Universities have boomed in recent decades. In theory, universities should be an excellent source of productivity growth. In practice, however, the great expansion of higher education has coincided with a productivity slowdown. A new paper by Ashish Arora and his colleagues, suggests that universities’ rapid growth and the rich world’s stagnant productivity could be two sides of the same coin.

The new paper makes a subtle but devastating suggestion; that when it came to delivering productivity gains, the old, big-business model of science worked better than the new, university-led one. Broadly, they find that scientific breakthroughs from public institutions “elicit little or no response from established corporations” over a number of years. A research scientist in a university lab might publish brilliant paper after brilliant paper, pushing the frontier of a discipline. Often, however, this has no impact on corporations’ own publications, their patents or the number of scientists that they employ. And this, in turn, points to a small impact on economy-wide productivity.

Why do companies struggle to use ideas produced by universities? The loss of the corporate lab is one part of the answer. Such institutions were home to a lively mixture of thinkers and doers. In the 1940s Bell Labs had the interdisciplinary team of chemists, metallurgists and physicists necessary to solve the overlapping theoretical and practical problems associated with developing the transistor. That cross-cutting expertise is now largely gone. Another part of the answer concerns universities. Free from the demands of corporate overlords, research focuses more on satisfying geeks’ curiosity or boosting citation counts than it does on finding breakthroughs that will change the world or make money. In moderation, research for research’s sake is no bad thing; some breakthrough technologies, such as penicillin, were discovered almost by accident. But if everyone is arguing over how many angels dance on the head of a pin, the economy suffers.

When higher-education institutions do produce work that is more relevant to the real world, the consequences are troubling. As universities produce more fresh PhD graduates, companies seem to find it easier to invent new stuff. Yet universities’ patents have an offsetting effect, provoking corporations to produce fewer patents themselves. It is possible that existing businesses, worried about competition from university spinoffs, cut back on research and development (R&D) in that field. Although no one knows for sure how these opposing effects balance out, the authors point to a net decline in corporate patenting of about 1.5% a year. The vast fiscal resources devoted to public science, in other words, probably make businesses across the rich world less innovative.

Perhaps, with time, universities and the corporate sector will work together more profitably. And corporate researchers, rather than universities, are driving the current generative AI innovation boom: in a few cases, the corporate lab has already risen from the ashes. At some point, though, governments will need to ask themselves hard questions. In a world of weak economic growth, generous public support for universities may come to seem an unjustifiable luxury.

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