The CHIPS and Science Act won’t build inclusive innovation ecosystems on its own

Modern Electronics Development Facility: Black Engineer and Diverse Team of Multi-Ethnic Scientists Work on Computers, Design Industrial PCB, New Generation Silicon Microchips, Semiconductors Photo: Shutterstock

Since the early 1980s, the U.S. has embraced a predominantly laissez faire approach to economic development. Recently, however, there has been a momentous shift to embrace place-based industrial policy and an intentional effort to reshore “critical industries” through a multitrillion-dollar wave of legislation, including the CHIPS and Science Act (CHIPS), Inflation Reduction Act (IRA), and Infrastructure Investment and Jobs Act (IIJA). Congress justified the pivot with the geopolitical urgency to compete with China, the growing need to control risk and escalating costs in global supply chains, and the challenge of addressing rising economic inequality among left-behind people and places.

Our declining and relatively low levels of public investment in education and innovation compared to major competitors have enabled China and other countries to rise to a dominant position in many critical industries, which has consequences for our economic growth, national security, and global influence. Among the recent bills, CHIPS represents the most direct investment in innovation ecosystems, with an explicit focus on domestic semiconductor production, electric battery manufacturing, quantum computing, and other basic research, development, and commercialization activities.

Notably, CHIPS explicitly acknowledges that diversity and inclusion in science, technology, engineering, and math (STEM) fields will be key to strengthening U.S. innovation. Acknowledging this, in itself, is a significant step, because the U.S. population is becoming more racially and ethnically diverse over time, yet STEM labor markets are riddled with inequality. STEM jobs typically pay well and diversity contributes to higher levels of innovation, but these jobs disproportionately exclude women as well as Black and Latino or Hispanic people, especially in the highest-paying occupations. Research estimates that our failure to address racial and gender inequities in the labor market (who has access to what jobs) hampers growth in aggregate market output per capita by 20% to 40%, and similar racial and gender gaps in the innovation process inhibit GDP growth per capita by 2.7%.

As Brookings Metro’s Xavier de Souza Briggs recently wrote about with co-author Madeline Janis, the recent wave of federal investments has tremendous potential to increase access to high-quality jobs for underrepresented groups—but whether it will succeed in benefitting workers and communities will depend on the details of implementation. Building on this argument, we look more closely at the CHIPS and Science Act and its ambitious goals to diversify talent in STEM and U.S. innovation ecosystems more broadly.

We argue that the fragmented, piecemeal nature of CHIPS investments will not be enough to address long-standing structural inequalities in the education and training, invention, and commercialization stages of innovation, especially in the most marginalized regions of the U.S.  Although CHIPS makes significant, necessary investments, successful implementation will also require intentional federal coordination, regional capacity building and collaboration, and careful planning to ensure that the preconditions for leveling the playing field across all stages of innovation are in place.

How racial and gender gaps inhibit the innovation ecosystem

Innovation requires a number of different actors, organizations, and institutions to work together, even if indirectly, to generate new ideas and technologies and, subsequently, commercialize and apply them in industry. U.S. innovation ecosystems are traditionally configured with five major sets of actors: founders, universities, government entities, venture capitalists, and corporations.

Innovations arise through investments, education, training, and research—the foundational activities that support the innovation ecosystem through the stakeholders. In turn, venture capitalists and other investors infuse capital to support innovations that can be commercialized within the ecosystem, thereby funding scalable new ventures. The hope is that these ventures will rapidly grow, employ talent, and contribute to economic growth and further innovation (the “virtuous cycle”).

Figure 1: The innovation ecosystem's 'virtuous cycle' and foundational supports

Yet, as researchers Lisa D. Cook, Janet Gerson, and Jennifer Kuan found, there are significant gender and racial gaps in the innovation process, which lead to innovation ecosystems that are highly skewed toward particular founders and ideas. Cook and Gerson offered a breakdown of the various gaps that take shape in each stage of innovation: education and training, invention, and commercialization.

