What History Tells Us about Helping Small Business

Everyone knows George Santayana’s words: “Those who cannot remember the past are condemned to repeat it,” yet few in government seem to heed them.

The SBA Office of Advocacy just released a working paper  entitled “The Role of Small Business in Economic Development of the United States: From the End of the Korean War (1953) to the Present.” Some of the information in the paper and the lessons drawn from them should be required reading for members of Congress and others.

Initiatives to help small business
The importance of small business and initiatives to spur growth were first recognized by the Eisenhower administration with enactment of the Small Business Act in 1953 (which created the Small Business Administration) and the Rural Development Program in 1955.

A famous quote preceding enactment of these small business programs was  “If America will save the small businessmen, the small businessmen will save America.”   The SBA became the first peacetime agency with (as the report says) “a mandate to ‘encourage’ and ‘develop’ small business growth, and to aid minorities and other disadvantaged people in securing loans and learning management techniques.”

Excerpts from the Small Business Act:

  • “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 personal growth initiative and individual judgment be assured.”
  • “The preservation and expansion of such competition is basic not only to economic well-being but to the security of this Nation.”

Government action
Despite the creation of the SBA and words recognizing the importance of small business, most government resources and attention continued to be focused on large companies. With the enactment of the Small Business Economic Policy Act of 1979, at last there was an avowed national policy to implement and coordinate efforts to expand small business. However, words did not translate into serious action. Only recently has there been a mandate that a certain percentage of government contracts be allocated to small businesses and, what is not said in the report, that this mandate is too often skirted by large corporations masquerading as small businesses.

Some conclusions of the report
Until the 1970s, “America lost a tremendous amount of manpower and economic strength because the economic value of the small business community was not acknowledged and the value of a well trained diversified population was not recognized.” Today, there are about 29 million small businesses that generate about 75% of net job creation.

In 2005 following Hurricane Katrina, it was clear that “policy makers did not understand the pivotal role small businesses play in the local and regional economy…[I]t took a national disaster…to understand why small businesses must participate as full economic partners at all levels of government.”

Certain tax incentives and other federal programs are at least trying to address small business needs. The greater help would come from some fundamental changes in how government operates:  lower taxes, less regulation, and less intrusion into business operations.

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