ROLE OF GOVERNMENT
Theory of regulation and deregulation for the progress of human civilization has equivalent in the concept of centripetal and centrifugal forces in physics.
Emergence of family, extended family in the shape of tribe and state have roots in the spirit of regulation. Religions and socialism share regulatory spirit.
Human being, generally speaking, is more under the influence of centrifugal forces hence always require some regulatory force till intellectual growth reaches its optimum levels and socio-economic and cultural environment is conducive for self discipline and has elements of deterrence for bad behavior. After all individuals benefit from each other hence have to observe some responsibilities as well.
Government to the extent of a creative regulatory and facilitative force is necessary. It should neither be small nor big. Government functionaries cannot be parallel to the billions of decision makers, creators of new ideas and employers of expediencies. However, policy and legal framework and environment for optimal capacity building and unobstructed inclusive activity of billions should/could be ensured by the government.
Dr. Block's proposal
Kudos to Dr. Block as it would seem that he's done a lot of important work here!
From where I sit, the obstacles are mostly "optical" in the sense that the perception and image of the program would need to be carefully managed, especially at the beginning stages. This system will likely work very well in terms of setting up a systematic innovation pool, which would therefore replenish employment continuously, and likewise periodically invigorate the economy ... creating a virtuous circle/cycle/circuit...
In the early stage of the program the "optics" could be helped by mandating that only companies that directly receive funding from the SBIR would participate in the 2% innovation fund in exchange for the seed funding (say $100,000). This would also assist would-be entrepreneurs by giving an initial valuation to their company too.
As a former entrepreneur in the IT space who developed new technology, I would've made the exchange in a heartbeat, and it would've made all the difference in the early days of the firm on many levels.
In my opinion such a proposal "smells much better" than taking 2% of every newly incorporated company in the country at incorporation.
