How can we stimulate innovation with the way we fund research?

Posted on November 11, 2011 by

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On Monday I attended a very interesting talk by Tim Harford at the Policy Exchange in Westminster. Tim is an economist, he writes for the Financial Times and also has several best sellers in which he boils economics down to its basics.  His talk, called Innovating for growth, was about how to stimulate technological innovation, which he naturally approached from a financial point of view but with some nice links to bioscience. Here’s what he had to say…

Innovations arise from taking risks. They come from unpredictable sources and do not occur often. They are the result of many gambles taken by many people, the vast majority of which are not observed or counted – only the successes are seen.

Although many innovations that we champion arose from garages or university dorms (the home computer and facebook), in this age the ones we really need – like malaria vaccines and renewable energy sources – require huge sums of money and resources. How can we encourage the innovations we need to happen?

Tim gave a thought-provoking anecdote about the winners of the 2007 Nobel Prize in Physiology or Medicine, Mario Capecchi, Martin Evans and Oliver Smithies. In the US, Capecchi failed to convince the National Institute for Health (NIH) of the merits of his idea to use homologous recombination to produce the world’s first knockout mouse. Working separately on this side of the Atlantic, Evans’ application was also dismissed as “over-ambitious” by the MRC. Despite this both carried on, diverting money from other grants into their work on the knockout mouse. Needless to say, it paid off.

The moral of the story for Tim is that risky behaviour is required for world-changing innovations to occur. But we shouldn’t have to rely on stubborn scientists who break all the rules (mainly because it sounds like the premise of a really bad TV programme). The flip side of this he concedes is that such a system includes a lot of failure.

An organisation that runs with this idea is the Howard Hughes Medical Institute (HHMI). The charitable funding body invests in talented scientists by awarding fellowships rather than specific projects. It likes radical ideas, many of which are doomed to failure. It accepts this and does not penalise unsuccessful ventures.

Three MIT economists have compared the outcomes of research by NIH- and HHMI-funded scientists and revealed some surprising differences. Despite publishing roughly the same number of papers, HHMI-funded scientists produced twice as many highly-cited papers (meaning the work was highly respected). They were also more likely to make revolutionary discoveries that introduced new terms into scientific language and produced more successful protégés. But they also generated more papers that were not cited by anyone (failures) than their NIH counterparts.

So it would appear that taking risks pays off for HHMI. Their scientists, free to follow their hearts and explore more radical ideas, produced the most valuable science.

But Tim points out that governments aren’t fond of taking risks in the research that they fund. Dealing with large sums of tax-payers’ money, they are keen to minimise losses rather than maximise gains. So how to encourage the private sector to stump up the cash for innovation?

Tim likes prizes. Set a challenge and whoever achieves it gets the prize. This is increasingly being used to stimulate innovation, particularly in the private sector: the X-Prize Foundation is offering $10 million to the first team to sequence 100 human genomes in ten days for $10,000 per genome. This, Tim claims, stimulates private companies to invest in research. But crucially the money is only awarded once success is achieved so governments and charities won’t lose out. It is the private sector that is inclined to take the risk to achieve that great breakthrough.

There is a need for many different forms of funding strategies Tim conceded – what he referred to as pluralism. Governments and medical research charities provide the reliable funding that builds the foundations on which great breakthroughs are made. Prizes then incentivise private capital to build on that knowledge and take the big steps.

So that’s what Tim Harford thinks. But what about you? Is there room for change in the way medical research charities fund science? Is the British funding system encouraging enough innovation?

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Posted in: Policy