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Election '84: Pursuing An Entrepreneurial Agenda

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Are you better off now than you were four years ago? Don't smirk. The Trivial Pursuit phenomenon (see "Big Game," page 101) not withstanding, this must be the single most pervasive question of 1984. And the answer, unfortunately can't be found on the back of a card. But answer it you will -- we all will -- come November 6.

In the meantime -- who knows? -- maybe it helps to Trivialize the question. Supporters of President Reagan, for example, could break it down into three of the game's categories: Science & Nature (Do those giant deficits boost or threaten the recovery?); Arts & Literature (Is Jerry Falwell our idea of an important social visionary?); and Geography (How close is Grenada to El Salvador?). Mondalites hunkered over the same table might look for answers elsewhere: History (Has a Democrat ever cut inflation?); Sports & Leisure (Are the Japanese on their way to beating us at baseball, too?); and Entertainment (How come the Great Communicator makes everybody feel better -- whether or not he or she is?).

Oh, well. Put away the die and get serious. Is 1984 significantly better than 1980? Probably. Is that because of, despite, or unrelated to the policies of the Reagan Administration? Hard call. Does Reagan vs. Mondale offer a clear choice for the entrepreneurial agenda of the '80s? Yes, but it is not clear what.

One thing, however, is clear: A new generation of leadership is charging up Capitol Hill with the fresh perspective of baby boomers everywhere. Political children of the '6Os and '70s, they come to government unencumbered by assumptions that big business or big labor is the last, best hope of the free enterprise system. The focus of Joel Kotkin's election essay (see "The Making of the President: 1988," page 68), a handful of these legislators joined us in Washington last June for a special INC. Congressional Roundtable on small-company issues and Election '84.

Participating in the luncheon discussion were four House members. The two Democrats were Charles E. Schumer of New York, co-sponsor of the National Entrepreneurship Act; and Parren J. Mitchell of Maryland, chairman of the Small Business Committee. Republicans Ed Zschau of California, former president of the American Electronics Association; and Jack Kemp of New York, onetime Buffalo Bills quarterback and much-touted entrant in the 1988 Presidential sweepstakes, were also present, as was Bill Nourse, political activist (Republican-turned-Democrat) and owner of a hardware supply company in West Nashville, Tenn. Sitting in on behalf of the magazine were, in addition to myself, senior writers Tom Richman and Joseph P. Kahn.

Although both sides of the congressional aisle were ably represented, party lines proved to be not all that meaningful. Zschau and Kemp, for example, split sharply over the issue of the federal deficit and how (or even if) to attack it; Nourse and Schumer took profoundly different stances on the issue of legislative leadership versus following the dictates of a political constituency. Zschau and Schumer, on the other hand, agreed that government sensitivity to smaller companies had declined since 1980. Nourse complained loudly about Reagan's appointment of Martha Seger, a Republican banker, to a Federal Reserve Board slot designated by the Senate for a private-sector player, possibly a small businessperson ("Her credentials are absolutely bad. It's this kind of insensitivity on the part of Republicans that rattles us. ). Kemp downplayed its significance. Those same two found fertile ground, however, in discussing tax breaks for the investment small growth companies make in human resources.

Kemp arrived late at the meeting (through no fault of his own -- a hot school-prayer debate was underway on the floor of the House) and was not heard on all points, but nobody else voiced the strong opinion that the Reagan-Mondale choice was an historic one for the owners of small companies -- particularly the fast-growth companies that are defining the American economy of the '80s. There was, if anything, a tone of quiet resignation to the vocal support of each participant's respective standard-bearer.

We began the two-hour session by asking each participant for his working definition of "small business" as a political entity. What follows are some highlights.

Zschau: When I think about small business, I think in two categories. One is the small business that plans to remain small, which is often a family business. The aspirations of the entrepreneur are to keep it at about that size. [The other] is the small business that looks at "small" as just a phase you have to go through to become big. I think that when we talk about small business, we really have to be thinking about both those categories.

Mitchell: There is always a problem in Congress when it comes to federal effort. on behalf of small business. It seems to me that Congress, properly, is focused on the second category, the small business that wants to be big. If we make that distinction, then we are pretty clear what role [we] should be playing.

Zschau: Another way of thinking about small business is like you think about a small child versus an adult. A small child is more fragile. The kinds of things that can hurt an adult may kill a child. High interest rates, for example, may hurt a large business and reduce its profits substantially; a small business could go out of business.

Small business set-asides, an issue often buried in ideology or ennui, sparked this reasoned exchange:

Zschau: I have a philosophical problem with government intervention generally, but with set-aside programs in particular. It stems from the fact that I believe small business has an advantage, as opposed to disadvantages to make up for. We talk about the capabilities of small companies to expand and grow, to be flexible and to know where the opportunities are. So it seems to be contradictory to say we want to give them special treatment. The ones that couldn't make it otherwise art the ones that take advantage of the set-asides

Nourse: From my perspective as an activist, I don't particularly like set-asides. But once you reach a point where Congress has no other way to get an agency--the Ex-Im [Export-Import Bank of the United States], for one -- to respond to small business, isn't a set-aside a legttimate tool?

Zschau: Maybe. That is, if the agency's mission is served best by using small business yet refuses to do so, then it seems you have to get them to focus their objectives better. Sometimes, however, you give the agency two objectives. You say, "I want you to achieve your main objective, but I want you to do it within certain categories of resources." Then they have to make trade-offs between the two.

