Innovation has always relied, to some degree, on government support. But a recent study suggests that public funding might be even more influential than it seems.
“Nearly a third of US patents rely directly on US government funded research,” says Dennis A. Yao, Lawrence E. Fouraker Professor of Business Administration and co-head of the Strategy Unit at Harvard Business School.
Consider that between the 1950s and 1980s, Uncle Sam’s spending on research and development (R&D) rose fivefold from less than $20 billion to more than $100 billion a year, about equal to corporate R&D spending.
Since then, corporate spending has continued to rise, while government funding has leveled off. By 2016, businesses accounted for 69 percent of all R&D spending, while the US government provided just 22.5 percent, according to the Congressional Research Service. Higher education, nonprofits, and nonfederal government entities contributed the remaining 10 percent.
“The question that naturally arises is, ‘What is the role of government in fostering innovation within this changing environment?” Yao says.
Its role remains significant, according to new research by Yao and several colleagues. Despite spending relatively less, the government funds innovations that really matter to the American economy.
The research, published in the journal Science in June, was spearheaded by University of California, Berkeley, engineering and business professor Lee Fleming, and also included University of Connecticut law professor Hillary Greene, Guan-Cheng Li of Berkeley, and Boston University strategy professor Matt Marx.
Who’s funding patents?
To get a handle on how government funding fuels innovation, the researchers took advantage of new patent data from the US Patent and Trademark Office, which recently began including patent filers’ acknowledgments in its database. Those acknowledgments usually cite funding sources, which helped researchers identify patents sponsored by government agencies, such as the National Science Foundation (NSF) or the National Institutes of Health (NIH).
“Previously, it was possible to figure out what patents came directly out of government research labs,” Yao says. “Now we can see what patents came indirectly from government support as well.”
That includes patents that were supported by federal grants and patents that relied on previous patents or publications that the government funded, directly or indirectly. (Yao and his colleagues’ research was itself funded by an NSF grant.)
By examining a database of all patents filed since 1926, the team found that the percentage of patents that involved government support has risen steadily. While government R&D spending as a percentage of gross domestic product has declined since the mid-1980s, the percentage of patents that received any government support rose from 12 percent in 1980 to a high of 30 percent by 2011 before falling slightly to 28 percent since then.
“If more inventions are building on federal grants, it suggests that support is becoming more important to research generally,” Yao says.
Yao and his colleagues also examined patent citations of previous patents to find out how past inventions influenced future innovations. Among patents granted to companies in 2010, those that benefited, directly or indirectly, from federal largesse were cited 6.33 times, on average, in the next five years, compared to 4.42 citations for patents that didn’t receive government help.
The results held even when researchers compared patents that involved similar technology, were filed around the same time, or had a similar number of inventors. In those cases, government-funded inventions received 3.39 more citations, on average, than those without.
“This result suggests that government-funded patents are more important, reinforcing the idea of government-funded innovation as a driver for the economy,” Yao says.
Who benefits from government funding?
Companies, which filed the vast majority of the patents that Yao and colleagues studied, benefited most from government money, not lone inventors or academic institutions. Startups were particularly dependent on government-funded research, relying on federally supported research for some 35 percent of all patents they filed.
“Startups were particularly dependent on government-funded research…”
While the paper doesn’t explicitly examine why government-funded patents are so important, Yao speculates that government institutions, relative to companies, tend to fund broader scientific initiatives that are more likely to lead to more novel discoveries.
Government funding is paying off
Taken as a whole, the paper provides a strong rationale for the government to continue—if not increase—its level of investment in scientific research.
“In the political environment, research funding is frequently a target for cuts,” says Yao, noting that voters are more likely to feel the immediate consequences of shrinking human services than the long-term benefits of research spending, whose outcomes might be years away. “Voters don’t get as angered about such cuts.”
The research can’t predict what would happen if the US government slashed funding significantly. But the study shows that, at least for now, government funding, dollar for dollar, fuels innovation more effectively than non-government spending.
“The data certainly suggest that the current level of government funding of research is paying off,” says Yao. “Maybe we could get even more of a benefit if we spent more.”