Terence Kealey has a very interesting article in The Sunday Telegraph. Terence thinks that “Coronavirus is a study in the East’s superior attitude to science”. What does he mean by that?
He points out that “On Jan 27, the authorities in Seoul invited representatives from 20 South Korean biotech companies to develop a Covid-19 test… When the virus struck South Korea, the government’s response was swift because it was easy: it told the biotech companies that any tests they developed would be rushed through the regulation process. So tests were immediately developed; contacts – and only contacts – were isolated, and the eastern countries never had to lockdown”.
The effectiveness of eastern states’ response to Covid19 has been considered by many a result of historical circumstances. Basically, these governments had to face SARS and MERS and thus were better prepared against the outbreak. Kealey’s point is different: government spending on research crowds private spending out. South Korea is a big spender on R&D, but that most of such expenditure is channeled through the private sector. This fact for Kealey has two consequences:
1) private companies focus naturally on applications of scientific knowledge. For this reason, biotech companies could be fast mobilized to produce tests, in a way that university labs cannot.
2) scientists do not become largely public employees, and thus do not lobby governments for bigger grants, independent of the practical needs of society.
This made the science ecosystem more responsive to a challenge such as this. Notice that Kealey is not against mobilizing science, putting it at the service of a public need in the emergency. But he thinks that the fact that research was accomplished by and large within the private sector makes actually such mobilization possible, whereas it is unlikely when it comes to university-centered scientific communities in the West. I suppose Kealey’s critics will ask him to break down South Korean’s private and public spending, searching for reasons to dismiss his argument.
READER COMMENTS
JFA
Apr 29 2020 at 2:20pm
From the linked article, Korean government makes up 25% of R&D spending. In 2018, US federal government share of R&D expenditure was 25% (https://fas.org/sgp/crs/misc/R44307.pdf), with businesses making up 70%, and non-profits and higher ed making up the remainder. So using this as an explanation of the difference in performance between South Korea and the US responses to the crisis leaves a lot lacking. It probably is the case that being affected by SARS and MERS has a lot to do with SK’s preparedness.
I will say that those using this as an example of the effectiveness of “the East” seems incredibly narrowly focused on S Korea and a couple of islands (no one has suggested that Japan has done a great job).
terence Kealey
Apr 30 2020 at 7:14am
I thank JFA for their comments. Let me reply. First, the OECD reports that the South Korean business sector spends 3.27% of GDP on R&D, which hugely outstrips that of western countries (US 1.76% of GDP; OECD 1.48% GDP; EU 1.14% of GDP; UK 0.86% GDP) but which is comparable with other eastern countries (Taiwan business sector, 2.60% GDP on R&D; Japan 2.51%).[1]
Consequently, South Korea has the largest R&D budget in the world, which again hugely outstrips that of western countries (South Korean share of GDP spent on R&D 4.29%; US 2.81%; OECD 2.37%; EU 1.98%; UK, 1.65%) but is comparable with other eastern countries (Taiwan 3.28%; Japan, 3.21%).[2]
With great respect (we’re all seeking truth) I must dispute JFA’s figures on the share of R&D from the government and private sectors. The OECD show that the share of R&D that is funded in South Korea by business is 76.2%, which compares with the US share 62.5%; OECD 62.3%; EU 57.6%; UK 51.8%. Again, the east shows a systematic difference (Taiwan 79.2%; Japan, 78.3%).[3]
But the key to understanding the real east/west difference comes from considering expenditure on defence R&D. No less than 46% of US government expenditure on R&D is for defence (South Korea 15%; Taiwan 7%; Japan 3%.) Government defence expenditure seems to have no economic benefit,[4] but it has a marked impact on business-funded R&D as companies increase their own R&D budgets as they swivel into defence work.[5] Much of the company research performed in high defence-R&D countries, therefore, which include the UK and France but not the eastern ones, is therefore economically-irrelevant; so the economically-effective share of R&D that is funded by business in such western states is significantly less than initially appears in the OECD tables such as in reference 3. Ie, the eastern countries’ economically-relevant R&D is much more privatised than initially appears in the OECD tables such as in reference 3.
