Magazine article Issues in Science and Technology

Reworking the Federal Role in Small Business Research

Magazine article Issues in Science and Technology

Reworking the Federal Role in Small Business Research

Article excerpt

The U.S. economy is changing rapidly, and the Small Business Investment Research program must change with it.

After 16 years of experience and almost $10 billion in federal expenditures, the SBIR program is showing its age. It has lived through business's technology-driven metamorphosis more as an observer than as a player and does business today much as it did in 1982. Although most of our knowledge of the program's successes and failures is anecdotal, it is clear that the program's growth over time has been largely at the expense of other federal R&D support for small business. Also, most SBIR awards aimed at the commercial marketplace do not lead to major commercial successes and most SBIR awards aimed at government needs do not result in federal procurement contracts. If small businesses are being asked to assume a more important role in innovation, the government's flagship program of assistance to these businesses must be relevant. We recommend a series of changes in the SBIR statute and program which we feel will attract additional companies, help those companies become more responsive to their federal and private sector customers, enable program administrators to do their jobs better, and permit the program to continue to improve as the inevitable evolution of business continues into the 21st century.

In the beginning

SBIR began at the National Science Foundation (NSF) in 1977, according to the program's father, Rolland Tibbetts. SBIR was conceived as a merit-reviewed program of high risk/high payoff research that the government would fund from conception through the prototype stage. By targeting small high technology firms that for their size contribute disproportionately to technological innovation, economic growth, and job creation, NSF hoped to increase federal research's economic return on investment to the nation.

The SBIR program was formally launched as a ten-agency, applied research experiment by the Small Business Innovation Development Act of 1982. The bill's primary sponsors believed that by shifting some money from the large corporations and universities that received most federal research funding to small innovative companies, the government would get better research at a lower price and small businesses would develop new products and services to sell in the commercial market. Before SBIR, businesses with fewer than 500 employees were winning only 3.5 percent of government research grants and contracts. Federal procurement officials functioned within a conservative system and were unwilling or unable to risk increasing awards to untested small businesses. The new law required each federal agency with a $100 million research budget to set aside 0.2 percent of its Fiscal Year 1983 extramural R&D funding ($45,000,000 per year) for small businesses. This would provide a floor for small business, introduce federal agencies to a new universe of potential contractors and grantees, and provide small businesses with much-needed funds to conduct research and develop new products. The size of the set-aside was increased to 1.25 percent during the first six years of the program and was increased to 2.5 percent (over $1 billion per year) during the five years ending in FY 1997.

Although any government program needs to be reexamined periodically, the rationale for reviewing SBIR is particularly compelling because the business environment has changed so much since 1982. The SBIR program began in the typewriter age, one month after the unveiling of the original IBM personal computer. Business communications were conducted by telephone and by mail; fax machines existed, but it was pure luck when the receiving and sending machines were compatible. DARPANET had not yet become NSFNET, let alone the Internet, and data exchange protocols were far in the future. The Dow Industrial Average was at 925.13, unemployment was at its highest level since 1941, and the savings and loan bailout was just beginning. …

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