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Getting Innovative with Regional Innovation Funding

President Obama Announces New Program to Encourage Creative Community Innovation Plans

The Obama administration announced yesterday the latest chapter in its unfolding story of regional innovation partnership programs. More than any past administration, the Obama White House has been aggressive in aligning existing federal program resources to empower communities to enact bold, creative, and multi-faceted regional innovation strategies. Yesterday’s announcement of the first funding opportunity for the “Investing in Manufacturing Communities” Partnership, or IMCP, shows that the administration’s commitment to America’s manufacturing communities remains strong.

Manufacturing communities across the country are still reeling from the depression. Fifty thousand manufacturers have closed shop since the recession began, after a decade of declining manufacturing jobs that cost the economy 6 million jobs in total since 1998. By many accounts manufacturing jobs are beginning to rebound, with more than half a million added since 2010. But the future of American manufacturing is by no means assured, and much must be done to ensure the many interconnected regional economies that drive United States growth remain the most competitive places in the world for manufacturing companies to invent, invest, and do business.

In this time of change, communities are increasingly forced to look beyond traditional “smokestack-chasing” strategies to attract manufacturing investment. Smokestack chasing is the practice of offering special tax breaks to specific companies to lure them to invest in operations within a community. The evidence shows, however, that this approach results in a low return on investment for the taxpayer and can quickly result in a “race to the bottom,” with many communities competing to give the most generous tax break to lure companies to within their borders.

Bottom-up innovation strategies such as the IMCP provide a compelling alternative to this antiquated and increasingly obsolete approach. Rather than spending local resources to attract specific companies, the IMCP and the programs that preceded it share a holistic focus on investing in all of the building blocks needed to support manufacturing innovation communities. Instead of spending money on tax breaks, the IMCP is, according to Deputy Secretary of Commerce Rebecca Blank, “designed to improve the way we use federal resources for economic development initiatives, by challenging communities to coordinate their development efforts around workforce training, infrastructure, and innovation to create the best possible environment for investment.”

Encouraging communities to get creative and leverage their strengths

The IMCP is divided into two phases: planning grants and challenge grants. In the first phase, which is open for business as of yesterday, regional stakeholders from a particular community are invited to submit proposals to develop “implementation strategies” that leverage their regional assets toward an innovation-related goal. According to last week’s release, approximately 25 planning grants of up to $200,000 will be awarded to the best proposals from across the country.

In the second phase, five or six $25 million challenge grants will be awarded to the communities with the best, most achievable and high value-added plans to invest in the building blocks of innovation locally. One of the most significant aspects of this program is that it “encourages communities to think critically about their strengths—such as research, workforce, and industrial assets.” That’s according to Neal Orringer, Chief Strategist for Manufacturing Policy at the Department of Commerce and one of the architects of the program.

In years and decades past, economic development funding was delivered based on the degree of economic “need” or “distress” in a community. Funding award criteria focused on emphasizing how bad the situation was and how badly help was needed. But with the IMCP, that philosophy is being turned on its head. Winners will be chosen based on how clearly they articulate how their projects will leverage local strengths and develop workable strategies to deal with economic distress. In particular, the Department of Commerce fact sheet says that the IMCP will support and reward communities that:

  • Recognize their comparative advantages and develop implementation-ready plans
  • Invest in public goods and institutions through public and private funding
  • Encourage community links that reinforce and expand their commercial appeal to investors

The department also lists a few examples of the kinds of second-phase projects we can expect winning applicants to undertake:

  • Specialized research centers at local universities relevant to target regional industrial sectors
  • Business incubators focused on targeted technology sectors
  • Community college programs to train workers for specialized skillsets needed in targeted regional industrial sectors
  • Infrastructure and public works to ensure regions have key 21st-century infrastructure assets and accessible transport networks
  • Viable export-promotion plans for regional innovation companies
  • Regional coordination platforms to support well-integrated supply chains
  • Platforms for cross-pollination between local government, education, workforce, research, and business leaders

Plugging gaps to support more robust regional economic strategies

Besides a shift from rewarding distress to rewarding creative strategies to deal with distress, another significant aspect of program is the level of coordination with other agencies. The Department of Commerce seems to be using the IMCP process as a platform to re-evaluate the level of coordination across economic development programs present in many agencies across the whole federal government.

Today, dozens of agencies are dotted with literally hundreds of separate programs tasked with doling out grants, contracts, and technical assistance to a constellation of “separate” activities among innovation stakeholders in regions. For example, community college workforce development grants, rural broadband projects, university-industry research park feasibility studies, export promotion for high-tech goods, and small-business assistance services are each managed by separate departments or agencies, with little coordination. The following image was taken from a White House info graphic about this issue, and shows the multitudes of programs and departments with overlapping mandates:

In the program fact sheet, the department announced it would “lead an interagency effort that aligns economic development programs across the government. This effort will bring together federal programs covering workforce training, technical assistance, specialized research and commercialization centers, infrastructure, and energy efficiency, among others.”

