Government Contracts and Small Business

Matt YglesiasI grew up in a family that always had small businesses. I’ve also worked for various small businesses. And as a result of this, I’m not that keen on small businesses. Here in the United States, we tend to fetishize the small business. But I think that is just a cover for being pro-corporate and pro-rich. It sounds so much better to talk about “small businesses” just like we talk about the “family farm.” But in general, I’ve been treated much better by larger businesses. Small businesses are much more likely to abuse their employees and, for that matter, the environment and the law more generally.

Just the same, when it comes to the government, it is the larger businesses that are a pox. And so it makes sense that the government should try to spend its money with small businesses. The more money that goes to big businesses, the more direct corruption there will be. Big businesses can and do lobby the government for special laws and for contracts. (In general, the way this works is that they get the requests for proposals to be structured in such a way that the particular company is at a clear advantage.) And there are other reasons, as well. For example, pushing contracts to small businesses is a way to limit inequality. Thus, the 1997 Small Business Reauthorization Act, which required that 23% of all federal contracts go to small businesses, is a good thing.

Not surprisingly, during the Bush administration, no effort was made to reach this goal. So much for the Republican Party’s pretense that it is the defender of the small business. But when Obama got into office, he promised to take this requirement very seriously. But as Matt Yglesias reported last week, The Government Says Small Businesses Get 23% of Federal Contracts. Reality Says Otherwise. It’s actually kind of shocking, but it would seem this is more about the government deluding itself rather than some effort to fool the people.

There are three ways that the percentage of small businesses getting contracts is overstated:

  1. Five Year Loophole: when a small company is bought by a larger company, the government continues to consider it a “small business” for five years. This is despite the fact that the law says the company should be reclassified within 30 days.
  2. Eligibility Loophole: The 23% only applies to federal contracts that are eligible to small businesses. This turns out to be only 77% of contracts. Thus, even if the 23% target were reached, it would represent only 18% of all contracts.
  3. Errors: Roughly a half percent of all contracts (2.5% of the small business contracts) were simply misidentified as being given to small businesses

Yglesias noted that it may not be reasonable to expect 23% of government contracts to go to small businesses. He thinks that the government would thus be better off redefining the target and then reporting the data correctly. I wonder if this isn’t a bad way for the government to encourage small businesses. It does reek of the indirect measures so loved of neoliberals. My own experience with various micro-businesses is that various government policies that are trivial for big businesses are onerous for very small businesses. (For example: inventory taxes.) If the government actually cared, it would do something about this. Giving out contracts to small businesses is a good thing. But this whole 23% target business seems more about PR than actually leveling the playing field for smaller businesses.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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