Explaining the transformation in the US innovation system: the impact of a small government program

Over the last four decades, the dynamics of innovation in the US economy have shifted. Whereas the development of new technologies was once dominated by large, vertically integrated firms, since the 1980s an increasingly networked innovation environment has emerged in which small firms play a central role. But why did this shift emerge? Extant research emphasizes changes in the decision-making calculus of large firms, the rise of private venture capital, legal changes and a variety of subnational development initiatives. In this paper, we demonstrate the critical importance of government innovation programs. We argue that a single small, relatively unknown programuthe Small Business Innovation Research (SBIR) programuplayed a critical role in catalyzing this broader economic transformation. Drawing on programmatic data, employment trends and data on SBIRs intersection with venture capital and federal procurement, we show how SBIR catalyzed a series of cross-cutting institutional mechanisms that supported the growth of small, innovative technology firms. We propose the term social resonance to suggest how even small government programs can play an important role in altering large-scale institutional dynamics.