The following is a condensed version of a presentation that Lux Partner Josh Wolfe gave at the National Academy of Sciences (NAS) for a group of Nobel laureates, inventors, philanthropists and policymakers.

Cutting-edge science is being conducted at a growing rate outside of traditional institutions- at startups founded by entrepreneurs and funded by venture capitalists, and by a growing base of global citizen scientists networked to each other and equipped with technology and tools previously unaffordable or inaccessible.

The surprising thing is not that this is a new phenomenon, but that we have forgotten it is a return to the way science was conducted a mere century ago.

One can argue that capital markets lack the incentive to do pure science. And that without government’s top-down direction, it may have been impossible to do the large-scale undertakings like fighting the AIDS epidemic, waging war on cancer, laying the foundations of the internet, hunting for Higgs-Boson, sending a man to the moon, undertaking manned space flight or constructing LIGO for the detection of gravity waves. We encounter the spillover effects that came from these endeavors daily: GPS, touch-screen displays, voice-activated mobile phones and many more. One can also argue biotech has boomed not because of a random rise of genius, but because of a key government-directed initiative: the 1980 Bayh-Dole Act that let publicly funded research get patented, leading to a ton of spinout and startups based on those patents. Given that between the 1930s and today the NIH has spent nearly $800 billion, this enabled the commercialization of this massive underlying knowledge base.

However, the opposite can be argued as well. As Peter Thiel has half-joked about the Manhattan Project were it to be undertaken under today’s economic and political context, “Today a letter from Einstein would get lost in the White House mail room and the Manhattan Project would not even get started; it certainly could never be completed in three years.” OECD research has shown that between 1971 and 1998, publicly funded research had no economic impact whatsoever, whereas privately funded R&D stimulated economic growth. In fact, the US BLS concluded that returns from many forms of publicly financed R&D are near zero and many elements of university and government research have low returns, if any at all.

On this debate I’ll opt for a mix of Hayek and Hamilton; a Hayekian appreciation for the wisdom of the markets and a Hamiltonian view of the necessity of government investment in infrastructure and technology. Or to apply Claude Shannon’s Information Theory to Economics, high entropy information needs low entropy carriers. And the surprises and breakthroughs that are high entropy need predictable infrastructure, rules, laws, methods of transmission that are low entropy.

The one thing I will disagree with is the “linear view” which dictates that science proceeds neatly from basic science to applied science to technology. History shows the arrow goes the other way just as much, if not more so, with tinkerers figuring some new thing out (often out of necessity) and only later will a theory catch up to explain it. The steam engine and James Watt came before Carnot or theories of thermodynamics. Or even more humbling: over 30 billion doses of Tylenol (Acetaminophen) are administered and we still do not know how it works.

From Private to Public — and Back Again

Before WWII and the Cold War, science was mostly privately funded. Famous scientists like Edison, Tesla and the Wrights were all privately funded. Even during the early scientific revolution in Europe, rich men like Henry Cavendish and Antoine Lavoisier who did science as a hobby made discoveries that are now part of the textbooks. Cavendish’s fortune funded the famed Cavendish Laboratory in Cambridge where Ernest Rutherford discovered the atomic nucleus and Watson and Crick discovered the structure of DNA. This trend continued for much of the nineteenth and early twentieth centuries. The current era of reliance on government grants by the NIH, the NSF and other agencies is essentially a postwar phenomenon.

During the 1920s, when Europe was the center of Physics research, the Rockefellers and Guggenheims set up foundations so young scientists like Linus Pauling and Robert Oppenheimer could go to Europe to study with masters like Bohr and carry back knowledge of new quantum mechanics to the US. Ernest Lawrence got the support of rich California businessmen whom he regularly took on tours of his Radiation Lab at Berkeley that let him fund cyclotrons of increasing size and power, which would then let physicists probe the inner structure of the nucleus, construct theories explaining this structure and produce uranium for the atomic bombs used during the war. The Institute for Advanced Study at Princeton was bankrolled by the Bamberger siblings.

As we move through history into WWII and the Cold War, government directed things magnificently. There was national coordination of industry. The military industrial complex also served as a scientific industrial complex. By the 1960s, U.S. military-funded R&D was 30% of all R&D, not just in the U.S. but in the World. The military provided 50% of all university R&D and 25% of all corporate R&D. It is a myth that Silicon Valley was orchards and then Hewlett-Packard and Intel came along. First it was electronic warfare, microwaves and radar. The same applied for Boston. And the U.S. government was by far the biggest customer.

