'How Economics Shapes Science'

Does the United States need to produce more STEM graduates -- or fewer? Which grant applications tend to succeed, and why? Why do so many STEM grad students and postdocs hail from other countries? And just how much do all those mice cost, anyway?

Most of us know, or can imagine, that economic forces play a key role in the practice of scientific research -- who gets funding for what research at which institution, etc. But the specifics can be complex, even baffling (just look at the yo-yoing NIH budget), with immediate significance for many. (If the country has such need of more graduates in the sciences, why do so many of them have trouble finding jobs?)

In her new book, How Economics Shapes Science (Harvard University Press), Paula Stephan outlines and explains a wide variety of ways in which economics impacts research, from what motivates scientists to falsify their findings to whether it's cheaper for a lab to employ grad students or postdocs. Along the way, Stephan shows how funding for scientific research is inefficiently allocated, and offers some suggestions on how the system could be improved to the benefit of all -- not least those underemployed Ph.D.s.

Stephan, professor of economics at Georgia State University and research associate at the National Bureau of Economic Research, talked to Inside Higher Ed via e-mail about the ideas in her book.

Q: Most readers of Inside Higher Ed probably aren't surprised by the general idea that economics shapes science, but of course this impact plays out in many different ways.  Which of the findings in your book do you think might be particularly surprising to an academic reader?

A: The book focuses on how costs and incentives — core concepts in economics — shape the practice of science — especially the practice of science at universities. Everyone knows that research costs money, of course. But I think for many of us it is surprising just how much research costs — and just how expensive “small-scale” science can be.  Even mice, the ubiquitous research animal, can cost a substantial amount to buy and keep. Custom-made mice, designed with a predisposition to a specific disease or problem, such as diabetes, Alzheimer’s disease, or obesity, can cost in the neighborhood of $3,500. The daily cost of keeping a mouse (“mouse per diem”) is around $0.18. This sounds cheap — until one realizes that some researchers keep a sufficient number of animals that the annual budget for mouse upkeep can be well in excess of $200,000. Universities have even recruited faculty by providing them lower cage rates than they were being charged at their previous university. Costs even play a role in determining whether researchers work with male mice or female mice (females, it turns out, can be more expensive)!

When it comes to incentives, I’m not sure there are many surprises — academics excel at figuring out what is and what is not rewarded and responding accordingly.  But one surprising (discouraging?) finding to the academic reader may be how the current funding system discourages risk-taking on the part of researchers. When success rates for grants are low (as they have been for a number of years), both researchers and reviewers go for the “sure bet” rather than take a chance. Risk aversion is particularly acute for those on soft money positions, who must either get funding or perish. This attitude towards risk poses a serious problem for U.S. science and subsequent economic growth. It matters because, while low-risk incremental research yields results, in order to realize substantial gains from research not everyone can be doing incremental research. It is essential to encourage some researchers to take up risky research agendas. The current U.S. system simply does not provide sufficient incentives to do that.

Q: What is the relationship between university science and economic growth?  What are some common misconceptions about this relationship?

A: University research definitely plays a role in economic growth, contributing both to basic and applied research that (eventually) leads to new products and processes. There’s considerable evidence that this is the case — the most convincing is in the area of pharmaceuticals. Three-quarters of the most important therapeutic drugs introduced between 1965 and 1992 had their origins in public-sector research. Almost all drugs coming out of biotechnology companies originated at universities. Likewise, public research has led to considerable advances in agriculture and contributed significantly to developments in information technology as well as to the development of global positioning devices, bar codes, the laser and magnetic resonance imaging (MRI). The list could go on and on!   No one can doubt that there is a relationship.  

But misconceptions abound. The most common is that the process is near-instant: build a university and economic growth will occur. Nothing could be further from the truth. The lag between research and economic growth can be long; one estimate puts it at 30 years, but in certain instances research that took place 100 years ago has only recently had an economic impact.  Another misconception is that there are few dry holes. Absurd!  Dry holes abound. A third is that the process is a “watershed”: universities do the research and industry gets something that is ready to go. Nonsense!  Considerable investment and know-how on the part of firms is required to translate basic research into new products and processes. Finally, it’s important to remember that the process is not one-way: universities provide ideas and insights to industry, but industry also contributes to research in the university. University faculty, for example, get research ideas by interacting with individuals from industry; academic disciplines and departments have grown out of the needs of industry for research and training.

Q: What has caused the “tremendous increase in patenting among academics” and what are the effects of this increase?

A: Well, everyone thinks it was the passage of the Bayh-Dole Act, and of course this has contributed to the increase — but university patenting was on the rise even before Bayh-Dole. That’s in part because of dramatic changes in certain fields that have opened up opportunities for scientists to conduct research that not only has the possibility of advancing basic understanding but also of being “use-oriented.”  Other reasons for the increase are court decisions that allow for the patenting of life forms and increasing pressure from the public for universities to appear relevant and contribute to economic growth. There’s also the issue of money:  a few universities and faculty have made substantial — in some instances, astonishing -- sums of money from patenting. But the vast majority of universities and faculty have not. Moreover, there is simply not strong evidence that faculty patent for the money — other motives, such as having an impact on society, career advancement, and intellectual challenge appear to be more important than financial incentives. But one can’t discount money entirely. I estimate that in 2007 alone approximately 400 faculty members received $650 million in royalties from megalicenses.

