20 August 2020

Why British ARPA is destined to fail

By

If recent months have shown us anything it is the British state could barely organise a booze up in a brewery.

On paper, Britain was the best prepared nation in the world for a pandemic. In practice, Public Health England failed to ramp up testing in time after rebuffing offers from the private sector. The NHS discharged Covid-positive patients into care homes, sparking outbreaks among the most vulnerable. The Government’s broader strategy was often confused and inconsistent. Now the UK has among the highest excess mortality and biggest economic downturns in the world

These failures have not led Cabinet Office Minister Michael Gove to deviate from his desire, stated in his recent Ditchley Lecture, to use the state as an “efficient force for good”. One case in point that Gove pointed to was investing in the “experimentation of pure science” based on the Advanced Research Projects Agency (ARPA) model. In March, the Government allocated £800 million to create a British ARPA to fund ‘blue skies’ research.

It’s extraordinary that a state that struggles to provide essential services like public health and education somehow thinks it can be the vanguard of a new technological revolution. British ARPA is destined to fail because it is built on a fundamental myth: that state-funding for scientific research magically turns into marketable innovations and economic growth.

ARPA’s proponents, which include economist Mariana Mazzucato and prime ministerial advisor Dominic Cummings, claim the organisation basically created the modern world: from the personal computer to the internet. But this is a misreading of history, as professor Terence Kealey explains in ‘No to ARPA’ published by the Adam Smith Institute.

In 1969, a US Department of Defense report called Project Hindsight analysed 710 technological innovations attributed to research, which were associated with the development of weapons system. The report concluded that just 2 had any link to ‘pure science’ research (namely ‘blue skies’ research funded by the state). So broad, ‘pure’ science of the sort pursued by ARPA was practically worthless in achieving technological innovation.

This finding led lawmakers to pass amendments to repurpose ARPA exclusively for defence applications. It was renamed the Defense Advanced Research Projects Agency (DARPA) in 1972. As a result, key scientists left ARPA for a private research organisation called PARC, owned by printer manufacturer Xerox. It is there that the former ARPA staff invented personal computing technologies like the mouse, windows and the trash can (together the graphical user interface or GUI). So the destruction of the original ARPA, not its creation, was the central historical event that led to fantastic innovations. Go figure.

Even then, it was not until Steve Jobs strolled into PARC to “steal” the ideas (Apple paid to view PARC projects, Xerox executives had no clue of its potential) that these concepts would be developed for the public in the LISA (1983) and then the Macintosh (1984). Bill Gates would then copy these ideas to create Windows – and the rest is history. So, some people previously associated with ARPA invented the technologies, while working for a private research institute, and other private companies did the innovation necessary to bring them to market. So much for state-funding creating personal computing.

It is a similar story for the internet: while ARPA-funded researchers invented packet switching (“ARPANET”), the key routers that first connected computers globally were developed and sold by Cisco and glass fibre came from Corning. The internet, including the key protocols, physical infrastructure and online services was only widely accessible after it was commercialised. The state played a relatively minor part.

Study after study has found that state research and development (R&D) spending has little impact on economic growth. Leo Sveikauskas, who reviewed R&D spending across countries for the Bureau of Labor Statistics, concluded that:

“The overall rate of return to R&D (research and development) is very large … However, these returns apply only to privately financed R&D in industry [Sveikauskas’s underline]”.

A 2003 study by the OECD which investigated growth rates across world economies between 1971 and 1999, similarly found that only business-performed R&D is positively associated with economic growth. They even found public R&D spending has “negative results” for growth – indicating that state spending crowds out more efficient private sector spending.

Furthermore, contrary to popular mythologising, the technologically successful Asian tigers such as South Korea, Taiwan and Japan are far more dependent on business sector R&D spending than the US, EU or even the UK. Four-fifths of R&D spending in South Korea is funded by businesses compared to about half in the United Kingdom.

This is perhaps no surprise: bureaucrats are unlikely to have the knowledge to identify fruitful fields of research. But by throwing substantial taxpayer resources into the mix they distort and distract our best and brightest. They reward people who are good at applying for grants, rather than people who are good at innovating. This keeps alive businesses that are unproductive, thereby undermining broader economic growth.

There is nothing new about governments deluding themselves into funding unproductive scientific research. Labour Prime Minister Harold Wilson declared that his message “for the Sixties” would be “a Socialist-inspired scientific and technological revolution releasing energy on an enormous scale.” Some good his agenda did: the end-point of this central planning of the economy was the embarrassing 1976 emergency loan from the IMF.

So instead of going down that road, the British state should seek to reduce barriers to private sector innovation like crippling red tape and unhelpful taxes. This would be far more fruitful than throwing £800 million of taxpayer money down the drain on a ‘British ARPA’.

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Matthew Lesh is Head of Research at the Adam Smith Institute.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.