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Open Letter to Alan Krueger

August 30, 2011

Petaluma, Calif. - 

Dear Mr. Krueger,

Congratulations on your appointment to chair President Barack Obama’s Council of Economic Advisers. I am encouraged by your appointment, as I assume most Americans are. Your credentials and reputation as a leading economist are impeccable.

I would like to bring up an issue that needs immediate attention. Based on the latest U.S. Census Bureau data, small businesses create 90 percent of all net new jobs. The Small Business Administration Office of Advocacy indicates that small businesses are responsible for more than half the private sector workforce, half of GDP and 90 percent of exports. Ninety-eight percent of U.S. firms have less than 100 employees. And yet President Obama’s economic policies do not seem to reflect this. 

Based on economic data, this country needs aggressive programs focused on small businesses. Congress realized this in 1953 when they passed the Small Business Act, establishing the Small Business Administration (SBA) and a federal small business contracting goal (currently 23 percent). That law appears to be an extremely effective tool to create jobs. Moreover, research indicates that Fortune 500 companies have not created one net new job in more than thirty years.

Yet since 2003, a series of federal investigations have found that most federal small business contracts have gone to large corporations in the U.S., Europe and Asia. In 2005, the SBA Inspector General released Report 5-15, describing the abuse as, “One of the most important challenges facing the Small Business Administration and the entire federal government today.”

During his campaign, President Obama recognized this abuse and stated, “It is time to end the diversion of federal small business contracts to corporate giants.”

Federal law defines a small business as being independently owned. This would exclude any publicly traded company. I suggest that President Obama issue an executive order that states, “The federal government will no longer report contracts awarded to publicly traded companies as small business contracts.” This would direct more existing federal infrastructure spending to the middle class than any previous economic policy.

I think this is a very reasonable, deficit neutral approach to boosting the economy and creating jobs. I cannot imagine a downside to ending the illegal diversion of federal small business contracts to large corporations.

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