Although this interagency process is only mentioned in passing, it could well be the most significant part of yesterday’s program announcement. While the millions of dollars of EDA funding for bottom-up regional innovation strategies are not insignificant, realigning the billions of dollars of funding flowing into communities from across the federal government to be more strategic around innovation would make a much larger impact.

A detailed case study recently found that the lack of coordination among these many separately “siloed” federal funding mechanisms for regional economic competitiveness limits the impact the programs have. But despite the differing systems within which these various trade, technology, training, and economic development programs operate, they are all connected by the outcome they support: bottom-up regional innovation and economic development strategies. And past research has shown that better coordination of these funds, even without increasing the actual spending on the programs, can multiply the impact.

With $113 million requested in the president’s fiscal year 2014 budget, the IMCP will serve as the “glue” connecting a package of mutually reinforcing grants, technical assistance, and other services from several agencies. Together, these coordinated packages of funding empower diverse regional stakeholders to come together to build and implement more comprehensive and strategic regional innovation plans. In so doing the program builds upon the successes of past efforts championed by the Economic Development Administration, including the i6 grants programs (announced in 2010), the Energy Regional Innovation Clusters program (2010), the Jobs and Innovation Accelerator (2011), and the still nascent National Network for Manufacturing Innovation (2012).

In each case the Obama administration has used the uniquely flexible authority given to the EDA by Congress to help “plug gaps” between existing innovation programs. Instead of applying to handfuls or dozens of separate programs with different requirements in different agencies, local, civic, and regional leaders can submit a plan detailing what their assets and needs are to the IMCP. The EDA can then work with the dozens of other federal funding sources to create a package of assistance from existing federal programs to meet those needs.

But the IMCP interagency effort may take this philosophy further than past programs did. Leveraging the EDA’s authority to break down funding silos and work proactively with other agencies will represent a big step toward the goal of a broader “common application” approach to federal funding programs. Aligning federal trade, technology, training, and economic development funding programs was first proposed by the Center for American Progress in 2012 in a report titled “Rewiring the Federal Government for Competitiveness.” In the report we put forward a proposal to unify management of the more than 300 programs managed by more than a dozen agencies that support bottom-up, innovation-based economic development.

Figure 1 from the paper demonstrates the chaos of the current system of delivering funding through dozens or hundreds of different silos and stovepipes to invest in bottom-up innovation strategies. Figure 2 summarizes how the proposed “common application approach” would better align these related streams of funding into coordinated packages that promote the formation of growth-enhancing innovation networks, rather than a cluster of concurrent but separate activities.

A “common application” approach has two major benefits. First, it makes it easier for regional innovation stakeholders—including university and community college leaders, regional business interests, labor and workforce-training organizations, nonprofit economic development boards, small businesses, and others—to find and access existing support services. Coordinating multiple related programs through a single point of entry makes them easier to find and locate, and easier to apply to.

Second, and more importantly, this approach makes not only the application process but also the programs themselves stronger by allowing community leaders to submit multifaceted plans for workforce, trade, training, and infrastructure. Under the status quo such support would have to be accessed separately through separate application processes with separate timelines. This limits the level of sophistication that bottom-up innovation plans can have, since the failure or delay of any one of many separately moving pieces could sink the whole strategy.

For example, take a hypothetical community working to build a public-private partnership that brings together a regional research university with local technology companies and the local community college to form a research park, similar to the one examined in Science Progress’s in-depth case study. Securing funding to enhance the community college curriculum to better prepare the local workforce for the needs of the research consortium won’t be useful if the grant to build the research park itself is not secured. Under the common application approach, and presumably under the IMCP, the EDA works to mitigate such risks by looking at whole innovation plans holistically, rather than piece by piece.

In 2012, Senator Kay Hagan (D-NC) introduced a bill to create an interagency task force to move toward this approach. The Small Business Common Application Act of 2012 would have built on the Obama administration’s efforts in this area to create a single entry platform for making competitive grant programs more accessible and coordinated, but it died in committee. The IMCP’s ongoing interagency review process has the potential to lead to a similar outcome using executive authority alone.

Conclusion

We know that innovation is one of the primary drivers of wealth creation, job creation, and economic growth. Rather than bribing companies to locate nearby, communities are increasingly realizing that smart investments in the building blocks of innovation—human, physical, and institutional capital—are a smarter bet to promote long-term endogenous growth. By working to connect other existing federal grant programs through a single point of entry, the IMCP is encouraging communities to get creative in developing strategies that leverage their strengths and compensate for their weaknesses.

The launch of this program has shown once again that the Department of Commerce’s Economic Development Administration continues to be a potent yet underrated tool for cultivating creative bottom-up growth across the country. As the story of innovative competitive grant programs like the IMCP continues to unfold, it will be important to follow the progress of the communities and regional economies benefitting from them. With continued monitoring and strong data collection, new lessons will doubtlessly emerge to inform the future direction of the management of the hundreds of programs supporting technology, trade, training, and economic growth across America’s communities.

Sean Pool is a Policy Analyst and Managing Editor of Science Progress. This post was updated on May 11, 2013 to better describe how IMCP focuses on economic distress.

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