplace benefits - strengthened national economic competitiveness.

The existence of a direct relationship between science and technology expenditure and social and economic development is widely acknowledged. Figure 1 shows a simplified diagram of the process for basic research to financial returns.

Although the inputs can be relatively easily captured, quantifying the pay-offs is not straightforward. A major complicating factor is the time between the initial investment in basic research and the economic benefit.

The most widely adopted methods to analyse direct benefits are traditional accounting techniques such as benefit-cost ratio (BCR) analysis and return on investment. A simplified benefit-cost analysis for basic research in science and technology can be carried out by comparing revenue arising from outputs (if it is quantifiable) with the cost of the research and development inputs. Realistically, this is most easily done with any accuracy at the individual applied project level. An example of this analysis comes from the South Australian Research and Development Institute (SARDI) (Table 1).

SARDI project	Benefit-cost ratio	Return on investment (ROI)
Potato variety improvement program, 1982-95	5.4	49%
Use of fungicides to control Pink Rot in potatoes	77	2095%
SARDI Apricot Breeding Program from 1983 to 2004	9.9	22.5%

There is data which indicate that the BCR from individual projects can be as high as 700, but more generally a conservative estimate would seem to be around 10 to 50. For example, benefit-cost analyses show as much as a $14 health-care payoff for each $1 spent on vaccines [2].

Nadiri examined 63 studies of the return on investment in science and technology research, and concluded that research results in a 20% - 30% annual return on private (industrial) investments [3].

However, it is difficult to calculate direct rates of return on many research projects due mainly to the large time lags needed to achieve measurable benefits. The more basic the research, the longer the time lag, and consequently the harder it is to evaluate the direct returns.

Despite the complexities involved, it is clear that there are two rates of return on investment in basic and applied research: the private rate of return, which is based on the expenses incurred and profits made by the organisation conducting the research, and the social rate of return, which is based on the overall effects on society, including the organisation conducting the research. It is widely agreed that the social rate of return may be much higher than the private rate of return. The Chief Scientist's Report, A Chance To Change, estimated that the private rate of return on R&D investments is 7% - 43%, and of the social rate of return is 123% - 170% per annum.

The reason for the social rate of return generally being much higher than the private rate of return derives from the extent of the second category of benefits - spillover benefits.

There are four types of spillover benefits which can be derived from basic research:

Increased length and quality of life -- In terms of return on investment for publicly funded research, perhaps the most straightforward basis to use for such calculations is the value of extending or improving the quality of human life as a result of advances in medical research. A study by Funding First found that increases in life expectancy in the 1970s and 1980s were worth $57 trillion to the American economy [4]. The study concluded that the payoff from any plausible 'portfolio' of investments in research is enormous. Some examples used in this study included the discovery and use of lithium for the treatment of manic depressive illness (an Australian discovery), and a research program, which invested $56 million in research on testicular cancer led to a 91% cure rate and an annual savings of $166 million.
Another example that could have been used is the discovery by the West Australian researcher, Dr Barry Marshall of the link between Helicobacter pylori and gastric ulcers. This Australian discovery has led to a world-wide revolution in peptic ulcer therapy. The resulting diagnostic and therapeutic products have developed into a multi-billion dollar industry. The aim is now global eradication of the Helicobacter bacterium, and this is possible as a result of an 'obscure' research project, the input costs of which were minuscule.
Funding First concluded, "It is ... enormously cheaper to fund biomedical research than to support the costs of health care!" [5]

Improved environmental management -- Fundamental research is essential to overcome key environmental challenges such as chemical and noise pollution; use of non-renewable resources (forest, water) etc; ozone depletion; deteriorating water quality; salinity; dependence on fossil fuels; and inefficient energy consumption. An interesting example is from Cris dos Remedios at Sydney University who studied the interactions between two proteins, actin and cofilin. From this ARC-supported research the idea arose that this interaction could be used to develop a molecular device for detecting environmental water pollution. This resulted in a provisional US patent, a commercial partner (Hazard Screen) and a grant from Hermon Slade Foundation to develop a commercial device [6].

