Former SBA Chief Karen Mills on How to Jump Start the Economy Now
What your business and the U.S. need now is infrastructure investment.
Specifically, Karen Mills, the former Small Business Administration head says, we need private-public partnerships for build-out and upgrades of everything from our crumbling bridges and highways to ports and airports, because it's in investments like these that small business owners will benefit the most.
"We cannot just cut our way to growth," Mills said, referring to the budget austerity enacted by Congress following the massive government spending authorized after the financial crisis.
Mills made these remarks to Harvard Business School at the 2014 America on the Move Summit last week. Mills stepped down from her position as administrator for the SBA last August. During her tenure, the administrator position was elevated to the president's cabinet, and Mills pulled a variety of levers to soften the effects of the financial crisis on the U.S.'s 28 million small businesses.
Now that we've rounded corner and the economy appears to be on the mend, it's time for more public investment to help drive a recovery, Mills said. The deficit has fallen to 4.1 percent of Gross Domestic Product, less than half its level in 2009, Mills said. She added that by Congressional Budget Office estimates, cited by Harvard professor and former Secretary of the Treasury Larry Summers, a 0.2 percentage point increase in GDP would eliminate any long-term budget gap.
"As a nation, we have been under-investing in infrastructure for the last two decades," Mills said, adding that investment in the public sector has dropped to 3.6 percent of U.S. output, compared to 5 percent after World War II.
Yet small businesses, which provide two out of ever three jobs in the U.S., are major users of our crumbling infrastructure, Mills said, adding that the disrepair is slowing down growth.
Mills compared the need to invest in infrastructure such as highways, roads, and bridges to investment in high-speed broadband in the past two decades, which has enabled a lively app economy, which in turn has spawned nearly a million jobs, as well as an entirely new cloud computing industry worth $45 billion that touches some 6 million small businesses.
While at the SBA, Mills worked to get banks and investment companies to lend and invest again in small businesses, including through two vital public-private partnerships that could serve as models for other investment types. These are the SBA's flagship 7(a) loan program, which gives 5,000 banks participating in the program access to loan guarantees by the federal government. The 7(a) portfolio of loans is currently worth $100 billion, and in 2013 the SBA helped guarantee loans worth about $30 billion, in part, by convincing more small banks to make them.
Similarly, the SBA beefed up its Small Business Investment Company program, where the agency works with venture capital and private equity firms to provide capital to high-growth companies. The SBIC program deployed $3 billion in capital to such entrepreneurs in 2013.
Both programs have a multiplier effect, spawning far more dollars in the economy then were originally invested, Mills said.
"As we move beyond economic recovery we must invest to grow our economy and keep it competitive, " Mills said. "We must innovate in how we get money to critical infrastructure projects, and business has an important partnership role to play."