What Went Wrong With Public Innovation Funding

TL;DR: Discrimination, bias and bureaucratic strangulation are the biggest factors impairing American innovation. This is why.

Discrimination & Bias

There are a variety of discrimination and bias issues in the public sector’s innovation funding ecosystem. Some of these issues are the product of decades of systemic bias including racism, while others have developed over time through bureaucratic bloat and other shortcomings. No matter the providence, the effect is the same: innovation is stagnating as more and more grants are delivered to older, white men while diverse groups, younger scientists, and riskier, high-impact ideas are shut out from the process.

A glaring example of this issue can be found by looking at the research project grants from the National Institute of Health. The Research Project Grant (R01) provides support for health-related research and development. It’s awarded to a specified project to be performed by the awarded investigator or researcher. In 2018, nearly 94% of R01 grants were awarded to White/Asian applicants, while 2% were awarded to Black/African American applicants and 4% to Hispanic/LatinX applicants.

Diversity has an important and often overlooked psychological role in innovation. In an article published for Scientific American, Professor Katherine Phillips described the following:

“Members of a homogeneous group rest somewhat assured that they will agree with one another; that they will understand one another’s perspectives and beliefs; that they will be able to easily come to a consensus. But when members of a group notice that they are socially different from one another, they change their expectations. They anticipate differences of opinion and perspective. They assume they will need to work harder to come to a consensus. This logic helps to explain both the upside and the downside of social diversity: people work harder in diverse environments both cognitively and socially. They might not like it, but the hard work can lead to better outcomes.”

Currently, public innovation funding does not curate or encourage diverse teams to come to the table. If this ecosystem is going to thrive, if we are going to address the challenges that face our world, we need programs that encourage and invite diverse teams of innovators.

Bureaucratic Strangulation

Generally speaking, as our government has grown, it has imposed additional regulations and restrictions. We’ll leave a pros-and-cons discussion for another time and focus here on the impact this has had on grant funding for innovation and research. This multi-billion dollar ecosystem has been handed more than 110 new federal rules in the last few decades, and the regulation continues to grow in complexity. Large funding ecosystems at the state level face similar challenges.

These regulations cause issues for parties on both sides of the granting ecosystem. Grantees and grantors report that an average of 10.3% of the total grant is spent by grantors—and 9.3% is spent by recipients—on administrative costs. In addition to this hard cost, the opportunity cost incurred by applicants is often prohibitive, causing some of the best innovators and technologists to eschew the public sector entirely.

Scientists now spend more and more time writing applications, and less time on research. “By some estimates,” writes Vox’s Kelsey Piper, “many top researchers spend 50% of their time writing grants.” That opportunity cost is massive when you take into account both the financial cost of this time, as well as lost productivity and mindshare. All of this is the result of a government that lacks the tools to properly administer and deploy funding. A recent survey of federal grantors and grantees outlined the following”

“Grant managers are not happy with their technical capabilities nor with their ability to measure performance, and they view data sharing and automated federal and state interactions as their highest priority. A unified portal for grant recipients to use as they interact with all federal grantors is viewed by many as the innovation that can bring the most improvement across the board going forward. In fact, 56% (71 of 126) of the respondents who identified their highest opportunity for improvement selected “a unified portal for grant recipients to use as they interact with all federal grantors” as the opportunity they found most promising. The second most frequently volunteered opportunity was “data standards for grants management,” cited by 31 of 126 respondents (25%).”

In summary, the grant funding ecosystem, grantees and grantors are well aware of the massive inefficiencies inherent in the current paradigm. There is a desire to improve, and a willingness on both sides to leverage new technologies and systems to make those improvements a reality. If our economy and this ecosystem is going to thrive, it needs to adopt a modern, standardized system to facilitate deployment and management of capital.

This is the second of a 3-part series from OpenGrants.io. Read part 1 here.