What role should the University of Minnesota play to ensure that
the state's economy does not falter and that the state maintains
its economic vitality? This was one of the key questions that motivated
the university's economic summit on the future of the state's economy
in September 2000, a forerunner to this year's conference.
Many of the conference attendees were concerned the state's economy
was beginning to falter. Some argued that Minnesota's economy was
already falling behind the rest of the nation in developing high-tech
companies. They noted the increasing number of corporate headquarters
that had left Minnesota in recent years. And they pointed to a precipitous
decline in venture capital funding going to Minnesota companies.
Others, however, were not convinced that prospects were as bad as
asserted, questioning the accuracy and relevancy of the data presented.
A recent study by the University of Minnesota's Humphrey Institute
of Public Affairs suggests that fears of falling behind have indeed
been exaggerated. It showed that Minneapolis-St. Paul ranks ninth
in the nation among U.S. cities in high-tech employment.
Nevertheless, most agreed the university should take a more direct
and active role in promoting economic development and productivity
in the state. They argued for an explicit partnership between the
university and the local business community, with the objective
of turning out more commercially oriented research, research that
would result in more marketable products, more new businesses and
more high-paying jobs. While this line of reasoning at first appears
measured and persuasive, a closer examination raises doubts about
the net benefits from such a partnership. Indeed, we think the recommendations
that follow from this point of view can compromise the long-run
vitality of the state's economy.
That vitality depends on a university that produces basic research
and well-educated students. Because these products are types of
public goods, unfettered markets will fail to produce enough of
them. Public universities are designed to correct this market failure
by providing more education and basic research than the market would
yield on its own; these are the fundamental roles of a university
and the argument for government support.
In general, evidence suggests that the spillovers to local economies
from these public goods are substantial. And in particular, the
evidence on the University of Minnesota's impact on this state's
economy is impressive. For example, many argue that Minnesota's
medical technology industry, which employed 20,400 workers in 2000,
would not exist without the people and the basic research coming
out of the university. Because of the university and the other higher-education
schools in our state, Minnesota has one of the most educated workforces
in the country. Encouraging the university to do commercially oriented
research, therefore, can be costly in terms of the resources that
are diverted from its fundamental mission.
Moreover, not only are the costs high, but the benefits of having
the university pursue commercially oriented research are likely
to be small, if not illusory. Government attempts to promote commercially
oriented research, either directly or through universities, have
yielded mixed results. And a comprehensive look at these efforts
reveals a disturbing outcome: Government-sponsored research appears
to simply substitute for privately sponsored research. In other
words, the government's attempt to increase commercially oriented
researcheven if it is commercially successfulmay fail
because it drives out research that would have otherwise come from
the private sector.
We do not mean to suggest that the university cut its links with
the private sector and rest in an ivory tower. Rather, we suggest
that policymakers carefully weigh the costs and benefits of policies
that give the university a more direct role in promoting the state's
economy. Some policies require few resources relative to benefits,
such as providing channels for communication between university
researchers and the private sector. Even some incubator programs
that transfer university expertise to start-up companies may not
require substantial resources. When the university sets out to conduct
commercially oriented research, however, the costs are high and
the benefits are suspect.
The road to a strong Minnesota economy is to keep the university
producing what the private sector will not produce enough ofeducation
and basic research. To that end, we should judge the university
not by the number of patents it produces, but by the quality of
the scholarly journal articles its faculty publishes and the quality
of the students it graduates.
Complete paper text available in HTML format, with
charts in PDF format.
The University of Minnesota as a Public Good
The University of Minnesota as a Public
Good [41 KB PDF]