Industrial Policy For Venture Capital?

More federal government spending on start-ups?

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Dr. Scott Shane--who used to do some blogging for US News--has started a blog on entrepreneurship at the New York Times. His first post considers the idea that Congress should make venture capital-backed firms eligible for Small Business Innovation Research grants. He says it's a good idea, but only if the federal government is honest enough to admit that the program would no longer be a free-market one, but the government picking winners among start-ups:

The market failure problem doesn’t influence venture-capital-backed start-ups. By definition, V.C.-backed companies pursuing innovations do not face market failure because the private sector is financing them. So where does this leave me? I’m in favor of the government making V.C.-backed start-ups eligible for S.B.I.R. grants but only if it is willing to own up to what the change in policy represents — a change in philosophy from one of government intervention to prevent market failure to one of industrial policy designed to get the maximum return from government investments in entrepreneurship.