After WWII up until the 1980s, science and R&D was mostly publicly funded. But then things changed. The share of corporate-funded R&D rose in the mid-1960s, but that was mostly because Federal R&D was falling. Between 1970 and 1980, corporate R&D barely kept pace with GDP. But since 1980 it has grown faster, with the ratio of U.S. corporate R&D to GDP doubling. It used to be that industry went to DARPA for cutting-edge technology: today the roles have reversed.

Why?

The answer is the growth of small companies, those with fewer than 5,000 employees. And it happened because new technology allowed them to compete in old and new markets. And this trend is continuing.

Today, much of the basic research that used to be conducted within large companies is now inside startups that tech companies gobble up at every chance. Acquisitions are the new R&D. “Acqui-hires” are the new staff development. And many of our most vaunted entrepreneurs such as Elon Musk, Jeff Bezos, Richard Branson, Eli Broad and Larry Ellison are funding what used to be not just basic science but nearly science fiction. In greed and avarice lies the hope of progress. All of this speculative excess is good for society. It’s of course bad for many investors, but the detritus in this wave becomes the combinatorial fodder for the next wave. And today, the cost of capital is so low that it acts like a tractor beam, pulling far future ideas to the present.

On the really big ideas, a barbell has emerged. At one end is multi-year multi-billion dollar projects. Arguably, the taller the shoulders we stand upon, the more expensive the tools are to get there. To make incremental advances in cosmology requires ever-more expensive telescopes.

At the other end is distributed science, where thousands of venture-backed entrepreneurial scientists and millions of citizen scientists are making rapid discoveries and advances.

Scientists have become necessarily more specialized with narrowing focuses. The average age of grant recipients is increasing towards older scientists. A researcher now lands her first NIH grant at 45 years old, compared with age 38 in 1980. And the number of grant recipients younger than 36 in 2010 fell to 3% from 18% in 1983.

How many important breakthrough discoveries haven’t happened as a result? And what’s behind the shortage? Logical reasons include longer postdoctoral training, a system that has some layers of bureaucracy but also necessary applications, demonstrable data and peer review and a shift in research costs to universities — which filters awards to older more seasoned and tenured researchers. But the simplest explanation came from Nobel laureate Michael Levitt of Stanford, who recently said that senior scientists used to be able to renew their existing grants and let young scientists compete for grant money that wasn’t awarded. But now due to budget cuts, older scientists are competing “against the kids,” and they usually win.

Meanwhile, the number of authors on a given paper has been increasing from 1.9 in 1960, to almost 4 authors per paper today.

There is both growing specialization, but also a need for interdisciplinary diversity. The paper reporting the initial sequence of the human genome had more than a thousand authors and a similar number of physicists are involved with both the Large Hadron Collider in Particle Physics and LIGO’s discovery of gravitational waves.

To know where the center is going, it helps to look to the edge.

The rise of networked science also means the scientists using the tools are more likely to be young, digital natives using cutting-edge tools. Just as technology has democratized the means of intellectual production in authorship, photography, music, and filmmaking, so too is it impacting how science gets done. On your mobile device, you can download R&D tools off the internet that are far more sophisticated and powerful than anything a Xerox PARC or Bell Labs engineer once had at their disposal.

You can raise money from complete strangers to fund a project or a lab and get real-time feedback. You can publish scientific papers openly and digitally with annotations. You can, with a few clicks, download to a 3D printer a data file that contains all the instructions to make a part for a centrifuge and print it at your desk. You can hire number crunchers to process your data that you have never met and pay for them digitally by entering numbers from a credit card into your computer. You can run preclinical trials and experiments on mice that are in digitally connected cages and orchestrate the entire experiment from a beach chair. You can even decide the genetic mutations you want them to have.

The money is following this trend too. Since 2010, the NIH budget was cut by $3.6 billion. Thousands of research projects may be un- or underfunded. During the same period, however, private capital for scientific endeavors has surged. Venture capital funding in life sciences alone was $8.6 billion last year.

The vacuum created by the dismantling of the scientific industrial complex has paved the way for an explosion in privately funded, collaborative and citizen science. The world is better off because of it.

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