THE BLOG

Washington Ignores Simplest Solution To Job Creation And Economic Stimulus

07/25/2012 10:25 am ET | Updated Sep 24, 2012

As I watch various news channels, I see a parade of experts, politicians and pundits talking about what we can do to create jobs and stimulate the economy. I'm continually stunned and surprised that nobody on television acknowledges that, according to U.S. Census Bureau data, small businesses create more than 90 percent of all net new jobs.

Clearly, the way to create jobs and stimulate the economy is through programs that help small businesses.

To date, the overwhelming majority of all economic stimulus funds have not been directed toward small businesses. It's well known that most of the federal acquisitions budget is spent with large firms. Even funds that are legally required to be set aside for small businesses are siphoned off by large firms.

The Kauffman Foundation did a study in 2010 that found that, from 1980-2005, virtually 100 percent of the net new jobs in America were created by small businesses. That means that, until that point, large businesses had not created one net new job in more than 30 years. Think of the lunacy of our government focusing almost all available economic stimulus funds on businesses that have not created one net new job in 30 years.

I think the most effective economic stimulus program in history was the Small Business Act, originally passed in 1953. Today the Small Business Act mandates that a minimum of 23 percent of the total value of all prime contracts dollars be awarded to small businesses. All federal data indicates that small businesses are the engine of economic growth -- they employ over half the private sector workforce, are responsible for over half the GDP and represent over 90 percent of all U.S. exporters.

This is a win-win situation -- take existing federal infrastructure spending and direct it to the small businesses where most Americans work and between 90 and 100 percent of all net new jobs are created. It sounds like the perfect economic strategy. It requires no new taxes and no new spending. But unfortunately, a series of federal investigations since 2003 have found that most of that money is going to large businesses.

Some of the firms that received small business contracts in the past five years include, Apple, Lockheed Martin, Raytheon, Boeing, AT&T and even foreign companies such as Rosoboronexport, an arms broker owned by the Russian government that received more than $375 million in federal small business contracts during FY 2011. I'm going to go out on a limb here and say that 100 percent of Americans would agree with me that an arms dealer owned by the Russian government should not be getting small business contracts. So why isn't anybody talking about this in the national media?

In February 2008, President Obama recognized the magnitude of these abuses form the campaign trail and released a statement saying, "It's time to end the diversion of federal small business contracts to corporate giants." To date he has failed to make good on that promise. Quite the contrary, his administration continues the practice of diverting small business funds to corporate giants.

In 2005, the Small Business Administration Office of Inspector General (SBA OIG) referred to the diversion of federal small business contracts as "one of the most important challenges facing the Small Business Administration and the entire federal government today." The SBA OIG has reiterated that statement for the past seven consecutive years.

So if President Obama and Congress are serious about stimulating the economy and creating jobs, they will stop giving federal small business contracts to large corporations. But I doubt you will see that happen. Sadly, it all has to do with money and politics -- a so-called 'pay to play' arena. Politicians are not going to adopt legislation that diverts hundreds of billions of dollars away from some of their largest campaign contributors. It's a tragedy that this is how our government runs but it's an irrefutable fact.