IN 1933, the Democrats won the US election and Franklin Delano Roosevelt took office as president in strikingly similar circumstances to those faced by Barack Obama later this month. The Roaring Twenties had been a time of easy credit, cheap money and technological advance, notably the electrification of the US, but the bubble burst on Black Thursday, 29 October 1929, and by 1933 the US economy was in recession. Thousands of banks and factories were closed, industrial production halved, unemployment was approaching 25 per cent, the Dow Jones had lost 89 per cent of its value, and the nation was in despair. What was Roosevelt to do?
Initially, he balanced the federal budget and cut public expenditure. The Economy Act of March 1933 took $500 million annually out of the economy by reducing civil service salaries and veterans’ bonuses. And Roosevelt targeted the federal science budgets.
Americans had long resisted federal funding of science. For example, as James Conaway described in his 1995 book, The Smithsonian, in 1838 Congress refused British mineralogist James Smithson’s donation of $500,000 to create the Smithsonian Institution. In 1846, Congress accepted the money, reluctantly, and then only because it was rotting in a dodgy bank. By the 1920s, however, Washington had accepted responsibility for some research, but only in areas that bolstered government, such as agriculture or metrology. There was no federal support for science for its own sake.
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The Democrats especially opposed the idea of federal cash for science, believing it to be an illegitimate form of subsidy for industry. If profit-seeking companies needed research, they should pay for it, said the Democrats: why should ordinary people be taxed?
Not even war readily changed minds. The National Research Council was established as the main agency for coordinating defence research during the first world war, yet most of its money came from private bodies such as the Carnegie Corporation ($150,000), while the taxpayer’s contribution ($128,650) paid less than half of the agency’s costs.
The anti-science feeling was only aggravated by the Depression, because the Democrats held technology responsible for making people redundant. Research was therefore a Bad Thing. According to Walter Isaacson’s biography, even Einstein thought science had caused the era’s job losses.
“Democrats held technology responsible. Even Einstein thought science had caused job losses”
During Roosevelt’s first two years, he slashed the research budget of the Department of Agriculture (the federal government’s largest science agency) from $21.5 million to $16.5 million, and 567 research jobs were shed in 1934 alone. At more pure-science research agencies, budgets were more than halved: for example, the Bureau of Standards’ budget fell from $3.9 million (1931) to $1.8 million (1934).
It was Roosevelt’s Secretary for Agriculture, A. Wallace, who forced a policy change. After 1929, Wallace, a successful scientist who developed hybrid varieties of corn, became a Marxist. His conversion was due to Marx’s prediction that capitalism would collapse, in part because of overproduction. During the Depression, farmers were indeed poor due to producing more food than the market wanted.
Wallace backed Keynesian economics – the idea that economic recovery could be aided by increasing, not decreasing, state spending, to stimulate demand. He encouraged Roosevelt to spend more by helping invent the “emergency” budgets of the New Deal which, unlike the “regular” budgets they operated alongside, were allowed to go into deficit.
Initially the New Deal did nothing for research: but in 1935 the Project Administration (WPA) was created to provide jobs for skilled people, including scientists, and by 1939 it was funding science projects in every publicly funded university, spanning mathematics, engineering and biology. In 1939 alone these projects generated 50 peer-reviewed publications. And federal research budgets were gradually restored: by 1938 they were again 1 per cent of federal expenditure.
But many scientists resented federal funds. Wallace observed that about three-quarters of US scientists did not believe governments should fund science. They thought it was eroding their liberty and, in a sense, they were right: by funding them, Wallace did intend to control them. As he wrote in in 1934 (vol 79, p 2): “The scientists have turned loose upon the world new productive power without regard to the social implications.”
Moreover, the market already provided for science handsomely. As the economist Esther Fano writes, between 1920 and 1931 the number of US industrial research labs rose from under 300 to over 1600, and research employees from 6000 to 30,000. Annual spending by industry on research soared from $25 million in 1920 to $120 million in 1931.
Even in bad times, private funding continued to grow. Between 1931 and 1938 the number of labs rose to 2200, researchers to 40,000, and these labs’ annual expenditure to $175 million. In a survey of US manufacturing R&D, David Mowery and Nathan Rosenberg, economists at Stanford University in California, found that jobs in manufacturing R&D nearly tripled, from 10,918 in 1933 to 27,777 in 1940.
Paradoxically, then, the Depression was a technologically creative era, spawning such inventions as Nylon, Teflon and the DC-3 aircraft. It was investor desperation that fuelled this commercial research. Even in a deep recession some stay rich and need to invest. After 1929, investors lost confidence in conventional capital and labour because those had manifestly failed, but they trusted innovation because it had yet to fail. And there were lots of innovators around because many of the redundant scientists had created start-ups to exploit ideas that would otherwise have floundered in the bureaucracy of big companies or government departments.
There was another reason for the huge increase in private funding: a phenomenon known as crowding out. In 2003, an report showed that government funding of R&D does not increase the total available: rather, it crowds out private funding. When governments retreat from R&D, the market will return to invest – handsomely – in industrial R&D, particularly in a recession.
Now, however, private research-based companies are crying panic. In the US, the Biotechnology Industry Organization claims the sector has less than six months’ cash; in the UK, the BioIndustry Association has asked for up to £1 billion. Are they right to do this?
They may well be. When a recession bites, there is disruption as investors protect cash in the very short term, so governments need to fund during that time. But while the state bails out banks only at profit to itself, so central cash for science should be distributed only at a good price for the taxpayer. Many companies are well placed strategically, so let’s pour taxpayers’ cash into buying equity at fire-sale prices. The market will soon recognise their value, and taxpayers will cash in as their reward.
The bottom line is that depressions are reversed by increases in state funding, and science is an important destination for such money as it sustains investment in the future. There are, oddly, few good economic reasons for a state to fund science. As that 2003 OECD report showed, market failure in research funding during normal times is hard to find. The only powerful argument for state funding in normal times is democratic: people feel that science is so important that some projects should be democratically accountable.
But the start of a recession provides an overriding economic need for counter-cyclical state funding, and this should increase science budgets markedly over the next year or two.
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Kealey read medicine at St Bart’s Hospital Medical School, London, specialising in clinical biochemistry, followed by a PhD at the University of Oxford, then research. He is now vice-chancellor of the University of Buckingham, UK. In his book Sex, Science and Profits, he argues that science is not a public good but is organised in “invisible colleges”, so that state cash is irrelevant in normal times.