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Wrong way to promote innovation

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The House last week joined the Senate in passing by a wide margin the Small Business Innovation Research Act. The act would require federal agencies with significant research and development budgets to set aside approximately 1 percent of their budgets for grants to small businesses to conduct R&D projects with potential commercial applications. If differences between the Senate and House versions are resolved, the President will be under strong pressure to sign the bill into law.

Universities and big business currently receive the lion's share of government R&D support and small business very little. Proponents of the act argue that this imbalance is a key reason why the United States is lagging behind its major trading partners in productivity growth and introduction of new products. Big business has the cash to fund development of new products and processes but its bureaucratic structure often makes it too conservative to undertake such projects. Small business can act boldly but lacks internal resources. Because outside money to finance such projects is difficult for small business to obtain, many promising projects never get off the ground. Grants under the act would provide vital seed money and a flood of new innovations would result.

Opposition to the act is primarily based on a fear, disputed by the act's proponents, that most of the nearly half billion dollars required annually by the mid-1980s to fund the grants would come at the expense of already dwindling support for basic research. But closer examination suggests that adoption of the act would be a mistake, whatever the source of funds. Choosing proposals for development of products and processes on the basis of their commercial promise is a new role for government and not one it is well suited to perform.

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