´óÏó´«Ã½

In a Viewpoint article, Philip Salter, from the Adam Smith Institute, argues that private funding is vital for translating scientific research into economic growth.

Through the Department for Business, Innovation and Skills (Bis), £3.79bn is currently spent on science funding.

The Spending Review is expected to reduce this. But despite the outcry from many in the scientific community, this is good news for science as well as for taxpayers.

The British Government only started to fund science after the Great War, well after the technological and economic surges of the agricultural and industrial revolutions had taken place.

The fact is that these revolutions required no government funding. World War I and II led central planners and intellectuals to conclude that, like a war, they could plan an economy from the centre.

Since then, government has been spending increasing amounts of taxpayers money to fund science, with the great leap forward taking place under Gordon Brown, when the science budget effectively doubled.

Many defend the government funding science through universities on the basis that it is a public good, a good that the whole of society benefits from, that would not be funded to the same extent privately.

However, although it can indeed be a public good, it is also, and to a greater degree, a private good.

In fact, this is how a great deal of scientific research is still funded and how it has been through the ages.

The modern world was built upon private investment and we continue to thrive because of it.

The economists Edwin Mansfield and Zvi Griliches have found strong correlations between companies' investment in scientific research and profits, while in the sweeping Sex, Science and Profits, Dr Terence Kealey has done much to demonstrate that the government is not necessary for science to flourish.

This is why, despite government funding, IBM is one of the largest research institutions in the world.

Crucially, not all spending on science has equal bang for its buck.

A thorough Organisation for Economic Co-operation and Development (OECD) report in 2003 concluded that it is private sector money, not government money, that turns scientific research into economic growth.

In the same way that people are always less careful spending other people's money, the government is less careful spending money on scientific research than the companies that are set to rise or fall on the backs of their decisions.

Added to this, the OECD report concluded that money spent by the government is crowding out private sector investments.

In other words, inefficient government funding is displacing more efficient private funding.

By collectively taxing all companies for scientific research, the centralised planning of the government has usurped the dispersed and local knowledge of the private sector.

In the real world, free markets, trade and competition drive economic growth, not the government pulling money out of the productive private sector and distributing it amongst universities.

If the government wants to encourage increased spending on science, the least inefficient tactic would be to offer increased tax breaks to companies investing in research through universities, but even this is not essential given how integral research is to many companies' profitability.

Philip Salter is programmes director for the Adam Smith Institute, UK-based policy institute dedicated to free market policies