In the olden days (i.e. for my PhD advisor) in the physical sciences, the funding strategy was simple--get in with a program officer at one of the major funding agencies for your bread and butter grant. Then supplement that with additional proposals. For ProdigalAdvisor, his core grant was DOE. As long as he was productive, the renewal of this grant was more or less guaranteed. It was enough money to support 2-3 students, or a student and a postdoc if budgeted carefully. He knew his PO well, and had regular contacts.
The upsides to this, compared to our current situation are obvious. First, having semi-permanent funding enables risk taking in other proposals, since they aren't make or break for the lab. It also means less time spent proposal writing and more time on other things. Next, it makes the disconnect between PhD time (5-6 years in my field) and grant time (usually 3 years) less painful, since it is unlikely that funding will end mid-PhD causing a shift in research topics midway through. Finally, the reduced mental overhead of near constant worry about funding improves pretty much everything. Because funding was not guaranteed without productivity (and POs do come and go), there was still pressure to produce, but not as acute, and not to the exclusion of all else.
However, there were also significant downsides to this system. The main one is that it HEAVILY favored people hooked into the Old Boy Network, who could be introduced to the POs they need to network with to get into this kind of favorable funding situation. POs tended to stick to people who reminded them of themselves when younger, which suppressed diversity big time. It also heavily favored older established scientists (who were hooked up with semi-permanent renewals) over younger, upcoming scientists (who had to fight tooth and nail for funding until they could hook up with a PO willing to fund their careers). POs tended to stick with "their" stable of researchers, even past the point of when they were producing good science. Finally, it reduced the "nimbleness" of the funding agencies to change research directions and priorities as situations changed.
Is it possible to get the good of stability in funding without the bad of locking in the status quo for years and years? I don't really know. It seems that both systems were about equally likely to favor famous, established groups and also about equally meritocratic (though the optics now MIGHT look a little better now). Diversity is better now--the Old Boy Network is still present, but not quite as dominant. Risk taking in research is probably less common than before, due to the danger of being unfunded. There always were people who wanted to push the envelope/got bored with their current areas/were creative scientists of any age, but these people could get to stable situations in the past that are much more difficult to reach now. My PhD supervisor, with his semi-guaranteed DOE grant, was not a superstar with a megagroup. He was just a "normal" PI.
I am much, much more worried about funding than my advisor ever was. All of my colleagues are also worried. I spend a huge fraction of my time writing proposals, and I know I write many, many more than my advisor ever did (not just conjecture--we've discussed it since I moved to the TT). Both systems favor flashy science that can be packaged up and sold, and extroverted people
with good networking skills, which doesn't necessarily correlate with
important science and research talent, respectively. The modern funding schemes favor trend following, and rapidly move funding into and out of areas when they become hot and cold, which is not necessarily a good thing in basic research if we want to develop a deep understanding of something, which takes time. It sometimes seems to me like we moved the deck chairs around to generate at least the appearance of a more meritocratic, inclusive approach and called it progress, while forgetting that the quality of the experience for those in the system is also important.