As a consequence, and to quote the OECD, “while most basic research in other economies (between 50% and 75%) is performed in the higher education sector, in Korea about 60% of all basic research is performed in companies.”[6] Moreover, such a lack of crowding out has led to the remarkable fact that the country that spends most on basic or pure science is South Korea (0.62% of GDP) as compared to US 0.47%, and UK 0.30% (the OECD does not give averages for the EU or the OECD).[7] Further, of the R&D that is performed in the higher education sector, in Korea 12% is funded by business but only 5% in the US.[8]
To conclude, JFA must of course be right in recognising that the eastern countries had learned the lessons of MERS and SARS, but so too had the west, which was why, post-Ebola, President Obama established the Directorate for Global Health Security and Biodefense within the National Security Council. Trump dismantled it, which did not help the US’s response to COVID-19, but the success of the Korean biotech industry in developing a test so swiftly speaks to the value of private R&D in repelling pandemics.
Christian Drosten, who directs the Institute of Virology at the Charité Hospital in Berlin, commented that:
Public Health England was in a position to diagnose the disease very early on—we worked with them to make the diagnostic test—but rollout in Germany was driven in part by market forces, which made it fast, and that wasn’t the case in the UK.[9]
By which Drosten meant that Germany (which managed the virus better than did Britain) possesses a biotech industry large enough to test large swaths of the population, whereas the British health secretary Matt Hancock could only lament, “We have the best scientific labs in the world but we did not have the scale” to develop mass testing.[10]
[1] OECDiLibrary (2019) Main Science and Technology Indicators. OECD. Paris. Table 11 https://read.oecd-ilibrary.org/science-and-technology/business-financed-gerd-gross-domestic-expenditure-on-r-d-as-a-percentage-of-gdp_58ab04cf-en Israel also has large R&D budgets but, remarkably, half of those are supplied by companies from abroad, so those unusual data are not included here.
[2] OECDiLibrary (2019) Main Science and Technology Indicators. OECD. Paris. Table 2 https://read.oecd-ilibrary.org/gross-domestic-expenditure-on-r-d-gerd-as-a-percentage-of-gdp_226a7e59-en.
[3] OECDiLibrary (2019) Main Science and Technology Indicators. OECD. Paris. Table 13 https://read.oecd-ilibrary.org/percentage-of-gross-domestic-expenditure-on-r-d-gerd-financed-by-the-business-enterprise-sector_f9d39968-en.
[4] Frank Lichtenberg (1989) The impact of the Strategic Defense Initiative on US civilian R&D investment and industrial competitiveness. Social Studies of Science 19: 265-282. pp 275/6.
[5] Enrico Moretti, Claudia Steinwender and John van Reenan (November 2019) The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers. NBER Working Paper 26483
[6] OECD (2015) Science, Technology and Industry Scoreboard 2015: Korea Highlights. Paris, OECD. https://www.oecd.org/sti/Korea-CN-EN-Scoreboard.pdf
[7] OECDiLibrary (2019) Main Science and Technology Indicators. OECD. Paris. Table 6 https://read.oecd-ilibrary.org/basic-research-expenditure-as-a-percentage-of-gdp_dbb4aee8-en
[8] OECD (2017) Science, Technology and Industry Scoreboard 2017. Funding of R&D in higher education. Graph 2.2.3. Paris, OECD. http://statlinks.oecdcode.org/922017081p1g084.xlsx
[9] Laura Spinney (26 April 2020) Germany’s Covid-19 expert: ‘For many, I’m the evil guy crippling the economy.’ The Guardian. https://www.theguardian.com/world/2020/apr/26/virologist-christian-drosten-germany-coronavirus-expert-interview?CMP=Share_AndroidApp_Gmail.
[10] Hannah Devlin (3 April 2020) Why has the UK lagged behind in testing for the coronavirus? The Guardian. https://www.theguardian.com/science/2020/apr/03/why-has-the-UK-lagged-behind-in-testing-for-the-coronavirus
JFA
Apr 30 2020 at 2:13pm
Thank you for your detailed response. Regarding the share of government R&D, those figures come from the Congressional Research Service. They might have a different methodology than OECD.
Regarding the overall thrust of whether the governmental share of R&D matters, I just can’t get that to square with actual R&D spending. Worldwide pharmaceutical company expenditure by country suggests the US businesses make up 60% of worldwide pharma R&D (https://www.abpi.org.uk/facts-and-figures/science-and-innovation/worldwide-pharmaceutical-company-rd-expenditure-by-country/). That’s from a trade association and doesn’t include South Korea, but I imagine it gets pretty close to the truth. For the US, the percentage of business R&D going to biotech was 12.3%, while South Korea was less than 2.6% (https://www.statista.com/statistics/379958/country-biotechnology-company-rd-spending-berd-percentage/).
