Tuesday, October 5, 2010

Is it fair for land-grant universities to make deals based on their research?

Columnist Ed Lotterman discusses the history of Land Grant Universities, their research contributions and future funding sources.

Substantial proportions of the cost of running land-grant universities like the University of Idaho still come from state and federal government, although the proportion is dropping in most states. Given this public funding, should these universities give away new technology they develop, or should they commercialize it in a way that maximizes their income?

The land-grant system has been facing that question for well over a decade now, but in the face of further declines in government funding, the issue is increasing in importance. Here in my home state of Minnesota we have what may seem like a brouhaha in a bushel basket over how the university is commercializing a new apple it developed. But it has important implications for the way we pay for and perform research and disseminate new technology in an era where taxpayers are less willing to foot the bill.

The specific issue is that university researchers developed a new apple, the SweeTango, that promises to be a big commercial success just like the Honeycrisp, one of its parent varieties also developed here 35 years ago.

The current controversy stems from the fact that the university signed an exclusive agreement with the state's largest apple grower to commercialize the new apple. That company in turn formed a marketing cooperative of 45 growers in five states and two Canadian provinces to grow and sell it.

Other orchards in the state also can grow the apple, but they face limits on how many they can grow and how they may sell the fruit. Some of these growers have filed a lawsuit alleging the exclusive deal violates federal and state laws and run counter to the historic mission of the agricultural research and extension system.
That system, consisting of land-grant universities, agricultural experiment stations and the federal-state-county cooperative extension service, has added tremendously to the wealth of our country over the past 148 years, belying the now-commonly held but erroneous view that government cannot create wealth.

Framers of the U.S. Constitution recognized that it was important to promote “the progress of science and useful arts” and, in Article 1, Section 1, gave Congress the power to issue patents and copyrights. But 70 years later, it was clear to many that even with these legal incentives to innovation, a free market would not produce economically optimal levels of technology research and dissemination. And so Congress passed the Morrill Act granting federal lands to states to fund colleges of “agriculture and the mechanic arts.” Ongoing federal funding for agricultural research and extension eventually followed.

All this took place before any formal economics of research and technology transfer. But these actions were fully congruent with modern theory. Much scientific research is what economists call a “public good.” That means without government action, it won't be produced in sufficient quantities for an economy to reach optimal efficiency.

This was particularly true for agriculture, because unlike for patentable machinery, it is impossible to keep new varieties of plants or new farming techniques from spreading to everyone. In the 1870s, if Corliss designed a better steam engine or Singer improved the sewing machine, these companies could get patents that allowed them to reap financial benefits from their research and engineering. But before the development of hybrids whose seeds did not reproduce the parent plant, any seed company that developed a new variety of corn would be unable to prevent corn growers from passing seeds from their crop on to other growers.

In any case, government support of agricultural research and extension fostered productivity growth that greatly aided overall economic growth in our country, just as it is doing for Brazil right now. Federal and state funds supported teaching, research and extension with new technology made available to all at no cost.
When we finally got around to funding basic and applied research in physics, chemistry and other fields, largely as a result of World War II, the Cold War and the space race, we found this also boosted productivity and economic growth. So did government funding of biomedical research. Our economy would have grown faster if we had started such government funding earlier.

But things have changed. We no longer are willing to fund many sorts of research at past levels. Some of this is justified by changed circumstances. Once corn was hybridized, farmers could not save their own seed for replanting; the private sector took over much corn breeding because it could charge enough for superior varieties to recoup research costs. The same is true for some genetically modified plants. But taxpayer reluctance to support the effort is another reason for the funding cuts.

This puts land-grant universities in a bind. The local university has more than a century of experience developing fruit varieties for cold regions. No private company matches that, and it's unlikely a private firm would spring up to tackle the task if the university terminated its program. The same is true for its research on wheat diseases and myriad other problems.

Changes in patent law allow developers of plant varieties to charge users for improved genetics. But once public institutions that still receive state and federal funds start to charge for technology they produce, questions of fairness inevitably arise that would not apply in transactions between two private companies.

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