Nourse: In the real world, where we operate, at some point action has to happen. Let's go back to the Ex-Im bank. We have on the one hand the Commerce Department promoting the idea of expanding exports through small business to reduce trade deficits; on the other hand you have the bank giving 80% of its funding to the top exporters in the country. The only clout Congress has in this case is set-asides.

Schumer: There can be a median position. If an agency like Ex-Im is not using small business at all, try the set-asides for a period of time. Then compare the results and see what happens after that. I don't think dogma works on one side or the other.

Mitchell: The harsh realities demand set-asides. There is all the more reason to call for them because the share of government procurement and contracting for small business has declined [from 15.50% to 13.5%] since 1981. A particular case is the necessity and legitimacy of set-asides for minority businesses. My God, minority businesses would never have made breakthroughs [without them]. If there is general resistance to small business, think of the resistance to minority business.

Schumer: Set-asides may not lie neutral, but neither are they all good or all bad. We have to make ad hoc judgments based on each case. Maybe we should say, "After five years, the small businessman who has been in is out, and set-asides would apply only to new people. On the subject of taxes and the federal deficit, perhaps the issue for small business in the coming election, debate was just as lively:

Kemp: If you give me the tax code as it exists today, I will support anything that will reduce the bias against the private entrepreneurial system. But I think we ought to use this moment in history to move toward a major revision of the tax code and not gimmick it up with more credits, more "safe harbor" leasing ideas, and more of those special-interest tax breaks.

Zschau: How we do the tax increase is critical. If the approach is just to tax middle-income and rich people because, as Willie Sutton says, that's where the money is, it may have a negative effect on the people who would be investing in, loaning money to, or owning small businesses. However, if it is a broader-based and perhaps more consumption-oriented tax, then savings and investment may increase, and the availaliility of capital for small companies is preserved. The debate is very important.

Schumer: Congressmen basically are rational actors acting in the interest of their own bottom line, which is votes. There is nothing wrong with that. But it means that anytime you vote on a spending issue, or even a tax issue, and you vote for the general interest over the specific interest, you tend to lose votes. It's no one's fault, but I must say, I don't think we're going to solve the deficit problem until we grapple with that governmental problem.

Zschau: I think what we're doing now is irresponsible and immoral. You are saying that if the politicians want to do this because it's a free political market, so be it. I think it's a tragedy.

Schuer: I'm saying it's not the politicians who want to do it, it's the people. People all want to reduce the deficit. But can you get a majority to reduce X, Y, or Z? You can't find it.

Kemp: This discussion of the deficit is getting ridiculous. It is bad, but it's getting a lot better, because the economy is expanding. If we don't foster economic growth, there is no way -- no plan from Mondale to David Stockman -- that can get that deficit down unless you get people back to work, raise those corporate cash flows, get the type of retained earnings on which people can start paying more taxes to get more revenues into the Treasury. That will do more to get the deficit down than all those Band-Aids of surtaxes, taking off indexing, and apologizing for 1981.

Do politicians respond to the concerns of small-company managers? We heard these thoughts:

Nourse: Think in terms of the constituency that has brought us together today. Why can't you justify more of your decision-making based on what's needed to create the environment for these people -- the employers in your districts -- to succeed?

Schumer: My father was a small businessman. He didn't have time to get involved in political activity The only times he got active -- he was in the exterminating and office-cleaning business -- was when they were going to eliminate certain chemicals that were life and death to him. But he would never visit his congressman to say, "Hey, do something about the deficit."

Zschau: Small businesspeople are busy running their businesses. To the extent that they are actively involved day to day in the political process, the involvement is far smaller than it should be.

Schumer: While the four of us try take the macro view, the average membof Congress does not hear from his avage small-business constituent as a small businessman on the macro issues. He only hears on the little specific issues. It may well that Congressman X knows that in the heads of most of his small-business constituents, they want the deficit reduced. But if Congressman X doesn't believe that what is in their heads is going to translate into how they vote, what is in their heads is not going to matter to him in the least. When you ask a congressman to vote for a tax increase, it is similar to my saying to a small business person, "For the good of the nation, we want you to lose $150,000 on this deal." Of course he'll say, "That's not my job." Well, if a congressman conceives of his job as getting reelected -- staying in business, so to speak -- then it is not his job, either, to lose 10,000 votes.

Finally, we let Bill Nourse, an informed observer if there ever was one, have the last word on the Reagan-Mondale choice this fall:

Nourse: I think the acid test of whether Reagan has created a good environment for small business has yet to come. We have to live through '85 first before we can say whether it's been successful. Still I am interested in Congress facing up to the fact that it is the environment that generates entrepreneurism, which in turn generates jobs, a stable economy, and so on. [Someone] asked earlier why small business has died off as an influence on the Hill. I think this Administration -- in a very deliberate, calculated way -- has helped that process. It has muzzled the Office of Advocacy in the Small Business Administration. Small businesspeople are not interested in government programs, but we were happy with the fact that for once we had a voice in government that was independent, not subject to [The Office of Management and Budget's] -- or anyone's -- jurisdiction, oversight, or screening. This Administration has cut off [that] channel, and that has had a direct effect on the level of participation by people like me, who are willing to take the time to build and maintain a small-business network. As far as Mondale is concerned, I am not encouraged at all. I don't see him responding to small business. . . . Congressman Schumer is right about the Democratic party, though. I see the turmoil of ideas there, the germination of new ideas, different thinking that may bear fruit in the future. I don't see that hope in the Republican party.

Nourse, of course, doesn't really have the last word on Election '84. We all do. What will our votes mean for the pursuit of small business's interests in the next congressional session? Maybe more questions than answers. But the questions themselves are hardly trivial ones.

Last updated: Nov 1, 1984




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