By Neil Munro, National Journal
© National Journal Group Inc.
Monday, Feb. 24, 2003

He is the very model of a modern university scientist: For much of the week, Lawrence Goldstein works as a professor of cellular and molecular medicine for the School of Medicine at the University of California (San Diego). His research on human cells is funded by the federal government and private donors. But off campus, Professor Goldstein turns into Entrepreneur Goldstein: He's co-owner of and an adviser to Cytokinetics, a company he founded with two other university scientists to convert his discoveries at the university into real-world therapies. "If you want the drug, you have to make the transition through the private sector," Goldstein told National Journal. The company has raised more than $80 million from investors, including drugmaker GlaxoSmithKline.

This combination of scholarship and entrepreneurship is becoming the norm for professors at top-tier research universities, especially in science departments, and the economic implications are significant. In San Diego, academic entrepreneurs have spun off more than 70 companies, most of them biotechnology firms. Some of the other spin-offs are software and hardware companies, such as Qualcomm, a wireless-equipment-maker. Since the mid-1980s, these companies and the university have taken the place of the Pentagon's Cold War spending as San Diego's engine of economic growth.

That success helps explain why politicians are eager to listen when Goldstein comes calling as secretary of the American Society for Cell Biology. The society represents roughly 10,000 scientists in universities, nonprofit research centers, and for-profit companies. In his third career -- as an advocate -- Goldstein allied with several other professor-entrepreneurs to persuade the California Legislature in 2002 to support the controversial cloning of human embryos for research. Democratic Gov. Gray Davis signed the bill into law and declared, "With world-class universities, top-flight researchers, and a thriving biomedical industry, California is perfectly positioned to be a world leader in this area."

Since 1980, the 100 or so U.S. research universities have helped create more than 3,400 companies -- including most of the biotech industry -- earning themselves billions of dollars and producing stock and wages for the professor-entrepreneurs and their employees. In the process, many of the universities have become very large enterprises. The University of California says its direct spending supports 350,000 jobs in the state, generates roughly $4.5 billion in state and local tax revenue, and produces many graduates, inventions, and companies that benefit the state in myriad ways.

The universities' economic influence has translated into increased political clout: Congress has boosted annual spending on university research over the past 10 years from $13 billion to $25 billion. That's more than twice the amount the Pentagon will spend this year on basic and applied research. Congress has also defended universities' budgets against cuts and, for the most part, left the institutions to their own devices.

The research universities also exercise their growing political clout through the advocacy and lobbying efforts of their professionals and their societies. These efforts extend beyond science-related issues and affect policy-making in a wide range of areas, including affirmative action, antitrust law, employment law, the environment, and technology. Influence is also evident in a phenomenon that two liberal authors have dubbed the "ideopolis": a wealthy, high-tech network of urban communities, such as Silicon Valley in California and Fairfax County in Virginia, where many university-trained professionals make their living in high tech, design, media, and education. These areas are so heavily Democratic that they will help return Democrats to political dominance, say John Judis and Ruy Teixeira, authors of "The Emerging Democratic Majority."

Admirers of this powerful new confluence of universities, professions, commerce, and politics laud its discoveries and economic benefits. "We are applying this collaborative concept on a grander scale than ever before," said Richard C. Atkinson, president of the University of California system, in a speech last May. "The objective ... is nothing less than the invention of the future California economy."

Critics argue that the money generated by the business activities in the mix has corrupted academic ideals, enriched special interests, and undermined teaching and the humanities. Many of the criticisms echo the warnings of President Eisenhower in his farewell speech. He famously urged the nation to "guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex."

That warning is far better remembered today than Eisenhower's next passage: "Public policy could itself become the captive of a scientific-technological elite.... The prospect of domination of the nation's scholars by federal employment, project allocations, and the power of money is ever present-and is gravely to be regarded.... It is the task of statesmanship to mold, to balance, and to integrate these and other forces, new and old, within the principles of our democratic system -- ever aiming toward the supreme goals of our free society."

A Revolution in Academia
Of the nation's 3,000 postsecondary educational institutions, about 100 are research universities. California has 10, New York has eight, and Massachusetts has five. The institutions include Harvard, Johns Hopkins, Rutgers, Stanford, Texas A&M, and Yale -- all of which emphasize graduate education and research, and each of which receives at least $40 million in federal support each year. These universities grew rapidly during World War II and the Cold War. Since 1953, federal spending on academic research has grown from less than one-tenth of 1 percent of gross domestic product to three-tenths of 1 percent. In current dollars, federal spending on universities has risen from $1.5 billion in 1970 to $25 billion in 2003, not counting tuition grants. In recent years, the mix of federal funding has also changed. Money for defense research slowed, as money for biomedical research surged to 60 percent of the spending.

