Government Grants - more harmful than helpful?

Money can solve a lot of problems. It can provide good infrastructure and environment. But it cant solve everything. Those who understand the dynamics of startups very well understand that it is not about how much money you have raised but the agility, risk-taking and smartness of the team. Same reason why most large corporates are unable to innovate. 

When it comes to public policy, the same principles apply. Every year in the budget we hear about more and more grants being doled out. While government grants are intended to stimulate innovation, economic growth, and public good, they can have unintended harmful effects. Below are key reasons why government grants may sometimes be more harmful than helpful:

1. Market Distortion

Government grants can create an uneven playing field by favoring certain businesses or industries over others. We faced it firsthand at Smart Audit. Our larger competitors were approved for PSG grant much before us which gave them a 2 year headstart against us. The period of Grant also tied them to a software which might not be a good fit for their size or requirements. However, they saw the grant as a validation by the government. 

2. Inefficiency and Bureaucratic Red Tape

Grants often come with layers of bureaucracy, compliance requirements, and reporting that can drain time and resources. For small businesses or start-ups, the administrative burden may outweigh the benefits of the funding. Every now and then we get a request from a government officer to comply with something that someone in the bureaucracy has decided to be important. In addition to the countless surveys, I am now being asked to create a dashboard that provides analytics to users of our system and integrate AI just because every software should have a dashboard and artificial intelligence embdedded. I dont disagree but leave that to the product manager and market forces. Those who dont adapt will be replaced by those who are agile. 

Talking about AI madness, I received an invite from Singapore Business Federation (SBF) and Accenture to attend a Gen AI Masterclass - which was obviously supported by some government grant. Assuming that Accenture is decent name in consulting, I decided to sign up. During the one hour session, most of the discussion was around how they could sell some grant and software/services to SMEs except for few minutes on how a script can be generated out of chatgpt and then a video can be generated using renderforest. Imagine 30 SME managers wasting hours and getting nothing meaningful. 

3. Short-Term Focus and dependency

Grants are often designed to provide short-term solutions, which can encourage businesses to focus on immediate milestones instead of long-term sustainability. This can result in a short-term mindset, where companies focus on achieving specific outcomes rather than building scalable, profitable models. They also act as Steroids. They are creating a mental dependency that learning and innovation need grants. And, without grants, it is not possible to learn or innovate. 

Conclusion

While government grants can provide necessary support for research, innovation, and small business growth, they can also lead to unintended consequences like market distortion, inefficiencies and dependency. Balancing the positive and negative effects often depends on how the grants are structured, monitored, and implemented.