For this argument (that South Korea had a biotech industry that could respond to the crisis and other countries didn’t) to work, levels (not just shares) will also certainly matter. So let’s look at percent of GDP spent on biotech by businesses (percent of GDP on R&D * share of private R&D * percent of private R&D spent on biotech). For the US, that’s 0.0218 * 0.625 * 0.123 = 0.001676, so private sector biotech R&D spending makes up 0.17% of GDP for US). For South Korea, that’s 0.0489 * 0.762 * 0.026 = 0.000969, so private sector biotech R&D spending makes up 0.097% for South Korea. As a share of GDP, US out spends South Korea on private biotech R&D, and with the US economy at about 13 times the size of South Korea, the level of private sector biotech R&D spending in the US far outstrips South Korea. (If I am misusing any of these statistics, please comment. The links you provided didn’t go anywhere for me. I assume you were discussing BERD when talking about share of GDP for private R&D.)
I do think that South Korea’s use of private biotech companies was crucial, and that’s where the US fell flat (it defies logic as to why the government would have a regulation that reduces testing capacity when an emergency is declared, like the US did). The US basically sidelined the more than capable biotech firms through regulation. I just don’t think the share of GDP for R&D explains much of it.
Terence Kealey
May 1 2020 at 10:39am
Thank you for another engrossing email. We are both agreed that the government’s mobilisation of the biotech industry contributed significantly to South Korea’s success with the virus, in that–had the government not mobilised it–South Korea would not have enjoyed the same success. As I wrote in my Sunday Telegraph article, the South Korean “government’s response was swift because it was easy: it told the biotech companies that any tests they developed would be rushed through the regulation process.”
So, consider the UK, whose government–unlike Germany’s–did not immediately mobilise its biotech industry, to sad effect. Also, consider what happened in the US, where regulations obstructed the biotech industry from being mobilised.
So far we are in agreement.
In the article I argued that western governments follow Arrow’s model by which they fund science as a public good; while eastern governments fund primarily mission research. Funding science as a public good has at least two deleterious effects.
First, it crowds out private funding (which is why, in its absence, South Korea, Taiwan and Japan have the largest R&D budgets).
But second, as I finished the article, “The eastern democracies handled the virus superbly because their model of science empowers industry. Our model of science empowers politicians …” who, in this case, used their power to obstruct industry from rescuing the health of their nations.
I thought I had distinguished between these two effects (as I have been distinguishing for some 30 years) so I regret quoting Health Secretary Hancock’s ambiguous remark. I quoted it as a dramatic governmental mea culpa, yet it did import ambiguity: for clarity, the eastern pharma/biotech sectors (being still very young) are smaller than the west’s, yet–under the auspices of governments that limited themselves to their proper mission of regulatory easement–they proved big enough.
And, to reiterate, the eastern democracies have the largest total r&d budgets because their governments haven’t crowded out the private sector!
Dylan
May 1 2020 at 5:24pm
Asking a very basic question here, but are we sure that the measure of R&D is an apples to apples comparison? I have a vague recollection from when I briefly covered Japan’s biotech industry, that accounting conventions classified some expenses as R&D, that would have been more broadly in SG&A in the U.S. This was over a decade ago, and a quick search wasn’t able to find anything that confirmed this memory, so I don’t want to make too much of it, but thought it worth checking that the numbers are comparable.
Terence Kealey
May 7 2020 at 11:40am
I now think JFA was quite right to pull me up on the idea that Korean biotech science had greater capacity than British biotech. The responsibility is entirely mine, but when the minister Matt Hancock said the British biotech industry did not have the capacity to upscale, I had assumed he knew that to be true. But JFA must have been right in suggesting otherwise. Which means that the idea I put forward of South Korean biotech having greater capacity because it was more private was also not relevant to this situation.
To go along with JFA, the South Korean and Taiwanese governments were more proactive than those in the uk and us. JFA suggests that is because of SARS. There are alternative explanations, but rather than explore those here, let me simply say thank you to JFA, and I’ll revise my thesis.
let me also thank Alberto Mingardi for sparking a conversation amongst friends that will enable me to correct my thinking.
Mark Bahner
Apr 29 2020 at 5:43pm
???!
