Mo’ money, mo’ research: How 11 states attracted the smartest scientists

August 12, 2013

Nations have long competed to lead the world in scientific achievement. The United States, for example, now spends nearly 3 percent of its GDP on basic R&D. But the benefits of public spending on research are also becoming clear at the state level.

A new paper published by the UC-Berkeley economist Enrico Moretti and Daniel Wilson of the San Francisco Federal Reserve finds that states that created tax or other incentives for the biotech industry over the last 20 years have experienced tremendous growth in the number of "star" scientists inhabiting those states.

Star scientists, the authors explain, are "exceptionally prolific patenters" who account for the top 5 percent of all biotech patent filers nationally over the past decade. States that adopted biotech subsidies (there are about 11 of them, including Maryland, according to the paper) increased the number of star scientists within their boundaries by 15 percent. Employment in related sectors also improved — in one pharmaceutical sub-industry, by as much as 31 percent. Maryland is listed as having a tax credit for "early-stage biotech companies" that's been in effect since 2008.

The cascading effects of bringing in new scientists led to indirect booms for retail, real estate and construction. The construction industry in particular saw employment gains of about 16 percent after biotech subsidies took effect.

The subsidies proved pretty effective at getting star scientists to relocate. But how good were they at converting people into new star scientists — those who weren't in the top 5 percent before?

Not only did subsidy-adopting states have more stars than non-adopters, the study discovered — 7.9 per million vs. 3.5 per million — but they also had 0.6 per million more new stars, an indication that subsidy-adopting states were actually helping their biotech industries grow natively from within.

Patents (and the people who apply for them) aren't a perfect proxy for innovation; if you've been following the debate over patent trolls, you know what I mean. The authors also don't grapple with the possibility of reverse causality: maybe institutions that employ a lot of scientists to begin with are better at lobbying for subsidies than those without.

And just because putting money into basic biotech research generally pays off doesn't mean that's the right course for every state — that's a larger question involving a state's priorities and overall strategy.

Still, the study suggests that public funding could build potential hubs of innovation that states can hold up as a billboard for success.

Update: A few interested readers have asked which states have specifically enacted biotech tax incentives. Here's a screenshot from the paper. I was surprised to find out that North Carolina has had a low-interest loan program in place since the mid-1980s.


(NBER)
Brian Fung covers technology for The Washington Post, focusing on telecom, broadband and digital politics. Before joining the Post, he was the technology correspondent for National Journal and an associate editor at the Atlantic.
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