Over the past decade there has been an intensification of interest in how universities can play a more effective role in promoting technical advance in American industry. However, very little of the current discussion is solidly based on an informed analysis of the roles that universities actually play today or the historical circumstances that caused universities to assume these roles. This paper offers an analysis, both historical and contemporary, that identifies the distinctive strengths, as well as limitations, of university research. Regarding the strengths, most of university research, is basic research in the sense that it aims to understand phenomena at a relatively fundamental level. However, this does not mean that such research is uninfluenced by the pull of important technological problems and objectives. The lion's share of university research is in the engineering disciplines and applied sciences such as computer science and oncology which, by their nature, are oriented toward problem-solving. Despite its obvious usefulness, industry does very little of such basic research because the payoffs are of a long-run nature as well as difficult to appropriate. The vast bulk of industry R&D is focused directly on shorter term problem-solving, design and development. Universities are not particularly good at this sort of work. Industry is more effective in dealing with problems that are located close to the market place. This paper argues that new policies will need to respect this division of labor.