The National Science Foundation (NSF) has historically been the lead federal agency focused on STEM inclusion efforts, such as tracking and broadening participation of women and Black and Latino or Hispanic people in STEM programs and university research. But despite decades of effort to increase the number of women and underrepresented groups in STEM careers, gender and racial gaps persist. Broader sociocultural factors appear to play a role in continued occupational segregation, such as gendered preferences for certain occupations, decisions about work-life balance, and individuals’ beliefs about their capabilities and belonging in STEM fields. This suggests a need for more examination of how these opportunity gaps are reproduced in both education and training systems and the labor market, and that additional interventions (such as the CHIPS investments) and new approaches are necessary to engage the full potential of American talent.

The U.S. education and training systems have a long history of racial and income-based segregation, and access to quality education and quality job opportunities are heavily shaped by one’s ZIP code and family wealth rather than raw talent and hard work. Most STEM jobs require college degrees, and while STEM degree production has been expanding rapidly, the racial and gender composition of STEM degree recipients has been much slower to change. Permanent residents and temporary visa holders from other countries make up a high share of STEM graduate students and faculty, but U.S. citizens in the field remain predominantly white and male.

The U.S. largely has a “college for all” approach to getting students into STEM careers, yet the high cost of a college education limits access. Most other industrialized countries have paid, work-based pathways into STEM jobs—options that lead to a postsecondary degree or an equivalent qualification. Without multiple such pathways to quality jobs, the innovation ecosystem in the U.S. will likely remain skewed.

Gender and racial gaps persist into the invention and commercialization stages of the innovation process. There are lower rates of patenting for women and underrepresented groups, as well as diminished opportunities to access organizational resources to foster innovation, mentorship, and leadership opportunities in organizations. This lack of exposure to innovation and commercialization opportunities results in what researchers have called “lost Einsteins,” as women, Black and Latino or Hispanic people, and low-income groups continue to be underrepresented among star inventors.

In the commercialization stage, gender and racial gaps are reinforced by unequal access to business and professional networks, mentoring resources, capital, and information. White men control 93% of venture capital dollars, which contributes to a continued lack of diversity in the types of founders and ideas that receive venture capital. In 2022, female founders received 1.9% of all venture dollars, Black founders received 1%, and Latino or Hispanic founders received 1.5%. The overwhelming majority of venture capital funding went to white, male founders.

Unless the implementation of the new wave of federal investments intentionally identifies and devotes resources to rectifying these gaps across every stage of innovation (what we refer to as a “holistic” approach), success will be hard to achieve.

New federal legislation sets bold inclusion goals but offers mostly piecemeal solutions

CHIPS (alongside other legislation) has an explicit and bold focus on directing federal funding to institutions, people, and places that have historically received relatively low levels of public and private investment. The legislation allocates funding at each stage of the innovation process and explicitly states in Title III, Subtitle A that Congress seeks to increase technology transfer, engage the full potential of our talent, incorporate diverse perspectives into the innovation ecosystem, and invest in basic science and research and development. Congress was clear that it considers all of these factors to be important drivers of the nation’s ability to innovate and stay competitive.

Despite these bold goals and acknowledgement of barriers to inclusion, CHIPS leaves a lot of the details of implementation vague. Allocation of funding and authority for implementation appear piecemeal, focusing on particular aspects of the innovation cycle in isolation rather than strengthening connections between them. The table below provides some examples of how CHIPS lacks specificity in how these pieces can work together cohesively.

Table 1: What CHIPS does and doesn't do at each stage of the innovation processAvoiding overly prescriptive legislation can help enable flexibility, but it can also be problematic: Implementation policies and approaches can be easily changed when a new administration comes to power, and they rely heavily on agency leadership taking on the risk of leading transformational change efforts that require coordination across multiple agencies and funding streams.

There are a few levers that federal agencies have for implementation, but they tend to be compliance or evaluative in nature rather than focused on ensuring that the preconditions for success are in place. For example, the Department of Commerce’s Notice of Funding Opportunity regarding the construction of semiconductor fabrication facilities requires applicants requesting over $150 million to provide a plan to ensure the availability of child care for their facility and construction workers. However, placing the onus on applicants when major swaths of the U.S. are child care deserts may result in a situation where communities and companies that were already well-resourced have an advantage, thus contradicting the goals of inclusion.

In addition, although CHIPS focuses on workforce development as a legislative priority, it does not provide much direct funding to the Department of Labor, which administers the publicly funded workforce system. Instead, it funds other agencies with much less infrastructure and expertise in workforce development, such as the Department of Commerce and Department of Energy. And the legislation is largely silent about what “workforce training” actually means in practice, including clarifying the duration and quality of training that will be needed to address the scale of inclusion challenges in STEM talent pipelines.

