Great insights, as always! Could you please elaborate a bit more on this statement: "Perhaps sponsored research from industry could grow, though for many reasons industry has largely retreated from basic science."
By Arora, et al. https://www.nber.org/papers/w25893. It lays out the evolution of industrial, academic, and government sponsored research over the past 150 years in teh US. We will be writing more about this, but the gist is this. Corporate science used to be a much bigger deal but companies have largely pulled back (with the exception of IT and some bio-sciences) because the lags between investing in basic science and developing commercial products are too long, there is too much chance that your work profits your competitors and not you. Arora et al argue that the big slowdown in innovation and productivity growth IS BECAUSE of the increasing division of labor between universities and corporate labs, and that joining them more closely again would be a boon. If the Fed govt continues on its current path, this may be necessary to fund university science at anywhere close to its current level.
This is the clearest, most detailed account I've seen of indirect costs. I'd love it if in a future post you'd do a deep dive on the other half of the post's title -- that is, on the research itself. In other words, although federal grants are meant to support research, it can seem to some faculty that the tail is wagging the dog -- that only research with the potential to support big grants is encouraged. (And "encouraged" can be translated into clear economic incentives, like higher salaries or even keeping your job at all). Such an incentive system could distort science such that the likelihood of high funding, rather than scientific criteria, shapes the research agenda. And of course whole fields, like the humanities, become increasingly irrelevant in this kind of climate. All told, universities' dependence on federal grants seems to have deeply re-ordered their research (and arguably educational) priorities. I wonder if it would make more economic sense to leave the most expensive research to industry? Or maybe what I mean is for universities to adjust to that reality, as that seems to be what's already happening for some AI research and in terms of personnel -- something like 50% of scientists are leaving academic science, and many seem to be leaving for industry. At any rate, if you find yourselves without a topic to write about, I'd love to see a 'companion piece' to this terrific post!
Thank you for this comment! We are working on some posts closely related to this idea. What is the value of research in a university and how does it integrate with other missions, who should decide the kind of research that is valued, and how does that shape the work that is done? Some of this gets tied up in rankings or “tiering” of universities, some reflects where you get the resources you need to do certain kinds of research. But in my view, there is a real trap in equating research with “federally funded research”, even if we recognize that high overhead research will simply not get done without some external partner to help fund it. I think it is also easy to forget that the system of research funding that now holds sway is a relatively recent phenomenon, and that different models entirely dominated in earlier periods. So we will share a bit of that history as well. Thanks for reading and engaging!
Agreed! The work of Beth Popp Berman -- from my own field of sociology 😁 -- was enlightening for me on your last point. Glad you're going to be posting more on this topic, and so happy you two are on Substack!
How might things differ between an ag college and colleges of engineering or liberal arts and sciences given the Hatch Act money that goes to the ag college?
Thanks for the question. Hatch funds are part of the federal funding stream supporting the agriculture, veterinary medicine, and health and human sciences disciplines. These funds support research only, and only for universities that are designated as land-grant universities. Different universities expend the funds in different ways, but basically the funds provide support for faculty and staff – so are called ‘capacity funds’ by those in Ag. Faculty members who receive Hatch funds must have approved research projects and there are extensive reporting requirements to USDA. Universities still have to go find (usually from the state) and/or compete for (USDA, all the other federal agencies, industry) funds to actually do research – just as Engineering programs do. At Purdue while I was in administration, Ag was always the second or third largest College in terms of external grant funds, after Engineering. If these Hatch funds weren’t available, capacity to do Ag research would be dramatically diminished.
Are all IHEs required to use MTDC? Or do they each have a unique definition of what qualifies as an indirect cost established by policy and taken into account during NICRA negotiations?
Thanks for the question. All universities use a common set of standards to determine their indirect costs for negotiation with federal agencies. These standards are defined in the Uniform Guidance.
Agree that most intercollegiate athletics departments receive net transfers in from the rest of the university. The really tricky thing to assess is what reputation and brand building role they play that translates to larger enrollments and alumni affinity and donations. There is a lot of folklore on this subject, but not much careful research really nailing the causal impact.
Your point is a good one. We should have been more clear - in that section of the post, we were describing where universities get revenue. We were not implying that those revenue streams cover their costs, but again, that was not clear.
Interestingly, the evidence on NIH research spending is that it generates many multiples of itself in GDP growth. So it almost certainly reduces national debt over time.
Great insights, as always! Could you please elaborate a bit more on this statement: "Perhaps sponsored research from industry could grow, though for many reasons industry has largely retreated from basic science."
