Like many policies, the Small Business Act of 1953 did not happen overnight. It is the product of many forces both external and internal to federal government. These forces come in the form of lobby groups, media, agendas of elected officials, changes in the philosophy of the Presidential Administration, budgets and trigger events to name a few. When thinking about the many factors surrounding policy formation, Professor John Kingdon’s policy model comes to mind. The model states that three separate streams (problems, proposals, politics) must converge in a window of opportunity to set an agenda and shape future policy development (Anderson, 2011). In simple terms, the model indicates that agenda setting is a combination of the above-mentioned forces in an opportunistic time frame that will secure a majority interest on an issue. This paper will focus on how the problem definition shapes the Small Business Administration, the policy window for the Small Business Act, and the prevailing policy narratives surrounding the agency.
Introduction and History
Although things have changed in technology, business, and the policy arena, the Small Business Act is still going strong over 60 years after its inception. The Small Business Administration dots the landscape of cities and towns across the nation. It reaches the population via a network of affiliates including Small Business and Technology Development Centers (SBTDC), Small Business Development Centers (SBDC), SCORE volunteers, SBA district offices, Export Centers, Women’s and Veteran’s Centers and Technical Assistance Centers to name a few. This network of thousands of offices and employees can trace its roots to the Small Business Act. This “Small” Act sprang forth in the tumultuous time of war. It struggled, flopped, and floundered its way through the policy cycle to emerge as the Small Business Act of 1953.
Some argue that small business as a public policy interest began back in the times of the Sherman Antitrust and Clayton legislation in the early 1900’s. However, it appears that small business as a vital element to economic development is strongly correlated with the period that began in 1929 with the Reconstruction Finance Corporation. The RFC, which was created by President Herbert Hoover, was designed to help businesses obtain loan money to work on federal contracts (Bail, 2009). In addition to the RFC, several other pieces of legislation were introduced prior to Small Business Act of 1953. For instance, in 1942 Congress created the Smaller War Plants Corporation, SWPC, in response to small business owners complaints that they were unable to compete with large business in defense production contracting. After the Second World War the SWPC was disbanded, and the lending and contract powers were transferred to the RFC (Bail, 2009). In 1944 President Roosevelt issued an “Economic Bill of Rights” that was designed to bolster economic development through the “right” of every individual to a paying job in a secure economy. This Act, however, had no provision for small business and has been criticized as largely symbolic in nature (Clark and Saade, 2010).
Around the time of the Korean War, another agency similar to SWPC was created to certify small businesses when they met eligibility requirements for government contracts. In addition, the Department of Commerce’s Office of Small Business began taking over education responsibilities in the form of management counseling. This was due to the belief that small business failure was primarily a result of lack of expertise and information. By 1952, the RFC which had taken over the SWPC was abolished. In sensing the importance of the agency work aimed at small business, President Dwight D. Eisenhower helped to create Small Business Administration with the signing of the 1953 Small Business Act (Bail, 2009).
Problem definition is one of the most important and most difficult processes in the policy cycle. This is because problem definition can vary widely from one individual to the next and social problems are not necessarily tangible. Typically social problems are socially constructed and based on less than rational views. This is no different for the Small Business Act. The 1953 legislation was born during a twenty year period of wartime turbulence. This period marks a time when the country was experiencing growing pains in the form of changing attitudes and changing work environments.
On the economic side of things, there was a drastic decline in the traditionally active sector of farming, especially in the south. This was due not only to wartime loss of life for soldiers, but many that returned home did not want to return to a life of farming (Clark and Saade, 2010). At the same time, complaints of small business disadvantage in the government defense production marketplace were pouring into Congress. That pressure gave rise to fears on a possible weakening of homeland defense and the slogan “If America will save the small businessmen, then small businessmen will save America” (Clark and Saade, 2010, p.4).
In addition, chain stores were springing up rapidly, which whipped small business advocates and independent merchants into a frenzy to pass tax legislation (Bean, 1995). And finally, in the article Beyond the Broker State: A History of the Federal Government’s Policies Toward Small Business, 1936-1961, an argument is presented that global politics contributed to American fears. The author points out that many Americans felt that rise of fascism in Europe was partially due to the decline of small business. This created the fear in some that the government would have to expand its regulatory powers if big business controlled the economy. People saw this as a possible threat to democracy that could be mitigated only through the protection of small business. (Bean, 1995)
Through this backward view of the policy cycle, the problem definition (that led to agenda setting for the 1953 Act) appears to be fear. There was fear that returning soldiers could not find work, and fear that the economy could not recover if there were still depressed sectors in the nation. There was fear that without the support of the small businessmen in defense production there would be a weakening in the homeland security position. Fear was defined in terms of a threat to “the little guy” as chain stores sprang up. This fear was compounded by what some felt was the contribution of big business to fascism and totalitarianism in Europe.