There is little evidence that patenting diverts faculty from doing research, or encourages faculty to do research of a more applied nature. But there is some evidence that if university patents on materials and instruments are managed poorly, they can cast a chill on the research of others. A good example is “the mouse that roared”—the OncoMouse — a transgenic mouse that carried specific cancer-promoting genes and opened up new areas for cancer research. Harvard patented the mouse in 1988 and licensed it exclusively to DuPont. DuPont put extraordinary restrictions on the use of the mouse by other researchers which were lifted only after the intervention of the National Institutes of Health in 1999.   

Q: Why do the foreign-born play such a large role in U.S. science and engineering, and how does this shape the field?

A: Opportunity!  The opportunity to study and work at some of the very best — if not the best — universities in the world is a huge draw for the foreign-born, who come as graduate students, postdocs and faculty to the United States.  For the young, the availability of graduate research assistantships and postdoctoral stipends plays a large role in attracting them to the United States. The reason for this widespread availability is that university labs in the United States are staffed overwhelmingly by graduate students and postdocs. To put it bluntly, faculty need graduate students and postdocs to do the work!  Many of these are foreign-born. Networks also play a role — there is strong evidence that Chinese faculty in the United States, for example, disproportionately staff their labs with Chinese students. Opportunity also arises with shifts in world political events. After the breakup of the former Soviet Union, for example, a large number of highly talented Russian mathematicians took positions at U.S. universities.

There’s pretty good evidence that the foreign-born who have come to the United States are disproportionately productive — or at least have been in the past — producing a higher percent of top research than one would predict given the underlying demography. This is due in part to a process of selection that allows the United States to attract and choose top talent. It also is related to the fact that persistence plays a huge role in scientific success, and those who manage to make it to the U.S. are highly motivated. But the benefits are not costless: the ready supply of foreign-born depresses the wages — particularly of postdocs; one estimate puts it at 3 to 4 percent. There is also rather convincing evidence that U.S. mathematicians who were trained in areas similar to those of newly hired Soviet mathematicians suffered in terms of the quality of their job placements.

Q: Your book returns again and again to the idea that -- quite opposite from what we often hear -- the United States is actually producing too many Ph.D. scientists, at least in terms of what the job market can bear.  (You refer to the biomedical sciences in particular as a “pyramid scheme.”)  Why is this, and how should it be addressed?

A: The evidence is overwhelming that in certain fields — especially in the biomedical sciences — we produce more Ph.D.s than there are research or teaching jobs. This imbalance is caused by the fact that principal investigators staff their labs with postdocs and graduate students, not permanent staff scientists.  Faculty like the model:  graduate students and postdocs have new, fresh ideas; they are also inexpensive and they are temporary.  But unless the number of new jobs grows quickly enough to absorb the newly trained, (which it hasn’t for many years), this system of staffing produces many more Ph.D.s than the job market can absorb. That’s why I call it a pyramid scheme.

What can we do about it?  First, graduate programs need to be required to provide potential students with job outcome data so that students enter into the arrangement with their eyes wide open, rather than find out three to four years down the road that research and teaching jobs are few and far between. Second, we need to bite the bullet and substitute permanent staff scientists for at least some of the postdocs and graduate students. They’re more expensive, so it won’t be a one-to-one swap, but, being permanent, they will not contribute to an ever-expanding supply of graduates who can’t find the types of jobs they trained for. Finally, because much of the demand for graduate students and postdocs is driven by PIs in soft-money positions, we could curtail the demand for graduate students and postdocs by limiting the amount of salary that can be written off on grants.

Q: What is your opinion of the idea — set out in the National Academy of Sciences' report “Rising Above the Gathering Storm” and elsewhere — that “the U.S. competitive position in the world has begun to erode and will continue to decline unless more US citizens are recruited into careers in science and engineering and the US steps up its investment in research”?

A: For many years the U.S had a virtual monopoly on basic research, particularly in certain areas. That era is long-since gone — it’s just one more sign of globalization.  But that doesn’t mean that we have to take a back seat to other countries. Investing more in research and development is a good growth strategy. But it won’t do any good to recruit citizens into careers in science and engineering unless there are jobs that use their talents. That’s what’s I find refreshing about "Rising Above the Gathering Storm."  It talks about the need for the U.S. to step up its investment in research. If we do that, we may well need to recruit more citizens into careers in science and engineering.  But until we make a bigger investment in research and development, it’s too early to beat the shortage drum!  That just encourages young people to enter fields for which there is not sufficient demand.

Q: Why would “loosen[ing] the link between research and training” help “the United States get more from its resources”?

A: The majority of public sector research in the United States is performed at universities and medical schools. Labs are staffed by graduate students and postdocs. Thus research and training go hand-in-hand: there’s no incentive for universities to engage in birth control when this is the dominant research model.  The needs of the researcher come before the job prospects of the trainee.  As I noted above, the system produces more graduates than there are research or teaching jobs. Many cannot find jobs that match their research skills. It is a social waste of resources to invest money in training people for positions they cannot hope to attain.

One way to address this problem is to lessen the coupling between research and training by encouraging the establishment of more research institutes that are decoupled from universities or only loosely coupled. While effective training requires a research environment, effective research can be done outside a training environment.  Abstinence, after all, is the most effective form of birth control! Research institutes have other characteristics that make them attractive. They can create administrative structures that encourage interdisciplinary research and collaboration. They may be able to make more efficient use of equipment. And if properly funded and endowed, they can discourage the hiring of scientists on soft money. They also have the possibility of creating environments in which staff scientists can find permanent employment with satisfying career outcomes.