by Jason Crawford · April 21, 2020 · 3 min read
I went in to my study of progress with certain priors. I expected to find that technological and economic development depended (if perhaps in complex ways) on science, rule of law, legal institutions such as corporations and intellectual property, and certain cultural and philosophic ideas. What I might not have thought to list back then, however, was the importance of funding models and mechanisms.
The models used to fund progress have changed over time. The modern corporation, as a permanent entity with tradable shares of stock, was not common until the 1600s. Limited liability for investors was not common until the 1800s. Venture capital in its current form was developed in the 1900s. The use of debt vs. equity has changed over time, as well. At one point it was common to buy stock on a “subscription” basis, meaning that the investor would put in only a fraction of the share price, with the rest to be called later; this practice is now rare to nonexistent. Past corporate forms have also allowed for capital calls from existing investors, with penalties if the call is not met; today new capital needs are simply served by issuing new stock. What we take for granted today was not always so.
When funding models change, it changes who and what gets funded. For instance, up until the early 1800s, many scientists were aristocrats or others of independent means: Boyle was the son of an earl, Humphry Davy was a knight and a baronet, Lavoisier was a French nobleman (and tragically executed at the guillotine during the Revolution). A few others managed to obtain patrons, as Galileo was sponsored by the Medici, or to get jobs as the assistants of other scientists, as Hooke was employed by Boyle. But for the most part, “scientist” or “researcher” wasn’t a profession you could simply go into. Sometime around the mid-1800s—I haven’t traced the history—there was an increase in university research, and also the beginning of corporate research, I think mostly in chemistry, and in the long run this dramatically changed who could become a scientist, and how many there were, and thus how much research got done.
Those with large purses sometimes attempt to accelerate progress by creating new funding mechanisms. In 1714, Britain established a prize of up to £20,000 for a solution to the “longitude problem” in maritime navigation, a grand challenge problem of the day important to military and strategic national interests. The Board of Longitude set up to administer the prize was also allowed to give smaller grants for inventors with promising schemes or prototypes to develop their ideas, making it one of the earliest R&D agencies. John Harrison, who solved the longitude problem by inventing the marine chronometer, received such grants from the Board.
Another pattern is that not every good idea gets funded right away, and progress seems to stall, sometimes for decades, for lack of financing. Richard Trevithick, for instance, invented a prototype of the locomotive in 1804, demonstrated it in action on multiple occasions, and tried to raise money to develop it. He failed, and the era of railroads didn’t really begin until the 1830s.
Or take penicillin. The antibacterial action of the Penicillium mold was discovered by Alexander Fleming in 1928. To turn this insight into a practical medicine, however, required a chemical process to be developed for extracting penicillin itself from the mold, and there were very few attempts at this for a decade after the discovery. When one lab at Oxford, led by Howard Florey, took on the project, they were strikingly underfunded, scraping together donations of a few hundred pounds, struggling to pay their heating bills, and cribbing supplies from the cafeteria. All of this while they were working on what was in retrospect the biggest medical breakthrough of the century.
The lessons, to my mind, are:
Progress doesn’t happen automatically when the scientific or technical prerequisites for it are in place. It only happens when people work on it, and that almost always requires funding.
As a corollary, progress can stall for lack of funding.
Funding isn’t automatically allocated to the most productive uses. It’s hard to predict in advance which projects will succeed and how important they will become.
The models and mechanisms for allocating funding are also not obvious or automatic. Like everything else, they need to be invented, and thus they themselves represent a form of progress.
The prescriptive implications are:
We can accelerate progress by making more funding available for it, and by improving how that funding is allocated to projects.
In order to improve allocation, we should pay attention to funding models. We may want to improve the models we have, or reallocate our portfolio of them, or bring back old ones that we have left behind, or invent new ones.
Money Changes Everything: How Finance Made Civilization Possible
The Company: A Short History of a Revolutionary Idea
A History of the Global Stock Market: From Ancient Rome to Silicon Valley
Longitude: The True Story of a Lone Genius Who Solved the Greatest Scientific Problem of His Time
The Locomotive Pioneers: Early Steam Locomotive Development 1801–1851
Miracle Cure: The Creation of Antibiotics and the Birth of Modern Medicine
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