In many respects, the last few months have been dazzling ones for North Carolina State University. On January 15, President Obama traveled to Raleigh to announce that the university will be the headquarters for a $140 million public-private partnership that develops the “next generation” of semiconductors to be used in electronic devices. The Department of Energy will give NC State $70 million, the university’s biggest federal grant ever. The other $70 million will come from industry and the government of North Carolina.
In August, the university announced that the National Security Agency had granted the university $60.75 million to create the Laboratory for Analytic Sciences—a top-secret program that will require government security clearances for its employees. The grant would have been announced earlier, but fear of adverse publicity from the Edward Snowden revelations around NSA spying caused the university to hold off.
And most recently, NC State was selected by the U.S. Department of Agriculture to be one of seven climate change research hubs around the country. While the designation does not come with a specific dollar figure, it is an expansion of an already-existing, $100-million Agriculture Department climate research program.
Let’s look a little closer at those federal “gifts,” specifically the Next Generation Power Electronics National Manufacturing Innovation Institute announced by the president. Such federally funded projects should be viewed in the light of what they do for the citizens of North Carolina (and the United States) rather than the extent they may add jobs to universities or firms receiving the grant money. (Senator Kay Hagan told Greensboro’s News & Record that the institute will “create or sustain” 1,000 jobs over the course of a five-year period.)
The NC State innovation hub is one of three that will be the core of the Obama administration’s “National Network of Manufacturing Innovation.” The others have not yet been announced but they will specialize in digital and lightweight metals manufacturing and be led by the Department of Defense rather than Energy. Obama says he wants to see 45 of these manufacturing innovation hubs across the country, but Congress must pass legislation for that to happen.
As we examine this project, we should not forget the political element. Obama may well be shoring up a shaky Democratic party in North Carolina by providing NC State with one of these three centers.
But the biggest issue is whether the “Innovation Institute” will have a substantial return on investment for the taxpayer.
The stated aim of the Innovation Institute is to enhance “power electronics”—devices that convert electricity in such products as electrical vehicle chargers, computers, and television sets. The public-private partnership is meant to increase the viability of wide-bandgap semiconductors and thus expand their markets. Such semiconductors are smaller and more efficient than silicon semiconductors, the industry standard. If they can be used in consumer electronics, they will make such products lighter, better, and cheaper.
University officials such as interim director Dennis Kekas imagine an exciting horizon for these semiconductors, evoking their use in alternative-energy products and their potential to lower energy and production costs.
While wide-bandgap semiconductors exist today, they are too expensive and unreliable to be useful. A 2013 Department of Energy paper on these semiconductors pointed to high initial capital costs as a major hurdle; increased “manufacturability and affordability are needed to spur commercialization,” the report said.
Thus, the argument goes, a federally supported public-private partnership will make these semiconductors more affordable and easier to manufacture.
But one should ask why Silicon Valley—and other investors—are ignoring this innovation. Perhaps the purposes for which it is touted are not realistic and thus do not inspire interest in capital investment. Or perhaps the current semiconductors are doing the job well enough.
It is true that 18 private companies are enlisted in the project. But at least one—ABB, a high-tech company that employs 2,700 people in the Raleigh metro area—is hedging its bets. It is contributing $2.5 million to the initiative but getting a $2.1 million grant as well.
One has only to look at monumental failures of initiatives supported by the Energy Department and Export-Import Bank, agencies that have bankrolled dozens of now-bankrupt “green energy” projects, to be suspicious about NC State’s new institute. Billions of taxpayer dollars have been wasted on subsidies and loan guarantees for costly technologies like solar panels, wind turbines, electric cars, and biofuels.
A recent and glaring example comes from Solyndra, a defunct solar manufacturer that received roughly $535 million from the Energy Department in 2009. Despite warnings about Solyndra’s unsoundness, the Obama administration made repeated claims that the company represented the future of “green” energy, and that the subsidy would help create 4,000 jobs.
Instead, the company, whose major investors and shareholders were Obama campaign contributors, lobbyists, and friends of the White House, failed. It filed for bankruptcy in 2011. In several other cases involving Energy Department subsidization, government officials have promised job creation and technological breakthroughs, but the end result has been more waste, and even allegations of fraud.
There are non-political reasons to question the continual pouring of taxpayer money into university research, however.
In his 2010 report State Investment in Universities: Rethinking the Impact on Economic Growth, the Pope Center’s Jay Schalin analyzed the economic effects of state government expenditures on university research. After examining a number of studies, he concluded that some research subsidization leads to growth, but that it can also have a negative effect. This is because policymakers often lack the information and incentives necessary to make wise investment decisions, and the economic models used to garner support for such subsidization are severely flawed. In addition, high subsidies (which require high taxes) may outweigh the benefits of the investments. Thus, it is almost impossible for lawmakers and bureaucrats to pinpoint the optimal level of funding.
The state of North Carolina and the federal government, which are spending $10 million and $70 million on the Innovation Institute, respectively, would be well-served by considering these factors.
NC State, too, needs to do some soul searching. Does it want to remain a world-class research university, or become a division of the federal government?