Eighty-one United States senators have joined to sponsor (not just vote for) a "Small Business Innovation Research Act of 1981." We have previously reported at length on the urgency of swift and decisive federal action on this matter. Our country badly needs the forward thrust that this measure will give it. Expert testimony before the House Committee on Science and Technology (by Dr. Aaron Gellman, president of a Harbridge House subsidiary) reports data showing that small firms (under 500 employees) produce 2.4 times as many innovations per employee as large ones.
In the fact of this and much other similar evidence, the federal bureaucracy continues to spend with small business less than 4 cents of every one of the 35 billion research and development dollars it controls every year. In the words of one respected federal research manager, this is nothing less than "cheating the taxpayer."
For two reasons, then, we have saluted the wisdom and responsibility of the 81 Senate sponsors of S.881 on our new "Entrepreneurship Honor Roll." First, because of their specific step in moving together to meet an important national need. And second, because their action should be the first installment of an ongoing message to the career federal bureaucracy: Stop feeding the growth of government and government-sized business at the expense of entrepreneurial small and new business.
This is a clearly bipartisan group of senators -- 41 Republicans and 40 Democrats. It runs the whole political gamut -- regionally, ideologically, anyway you like. This is clearly a message from the whole country to the executive branch: It is time for a change. We've singled out for special mention Sen. Warren Rudman, a New Hampshire Republican who is the principal sponsor of S.881, and Sen. Edward M. Kennedy (D-Mass.), who led the fight for the program in previous Congresses.
What S.881 does is small in dollars, modest in scope, but large in significance. It directs each federal agency to develop a special research grant program for innovative small high-technology firms, using first a tiny two-tenths of one percent of its existing funds -- no added cost to the taxpayer. That amount is raised to one percent. (House supporters are talking about raising it to two percent.) These funds are made available on an open competitive basis in two steps: initial grants of $30,000 for feasibility research in federally needed areas like productivity. There is then a second round of financing for some of the winners who have come up with the most promising results. And this is vital to us: Getting private business commitments for a third round to finance commercialization is one of the grounds for making second round awards. It has worked for the National Science Foundation -- far more follow-on private money has turned up in support than the little federal seed-money used. This is, thus, a program with a built-in, leveraged kicker for the taxpayer. It provides an incentive for privately funded marketplace applications of federal research.
In our view, the longest-running Washington scandal is the impunity with which the federal bureaucracy has been allowed to take into camp administration after administration on this subject. Courageous, broad-gauge, and alert civil servants (and there are more than a few) are again disheartened by the dreary replaying of the old downtown Washington scenario: "We know best, all you newcomers. Here's a rewrite of the same memorandum we used to stop small business the last 10 times." And whether the administration is Republican or Democratic, it usually works. The pitch is varied slightly to accommodate the political lingo of the party in power, but the permanent bureaucratic doctrine rolls on without change.
Four arguments against S.881, for example, are made in a variety of forms by agency witnesses and memo writers. It allegedly permits the use of government money for nongovernmental purposes. That's bunk, because the NSF model has made it plain that every federal dollar is used for a federally selected federal priority purpose. Commercial applications in the last phase must be financed privately.That's just what happens when, for example, an auto company learns how to do something making government tanks that it can use later on in making cars.
Then it's alleged that a percentage small business set-aside -- even one as small as one percent -- is an unwarranted "quota" that keeps the pious bureaucrat from choosing the "best" research performer. That's also bunk, because what the S.881 set-aside really does is to discipline the bureaucracy which otherwise shovels all federal R & D funds into its three artificial and preferred "de facto quotas": government laboratories, nonprofit academic centers, and large companies. The competition that S.881 sets up is far more vigorous and far more likely to produce outstanding performance in small-scale applied research than all those "de facto quota" beneficiaries rolled together.
Then there's the argument that in a time of budgetary stringency, even a one or two percent small business set-aside takes dollars that can't be spared away from needy and deserving nonprofit basic science research. That's bunk, because the present level of taxpayer-financed basic science research cannot be supported without a sharp increase in small-scale applications of that research. Otherwise we are simply doing more of what has gotten us into the soup for the past decade: giving our competitors around the world access to basic research which they apply, while we fail to do so.
Finally, and the biggest laugh of all, is the rouser that S.881 is "unnecessary" because each agency itself can be trusted to do the best job possible for small business if left to its own devices. Exactly two federal agencies have formal and competitive programs of the kind S.881 would mandate -- the National Science Foundation and, just recently, the Department of Defense. Both have had to endure the most vicious and ceaseless internal opposition from the stand-pat brigade of the willfully blind.
What this bill does for research and development is what the country wants done across the board. The country often does not know how to say it affirmatively and clearly to the government so it shouts it negatively: "Stop using our money and your power to shrink the small business sector" -- compared to growing bigness in government and large business. That's the message of S.881 and it must be repeated in many other areas: taxes, regulations, capital, credit, interest rates, foreign trade procurement generally. We'll be talking about those in the months ahead.
For now, S.881 represents a fine beginning. For those of you who are action-oriented, here are the next steps:
1. Three hundred House sponsors are needed promptly for a bill to parallel S.881. A bipartisan group is forming behind Representatives Berkeley Bedell (D-Iowa), Joe McDade (R-Pa.), Albert Gore (D-Tenn.), and Jerry Lewis (R-Calif.). If all the congressmen from the states represented by senators on Entrepreneurship Honor Roll No. 1 join in, that will be more than 400. We'll be glad to list them in Entrepreneurship Honor Roll No. 2.
2. The bill must pass both houses swiftly and with large enough margins to make the measure a sure bet for presidential approval.
3. The President must sign it into law.
4. Congress must keep a vigorous oversight watch on the bureaucratic foxes to protect the national small business R & D hen houses until that great new brood of industrial innovations is hatched.