By Lloyd Chapman
October 4, 2010
Last week, President Obama signed into law measures aimed at providing billions of dollars in tax breaks and lending for small businesses. The American Small Business League does not believe these measures adequately address the needs of America's small businesses. The ASBL maintains that the best way to stimulate the economy is to put money directly into the hands of small businesses. This would be tremendously more effective than tax breaks or increased lending, and it could be done in a deficit-neutral way.
Congress realized small businesses were the engine of economic growth in America when it passed one of the most successful economic stimulus plans in U.S. history, the Small Business Act, in 1953. Today, this cornerstone legislation requires that a minimum of 23 percent of all federal contracts be awarded to small businesses.
The U.S. government is grossly missing its goal. The government says it awarded 21.89 percent of its contracts to small businesses last year. But the ASBL has estimated that every year more than $100 billion in small business contracts flow into the hands of large businesses, which translates to less than 5 percent of government purchases actually going to small businesses. Since 2003, a series of federal investigations has found that billions of dollars a year in federal small business contracts have actually wound up in the hands of corporate giants around the world. The Small Business Administration (SBA) Office of Inspector General in a report referred to this issue as "One of the most important challenges facing the Small Business Administration and the entire Federal government today."
As opposed to fighting a long legislative battle in Congress, as he did over the new legislation, Obama should issue an executive order or adopt policies at the SBA that would ensure full government compliance with the mandated 23 percent small business goal.
Awarding more government contracts to small businesses is important given their central role in generating jobs.
According to the U.S. Census Bureau, small businesses create more than 90 percent of net new jobs.
America's 27 million small businesses employ more than 50 percent of the private sector workforce, generate more than 50 percent of the gross domestic product and are responsible for more than 90 percent of all U.S. exports and innovations.
Pevco, a Baltimore-based small business, has experienced the problem first hand. Chairman Fred Valerino Sr. filed protests with the SBA when he began to lose federal small business contracts to a Swiss multinational.
"The SBA claims TransLogic Corporation [the Swiss corporation] received 147 small business contracts over a six-year period accidentally. It is simply not believable," Valerino said. "It is time for President Obama to end this abuse."
In February 2008, during the presidential campaign, Obama stated, "It is time to end the diversion of federal small business contracts to corporate giants."
Obama needs to keep that promise. Ending this abuse would send billions of dollars in existing government spending to small businesses year after year, slash unemployment and help to prevent a double-dip recession.
Lloyd Chapman is president of the American Small Business League based in Petaluma, Calif.