Shortly after the founding fathers finished drafting the Constitution in 1787, Benjamin Franklin reportedly encountered a Philadelphia matron who asked, "Well, Doctor, what have we got, a republic or a monarchy?"
"A republic," he's said to have replied, "if you can keep it."
True or not, the story helps make the point that for 194 years each generation of Americans has managed to keep the republic despite both internal and external challenges. It seems to me that the decade of the 1980s offers a different kind of test for us: whether we can preserve the Economic basis of our system. Preservation of the federal economic system is indispensable if the federal political system is to remain alive and well.
We hear much from Washington these days about a "new federalism." The Reagan Administration proposes to match its efforts to limit growth of the federal government with a shift of some power and revenues back to the states. "New federalism" pledges from other administrations have not amounted to much. What they lacked was a determined effort to center future economic growth in small and mid-sized businesses rather than in national and multinational ones. Without such an effort, no real shift in power is likely as a result of this administration's efforts either.
If our economy is dominated by large corporations, it is unlikely that state and local governments can survive as effective checks on the power of the national government. It is theoretically possible that three levels of government could be supported with taxes paid by national and multinational corporations.But it is not very probable. State and local governments need a healthy small business sector at regional and local levels to remain financially viable and politically potent.
Small business applauds the President's efforts to stop the growth of the federal government. We will have more confidence in the outcome of the effort if it is matched by a systematic program to help the small business sector recover its ability to invigorate and support state and local government. That recovery can happen only if a whole range of federal policies is turned around so that small and mid-sized business can expand throughout the decade at a rate faster than that of government-sized business.
A mere shift of functions, assets, and jobs from the federal government to government-sized business will accomplish nothing. Unless we define which part of the private sector is to be strengthened, we will simply have one more pause that depresses before we go back to expanding the federal government either to pick up the economic slack or simply to keep pace with national and multinational private companies. The national government and government-sized businesses are twins that grow jointly and reciprocally. So long as one of the twins keeps growing, the other's growth will not be slowed for long.
Think of it this way: For all of your lifetime and mine, two vast financial vacuum cleaners have been sucking cash, people, and assets out of the nation's grass roots. One of these is the national taxing machinery, which deposits all three in Washington. The other is the private capital and credit machinery, which deposits all three on Wall Street, La Salle Street, State Street, or Montgomery Street. The Washington machine expands the federal government, exporting part of what is delivered abroad for military and foreign-policy reasons. The private capital machine expands government-sized businesses, exporting large sums to serve their foreign investment needs.
If the Reagan Administration turns off the Washington-based vacuum cleaner without turning off the other one, or at least making sure that enough capital returns to the small-business grass roots, it will not have strengthened the federal system at all. Governors and state legislatures will find themselves receiving small increases in revenues through federal government rebates, but will find themselves faced with much bigger increases in program demands as a result of what the federal government has abandoned.
Now, what about that republic which it is our sacred duty to keep?
Last month in this column, we outlined one part of "the federal turnaround we need": to secure two basic rights better in the future than we have in the past. One is the personal right to start, own, and control our own businesses. The other is the personal right to live in an economically diverse society with the widest possible choice of employers. To those should be added another generally recognized right: the right to adequate information so that we can hold our elected officials truly accountable for their decisions.
The first step in securing this right is suggested by the two charts that accompany this article. They reflect what we must hold our leaders accountable for: the relative shares of the economy that go to government, government-sized business, and to small business. The charts illustrate what the president, senators and representatives, governors, and mayors should have available in the way of information. Each should know, for his or her respective jurisdiction, how much its economy depends on government itself, on government-sized business, and on small businesses of various sizes. Each should be able to measure change and to study the impact of various policies on the distribution of jobs, assets, and income among these three sectors.
But, as Robert Berney points out in Speaking Out this month, we still lack a true small business data base. Over and over, policy is debated with inadequate information about its relative significance for businesses of different sizes. In almost all cases, it is not because the data is not collected by the government or because it is buried in one or more federal agencies. Rather, it is because the government has failed to tabulate data consistently and uniformly, or to make interchangeable sets of data collected for different purposes.
If this is to be the Small Business Decade, we need better scorecards and yardsticks at each level of the federal system. Public officials must be able to study the real consequences of what they do in order to learn how to do it better. And citizens must be able to look at the same data in order to hold those officials accountable. Keeping the republic begins with citizens who understand the issues and therefore know what to be vigilant about.
The data we need is central to our national commitment to a competitive enterprise system, to knowing what is working for and against the growth of individual entrepreneurial opportunity. In a very real sense, it is needed to make valid policy connections between the federal economic system and the federal political system.
President Reagan is due to make a report to Congress on small business and competition before January 20, 1982. It would be a big step forward if he were to propose or endorse a "National Small Business Data Base Act." Such an Act would incur little or no new expense nor would it require the collection of new data. Rather, it would simply eliminate some statutory roadblocks that now prevent exchange of information among various government agencies and between government and the public. Such a law would help the President discharge his own official duties, and improve the government's ability to control itself, as well as our ability to monitor it.
Without a better scorecard, it's not just that you can't identify the players in the economic game: You can't identify who's winning or losing and why, either. Better data about small business is hardly the only thing we need to help us keep the republic through this decade, but it is one of the first things.