In the Cold War years, this gusher of funds helped spawn many new technologies -- computers, software, satellites, missiles -- that helped contain and weaken Communism. But by the late 1970s, Congress had become concerned that Japan and other countries were more adept at converting the new technologies into consumer products. In 1980, it passed the Bayh-Dole Act, a law that, along with its subsequent amendments, allowed universities to claim ownership of inventions created with federal funds. With clear legal title to their creations, professors, investors, and university officials began to make deals. The initial disdain from many older academic scientists has been pushed aside; deal-making is now the norm at research universities.

Though that fundamental change received little public notice, "the university has gone through its second academic revolution," said Henry Etzkowitz, director of the Science Policy Institute at the State University of New York (Purchase). The first revolution combined research with the traditional education function. The second revolution, he said, has combined those elements with commerce. "That's a normative change," especially in science. When visiting a department at M.I.T. in 1990, Etzkowitz "found only one faculty member who was not involved" in business.

Rivers Of Money
Tuition revenues represent only a small percentage of a research university's income; the rest comes from other sources. The 10-campus University of California system, for example, receives only 9 percent of its $13 billion annual budget from tuition. In contrast, 27 percent comes from state aid, 24 percent from its five large hospital businesses, 15 percent from federal research grants, 6 percent from gifts, and 11 percent from parking fees, stadium revenue, and housing. Other enterprises contribute 8 percent. The university gets an additional $3.7 billion, not counted in the budget, from federal contracts to manage three laboratories. "Especially at research universities ... they operate very much like a business," said Sen. George Allen, R-Va., who, when he was governor, boosted funding at Virginia's three nonprofit research universities.

The research universities can claim a long line of inventions, including many medical and pharmaceutical products, vaccines, gene-splicing techniques, disease-detecting tests, computers, and Web browsers. These innovations have enabled people to lead longer, healthier, and more productive lives.

But universities' discoveries also generate revenue and transform academic departments into hives of entrepreneurship. Since the Bayh-Dole Act passed, the major research universities have earned billions of dollars from technology spin-off companies. The money comes from royalties, licenses for the use of patents, and stock ownership. Like the federal research grants, these spin-offs are heavily concentrated in the top research universities. Although this Bayh-Dole spin-off revenue -- $1.26 billion in 2000 -- is only a small percentage of the universities' total income, it is particularly attractive to researchers because, under the terms of the act, it must be plowed back into research. Typically, 30 percent of the revenue is given to the professor-inventor, and most of the rest goes to the department chiefs for distribution to other promising researchers. Moreover, the professors who create these spin-off companies can often expect stock options, plus a boost in their income and professional prestige, which in turn can draw more grants and commercial contracts to their universities. The spin-off companies also hire other professors as consultants and contract with the university for more research. This cycle of financial success attracts investors. Currently, such investors provide aid to more than 40 percent of biomedical researchers -- in hopes of getting in on the next big patent or blockbuster drug. From 1995 to the end of 2002, biotech start-ups received $15 billion in venture capital.

Each success heightens the entrepreneurial atmosphere. "People are saying, 'Gee, look at what they're doing over there'; ... the pressure [for deal-making] is coming from grassroots and the science bench," said Janet Scholz, president of the Association of University Technology Managers. The AUTM reported that 27 research universities and nonprofit research centers owned stock in at least 10 spin-offs.

Even without profits from patents made possible by Bayh-Dole, many university departments -- science, business, law, languages, math -- promote and profit from professors' consulting for the private sector. Universities typically allow professors to consult one day per week and then collect a franchise fee of 25 percent. Such consulting advice covers a huge range of areas: marketing and business, enzymes and genetics, conflict resolution, childhood education, civil rights. Some schools within universities also integrate consulting with executive education at the school, generating further revenue for themselves. The Darden Graduate School of Business Administration at the University of Virginia has used its consulting revenues to win a large measure of independence from its parent university. Many universities join research consortiums funded by both companies and universities, producing jointly owned spin-offs.

Even in the absence of a patent, a university can find many opportunities to increase prestige and revenue. For example, some law schools, such as Stanford's, have promoted the idea of "enterprise liability," which helped change U.S. tort laws. The new legal tool allowed judges to direct wealthy defendants to pay the bulk of monetary damages, even if they were held only minimally responsible. This idea "has been immensely influential in changing the rules of the game," said Walter Olson, a lawyer at the Manhattan Institute in New York City. "Legal academia has clearly played a critical role very well in conceptualizing and promoting new areas of litigation, which -- if they strike the courts and legislatures as plausible -- are picked up and turned into standard areas of litigation." These university-promoted laws include some of the many laws related to employment practices, sexual harassment, and opportunities for the disabled. Academic experts who become prominent in these fields win prestige and consulting fees, and they draw students to their institutions.

