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Earth to Washington: Small Businesses Create All Net New Jobs

"Earth, courtesy Apollo 17, and probably the most reproduced image of all time"

"Earth, courtesy Apollo 17" by woodleywonderworks on flickr

As I watch the coverage of our nation’s failing economy, an army of political pundits and economists parade through news programs giving their take. Yet one piece of information is conspicuously absent from mainstream coverage of the economy: small businesses create the majority of net new jobs in America.

According to the US Census Bureau, small businesses create more than 90 percent of all net new jobs. A recent study by the Kauffman Foundation found that companies less than five years old create virtually 100 percent of all net new jobs. Clearly, those firms are all small businesses. Conversely, the study found that large corporations created virtually no net new jobs in the last 30 years.

It should be common knowledge to leaders in Washington that large corporations are shipping jobs overseas at a record rate. Nearly every company on President Obama’s Jobs Council has lost a significant part of their US workforce over the last ten years. President Obama named the President of General Electric, Jeffrey Immelt, chair of the council, and GE has shed more than 36,000 US jobs since 2001 while adding more than 25,000 abroad. Following 2009, GE employed 36,000 less people in the US than it did abroad.

President Obama, Timothy Geithner, Ben Bernanke, and every news commentator and economist is confused here. They need to understand one thing: you cannot create jobs by giving money to Fortune 500 companies. They don’t create jobs. They are losing jobs.

If the goal is to stimulate the economy and create jobs, the leaders in Washington need to direct money to America’s 28 million small businesses. These are the companies where most Americans work, where a majority of gross domestic product comes from and more than 90 percent of all US exports are produced.

Republicans and Democrats have not only ignored small businesses, but have actually adopted anti-small business policies that have been a major factor contributing to the economic downturn.

There is one small federal agency in Washington to help small businesses: the Small Business Administration (SBA). President Bush did everything he could to close the SBA. It is now known that Bush told then SBA Administrator Hector Barreto that his goal was to close the SBA during his first term. A former Bush attorney said that President Bush intended to end all federal programs for “the little guy and starve the SBA to death.” A 20-year SBA executive further stated that during his first term, President Bush laid off the core competency of the SBA.

It’s no secret that Republicans have been trying to close the SBA since Ronald Reagan was President. Right now Republicans in the Senate are trying to pass legislation that will clandestinely close the SBA and end all federal programs for small businesses by merging the SBA with the Commerce Department.

The Republicans motivation to close the SBA is simple. Federal law states 23 percent of federal contracts should go to small businesses. Based upon an accurate federal acquisition budget for classified and unclassified projects in the neighborhood of $1 trillion, $230 billion would go to small businesses. However, the Fortune 500 defense contractors that rule the roost on K Street and on Capitol Hill want that money.

These defense companies have been very successful lobbying Congress for preferential legislation allowing them to hijack these funds. Until 2007, the federal government had an established policy that allowed Fortune 500 firms to buy a small business and maintain that firm’s status as a small business for 20 years, in order to receive federal small business contracts. Most Americans would consider this policy insane.

President Obama’s track record isn’t much better than the Republicans. During his campaign in 2008, he recognized the magnitude of the problem when he stated, “It is time to end the diversion of small business contracts to corporate giants.”

But what has he done? He has continued the Bush-era policy of diverting small business contracts to large businesses, refused to take any action to stem that flow, and established a policy opposing the release of any and all information on federal small business contracts through the Freedom of Information Act (FOIA). As a result the American Small Business League (ASBL) currently has fifteen federal lawsuits against the Obama Administration under the FOIA to force the disclosure of data proving the ongoing diversion of small business funds to large businesses.

The Obama administration claimed that small businesses were awarded 22.66 percent of federal contracts in fiscal year (FY) 2010. The actual percentage is closer to a tenth of that amount. A cursory review of the top 100 recipients shows that 61 of the companies were large businesses. The Obama Administration actually removed data from the federal procurement data system, such as the Parent Company DUNS number, to prevent journalists and the public from being able to tell if a government contract was small or large.

Over 15 federal investigations have found billions of dollars in federal small business contracts being diverted to large corporations. This is no conspiracy theory. These are investigations by the General Accounting Office, the SBA Inspector General (SBA IG), the Inspector General for the Department of the Interior and the SBA’s own Office of Advocacy.

As early as 2005, the SBA IG referred to the problem as, “One of the most important challenges facing the SBA and the entire federal government today.” For six consecutive years, the SBA IG has named the issue as the number one challenge facing the SBA.

If President Obama and Congress want to save our nation from sliding into an economic abyss it is simple. The Small Business Act defines a small business as independently owned, which excludes publicly traded companies. In order to slash the jobs deficit, create millions of jobs, and spur recovery President Obama should issue a one sentence executive order stating, “The United States government will no longer report awards to publicly traded companies as small business awards.”

That one sentence would direct more existing federal infrastructure spending into the middle-class than any program his administration has ever spoken of. It’s free and easy, deficit neutral, with no new taxes and no new spending. He can finally keep his 2008 campaign promise and end a 10-year contracting scandal by simply enforcing legislation passed in 1953 to create jobs and keep America strong. To not do so would be criminal.

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Lloyd Chapman

Lloyd Chapman