Monday, September 18, 2006

Federal Financing of Research II: Why Universities?

By Richard Vedder

The other day, I suggested that federal financing of university research was in need of reform, and made a few suggestions, such as moving to a uniform research overhead payment rate. But the bolder, more fundamental question needs to be asked: why should research be centered in universities? It was not always so. For over two-thirds of the 370 year history of Harvard University, that institution was considered to be predominantly an undergraduate teaching institution. Only at the end of the 19th century did the German research university model find its way to the U.S., first at Johns Hopkins University, and then rapidly at other schools throughout the land.

There are other places at which research is performed, and the relative importance of these other research venues is substantial. In 2003, only 14 percent of all R and D work in the U.S. was performed in universities. Of the three types of research, basic research, applied research, and development, in two of them -applied and development --most funding has come from private firms for decades. Yet universities have been considered the dominant provider of basic research --discovering new insights into the human condition and physical phenomena. In 2003, about 55 percent of basic research was university conducted.

The great advantage of university funded basic research is that there are sometimes economies of scale and cross-fertilization of ideas by having research conducted in a learning community where students mingle with faculty. The students transition to becoming mature researchers by assisting the senior researchers while studying. Yet there are other research models that work well -- private firm research centers, government research labs, and in the social sciences, think tanks. More research is needed into the relative costs and benefits of these alternative forms of research delivery.

One major issue in universities is the extent to which research is subsidized by other activities or provides subsidies to them. Is there cross-subsidization going on, and if so, how much and in which direction? A decent case can be made that for the purposes of providing accurate financial accounting, universities should have two entities -- the "university" which performs teaching, and the "university research institute" which does research, and each should be explicitly budgeted for. A portion of professor's salaries would be paid by each entity in the case of faculty doing both teaching and research. To prevent the down grading of teaching, the compensation levels per hour of work would be equal for the two functions. Much of the disguised research appropriations in the form of reduced teaching loads would show up as explicit outlays in the research institute share of total expenditures. This and other ideas need some consideration as we expand our research efforts in coming years.


peacefrog said...

Mr. Vedder,

I enjoy reading your blog, but I must criticize the grammar in the last two entries. A blog critical of higher education should certainly be an example of good writing, so please be careful of the difference between professor's and professors' and, in the previous post, it's and its.


Katie E. Potter said...

Psh. Grammar, while important, is not nearly as consequential as what Dr. Vedder is saying.