The game of political chicken over the debt ceiling has ended without a clear winner, and the American people can once again collectively roll their eyes at their dysfunctional government. Now an appointed Congressional committee, the so-called Super Congress, will look for new ways to relieve the national debt. It is an understatement to say that I do not expect a revolutionary breakthrough.
Congress' focus is in the wrong place. The biggest challenge the U.S. faces right now is the jobs deficit, not the budget deficit. Unemployment rates determine a healthy and functioning economy, and those rates are reaching new heights.
If President Obama is serious about trying to stimulate the economy, create jobs and balance the budget, his most effective tool is a simple executive order.
The U.S. Census Bureau tells us that small businesses create 90 percent of all net new jobs. The Kauffman Foundation found that small businesses create nearly 100 percent of all net new jobs. Moreover, small businesses employ more than half the private sector workforce, are responsible for half of the GDP and account for 90 percent of all U.S. exports.
Recognizing the vital role small businesses play in stimulating the economy, in 1953, Congress passed the Small Business Act requiring federal agencies to award a minimum of 23 percent of all prime contract dollars to legitimate small businesses. Yet, since 2003, a series of federal investigations has found that most of those dollars are diverted to large corporations.
The Small Business Act defines a small business as independently owned. That definition excludes any publicly traded companies. Also, when determining if a business is small, the number of employees of any parent company and all affiliates must be considered. Therefore, no Fortune 500 firm or publicly traded firm can be considered a small business.
Yet, in fiscal year 2010, 61 of the top 100 small business federal contractors were actually large firms. During a July Senate hearing aimed at discovering why large corporations like Lockheed Martin received billions of dollars in small business contracts, Senator Claire McCaskill expressed dismay that the SBA had allowed this to happen. She said it is "time for all of us to take a hard look at the way the government does business."
I could not agree more. If President Obama wants to create jobs and stimulate the economy, a simple executive order stating that government agencies can no longer report contracts awarded to publicly traded companies as small business contracts would suffice. Considering the federal acquisitions budget is around $1 trillion, this would redirect upwards of $200 billion per year in existing federal infrastructure spending to small businesses and the middle class.
The key phrase is "existing federal infrastructure spending," which means it does not require new taxes or new spending. This is money that the government currently spends. President Obama just needs to redirect it to companies capable of creating jobs. Furthermore, it would solve a ten-year-old contracting scandal that has been covered by virtually every major newspaper, television and radio outlet in the country.
If the American people took a survey asking if Fortune 500 firms should receive small business contracts, virtually 100 percent would laugh and say no.
But this is not a preposterous question.
Every day that President Obama has been in office, hundreds of millions of dollars in small business contracts have been knowingly, willfully and intentionally diverted to large corporations that have not created one net new job in America in more than thirty years.
President Obama said he would leave no stone unturned in trying to create jobs. Well there is a massive rock pile made up of Lockheed Martin, General Electric, Raytheon, Italian defense giant Finmeccanica, among several others, receiving small business contracts waiting to be turned.
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And small companies will not hide revenue in Swiss bank accounts, or do the "Double Irish" or "Dutch Sandwich" tax dodges. It is illegal for all companies to move money across international borders for the purpose of evading taxes, but big companies get away with it.
Small firms that are competing with the big corporations for Federal business don't stand a chance. If they do win a sizable contract as a small business, it is not long before their competition will buy them. The sham is a small business seeded with venture capital loan, setup as a minority firm so they have preference in fed contracts. Once they win a nice big contract, they sell out to a larger corporation for a tidy profit. The venture capital firm collecting most of the money since they get their loan back with interest and their equity share. Nothing illegal, just not what was intended.
The rule setting aside a percentage of business is designed to overcome the big corporations advantage in bidding. A company like Lockheed Martin has tentacles throughout Washington, so this rule must be enforced for small businesses to have a chance.
put a 100% tax on all imports.
restart the civilian conservation corp, with maybe some twists. they can help the start up businesses at a low pay subsidized for 2 years. or the ccc could help them start something of their own.
So, by all means, let's put the burden of CrapCare on their shoulders. THAT should surely create jobs.
I don't know how long it's gonna take for liberals to figure this out, but Business is riding one-term Obama out.
I cannot thank you enough for writing this article. I can't do much, but I can contact my Congress-critters, and at least remind them of this. You are absolutely right - if real small businesses got those contracts, it would have a huge impact on unemployment. That some of these contracts go to non-US based companies is outrageous. Real small businesses don't outsource their jobs.
Thank you for this article. And for your comments in the thread itself.
I own a real small business, a couple of employees and a gross income below 7 figures. Contrast that to a hedge fund manager, also considered a small business especially by the GOP, with a couple of 'assistants' and profits in the billions.
Under the current SBA definition Koch Industries is a small business, never mind that Koch Industries owns several multinational corporations.
Under the SBA definition a company with 500 employees is a small business, well that 'small business' would need more than $20 million a year just to pay its employees $15 an hour. That is not small.
Time to put a monetary line in the definition of a small business, let's say $100 million a year. That is a reasonable figure for a company with 200 employees. Then set a mid-sized business category with a slightly different set of criteria and programs.
The reality is that too many of the SBA resources go to these mid-sized businesses while actual small companies are left out in the cold.