A problem definition that is easy to define even in the face of many contributing sources can catch on like wildfire. In this instance, fear, surrounded by times of Depression and war, ignited a blaze of unity for small business advocacy under the guise of the underdog mascot. When defining policy problems in terms of fear, especially during a trigger period of war, there is substantial reliance on myths and symbols. This can take the form of the “little guy,” “us versus them” and the all too popular story of the underdog. Most Americans love the story of the underdog. Many can conjure up stories of heroes and legends they know, and many feel that our country was built in the likeness of the underdog. Fear coupled with the symbol of the “little guy” is a clear, concise and unifying force that can give way to agenda setting for small business policy. It is clear that problem definition is not necessarily based on facts. Politicians can use facts to craft arguments to sway citizens in emotionally charged perspectives of problems. These themes will be discussed further in the policy narrative section.
Critics argue that efforts around small business agencies during the period leading up to the 1953 legislation were largely designed in helping with national defense. During times of peace, the agencies appear to be little more than figureheads. The agencies were fraught with change as they were often disbanded and reformulated to meet the needs or whims of the changing Administration. Also, it was a period of worldwide economic depression when the New Deal and Fair Deal programs were attempting to breathe life into the comatose economy. It is important to note the underpinnings of the Eisenhower administration as one of substantial interest in “technical assistance and loans to depressed areas” (Clark and Saade, 2010, p. 5). This was the perfect backdrop to incubate The Small Business Act of 1953 which in turn led Congress to create the Small Business Administration.
To refer back to the Kingdon model, the policy window was open and the three streams of problems, proposals and politics converged at the right time in the Eisenhower administration. The problems were based on Depression, unemployment and need for defense contracting. The proposals took various shapes as agencies designed to help small business gain federal contracts. Proposals also took the form of New Deal and Fair Deal programming intended to bolster depressed sectors of the economy. The politics swelled in various forms around securing “the little guy” for defense production so that he would help protect the homeland during times of war. The politics of fear were also used to cement bonds through narratives that pushed legislation to cure the “evils” of big business.
The final section of this paper will cover the two competing policy narratives surrounding the SBA. The first of these narratives is the SBA as the nurturing mother. In this policy narrative, supporters of small business contend that without government intervention small business would be snuffed out by big business. In essence, SBA policy was designed to help disadvantaged businesses compete in the free market.
According to the 1953 Act Section 2. (a) from the SBA website (sba.gov)
The essence of the American economic system of private enterprise is free competition. Only through full and free competition can free markets, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment be assured. The preservation and expansion of such competition is basic not only to the economic well-being but to the security of this Nation. Such security and well-being cannot be realized unless the actual and potential capacity of small business is encouraged and developed. It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government (including but not limited to contracts or subcontracts for maintenance, repair, and construction) be placed with small business enterprises, to insure that a fair proportion of the total sales of Government property be made to such enterprises, and to maintain and strengthen the overall economy of the Nation.
This passage from the Act is littered with what Deborah Stone refers to as the “strategically crafted argument” (Clemons & McBeth, 2009 p. 79). Words such as “security,” “encouraged,” “protect” and the phrasing of the policy is crafted in a way that portrays small business as the nations savior.
According to many supporters, the only way to promote small business development is through set-asides and special loans. In the article, Should the Small Business Administration Be Abolished?, a debate rages on both sides of the issue. Supporters of the SBA contend that billions of dollars go towards business counselors, information, and loans that are crucial to those who have been “failed by conventional lenders” (deRugy, 2012). Supporters also lay claim to small business as the primary creator of jobs for women, veterans, minorities, and the country as a whole. In the aforementioned article, SBA proponent Barbara Kasoff explains that the SBA is not singularly based on the loans it grants to disadvantaged business. The work of the SBA reaches through the network of affiliates that deliver one-on-one training and counseling sessions (deRugy, 2012). The affiliate centers are designed to be a hub of knowledge and expertise that is available mostly free of charge to small business owners.
Through the affiliate network, the SBA is still keeping up with the long tradition of technical assistance as espoused by the Eisenhower Administration. For instance, the Small Business and Technology Development Centers are an SBA affiliate with 900 centers nationwide. Many of these types of SBA affiliates are located in and around college campuses. According to Richard Proffer, a Business Development Specialist in Cape Girardeau County, the money for the SBTDCs’ comes through a contract with Missouri University in Columbia. The University provides SBA initiatives through SBTDCs’ statewide, via funds from the SBA. The network of Missouri SBTDCs’ claim to be meeting their economic development goals. According to their website they “exceeded annual capital infusion by 150%, pumping more than $670 million into Missouri’s economy over fiscal years 2010-2013” (missouribusiness.net).
A myriad of stories can be found about small business owners receiving help in technical assistance and loans through the SBA affiliates. The volume of stories found on the SBA district websites and the SBTDC website is too large to cover in this paper. Many of the stories discuss common themes such as how the business owner could not have secured funding without the help of the SBA, or how SBA classes helped business owners become more knowledgeable. One such example is in the article, Does the SBA Still Matter. The article discusses the role of SBDC small business counselors in helping small business owners develop business plans and other technical know-how that will get them before bankers. The small business owners featured in the article discuss how before the help of the small business counselor they felt like they were “18 again and trying to borrow money for a car” (Mandelbaum, 2007, p. 101). The business owners, like many of the SBA success stories, attribute their success in the marketplace directly to their work with the SBA affiliate. The mantra of small business as the backbone of the economy is continuously supported and reinforced through these types of narratives.