Is it because what Japan has done is even better than “great”?
Per Wikipedia, Tokyo Japan has the largest population of any city in the world. They also have the world’s largest subway system (in terms of passengers per year).
Japan as a whole is incredibly densely populated. They almost certainly have more visitors from China than all but a handful of other countries. Their population is among the most elderly in the world. And they smoke a lot, to boot.
And as of today, the John Hopkins website lists 13,700 cases and less than 400 deaths. (That’s far fewer deaths per unit of population than even South Korea.) How is Japan’s performance for COVID-19 anything less than spectacular?
JFA
Apr 29 2020 at 9:37pm
I don’t want to sound like a kook, but either Covid-19 is not that serious (I don’t believe that), or lock down’s aren’t necessary (almost certainly), or Japan’s data is bogus (not that far-fetched in a country that has criminal conviction rate of 99%, which suggests cultural issues with data and record keeping). It has the oldest population on the planet (Italy has second oldest). With articles like this one (https://www.japantimes.co.jp/news/2020/04/28/national/science-health/japan-stretched-frontline-doctors-nurses-coronavirus-response/#.XqoaiJNKib8) where ICU doctors say things like, “At this moment, private and some public hospitals can and do reject corona patients in critical condition.” I have several friends from Japan (who talk regularly with family in Japan), and they all suggests that the numbers prior to postponement of Olympics were juiced to make things seem better than they were and that the situation hasn’t much changed. In addition there seems to be quite the shortage of gear and beds: https://www.reuters.com/article/us-health-coronavirus-japan-hospitals-in/running-out-of-beds-and-gear-tokyo-medical-staff-say-japans-state-of-emergency-already-here-idUSKBN21O0K4
OurWorldInData puts the total test per 1000 people since the 100th case for Japan at 1.981 (using April 27th data). Here are a few select countries to put that in perspective:
Vietnam – 2.196
Iran – 5.417
Greece – 6.341
South Korea – 11.735
USA – 16.899
Italy – 29.666
Google mobility suggest people didn’t really start social distancing until the end of March (https://www.gstatic.com/covid19/mobility/2020-04-17_JP_Mobility_Report_en.pdf), though visits to transits stations are low throughout the period. Crowds gathered for the cherry blossoms in Tokyo at the end of March.
Add the lack of early social distancing to your list of “Japan as a whole is incredibly densely populated. They almost certainly have more visitors from China than all but a handful of other countries. Their population is among the most elderly in the world. And they smoke a lot, to boot”. It seems most of the news reports in Japan are about what is going wrong (but good news never sells). Given that they aren’t running the test to actually detect anything, my guess is that it’s much worse than is being reported.
JFA
Apr 30 2020 at 6:42am
Looks like my reply got stuck in spam filter, so this will be shorter and less detailed. Not to sound like a kook, but I don’t believe the Japanese data. Take all the things you listed: “Japan as a whole is incredibly densely populated. They almost certainly have more visitors from China than all but a handful of other countries. Their population is among the most elderly in the world. And they smoke a lot, to boot.” Google’s mobility data suggests that social distancing didn’t really start until the end of March (you could see incredibly large crowds at Tokyo’s cherry blossom festival at the end of March). News articles (I’d link to them, but then this reply would get stuck in spam the spam filter) are reporting critical Covid patients are being turned away from private and public hospitals, bed and gear (such as masks) shortages, etc, no massive test and trace system in place, and no lockdown.
Put all that together and you would really expect Covid to have taken off by now. So why have we not seen it. A broad reason could be Japan’s reluctance to release bad information (several of my Japanese friends suggested the numbers are low due to prior hopes of keeping the Olympics in play for the summer. For reference, google “Japan’s sudden spike in coronavirus cases after Tokyo Olympics postponement raises eyebrows”). Japan does have an issue with how they categorize and report things (no country really has a 99% conviction rate).
But the biggest thing is that they are at the bottom of the list when it comes to testing. Our World in Data put the total tests per 1000 since the 100th case for Japan (using April 27 data) at around 1.9 (slightly lower than Vietnam). For context, Iran was at 5, Greece at 6, South Korea at 11, USA at 16, and Italy at 29. I don’t believe the Japanese numbers because they aren’t collecting the data.
JFA
Apr 30 2020 at 3:26pm
Here’s another article on why Japan certainly has more cases than reported: https://www.bbc.com/news/world-asia-52466834
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