Recent Research: Federal Innovation Programs Essential Component to the 21st National Economy

"Despite the clear limitations of existing federal innovation programs, they remain important to our national economic competitiveness," according to a new report from the Center for American Progress. In Silos of Small Beer, authors Maryann Feldman and Lauren Lanahan examine the efficacy of federal innovation programs on the regional economic development of the eastern Midwest region that includes Pittsburgh in western Pennsylvania; and Cleveland, Akron and Youngstown in northeast Ohio. Utilizing surveys and one-on-one interviews, the case study not only provides insight into the efficacy of the those federal programs, but also the interaction between actors within the region (e.g., small and medium-sized business, venture capital firms, nonprofit economic development agencies, state and local governments). Researchers found several shortcomings stemming from federal innovation programs and the region in general. However, the report also highlighted some promising news related the emergence of industry clusters in the region.

This region of the former "Rust Belt" is in the midst of a successful transition from the industrial heartland to a 21st century economy driven by innovation, but the authors contend that flaws in the public support structures could lead to "valleys of death." Due to the work of private and public sector TBED initiatives (e.g., NorTech, Innovation Works, the Pittsburgh Life Sciences Greenhouse, JumpStart, BioEnterprise), regional innovation and entrepreneurship is not only emerging, but also becoming a vibrant aspect of the economy. However, small and medium-sized businesses face a crisis in securing expansion and working capital. Many ventures lack funding due to critical flaws in the public support structure including:

• "Accessing federal innovation funds is exceedingly time consuming, often defeating, and in the end usually too small to be of enduring use"; and,
• "State and local innovation funds are pursued to a greater degree than federal programs but are too small for the needs of the region's firms."

Without adequate public funding, "valleys of death" — entrepreneurs and companies lack the financing to turn good ideas into hiring well-paid workers, the creation of new firms and the expansions of existing firms — may threaten the sustained growth of the region. The report also points out that the existence federal, state and local program financing is essential to attract private financing in the region.

The report found some troubling news regarding knowledge about and involvement with federal innovation programs by the region's companies. Approximately 63 percent of firms did not seek federal funding or work with federal programs. Many respondents indicated, "They did not know about the programs or did not believe they qualified." Almost one-third of those respondents indicated they would like the opportunity to work with the federal agencies in the future. SBIR/STTR programs were the most active among the federal programs. In 2007, almost 46 percent of all companies that applied for federal funding was through SBIR/STTR programs. Of the respondents that worked with federal agencies, 40 percent reported, "federal funding allowed them to improve services."

The authors also provide promising news for the region's development:

• Firms in the region do not face a difficult task finding management, engineering talent and well-trained workers;
• Startup companies and established small and medium-sized business have built upon the region's historical past to build new clusters centered around advanced manufacturing (29 percent of total firms in Ohio) and software (24 percent in Pennsylvania); and,
• These companies recognize they operate in clusters and would welcome coordinated efforts for their regional innovation cluster (87.4 percent would work with a regional coordinator).

From their findings, the authors proposes several policy prescriptions that will lead to a more effective national economy fueled by bottom-up, locally organized innovation programs. These regional programs should bring together federal, state and local programs to provide region-specific support. These public-private partnerships should organize regional actors in a coordinated effort to grow their innovation clusters. The authors propose that the federal government plays a significant role in facilitating this process through the streamlining of the funding process and increased financing without monopolizing decision-making.

Read Silos of Small Beer: A Case Study of the Efficacy of Federal Innovation Programs in a Key Midwest Regional Economy at: http://www.americanprogress.org/issues/2010/09/small_beer.html.