Until World War II, the U.S. government invested relatively little in research conducted by universities and companies. The emergency gave rise to research contracts, expert evaluations, overhead funding, and rules for distributing patent rights—mechanisms that continue to shape American science eight decades later. Source in Science
America in Test Tube | Chapter 3 of 8
This article is part of the "America in Test Tube" series to commemorate the 250th anniversary of the United States, which deals with the relationship between science, state, industry, and democracy.
Previous chapter: The German model that gave birth to the American research university | for all episodes of the series
In the previous installment of the “America in Test Tube” series, we saw how Johns Hopkins University and the institutions that followed it transformed the American university from a place primarily designed to transfer knowledge to an institution that produces new knowledge. But even excellent universities, laboratories, and researchers do not create a scientific powerhouse without a system capable of funding research over the long term.
This system was not planned in advance on a clean slate. It was born out of an emergency.
For the first 150 years or so of the United States' existence, the federal government invested relatively little in research conducted outside its institutions, with the exception of important investments in agriculture. University scientists relied on institutional funds, private donations, foundations, and sometimes commercial companies. The government was not yet the main funder of academic laboratories.
World War II changed this fundamentally. It not only accelerated certain studies, but also created the The American Science Funding System Modern: contracts with universities and companies, review of proposals by experts, payment for research infrastructure, patent arrangements, and division of labor between government agencies with different missions.
Many of the debates currently taking place over science funding in the United States began back then.
When the war turned scientific questions into national missions
In 1940, before the United States officially entered the war, President Franklin D. Roosevelt established the National Defense Research Committee (NDRC). Its purpose was to recruit civilian scientists and engineers to tackle technological problems of military importance.
The committee was later incorporated into a broader body: Ministry of Scientific Research and Development, OSRD, led by Engineer and Science Director Vanier Bush.
Suddenly, the government was required to find practical answers to questions it had no institutional experience in solving: What problems to invest in? Who could do the research? How to decide between competing proposals? How much freedom to grant scientists? How to transfer results from the laboratory to the military or to the assembly line? And who would own the inventions created with public money?
OSRD funded research at universities and companies across the country on an unprecedented scale. The activity contributed to the development of radar, rockets, nuclear fission research, antibiotics, and vaccines. Some of the technologies directly served the war effort, but their impact lasted long after the fighting ended.
The war created a need for quick solutions. But to produce them, the government had to build a mechanism that could combine public money, academic expertise, engineering capability, and industrial production.
One of the most important inventions wasn't a device – but a contract
One of OSRD's most important contributions was the creation of the federal research and development contract. Instead of employing all scientists as government employees or transferring them to government laboratories, the country contracted with universities, companies, and existing laboratories.
This way, researchers could continue to work within their academic communities and professional infrastructures, while the government defined tasks, provided money, and demanded results.
Most research contracts were awarded to entities already operating before the war. However, in some cases the government established large organizations dedicated to a single mission. The most notable example was the Radiation Laboratory at the Massachusetts Institute of Technology, MIT, which became the national center for radar research and development.
The term "radiation laboratory" may be misleading: most of its work did not deal with radioactive radiation but with radio waves and radar. It brought together physicists, electrical engineers, mathematicians, and industrialists in an effort to develop detection, navigation, and weapons guidance systems.
The contract allowed the government to buy research without nationalizing the university or company that carried it out. It also made universities permanent partners of the state in achieving national goals.
Who decides which research is worthy of funding?
OSRD did not distribute money solely based on political connections or institutional status. It used expert evaluation to assess whether a proposal was scientifically and technologically feasible. Along with the scientific question, its importance to the military mission was also considered.
It wasn't exactly the peer review mechanism that is common today at NSF or NIH, but it established a central principle: decisions about research should rely on people who understand the field.
The combination was not without its tensions. The scientists examined feasibility, originality, and professional quality; the military examined operational utility and urgency. A proposal could be scientifically interesting but of no immediate value to the war, or conversely – vital to the military but limited in research.
The resulting model connected two types of judgment: Scientific excellence and relevance to the missionTo this day, different agencies in the United States balance each other in different ways.
What are indirect expenses – and why are they important?
One of the seemingly technical issues that OSRD had to resolve was funding the indirect costs of the research.