CHIPS investments targeting the commercialization processes also appear fragmented and unspecified. Individual entrepreneurs and founders still have to navigate networks they may not be a part of in order to get connected to capital, mentors, bid opportunities, and resources. A few innovation stakeholders—such as universities, accelerators, and venture capitalists—can play an outsized role in connecting people, capital, and resources. But those who lack the networks to connect to such stakeholders, such as people in rural areas, will continue to face disproportionate obstacles to success.

What’s needed for systemic change?

The legislative priorities set out in CHIPS are positive and signal a major policy shift in the U.S. Yet addressing structural inequities—particularly as they relate to STEM education and unlocking innovation opportunities—requires thinking about the whole innovation pathway simultaneously rather than specific elements in isolation.

The leaders across the innovation ecosystem who are tasked with implementing CHIPS (and other major federal and state investments) have a remarkable opportunity and responsibility to ensure that the law actually improves inclusion in the innovation ecosystem. If they are successful, their efforts could help spark a new era of innovation and shared prosperity.

However, their success will depend on being able to strategically coordinate across funding streams and agencies that tend to operate in silos. Successful implementation will also require a level of regional capacity and coordination that does not already exist in most regions and will likely take many years to fully realize through the legislation’s various regional centers and hubs.

Leaders will need to focus their coordination efforts on aligning communication channels, incentives, compliance processes, and resources in ways that position marginalized communities and underserved communities for success. For example, providing grants for more inclusive STEM education in K-12 schools in marginalized communities is necessary, but it is not sufficient to achieve better outcomes if, for example, there are still too few options after high school that seem feasible and affordable or if workplaces are still unwelcoming to female, Black, and Latino or Hispanic workers. Additionally, coordination activities need to be prioritized and sustained across different presidential administrations, and successful inclusion will need to be strategically and intentionally addressed upfront rather than treated as a box-checking exercise.

There are several factors that will help lay a strong foundation for successful implementation in the education and training, invention, and commercialization stages of innovation, many of which the legislation does not explicitly address. Leaders should consider the following:

  • A national career outreach and education campaign to address widespread information gaps about STEM careers, starting a business in STEM fields, and how to prepare for these opportunities.
  • Reducing degree requirements in hiring, career advancement, and procurement.
  • Increasing the use of credit for prior learning, competency-based education, and automatic credit transfer policies.
  • Digital literacy broadly integrated into K-20 curricula to reflect how technologies are shaping every job and industry.
  • More inclusive earn-and-learn options to attain a STEM degree, designed around the needs of working learners who cannot afford student debt and who prefer experiential learning.
  • More robust anti-discrimination monitoring and enforcement, including adequate resources for the Equal Employment Opportunity Commission to assess and respond to bias in hiring and promotions.
  • Attention to the behavioral and structural dimensions of how university- and graduate-level researchers are selected and retained in academia, in addition to the resources in CHIPS (scholarships, fellowships, traineeships, and post-hoc requirements embedded in research grants).
  • Closer attention to the duration, quality, wraparound services, and outcomes of training to ensure they lead to better jobs.
  • Diversity commitments by institutional and limited partners who already direct investments into entrepreneurship ecosystems via private equity on behalf of beneficiaries (such as pension funds, endowments, and charities).
  • Required diversity riders in venture capital term sheets and good governance in actors that support innovation and startups.

Congress has acknowledged that investments in American talent are critical for the country’s global competitiveness, growth, and innovation. And the new legislative priorities signal a willingness to address long-standing occupational segregation, discrimination, and underinvestment in rural and marginalized communities. Yet it is unlikely that these entrenched problems can be addressed without a clear, cross-cutting vision.

The scale and specificity of the solutions should match the scale and specificity of the challenges.  Ultimately, we will need long-term, holistic solutions over multiple administrations to level the playing field and cultivate a more equitable innovation economy. Although CHIPS may not necessarily get us there alone, with more clarity around the implementation vision and an intentional focus on coordination, capacity, and the preconditions necessary for success, it does have potential to better position our talent, business community, and regions to thrive and compete in the digital age.