Research on new products or applications can, and does, occur in both private companies as well as in government. The federal government, in fact, spends more than $100 billion annually on research in a variety of areas. But some contend that all research should be done in the private sector. NC State University economist Mike Walden outlines the counter argument.
“Well, I think there are two rules at play here where you may want to consider publicly funded research: first of all, if the research has a potential outcome that is very, very important — very, very valuable for people, for the economy, etc. That is, there’s a potential high pay off. But secondly if the pay off is so uncertain — that is, the chances of finding that breakthrough is so uncertain that no private company that has to operate on profits and has to operate on paying its investors — no private company is going to take that on. If you have that situation — high potential pay off, but high risk — then there may be a justification for using public money.
“That is to say, it would be like all of us being told, ‘Look, we could find potentially this cure for cancer. It’s dicey; we don’t know that we can, but we can potentially find that cure for cancer. … No private company wants to take that on because it’s so uncertain, but, hey, would you like to kick in a dollar or two dollars?’
“And obviously together everyone in the country does that because that’s a large amount of money. And then if we do do that research and do find that cure, everyone is going to benefit. That’s sort of the thought process that you go through and our publicly elected officials go through in deciding whether to use public money for research.
“Now the big question here, of course, is where is the cutoff? What sort of limits do you use in terms of pay off, in terms of risk levels. And that’s where we get disagreements. But I think the theoretical basis for using public money for research is based on these two potential issues — one being pay off; one being risk.”