When a government funds an experiment, it’s not enough to pay the researchers’ salaries and buy the specific equipment needed for the project. The lab needs electricity, water, safety systems, maintenance, accounting, libraries, workspace, technicians, and computing infrastructure. Some of these costs are common to many projects and cannot be easily attributed to a single experiment.
These are machines. Indirect expenses Or overhead.
OSRD adopted a “no profit, no loss” principle: universities and companies were not supposed to get rich from the war work, but neither were they supposed to lose money because they agreed to participate in it. In the first stage, companies were set to be reimbursed for indirect costs of 100% of the direct labor costs, and universities were given 50%.
These rates are not the current rules, but the recognition that research requires institutional infrastructure remains a central part of the grant system.
Even during the war, the issue was highly controversial. Some of the current debates about “overhead cuts” actually go back to a question that was asked as early as the 1940s: Does the government pay only for a particular experiment, or also for the institution that allows it to be carried out?
Who owns a patent funded with public funds?
Another problem was the ownership of inventions.
If a company or university developed a technology using government money, should the patent belong to them, the state, or the public? On the one hand, the government wanted to attract private entities and give them an incentive to participate. On the other hand, taxpayers had already funded the research.
In many OSRD contracts, contractors were allowed to retain ownership of the patents, while the government was licensed to use the technology royalty-free. In some areas, including some medical research, the government retained ownership.
The debate did not end with the war. Agency policies changed over the years, until the Bayer-Dole Act of 1980 created a more uniform framework that allowed universities, nonprofits, and small businesses to own patents resulting from federally funded research.
Supporters of the model argued that it helped move inventions from the laboratory to the market. Its critics questioned why the public was sometimes required to pay a high price for a product created with their own money.
Penicillin: From the laboratory to mass production
The photograph accompanying the article inScience Presents one of the war system's most notable civilian success stories: the research, testing, and mass production of penicillin.
The antibiotic properties of penicillin were known before World War II, but its transformation from a laboratory discovery to a widely available drug required much more than basic research. It required methods for growing the mold, improving yield, purifying the substance, testing its effectiveness, setting up production lines, and collaboration between the government, universities, and pharmaceutical companies.
The war created an urgent demand for a cure for bacterial infections among the wounded. The system designed to provide a solution for the military accelerated a process that later brought penicillin to the civilian population and transformed medicine.
The same pattern repeated itself in other areas: investment intended for a military mission created knowledge, facilities, manpower, and industries that became the basis for civilian innovation.
The war is over, the partnership remains.
OSRD was disbanded after the war, but the system it created did not disappear. Even before victory, Roosevelt asked Vannevar Bush to examine how the lessons of the war could be used in peacetime.
Bush responded in the famous document Science, the Endless FrontierHe argued that the government should continue to fund basic research at universities because its results contribute to health, the economy, and national security, even when it is impossible to predict in advance what applications will emerge from it.
Bush proposed establishing a National Research Foundation that would provide support primarily based on scientific quality. In contrast, Senator Harley Kilgore sought a system with broader democratic accountability, which would also give weight to social needs, geographical distribution of money, and public rights in inventions.
The system that was ultimately created did not fully comply with any of the plans.
Instead of one central science office, research areas were scattered among many entities. The Office of Naval Research received some of the military contracts; the Atomic Energy Commission received the nuclear field; the National Institutes of Health expanded medical research; and later NASA, the Department of Energy, the National Science Foundation, and other agencies were added.
When NSF was finally established in 1950, it was a relatively small player compared to the major mission agencies.
Why doesn't the United States have a single science office?
The American research system remains fragmented to this day.
NIH funds primarily biomedical research, and in many cases university researchers propose the questions they wish to investigate. NSF funds basic research in a wide range of fields. The Department of Energy operates a network of national laboratories. NASA funds space science, aeronautics, and Earth exploration. The Department of Defense and DARPA fund programs aimed at developing defense capabilities.
Each agency has a different culture, different evaluation mechanisms, and a different degree of involvement in the management of the research.
Fragmentation sometimes makes it difficult to set national priorities. There is no single federal budget for science, and no single agency sees the whole picture. Areas can fall between agencies, and similar research can receive double funding.
But fragmentation also has an advantage: It prevents one concept or institution from dominating all research. A field rejected in one agency may find support in another. Different researchers and missions receive different types of funding, and a blow to one body does not immediately destroy the entire system.
