On February 8, 2008, President Obama released this statement: "98 percent of all American companies have fewer than 100 employees. Over half of all Americans work for a small business. Small businesses are the backbone of our nation's economy and we must protect this great resource. It is time to end the diversion of federal small business contracts to corporate giants."
President Obama was referring to a ten-year-old federal contracting scandal. It has been reported in virtually every major newspaper in the country, has been on a number of major television networks repeatedly and has been the topic of discussion on hundreds of radio shows.
Federal law requires a minimum of 23 percent of all federal contract dollars be awarded to legitimate small businesses. Congress defines a small business as a company that is independently owned and generally has less than 500 employees. This would exclude any publicly traded company. When Congress passed the Small Business Act in 1953, they realized the benefits of such a program. It was essentially one of the first, and to this day, one of the most effective economic stimulus programs in the history of America.
The U.S. Census Bureau tells us that small businesses create at least 90 percent of net new jobs, employ more than half of the private sector workforce, are responsible for more than half of GDP and are responsible for more than 90 percent of all U.S. exports. The Kauffman Foundation released a study in November 2009 that found virtually 100 percent of all net new jobs come from companies that are less than five years old. Clearly, these are small businesses.
Since 2003, a series of federal investigations have discovered large firms receiving small business contracts and much worse. The overwhelming majority of small business contracts meant for the middle class and America's chief job creators are instead diverted to the largest companies all around the world.
Some of the large businesses that have received hundreds of millions in federal small business contracts include: Lockheed Martin, Northrop Grumman, Boeing, Raytheon, John Deer, Dell, Hewlett-Packard, AT&T, British Aerospace, Italian defense giant Finmeccanica, SsangYong out of South Korea and Thales Communications out of France.
It defies all logic and reason for President Obama to be aware of this problem, acknowledge it during his campaign, and yet do nothing. It is a win-win for the American people and our economy. It is deficit neutral and requires no new taxes or new spending.
The exact numbers on the federal acquisitions budget and the volume that actually goes to small businesses is cloaked in secrecy. The federal government has been very hesitant to release these numbers.
In an article for Stars and Stripes Mark Prendergast referred to the federal acquisitions budget being $1 trillion. Some of the most knowledgeable people in Washington on federal acquisitions similarly believe the budget is around $1 trillion.
Assuming the U.S. has a $1 trillion federal acquisitions budget, 23 percent would be $230 billion per year. Based upon information from the Small Business Administration (SBA), the Obama Administration is only claiming to have awarded close to $100 billion to small business. However, 61 of the top 100 recipients of small business contracts in fiscal year (FY) 2010 were actually large businesses. Conservatively, legitimate small businesses are receiving no more than $50 billion per year.
Complying with a law passed in 1953 seems to be the most efficient and effective way to create jobs. It would channel existing federal infrastructure spending into the middle class. It is hard to imagine why President Obama would allow America to slip closer and closer to what could be an economic catastrophe that will eclipse the 1929 depression. It makes no sense.
To put this in perspective, in 2005, the Small Business Administration Inspector General (SBA IG) released report 5-15 that described the diversion of small business contracts to corporate giants as, "one of the most important challenges facing the SBA and the ENTIRE FEDERAL GOVERNMENT TODAY."
Under section 16d of the Small Business Act, misrepresenting yourself as a small business to land federal contracts is a felony with a penalty that includes ten years in prison and or a $500,000 fine.
Looking at the situation objectively, clearly this is a problem and President Obama could solve it with 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 executive order would create more jobs and do more to stimulate our national economy than anything ever discussed by the Bush Administration, Obama Administration or Congress.