New ideas generate new government grants, in both science and nonscience departments. For example, after professors grew more interested during the 1970s in ethnic and racial diversity, the Education Department began awarding grants to study diversity. Since 1996, it has given $29.5 million to the Center for Research on Education, Diversity and Excellence at the University of California (Santa Cruz) to recommend techniques for teaching students from diverse ethnic and economic backgrounds. With that money and 70 researchers, said director Roland Tharp, the center has produced five policy guidelines.

But the vast majority of research grants flow into the hard-science departments at the research universities. They come from the National Institutes of Health, the National Science Foundation, the Pentagon, the Energy Department, and a few other government bodies. This money is augmented by state and local governments, which together spend roughly $2 billion on university research each year. The funding is further increased by roughly $2.3 billion from corporate investors and by $6 billion in funds that universities allocate from flexible funding sources, such as money they receive from the states.

Universities compete fiercely for status, national rankings, grants, and gifts from foundations and individuals, and the prizes are significant. For example, in 1998 the University of California (San Diego) received $15 million from Qualcomm. Universities also receive revenue from their endowments. For a more dynamic revenue stream, however, universities are operating an expanding variety of side businesses: government laboratories, stadiums, computer and medical services, and centers that run clinical trials of experimental medicines for pharmaceutical companies. They're also creating new products and services for specific markets: anti-smoking classes, software to track students from the Middle East, and even high-tech voting machines.

Connections, Coalitions, And Clout
For the research universities, economic influence has translated into political clout. Politicians "want success in their backyards, and acknowledgment from their constituents that their tax dollars are being put to good use, close to home," said Mary Woolley, president of Research!America. Her group helps universities win research funding. The universities are "one of the linchpins of economic development" in New York state, said Sen. Charles E. Schumer, D-N.Y. And George Allen of Virginia agrees, calling them "vitally important."

Despite failures and delays-gene therapy has succeeded in only a handful of cases, the war on cancer is still under way -- just the promise of a cure from university researchers is often powerful enough to overcome skepticism. This kind of clout is seen in the current debate over the use of human embryonic stem cells in experiments: "I know too many people who have these life-changing diseases not to work for a cure," said Sen. Dianne Feinstein, D-Calif. She is co-sponsoring a bill that would allow embryo cloning for research.

Only the leading universities have their own in-house lobbyists. They work to win prizes for their employers, but they also often work in coalitions with other universities' advocates to win prizes for the whole university sector. Overall, more than 200 associations in Washington list higher education as their primary focus. The large coalitions include Research!America and the Science Coalition. They incorporate a dizzying array of companies, professional associations, and groups representing patients with particular diseases.

The strategy employed to gain political influence is well demonstrated by the Coalition for the Advancement of Medical Research, which is opposing restrictions on cloning and embryo-related research. In 2002, its board had representatives from three universities, including Harvard and the University of Wisconsin (Madison), which owns a key patent on embryonic stem cells. The coalition draws support from patients' groups headed by famous personalities such as Michael J. Fox; from professional associations such as Professor Goldstein's American Society for Cell Biology; from business allies in the Biotechnology Industry Organization; and from more-distant friends such as the American Bar Association, which, at its 2002 annual meeting, endorsed cloning for research. The coalition plays up potential therapies-and it also promises more research-related jobs. It boasts support from political allies such as Laurence Tribe, the Harvard professor, legal theorist, and practicing lawyer. So far, the coalition has checked efforts by social conservatives to block cloning.

The lesser-known professional associations, such as the ASCB, are well connected in Washington, partly because their scientist members are seen as trustworthy white-coated academics, partly because they have roots in almost every congressional district, and partly because they supply more than 30 scientists each year to serve as unpaid advisers to key members of Congress. "You dress somebody up in a lab coat [and] they take a huge leap in credibility, particularly if they are employed in a university," said Howard Wayne, who represented San Diego in the California Legislature.

Specific tasks require specific coalitions. On drug-pricing issues, the hospital-owning universities ally with commercial hospitals. In recent years, their To Do lists have been long. The universities have tried to shape the debates on copyrights and patents, minimize curbs on immigrant graduate students (who provide much low-wage, high-skill labor for research laboratories), and beat back stringent rules for the care of the millions of rats, mice, and birds used each year in experiments. They've also had to grapple with controversies over safeguarding infectious diseases and poisons stored in laboratories, managing federal funds, and reforming affirmative action.

Conflict Or Confluence?
The increasingly entrepreneurial and political nature of the research university has aroused concern among plenty of critics.

One of them is Michael Davis, a professor of intellectual-property law at Cleveland State University. He says the federal government's failure to enforce the terms of the Bayh-Dole Act allows wholesale thievery by universities and companies. Bayh-Dole requires that ideas-and any subsequent patents that emerge as a result of federal funding-be made available to the public at "reasonable terms," Davis said. A 1999 report by the General Accounting Office declared that only 6 percent of a sampled 2,000 inventions were properly recorded as Bayh-Dole inventions. And, Davis said, NIH fails to keep track of which drugs are developed with federal funding. Such mismanagement ensures that drugs developed with federal funds are vastly overpriced by the pharmaceutical firms, Davis said. "First we pay to discover it, then we pay to buy it back," he complained.