Increased employment -- The overall relationship between investment in research and employment is indirect and very difficult to track and quantify [7]. However, investment in basic research in science and technology produces high value employment opportunities in two ways. First, investment in research directly supports tens of thousands of skilled jobs at universities, academic medical centres and companies large and small across Australia, and indirectly many thousands of jobs in support industries.
Second, many times more high value jobs are created indirectly, through the support of traditional industries and the establishment of new technology-based industries. Each of these jobs in turn creates jobs in service industries. One of many recent examples is the story of Proteome Systems Ltd (PSL). In the early 1980s, Keith Williams' group at Macquarie University was funded by the ARC and NHMRC to study the developmental biology of the obscure but interesting slime mould, Dictyostelium. Out of this came a technology focus on scientific instruments and procedures for analysing minute quantities of proteins. Partnerships with various corporations in both Australia and overseas were entered into. In January 1999, PSL was established in Sydney. PSL currently employs 34 people approximately half of whom have PhDs.
As a side issue, Australia is responsible for contributing a new word to the international scientific lexicon - 'proteomics'. Proteomics was first coined by the Macquarie University group to encompass the technology and techniques of micro protein characterisation [8].

Enhanced scientific and technological expertise -- Public support for fundamental research provides a pool of expertise, which leads to the following benefits:

The third category of benefits deriving from investment in basic research is a mixture of both direct benefits and spillover benefits, where the beneficiaries are the nation's established and new industries. Improvements in industry efficiency, productivity and innovation are vital to a nation's economic competitiveness. Without the basic research pipeline of innovation, such competitiveness, and the advantages it brings to society, would wither and die. There is evidence that companies that give the highest returns on the US stock market are those that cite public science most often in their patent applications [9]. This indicates that basic science is crucial to economic advancement. The economic development and the increase of per capita GNP have been much higher in the 50 countries investing in R&D compared to the 130 countries that do not invest in R&D [10]. Investment in research is thus a vital source of international competitive economic advantage. There are three types of industries where fundamental research can act as a source of competitive advantage:

Industries based on new and emerging technologies. In particular, three technology areas are seen as having an enormous impact on the future of society: information technology, biotechnology and nanotechnology. Each of these draws upon fundamental discoveries made in a range of disciplines for progress and development [11]. An example is Gene Shears. In 1986, CSIRO scientists Jim Haseloff and Wayne Gerlach discovered "hammerhead ribozymes" that could selectively cut out sections of DNA. Initially, this technology was only used on viruses, but it is now seen as a very powerful tool against any gene that codes for a harmful or undesirable characteristic in any organism. The technique has multiple uses in many areas of genetic research, including agriculture, the environment and in medicine.

Industries which are expanding and creating good growth prospects. These industries benefit from commercialising innovative products or processes with good market prospects, or which allow reduced manufacturing costs. An example of an Australian innovation which has global industrial application is the Cochlear implant - a revolutionary hearing aid. About 1 million Australians, and 120 million people around the world have some degree of hearing loss. Of those, 2% are profoundly deaf, and more than 5% are severely deaf. More than 24,000 severely deaf or profoundly deaf people in 50 countries have received a cochlear implant. They owe their new hearing to technology first developed by Australian scientist Professor Graeme Clark and his colleagues at the University of Melbourne in the late 1960s and 1970s [12]. Cochlear Limited is now a listed public company with substantial revenue.

Mature industries which can and must become more competitive. Technology is used in these industries to increase productivity or quality and/or to lower costs of production. There is an economic imperative to do this: "In order to sustain competitive advantage, nations and firms must continually create and recreate new advantages rather than rely on existing advantages, no matter how favourable in the short term' [13].

Fundamental research conducted 30 years ago laid the groundwork for today's biomedical and biotechnology industries [15]. Therein lies the problem - 'The impact of public investment is invisible in the short run because the pay-off is always in the future, sometimes taking two decades or more. The long lag can fool us into believing that there is little relationship between what we invest in the public sector and what we reap in return. (However) if we do not make adequate provision for such investments now, there will be no pay-off in the future' [16]

Although there are big pay-offs in monetary terms from basic research, the other factors such as national economic competitiveness, enhanced quality of life, improvement of the environment, increased employment, and enhanced scientific and technological expertise are worth at least three times this again to a nation. Whilst Australia is a leading country in the performance of basic research, most is conducted in public organisations rather than the private sector [17]. This could be expected to deliver a social rate of return even higher than in other developed countries where the business sector conducts proportionally more fundamental research.

It is clear that increased public funding of Australian basic science and technology research is a smart - and essential - investment in the future, and will bring substantial benefits to the entire Australian community. No wonder both parties were keen to build support for science and technology as a key plank in their election platforms. Let's hope that it translates into meaningful long-term support for Australian research as an investment in our nation's future economic well-being.

Dr Peter French is a Principal Scientific Officer at the Centre for Immunology, St Vincent's Hospital, Sydney, and represents the Life Sciences on the Board of FASTS. E-mail: p.french@cfi.unsw.edu.au