NCPA - National Center for Policy Analysis


June 21, 2007

Many members of Congress fancy themselves as venture capitalists.  But instead of using their own money, they're using American taxpayers', says Stephen Slivinski, an economist at the Cato Foundation.

Take, for instance, the Department of Commerce Advanced Technology Program (ATP):

  • The ATP provides matching funds for firms researching what the agency calls "pre-competitive" or "high risk" technologies that presumably would not get private funding on their own.
  • But a recent government audit of the program showed that 63 percent of companies that applied for ATP grants never bothered looking for private capital investment before they turned to the government for support.

Further, in cases where the ATP funded promising new technologies, the federal money was often redundant.  According to the Government Accountability Office:

  • The ATP gave $1.2 million in the early 1990s to the Communications Intelligence Corporation to develop a system to recognize cursive handwriting for pen-based computer inputs in handheld devices.
  • Far from being under-funded by the market, this line of research had begun in the 1950s and 450 patents for workable versions of the same technology -- based on privately-funded research -- were issued years before.
  • Then there's Accuwave, the company that received $2 million in ATP grants to discover ways to expand the capacity of fiber optic cables even though private-sector research funding had already resulted in over 2,000 patents for similar innovations.

A better policy for spurring innovation would be to cut funding to these corporate welfare programs and use the savings to make permanent the tax provisions that actually encourage more fluid capital markets, like a capital gains tax cut, says Slivinski.

Source: Stephen Slivinski, "Uncle Sam: Venture Capitalist," Cato Institute, June 20, 2007.

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