The President's Message: An Historic Event

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On March 1, in response to the Small Business Economic Policy Act of 1980, Ronald Reagan sent to Congress the first annual "State of Small Business" report.

Several days later, while talking with another old campaigner for small business, I called the event, "historic."

"Come on now," said my friend. "Don't let your optimsim run away with your judgment. I couldn't find a word about it in my local newspaper. And it didn't even cause a ripple in New York or Washington. Besides, it doesn't contain anything really new."

I just mumbled something about entrepreneurs and small businesspeople standing taller with the President and let it go at that.

I may be so starved for good Washington news about small business that it's turned my glasses rose-colored, but I don't think so. I could have more accurately replied to my friend that the fact that the President submitted the report is historic, even though its contents may not be.

First, let's consider the contents. Judged solely by its substance, the report can be viewed as a shot in the arm for small business. The bulk of its 365 pages consists of a voluminous collection of data and interpretation assembled by the Office of Advocacy of the Small Business Administration. Much of this information has been available within the government. But this is the first time some of it has been made public * and all of it collected in one place. And that is clearly all to the good.

* The report (045-000-00210-1) is available for $6.50 from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

In his opening 18-page statement, President Reagan makes all the ceremonial comments about the value and importance of small business, then briefly outlines his program for coping with the economy's inadequate growth. After citing the major small business problems -- greater weakness than big business during recession, greater vulnerability to inflation and interest rates, and poorer access to capital -- he gets to the heart of his message: an eight-point policy statement.

Most important -- and least controversial -- are five policy commitments continued from the Carter years. (That two successive Presidents, representing both major parties, pledge support for these proposals carries a real message to the foot-dragging Washington bureaucrats who must implement them.)

* The President promises to use the Regulatory Flexibility Act vigorously to "accommodate the uniqueness of small businesses." He directs all federal agencies to complete their review of existing regulations not in 10 years (as the act requires), but in 5.

* He restates his endorsement of Senate Bill 881, the Small Business Innovation Research Act, calling upon Congress "to pass this bill for my signature this year."

* In a tough budgetary year, he gives priority to the establishment of a Small Businss Data Base.

* He pledges to support "unrestricted access for all businesspersons to all segments of the economy" and gives unequivocal endorsement to existing programs designed to help women and minority entrepreneurs.

* He promises to promote small business opportunities in export trade. (This is particularly important in light of the fact that only 8.3% of the nation's 300,000 manufacturers export regularly, and fewer than 1% account for 84% of U.S. exports. Small businesses, though representing about 40% of the gross national product, produce only 16% of export sales.)

More problematic is the President's treatment of federal procurement procedures, antitrust laws, and tax incentives.

The President's message does contain a welcome renewal of a promise made repeatedly since the Eisenhower Administration -- to end government competition with private industry. There is an equally welcome pledge to take action in ensuring prompt payment to federal contractors. The President is silent, however, on the subject of set-asides for small business vendors. The absence of such a commitment is particularly significant, since the report shows that the small business share of federal contracts is actually declining. The report is also candid about the status of the law (Public Law 95-507) that requires federal prime contractors to develop and submit plans for subcontracting to smaller businesses with their initial bids. It simply is not being implemented adequately.

In his remarks on antitrust, the President repeats his administration's dubious assertion that "the concentration problem... may be somewhat less than meets the eye."

And in his discussion of tax policy, he fails to deal with the price small business (and, indeed, the entire country) pays for our preoccupation with "asset-based tax incentives." It is job-based and job-creating tax incentives that small business needs.

The report fails in other ways to propose adequate solutions to pressing problems.

Take bank credit. The report shows that small businesses face increasing competition in the money markets from federal and large business borrowers, among others. True, federal lending is up as well, but loans to small business have "clearly leveled off." Small banks (assets under $100 million) and mediumsized banks (assets of $100 million to $1 billion) provide about 75% of the total dollar volume of small business credit. But bank mergers are growing, and larger banks generally lend much less of their money to small businesses. All the President proposes to rectify this situation is that federal bank regulators give special attention to small business in their proposals for "changing our financial institutions." That's a sugar pill, not a solution.

It's time to start thinking about protecting what's left of the small business bank credit stream. We need new legal mandates, perhaps a new network of community-based small business banks -- perhaps even a small business central bank that's separate from the Fed. Small business can't survive some mythical "free market" in the money supply, any more than it can survive "equal treatment" in reguation or "neutrality" in tax policy.

So, yes, there are serious problems with the report. But what President is ever going to send up a small business repot that will satisfy all of us? I've heard President Reagan's effort called namby-pamby and meaningless stroking. That's nonsense. It's a praiseworthy document with much solid, helpful information. It reflects credit on the President and his people and is entirely appropriate as a first outing.

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