In this sense, disorder is also a mechanism of diversity and resilience.
A successful system that also needs repair
The evidence presented by economists Daniel P. Gross and Bhavan N. Smept in their article inScience indicate a high return on federal investment in research and development. Other countries have copied elements of the American system, including competitive funding in the style of NSF and NIH and policies that allow institutions to commercialize inventions created with public funding.
But success does not eliminate criticism.
Over the years, it has been argued that research agencies have become bureaucratic, conservative, and risk-averse. Researchers spend a lot of time writing applications, few of which will be funded. Expert committees may favor safe, familiar ideas over unusual directions. Strong institutions enjoy a cumulative advantage, while young researchers and small universities struggle to enter the system.
Even questions that seem new are not really new: What is the appropriate overhead rate? Who should own patents? How much money should be devoted to basic research versus applied development? Is funding too concentrated in a small number of universities and countries?
All these questions have accompanied the system from its inception.
The legacy of the state of emergency
World War II did not invent the American university or industrial research. It connected them through federal money, contracts, experts, and national goals.
The connection produced enormous achievements, but it also brought science closer to the military and the state's power apparatus. It gave researchers resources they had not had before, but it also made research institutions dependent on government decisions. It encouraged basic research, but grew out of a demand for practical and rapid solutions.
The American system was not built as a perfect structure. It evolved layer upon layer, through institutions that dealt with war, the Cold War, the space race, epidemics, and economic challenges.
Its lesson is not that every problem requires a new “Manhattan Project.” The lesson is that effective research policy requires more than just pouring money: it requires institutions, rules of the game, expertise, the ability to take risks, and public acceptance that research is a long-term investment.
This is the third article in the “America in Test Tube” series. The next installment will explore the transition from Thomas Edison’s invention factory and corporate research labs to the fragmented system of universities, startups, and corporations.
Questions and Answers
What was OSRD?
OSRD was the Office of Scientific Research and Development established during World War II to recruit scientists, universities, and companies to develop technologies for the war effort. It was directed by Vannevar Bush.
What did the financing system created during the war innovate?
It greatly expanded the use of research contracts with universities and companies, evaluation of proposals by experts, funding of indirect costs, and setting rules regarding the ownership of patents created with public funds.
What are indirect expenses in research?
These are costs that do not belong to a single experiment, but are necessary to conduct the research: buildings, electricity, safety systems, maintenance, libraries, administration, computing infrastructure, and shared equipment.
Why is the American funding system fragmented among many agencies?
After the war, research areas were transferred to various bodies, including the military, NIH, the Atomic Energy Commission, and later NSF and NASA. The fragmentation makes coordination difficult, but also allows for a variety of funding methods and reduces dependence on a single agency.
Does the financing system created in the 1940s still exist?
The organizations and rules have changed, but many of the basic principles have remained: partnerships between government and universities, competitive funding, expert review, overhead reimbursement, and arrangements for commercializing patents generated by public research.
America in a Test Tube – Continuation of the Series
Previous episode: The German model that gave birth to the American research university
All episodes of the series: America in Test Tube: 250 Years of Science, Power, and Democracy
Next episode: From Madison and Bell Labs to the Startup Economy — Coming Soon
More on the subject on the science website
- Who will finance the next big idea? — On the gap between basic research and commercial development, and the need for public funding when the private market is not willing to bear the long-term risk.
- The Jews, the Nazis and the race for the atomic bomb — About the European scientists who alerted the American government and initiated one of the largest government research projects of World War II.
- How the Second Trump Administration Shaped the Fate of Science in the US in 30 Days — deals directly with federal grants and the indirect expenses of universities, two mechanisms born of the system described in the chapter.
- Researchers under threat: NIH budget cuts disrupt critical research worldwide — On the NIH's role as a funder of medical research at universities and the implications of sudden changes in grant policies.
- US science agencies under attack: Grants are shrinking and political appointments are changing priorities — On NSF, training young researchers, and the importance of independent funding agencies to the American research system.
- DARPA funds development of a new type of processor – a graph analysis processor — A tangible example of a mission agency model that funds a focused technology program and actively manages it, similar to the principles inherited by DARPA from war projects.