Not so, say advocates of Bayh-Dole. The ownership rights allowed under the law are needed because creating a retail drug is so costly, said Goldstein. Indeed, many biotech companies have failed even though they controlled important patents. Overall, say supporters of the existing rules, federal policies have sparked a rush of new investment that has generated jobs, therapies, and tax revenues worth far more than the cost of federal research grants. For example, in May 2000, then-Sen. Connie Mack, R-Fla., reported that U.S. consumers were willing to pay $2.4 trillion each year for the improvements in health that modern therapies make possible. If only 10 percent of these improvements stem from NIH spending, then taxpayers get a 15-fold return on NIH spending, his report says.

What about the charges that the recent emphasis on research and profit has subverted the universities' original mission, that of learning and teaching? According to an editorial in the January 10 issue of Science magazine, the problem is the money; the revenue generated by universities' science research is biasing them toward research and de-emphasizing teaching. Academic teaching has fallen behind because "promotions, large salaries, and prestige at a research university are dependent on [research] publications, patents, and grant funds," wrote Thomas Cech, president of the Howard Hughes Medical Institute. The institute is spending $20 million over four years to improve teaching. Data from the NSF show that since 1973, the number of researchers has increased by roughly 50 percent, while the number of teaching professors has declined steadily.

The abundant revenue from science research is also putting pressure on humanities departments, critics say. "Our universities are going to have to struggle to prevent the liberal arts curricula from being swamped by technology and science," Federal Reserve Chairman Alan Greenspan said in an October speech in New York.

Critics also argue that the pressure for revenue creates many conflicts of interest that undermine universities' claims of conducting neutral research. At odds, they say, are the academic's role versus the entrepreneur's, the public benefit versus the profit motive, patenting versus information-sharing, and the desire for quick results versus patient safety. Entrepreneurship is eroding the universities' role as "a commons of the mind, where truth is promoted through the testing of ideas among scholars," said David Kirp, a public policy professor at the University of California (Berkeley).

But among many university researchers, said Etzkowitz of the Science Policy Institute, the conflicts of interests are "now seen as confluence of interest," because the commercial interests provide more funding for academic research and more discoveries. University professors and managers "believe they can accomplish both goals at one and the same time," he said. Moreover, added Allen, how to pull off the balancing act should be decided by the university, not by politicians. "I don't think the federal government should micromanage something that's for the governing board to determine," he said. Schumer of New York says that even if universities are converted into businesses, and professors into entrepreneurs, that's a worthwhile price for the new jobs and medical therapies that will be created.

Sheldon Krimsky, a health policy expert at Tufts University who has written extensively on financial conflicts of interest, sees another pitfall: More entrepreneurship in universities undermines the professors' credibility as trusted advisers to policy makers, especially in public policy debates that threaten the particular interests of the science sector. "One has to be a lot more skeptical when asking someone to appear before a subcommittee, or to serve on a science advisory panel." In the high-stakes, high-volume stem-cell and cloning debates, for example, several universities have used prominent scientists to testify that cures -- and research-related jobs -- will be developed if scientists are free to experiment with embryonic stem cells and cloning. Opponents, including some university scientists, testify that the cures can be created from adult stem cells and that such work avoids exacerbating other controversies over genetic engineering of humans.

"The arguments may be quite strident, but it is a normal, healthy part of the way we do science," said Margaret Goodell, an adult-cell researcher at Baylor College of Medicine in Houston. Goodell endorses both avenues of research. Goldstein opined that in such debates, legislators and reporters should simply ask scientists to explain their various enterprises. In his many talks with politicians and reporters, he said, "I don't think anybody ever has" asked such a question. "My opinions are shaped by my environment [and] the values of science," and personal wealth is a low priority, he said; how the values of science should be balanced against the public's values is for politicians to sort out. Overall, said Woolley, "the American public strongly supports the research enterprise.... Those concerns don't strike me as mainstream."

The recent rise of the research university, with its intertwined alliances, has received scant attention outside the university sector. Indeed, this loose confederation doesn't yet have a name, though supporters favor "The Research University." Critics promote their favorite terms -- "corporate academia," "academic capitalism" -- but none portrays the breadth of professional and commercial interests now entangled with the research universities. Perhaps the best name is simply a variant of Eisenhower's military-industrial complex: the "professional-commercial complex."

Whatever the name, the new sector appears poised to gain even more political clout. As Woolley said, "We can't have real progress by hiding out in the academic ivory tower; we've got to be working in partnership [with politicians] and with the business community."

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