[T]he great expansion of higher education has coincided with a productivity slowdown. Whereas in the 1950s and 1960s workers’ output per hour across the rich world rose by 4% a year, in the decade before the covid-19 pandemic 1% a year was the norm. Even with the wave of innovation in artificial intelligence, productivity growth remains weak—less than 1% a year, on a rough estimate—which is bad news for economic growth. A new paper by Ashish Arora, Sharon Belenzon, Larisa C. Cioaca, Lia Sheer and Hansen Zhang, five economists, suggests that universities’ blistering growth and the rich world’s stagnant productivity could be two sides of the same coin. ...
Businesses had more responsibility for achieving scientific breakthroughs: in America during the 1950s they spent four times as much on research as universities. ...[W]hen it came to delivering productivity gains the old, big-business model of science worked better than the new, university-led one. ... Free from the demands of corporate overlords, [university] research focuses more on satisfying geeks' curiosity or boosting citation counts than it does on finding breakthrough that will change the world or make money. Universities are failing to boost economic growth, the 'Economist', 5 February
To me, this speaks to the value of incentives. Research of the type done by universities is similar to the way that our social and environmental goals are pursued: they are done by large organisations whose employees are not rewarded in ways that correlate with their success. Those who work for government or government-dependent bodies are, consciously or not, disinclined to rock the boat. The funding of these bodies is hardly, if at all, linked to their success in coming up with problem-solving initiatives. Sadly, most of our important social and environmental goals fall under the remit of such government-dependent bodies. These include the elimination of poverty and crime, the reduction of environmental depredations and, on a global level, the solution to such trans-national problems such as over-fishing and war. Research is just one of the activities that government has brought into its purview, with the disappointing results that Arora et al relate.
How is it that government constantly expands its remit? There is the sense that some things are too important to be left to the private sector, and that only government can be impartial as to the allocation of funding. This sense pervades such critical debates as to whether the UK's National Health Service should be partly or completely privatised. That debate rarely considers health outcomes or, indeed, any outcomes at all: instead, ideology and vested interests set the debate's terms. Some concerns are genuine: markets have been abused and undermined such that they, in many cases, are rightly discredited in the eyes of the public.
Social Policy Bonds could combine the best elements of both the public and private sectors. Under a bond regime, government could articulate society's wishes and raise the revenue for their fulfilment; these are things that democratic governments can do well. But where they perform badly is in actually achieving society's goals, largely because of the incentive structures they put in place: the structures that reward activity regardless of outcome. The effect of a Social Policy Bond regime, however, would be to contract out society's goals to those best placed to the achieve them. In economic theory and on all the evidence, that is what competitive markets do best. An obstacle in the way of implementing the Social Policy Bond concept is the unwillingness of government and its funded bodies to relinquish their control over activities ostensibly directed at the public good. Rather than wait for government to do that, perhaps the best hope for a no-strings philanthropist to get the ball rolling....
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