As previously mentioned, the SBA policy narrative as one of a nurturing institution is repeated over and over again through small business owner success stories. These narratives speak directly to the original mission of the Small Business Act of 1953, as it was designed to help the “little guy” compete with big business in the free marketplace. Phillip Bail points to a quote on the SBA website that says, “small firms produce the items that line the shelves of America’s museums, shops, and homes. They keep intact the heritage of ingenuity and enterprise, and they help keep the American Dream within reach of millions of Americans”. He goes on to say that attacking those words is akin to attacking the American Dream (Bail, 2009 p. 28).
There are questions as to whether the SBA has stepped away from its primary goals. Amid much value conflict, the SBA still operates and pushes initiates and money towards developing new and existing business. Many entities disagree with government involvement in private industry; while others contend that small business is vital to the economy and therefore it is our duty to support it. According to some of the themes in the literature, the agency goals have morphed from set-asides for defense production contracting to funding all types of endeavors for all types of “disadvantaged” businesses. The question becomes whether the policy has changed during evaluation cycle or is there competing interpretations on the implementation side? Some critics of the agency cite inconsistency in program administration while others cite changing times. These questions lead us to the next policy narrative of the SBA as Big Brother.
It is interesting to note the opposing policy narrative surrounding Eisenhower’s decision to sign the 1953 legislation. According to the article, Terminating the Small Business Administration, the other spin on why the act was penned was purely political in nature. The author contends that the RFC was abolished because of illegal influence peddling. The article goes on to explain that although Eisenhower was against the Small Business Act, he signed the legislation to disarm critics that claimed that Republicans were “beholden to big business” (deRugy & DeHaven, 2011). In addition, the authors point out that this action was directly against the wishes of interest groups. Groups such as bankers and the Chamber of Commerce did not feel that government should be involved in lending. These groups along with the National Association of Manufacturers would benefit from such legislation but instead wanted no part of “big brother” interference. The authors state that the creation of the SBA legislation, “was confined primarily to politicians of both parties who saw an opportunity to seduce the unorganized small business community into active political support” (deRugy & DeHaven, 2011). This again, speaks directly to the stories of heroes and legends and how easily people can be swayed by a clearly defined narrative. Especially one as seductive as the underdog. It is clear that politicians used this strong symbol to garner support. Also, any political figure that chose not to act appeared to be in favor of big business, which was explicitly cast as the villainous un-American character in this narrative.
Currently, there is some debate about whether the SBA is genuinely supporting its own mission. In the article, Does the SBA Still Matter? critics cite turmoil in the agency due to the inaccurate funding of projects. An examination of several large contracts that showed that more than half of the high dollar contracts, in fact, went to large business. The author claims that Washington appears to have a fluid definition of the Small Business Act when it comes to promoting the goals of small business. Behind closed doors, there is a constant stream of efforts to change the definition of small business to include more constituents and allow larger business to take advantage of 7(a) SBA backed loans (Mandelbaum, 2007 p.107). The 7(a) loan was designed to extend credit to those small business owners who otherwise might be ineligible. This speaks directly to the portion of legislation that was created to help fund loans to enable disadvantaged businesses to compete in the free market. By this definition disadvantaged means small. In another loan program, the 8(a), disadvantage means minority. Critics of the 8(a) program cite an unsuccessful, underfunded attempt at easing impoverished areas in response to the race riots of 1967 (Mandelbaum, 2007). The 8(a) is a program that allows firms to get federal contracts free from bidding. If a company grows larger than the program allowance, it can split off and form a new one. This again points to the wink-wink behind closed doors in terms of allowing larger firms to get SBA backed initiatives.
A waste of tax dollars, money lent to businesses who have been rejected for not meeting benchmarks for success, high risk borrows who as determined by the market are not needed… these are a few of the policy narratives surrounding Veronique deRugy’s view of the SBA as “Big Brother.” In the article, Should the Small Business Administration Be Abolished, deRugy claims that SBA loans are harmful to the economy, to taxpayers, and to the free market. She also claims that government should not be involved in the other technical assistance products that the SBA offers. She says these are unnecessary and can be handled by private firms (deRugy, 2012).
Policy formation raises many questions about who the interest groups are, who the stakeholders are and who is creating the problem definition. In weeding out this list, it is important to note that individuals in groups are not mutually exclusive. It is also interesting to note that the problem definition, policy window, and policy narratives are deeply intertwined in a cacophony of white noise from myths, legends and symbols. Whatever an individual’s particular sway towards the SBA, it is clear that it has a strong foothold in American government. In the words of critic Veronique deRugy, “The SBA…a program to help small business – a widely held belief that’s almost as sacrosanct as baseball, motherhood and apple pie. In reality, the SBA is a form of corporate welfare…” (deRugy, 2012). A perfect point to illustrate an imperfect system. A system that relies on the rallying troops through battle cries in the form of policy narratives.
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Proffer, Richard. Personal interview. 20 Nov. 2014.
SBA.gov website. Small Business Act 1953. n.d.