There is a great article titled “The Changing Structure of American Innovation” by by
By Arora, et al. https://www.nber.org/papers/w25893. It lays out the evolution of industrial, academic, and government sponsored research over the past 150 years in teh US. We will be writing more about this, but the gist is this. Corporate science used to be a much bigger deal but companies have largely pulled back (with the exception of IT and some bio-sciences) because the lags between investing in basic science and developing commercial products are too long, there is too much chance that your work profits your competitors and not you. Arora et al argue that the big slowdown in innovation and productivity growth IS BECAUSE of the increasing division of labor between universities and corporate labs, and that joining them more closely again would be a boon. If the Fed govt continues on its current path, this may be necessary to fund university science at anywhere close to its current level.
Thank you! Super interesting. My guess is that the reigning paradigm will be no more. We shall see where, how, and when the dust settles.
This is the clearest, most detailed account I've seen of indirect costs. I'd love it if in a future post you'd do a deep dive on the other half of the post's title -- that is, on the research itself. In other words, although federal grants are meant to support research, it can seem to some faculty that the tail is wagging the dog -- that only research with the potential to support big grants is encouraged. (And "encouraged" can be translated into clear economic incentives, like higher salaries or even keeping your job at all). Such an incentive system could distort science such that the likelihood of high funding, rather than scientific criteria, shapes the research agenda. And of course whole fields, like the humanities, become increasingly irrelevant in this kind of climate. All told, universities' dependence on federal grants seems to have deeply re-ordered their research (and arguably educational) priorities. I wonder if it would make more economic sense to leave the most expensive research to industry? Or maybe what I mean is for universities to adjust to that reality, as that seems to be what's already happening for some AI research and in terms of personnel -- something like 50% of scientists are leaving academic science, and many seem to be leaving for industry. At any rate, if you find yourselves without a topic to write about, I'd love to see a 'companion piece' to this terrific post!
Thank you for this comment! We are working on some posts closely related to this idea. What is the value of research in a university and how does it integrate with other missions, who should decide the kind of research that is valued, and how does that shape the work that is done? Some of this gets tied up in rankings or “tiering” of universities, some reflects where you get the resources you need to do certain kinds of research. But in my view, there is a real trap in equating research with “federally funded research”, even if we recognize that high overhead research will simply not get done without some external partner to help fund it. I think it is also easy to forget that the system of research funding that now holds sway is a relatively recent phenomenon, and that different models entirely dominated in earlier periods. So we will share a bit of that history as well. Thanks for reading and engaging!
Agreed! The work of Beth Popp Berman -- from my own field of sociology 😁 -- was enlightening for me on your last point. Glad you're going to be posting more on this topic, and so happy you two are on Substack!
Great post. I really enjoy your work.
How might things differ between an ag college and colleges of engineering or liberal arts and sciences given the Hatch Act money that goes to the ag college?
Thanks for the question. Hatch funds are part of the federal funding stream supporting the agriculture, veterinary medicine, and health and human sciences disciplines. These funds support research only, and only for universities that are designated as land-grant universities. Different universities expend the funds in different ways, but basically the funds provide support for faculty and staff – so are called ‘capacity funds’ by those in Ag. Faculty members who receive Hatch funds must have approved research projects and there are extensive reporting requirements to USDA. Universities still have to go find (usually from the state) and/or compete for (USDA, all the other federal agencies, industry) funds to actually do research – just as Engineering programs do. At Purdue while I was in administration, Ag was always the second or third largest College in terms of external grant funds, after Engineering. If these Hatch funds weren’t available, capacity to do Ag research would be dramatically diminished.
Excellent and timely article!
Are all IHEs required to use MTDC? Or do they each have a unique definition of what qualifies as an indirect cost established by policy and taken into account during NICRA negotiations?
Thanks for the question. All universities use a common set of standards to determine their indirect costs for negotiation with federal agencies. These standards are defined in the Uniform Guidance.
https://www.ecfr.gov/current/title-2/subtitle-A/chapter-II/part-200?toc=1
See specifically
Appendix III to Part 200
Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education (IHEs)
Appendix IV to Part 200
Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Nonprofit Organizations
See also 2 CFR 200.414.
Ah, tucked away in Appendix III. I live in IV, which explains my confusion there. Thanks!
Great piece. I would only take issue with the suggestion that universities earn money through “sports programs.”
A handful do.
Agree that most intercollegiate athletics departments receive net transfers in from the rest of the university. The really tricky thing to assess is what reputation and brand building role they play that translates to larger enrollments and alumni affinity and donations. There is a lot of folklore on this subject, but not much careful research really nailing the causal impact.
Your point is a good one. We should have been more clear - in that section of the post, we were describing where universities get revenue. We were not implying that those revenue streams cover their costs, but again, that was not clear.
$36 trillion and counting
Interestingly, the evidence on NIH research spending is that it generates many multiples of itself in GDP growth. So it almost certainly reduces national debt over time.