OBAMA | Please Fund Tech Innovation (SBIR, DARPA)

My friend Professor Henry Etzkowitz was very helpful when I was working on a study of the software industry in New York City in 1999. Our work can be found here. He is an expert on the history of science and serves as Chair of the Management of Innovation, Creativity and Enterprise Program at the Newcastle University Business School.

Henry and I met recently in New York City to talk about President-elect Obama's stimulus program. This will be a gigantic investment in America's future. Should the Obama Administration use a portion of this funding to spur technological innovation? Or is this "picking winners" and is that a bad thing?

Those who oppose the government's picking winners argue that this is not the job of government and government employees have no expertise in culling business ideas and plans. So government's role has mostly been to lend money through programs like the Small Business Investment Company program, and leave it to private SBIC managers to pick among the possible investments.

Henry sent back to me some followup thoughts. I am excerpting, with his permission, some highlights of his thesis that the U.S. government has actually played a big and successful role in picking technological winners and that this role should be expanded.

The SBIR Program. The Small Business Innovation Research (SBIR) program has been a success, Henry says, in supporting high-tech firms.

SBIR was begun by program officers at the National Science Foundation (NSF) in the early 1980's. SBIR extended NSF's research programs by setting aside a relatively small percentage of research budgets, to support projects that demonstrate potential commercial as well as scientific merit. Researchers apply for SBIR grants and use them as the first step toward firm-formation, moving research ideas forward to commercialization.

In effect SBIR has served as a form of public venture capital, filling some of the gap, the so-called "Valley of Death" that business angels and private venture capital firms are typically unwilling to enter until a firm has proven itself through demonstrated earnings. Government has provided the seed capital to take many nascent firms to the point of private sector take-up. But government is not doing this task by itself. It relies on experienced private sector technology experts to serve as peer reviewers to judge the commercial potential of the new technology even as it continues to rely on academics to certify its scientific and technological potential. SBIR was extended from NSF to all government agencies with research budgets of more than $100 million.

The ATP. The European Union created Framework Programs to support collaborative industrial research, led usually by large firms. The U.S. response to this was the Advanced Technology Program (ATP) initiated during the Bush 41 presidency.

Opposition to the ATP led to a scale-down of grants, from tens of millions to large-firm led consortia to the low millions for innovative start-ups. This unintended consequence of reduced appropriations turned ATP into a useful follow-on to the SBIR, helping start-ups with new technologies through the "Valley of Death," the gap between government R&D funding and venture capital take-up. ATP is currently in "deep freeze" in the National Institute of Science and Technology, its sponsoring agency, receiving no new funds in recent years.

The ATP could be revived and SBIR could usefully be scaled up further, but the individual projects it supports are a necessary but insufficient technology policy for the current crisis. Larger scale initiatives are necessary to take advantage of the opportunity crisis offers to renew existing industries and create new techno-economic paradigms as the basis for future industries.

DARPA. The SBIR-ATP approach is relatively laissez-faire, choosing among competing ideas that arrive in response to general requests or over-the-transom proposals. The more tightly focused and directed approach is taken by the Defense Advance Research Projects Agency (DARPA). Under its demilitarized name ARPA, DARPA created the ARPANET as a communications system without a center, the origin of the Internet. DARPA's primary strength is its program-officer networks.

The DARPA officer is a highly skilled broad-gauge technologist, often a visionary drawn from a university, like psychologist J.C.R. Licklider who envisioned a new format for computer communication that led to the Internet. Following the DARPA format, invented in response to the Sputnik shock of the late 1950's Licklider had the freedom and the resources to establish a consortium of firms and universities to realize his vision.

The DARPA program officer, a public entrepreneur, is the key to the DARPA model. He or she has the resources and capability to fashion a technology development team from across university, industry and government laboratories and the remit to carry it from "blue sky" research all the way to commercialization and use. More recently a DARPA data-mining initiative provided the research resources and objective that provided the framework for the invention of the Google algorithm. Although DARPA is limited to achieving military goals, many of its initiatives have had significant spillover into the civilian economy. There have been various proposals for a civilian DARPA over the years but the political will has been lacking. Only military objectives have been granted an exemption from the dictum of government's supposed inability to pick winners. The current downturn offers a pressing opportunity to utilize this successful response to Sputnik to achieve broader socio-economic objectives. These models of R&D success, with mixed university-industry government elements and joint leadership, provide exemplars to creating a sustainable path to renewal, without relying on reviving past bubbles or inventing new ones.

As the Obama Administration seeks to maximize the long-term benefit from its stimulus funding, it should consider stepping up support of SBIR-ATP-DARPA initiatives.