In March, INC. sponsored a conference in Washington, D.C., to discuss a question of continuing significance to the small business community: Why does the small business sector seem to carry so little weight when the executive branch formulates economic policy? A distinguished group of legislators, politicians, and small business-people heard Stuart Eizenstat, Jimmy Carter's chief domestic affairs adviser, focus the discussion with these introductory comments.
We all know that big business has enormous clout in the White House. This has been true for a long time, regardless of which President or party is in power. But small companies, not big ones, make up the majority of this country's business. Five out of six new jobs in the private sector are created by small companies, and half of the labor force is employed by small business. Why doesn't small business command the same attention in the executive branch? The answer depends on the organization of both the Presidency and the small business community.
Over time, Congress has created Cabinet-level departments to deal with issues such as health, urban policy, housing, public lands, transportation, labor, and commerce. In theory, the President is in charge of these departments. But in practice, these departments answer to a different authority: the groups served by the department's programs. Presidents come and go; these groups remain. They look to the department to be their champion in the White House. The departments begin to reflect the attitudes of these groups more than those of their nominal bosses, the President and the department secretary.
The Department of Labor, for example, is where organized labor looks to present its views and to have them presented to the President. Low-income groups expect the Department of Health and Human Services to express their needs to the White House.
The Department of Commerce, whose leader almost always comes from big business, is where large corporations traditionally transmit their opinions to the President. Large banks and financial institutions use the Department of the Treasury for the same service.
Where does small business fit into all this? Its champion, the Small Business Administration, is a stepchild.The SBA is not a Cabinet-level department. It has a much narrower range of statutory responsibility than the departments have, and, as a result, the SBA administrator enjoys less access to the President than Cabinet members do. Thus the views of the small business community command less attention.
The head of the SBA rarely serves on Cabinet-level interagency working groups. He was not on President Ford's Economic Policy Board or in President Carter's Economic Policy Group, nor is he on President Reagan's Economic Affairs Council. Other departments do not want the SBA to participate for fear of encouraging other smaller agencies to seek Cabinet-level representation.
And none of the major parts of the Executive Office of the President, such as the Office of Management and Budget, the National Security Council, or the Council of Economic Advisors, represents the interests of small business or presents its agenda. The President has consumer advisers, counselors on the aging, and science advisers. He does not have a small business adviser.
Although that is perhaps the most important explanation for why small business exercises so little influence in the White House, there are other reasons. One is that the issues coming across the President's desk tend to be global and "macro." Economists who advise both Republican and Democratic Presidents are almost universally suspicious and disdainful of government efforts to steer investment, government procurement, or research dollars to small business or to any particular economic sector. To them, a dollar here is the same as a dollar there.
Furthermore, the small business sector's diversity and numbers are usually its strength but, with respect to government, are its weakness. When President Carter met with representatives of small business, the Cabinet Room would often look like he United Nations -- a cacophony of groups and organizations with diverse matters to present. The coherence typically displayed by such large business groups as the Business Roundtable was missing. The President looks for issues to be presented as quickly and logically as possible; small business does not do that for him. Without such coherence, the White House fears that meeting with one small business group would offend those with which it does not meet.
And finally, small business seems to fall between the cracks in both political parties. Traditionally, Republicans look to big business for support, and Democrats look to labor. Small business seems to fit into neither camp.
Today, these problems may be lessening to some degree. The White House Conference on Small Business, held during the Carter Administration, was an important event. It brought together some 30,000 businesspeople in 57 regional hearings. It gave them a chance for the first time to meet members of the executive branch and the White House staff.
The conference also enabled small business to see common interests. Many small business groups now have been able to organize around the agenda set by the conference, sending some clear signals to both the executive branch and Congress. The conference gave impetus to bills like the Regulatory Flexibility Act, the Equal Access to Justice Act, and the bill on small business innovation research currently pending in Congress.
And Presidents now must make an annual report to Capitol Hill on small business. Since no one likes to come up with a vacuous report to Congress, the President must try to put some substance into his comments and thus focus on issues that he simply would not otherwise consider.
There is still much to be done, however. The Economic Recovery Tax Act of 1981 is not essentially an act benefiting small companies. It disproportionately benefits large capital-intensive companies. The accelerated cost-recovery system, for example, which is a centerpiece of that act, clearly aids larger business. It is not as important to small business, which uses less depreciable property per dollar of sales.
In addition, cutbacks of research and development funds, the reduction of the SBA loan program, the open door to all sorts of mergers, current monetary policy, and the lack of action on bills such as those concerning capital gains rollover, the increase of the surtax exemption, and export trading companies all indicate that relations between the small business community and the Presidency have plenty of room for improvement. I think serious consideration should be given to establishing a full-time small business adviser on the White House staff. Perhaps it would not be productive to try to make the SBA a Cabinet-level department, given the move to do just the opposite with other departments. But there seems to be no good reason why the SBA director should not participate in Cabinet-level working groups.
The long-range solution, it seems to me, is ultimately for small businesspeople to become more active in public affairs and in political campaigns of both parties.Small business and our economy need to have the White House on their side. We need a "small business roundtable" to give this community the week-to-week and month-to-month contact with the White House that both big business and the AFL-CIO enjoy. But that will happen only if the small business community unites toward some common goals.