“Follow the money!” According to the film All the President's Men, this advice from the shadowy informant known as Deep Throat guided Washington Post reporters Bob Woodward and Carl Bernstein in cracking the Watergate conspiracy.

The strategy also serves Georgia State University economist Paula Stephan extremely well in her illuminating and accessible new book, How Economics Shapes Science. A leading expert on the scientific labor market, Stephan isn’t looking to sniff out high-level government corruption. Rather, using the “tool bag” economics provides for “analyzing the relationships between incentives and costs,” she penetrates the financial structure of university-based science, explaining the motivation and behavior of everyone from august university presidents and professors to powerless and impecunious graduate students and postdocs.

It's a remarkably revealing approach. Most of what the public hears about the arrangements that govern research comes from reports by blue-ribbon commissions, prestigious panels, and university-oriented advocacy organizations. Such reports rarely use hard-headed economic analysis; rather, the groups writing them tend to consist of top administrators at leading universities, eminent faculty members in major science and engineering departments, and high executives of large corporations -- “not,” Stephan pointedly notes, “students and postdocs who could not find jobs.”

The documents that result from those high-end studies lean toward self-congratulatory invocations of science’s role in advancing human welfare. Their suggestions generally favor solving what ails universities by giving them more of what they already have: funding, grants, graduate students, and postdocs. But, warns Stephan with an astringency that she infuses throughout the book, when “assessing recommendations, one should be leery of those coming from groups who have a vested interest in keeping the system the way it is.”

The consequences of cost and risk

The troubles plaguing academic science -- including fierce competition for funding, dismal career opportunities for young scientists, overdependence on soft money, excessive time spent applying for grants, and many more -- do not arise, Stephan suggests, from a shortage of funds. In 2009, she notes, the United States spent nearly $55 billion on university- and medical school–based research and development, far more than any other nation.

The problems arise, Stephan argues, from how that money is allocated: who gets to spend it, where, and on what. Unlike a number of other countries, the United States structures university-based research around short-term competitive grants to faculty members. The incentives built into this system lead universities to behave “as though they are high-end shopping centers,” she writes. “They turn around and lease the facilities to faculty in [exchange for] indirect costs on grants and buyout of salary. In many instances, faculty ‘pay’ for the opportunity of working at the university, receiving no guarantee of income if they fail to bring in a grant.” Those who land funding staff their labs with students enrolled in their department’s graduate program, or with postdocs. Paid out of the faculty member’s grant, both types of workers depend on the primary investigator’s (PI’s) continued success in the tournament.

Universities, however, also face considerable risks. They must, for example, provide large start-up packages to outfit new faculty members for the competition. Newcomers generally have about 3 years to establish a revenue stream -- to start winning “the funding to stay in business,” Stephan says. The need to reduce risk explains universities’ growing penchant for hiring faculty members off the tenure track and using adjuncts for teaching. “Medical schools have gone a step further,” Stephan notes, “employing people, whether tenured or nontenured, with minimal guarantees of salary.” Where tenure once constituted a pledge to pay a person’s salary for life, it now constitutes, in the acerbic definition I’ve heard from some medical school professors, a mere “license to go out and fund your own salary.”

Risk avoidance has scientific as well as financial consequences. “The system … discourages faculty from pursuing research with uncertain outcomes,” which may endanger future grants or renewals. This peril is “particularly acute for those on soft money.” Experimental timidity produces “little chance that transformative research will occur and that the economy will reap significant returns from investments in research and development.”

As in all financial ventures, cost determines much of what goes on in the laboratory. “Cost plays a role in determining whether researchers work with male mice or female mice (females, it turns out, can be more expensive), whether principal investigators staff their labs with postdoctoral fellows (postdocs) or graduate students, and why faculty members prefer to staff labs with ‘temporary’ workers, be they graduate students, postdocs, or staff scientists, rather than with permanent staff.” Postdocs often are a PI’s best staffing buy, Stephan writes, because their excellent skills come with no requirement to pay tuition, which at top private institutions can run $30,000 a year or more. Overall, the need to reduce risk and cost in the grant-based system produces “incentives … to get bigger and bigger” by winning the maximum number of grants and, because grad students and postdocs do the actual bench work, to “produce more scientists and engineers than can possibly find jobs as independent researchers.”

Many universities, meanwhile, took out large loans during flush times to finance buildings and equipment intended to give them an edge in attracting grants. They find their fiscal stability “severely threatened when funding from grants plateaus, or does not grow sufficiently to keep pace with the expansion. They face even more serious prospects when budgets decline in real terms.” The nation’s enormous investment in biomedical research has also “created a lobbying behemoth composed of universities and nonprofit health advocacy groups that constantly remind Congress of the importance of funding health-related research,” Stephan adds. This gives rise to unceasing claims that no amount of science funding is ever enough.

Although one topflight report described this setup as “ 'incredibly successful’ from the perspective of faculty,” Stephan observes, “it is the Ph.D. students and postdocs who are bearing the cost of the system -- and the U.S. taxpayers -- not the principal investigators.” Undergraduates also carry an increasing share of the load, she adds: Their tuition, often paid with student loans, rises as more funds go to research. Their teachers, meanwhile, increasingly are cut-rate adjuncts rather than the famous professors the recruiting brochures boast about.

Finding solutions

Unsurprisingly, Stephan’s proposed solutions differ from those of the blue-ribbon panels. She focuses not on the need to grow budgets or aggrandize institutions but on the need to increase what economists call efficiency, allocating scarce resources -- in this case, taxpayer money and the talents and time of the nation’s able young people -- to produce the highest return in desired goods: transformative science and sustainable, transformative science careers.

Thus, she argues for producing fewer rather than more Ph.D.s, for requiring all PIs to report the career experience of their Ph.D.s and postdocs as part of “the outcome data for scoring proposals,” and for limiting the “amount of faculty time that can be charged to grants, thereby dulling the incentives for universities to hire faculty on soft money.” The latter measure would have the added benefit of discouraging “universities from putting up buildings on spec and filling them with faculty on soft money positions.” Stephan also wants more attention paid to the potential advantages and disadvantages of funding systems that support researchers over time, as the Howard Hughes Medical Institute has done with great success, rather than for specific, short-term projects. Importantly, she notes, “universities and faculty members do not respond to recommendations that lack teeth.”

The short space at my disposal allows me to present just a hint of the penetrating discoveries waiting in this book: How and to what extent does patenting enrich some faculty members and universities? What incentives encourage universities to import increasing numbers of foreign students and postdocs -- and to insist that there are shortages of both -- while a growing surplus of native-born scientists struggle to find jobs that allow them to pay off student loans? How do universities continue to attract students into graduate programs despite poor odds of attaining the careers they desire? Why does supporting scientists over time, rather than individual grant-funded projects, appear to produce better science?

These and many other apparent quandaries yield to Stephan’s rigorous and clear-eyed examination of the money trail. She conveys her findings in clear, comprehensible prose. If you want to understand what is really happening in American academic science today, here’s my advice: Read this enlightening book.

Beryl Lieff Benderly writes from Washington, D.C.

10.1126/science.caredit.a1200001