In 1965, the University of Florida football team faced a potentially devastating enemy-dehydration. University doctors set out to make a drink that would keep the team hydrated and winning. The product they made is now known the world over as Gatorade. Not only did Gatorade energize dehydrated football players, but once licensed to a soft drink company, it reaped handsome profits for the University of Florida and sparked an ongoing race for universities to discover more profitable products.
But how do discoveries like Gatorade make it to market and turn profits for universities? In most states, including Arizona, universities can profit from their research by licensing or selling discoveries to private companies, like the University of Florida did with Gatorade. In fact, Arizona universities enjoy some of the most flexible, permissive licensing options in the nation. In 2003 alone, Arizona universities signed 124 licensing agreements.
But this mechanism is not enough for some proponents, like Governor Napolitano, who argue that allowing the universities to become owners or shareholders in private companies is necessary to drive the "new" economy. Accordingly, they have proposed gutting Article IX, section 7 of the Arizona Constitution, which prohibits the state or any of its subdivisions from taking ownership stakes in private companies.
However, the proposed constitutional change combines the worst of all possible worlds. It encourages a centralized, state-run economy in which government commits public monies for speculative research projects. And, significantly, the proposal provides little oversight and could result in the very problems that Article IX, section 7 of the state constitution was designed to prevent.
The framers of Arizona's constitution were very familiar with the territory's history of local governments wasting public funds in speculative ventures with east coast railroad companies. The nation witnessed similar boondoggles, such as the Credit Mobilier scandal and several canal building projects in the Midwest. Thus, the drafters of the state constitution wisely prohibited public funds from being provided to private companies and state entities, including the state universities, for speculative ventures. The constitution also prohibits the state from becoming an owner or partner in a private company.
Also troubling is the fact that the proposed amendment would let universities, operating with private companies, use public resources to compete against non-government supported businesses. Such an arrangement is inconsistent with free-market principles and provides an unfair advantage to companies that partner with the state. As has occurred in the past, the potential for corruption or depletion of the public treasury also exists.
Additionally, the emphasis on developing new and innovative technologies may encourage research in dubious or speculative ventures in order to ensure a large return on investment. However, most projects are not profitable. In fact, as the Wall Street Journal recently reported, publicly-funded biotechnology ventures have lost over $40 billion just since 1995. If the constitution is amended, we can anticipate the universities spending more public money to produce less meaningful inventions or patents. The emphasis on speculative research may also distract the universities away from their primary mission of educating students.
Economic prosperity results not from state-owned business or universities, but from the freedom of entrepreneurs to operate. Wealth is created by individuals, not government. Universities are especially inefficient. In his recent book, Going Broke by Degree, Professor Richard Vedder conclusively illustrates that higher university spending actually lowers economic growth.
The proposed amendment would repeal a long-standing protection for taxpayers and throw wide open the door to boondoggles and public corruption. Instead of granting universities ownership in private enterprises, policymakers should encourage universities to leverage their licensing options, and safeguard this important provision of the constitution.