There has been a great deal of discussion lately, especially from prominent economists, focusing on the supposed certainty that the U.S. economy is heading into a double-dip recession. Despite all the lofty rhetoric coming from the Obama Administration, one thing does seem certain; the economy is about to move again, but this time in the wrong direction.
Regardless of which economist you listen to, it seems they all agree that the only way to end the recession is to create jobs. The other point that most economists will agree on is that the majority of new jobs are created by small businesses. Now, there has been quite a bit of talk recently, especially from the Obama administration that,
The problem is that both the Obama administration and most members of Congress have fallen far short when it comes to doing anything to help small businesses during these tough (horrendous) economic times. Frankly, strong rhetoric is all we have seen out of the Obama administration when it comes to the importance of small businesses.
Regardless of how overplayed the rhetoric is on small businesses being the backbone of the nation’s economy, the fact is that the rhetoric is absolutely true. According to the U.S. Census Bureau, small businesses create over 90 percent of all net new jobs, provide over 50 percent of the nation’s private sector workforce, create half of the country’s GDP and provide over 90 percent of new innovations. A recent study from the Kauffman Foundation found that companies less than 5 years old create nearly all net new jobs, and by far, the vast majority of companies less than 5 years old are small businesses. In fact, another study from the Kauffman Foundation found that startup companies, i.e. small businesses, have long lasting positive economic impacts on job creation. This means that currently, small businesses are responsible for virtually every net new job being created. With this in mind, why did the Obama administration direct less than 3 percent of stimulus funds to small businesses? . . .
Over the past two years the focus on helping small businesses has been directed in two main areas. The first is small business lending, access to capital or unfreezing the credit markets. Banks have stopped lending to small businesses no matter how much the government has been willing to back SBA loans, reduce the paperwork required and cut back on the fees for both the lender and the lendee. The second focus has been on tax cuts and tax breaks for small businesses. The problem is that neither loans nor tax breaks or incentives will lead to job creation, especially in the short-term, until demand increases.
The simple fact is: Small businesses need more business
In order to help stimulate demand for small businesses, the Obama administration and Congress should be looking at federal small business contracting programs. The federal government officially spent over $536 billion during fiscal year 2008 (approximately $1 trillion when counting intelligence and “black” projects) contracting out for goods and services and by law, small businesses should receive at least 23 percent of the total dollar amount.
However, a major problem exists. A series of federal investigations, going back to the mid-1990’s, has shown that the majority of small business contracts end up going to large businesses, Fortune 500 firms and multinational corporations due to fraud, abuse, loopholes, and a lack of oversight. Research conducted by the American Small Business League (ASBL) shows that small businesses lose out on approximately $100 billion a year in contracts that go to large businesses, but get counted as small.
There is currently legislation in Congress that would shut down one of the biggest loopholes and kick out nearly 100 percent of the large recipients of small business contracts. The bill is H.R. 2568, the Fairness and Transparency in Contracting Act. This legislation would do more to create jobs, spur economic growth and help small businesses than anything that has been proposed thus far. Stopping fraud and abuse in these contracting programs will bring $100 billion a year, and every year, into the hands of the small business economy, which is the U.S. economy. And the best part is that it would be completely deficit neutral. That’s right, it would not cost the taxpayers any additional money, because the programs are already in place and the money has already been budgeted. These contracting programs can be used to literally drive demand towards small businesses. Once small businesses see an increase in demand, then they will begin to hire more employees to meet that demand, thus creating the job and economic growth that has been lagging. To restate again, federal small business contracting programs can be utilized to be the driver of the demand needed to stimulate the economy.
The only problem is that pro-small business legislation like H.R. 2568 is dying a slow death in the House Small Business Committee, thanks in large part to the Chair, Rep. Nydia Velazquez (D-NY-12), who only seems interested in opening up small business programs to dominance by the venture capital industry (more on that to come).
If we know that small businesses create over 90 percent of all net new jobs, then why has the Obama administration and Congress not jumped to end fraud and abuses in federal small business contracting programs by passing H.R. 2568? It seems surprising that the Obama administration would not embrace deficit neutral legislation that will bring over $100 billion a year in existing federal contracts into the hands of small businesses. If the Obama administration is worried about a double dip recession, as I am sure they are, and wanted to create jobs, wouldn’t it just make sense then to pass H.R. 2568 and provide small businesses with the greatest possible opportunity to work with the government?