The Small Business Administration is a Model for How to Drive Economic Growth

 
 
Responding to a recent editorial in the Washington Post, Karen Mills argues that the Small Business Administration is an effective public-private partnership model that fuels economic growth, access, and opportunity for all Americans.
 
 
by Karen Mills

A recent Washington Post editorial suggested that the United States Small Business Administration (SBA) is, in many ways, a remnant of days gone by. The arguments implied that small businesses that make up our nation’s “Main Street” sector are not particularly important to the US economy and that the government should not be in the business of helping some small businesses and not others.

The editorial writers reinforced their view of SBA by pointing to President Obama’s proposed reorganization of federal economic agencies in 2012. However, that reorganization was aimed not at reforming or eliminating SBA programs. Rather, it was an ambitious plan to make it easier for constituencies, like small businesses, to access the programs and services that are in place to help them.

“The SBA is perhaps the perfect prototype for a Trump administration agency: a public-private partnership driving valuable outcomes to a critical (but often neglected) part of the economy”

A look under the hood at SBA, however, reveals a small but important agency. In fact, the SBA is perhaps the perfect prototype for a Trump administration agency: a public-private partnership driving valuable outcomes to a critical (but often neglected) part of the economy, all at a low cost to taxpayers.

Gallup and other surveys show high support for small businesses. However, programs that support small businesses are not popular for superficial reasons. Instead it’s because small businesses touch the lives of every American in ways that are not only tangible, but also, in fact, consequential.

Half of the people who work in America either own or work for a small business. And small businesses have created 60 percent of all net new jobs since 1995. Four million Main Street businesses—including neighborhood restaurants, dry cleaners, and local grocery stores—form the backbone of communities across America and they are responsible for about 40 million jobs. And, as Mercedes Delgado and I show in research released earlier this year, small business suppliers—locally and across the country—contribute importantly to American innovation and growth.

Small businesses are actually the foundation for economic growth and, with that, critical to policy that purports to care about the average American. In fact, if we consider what Americans expect from their government, small business should have a voice in all of the key decisions facing the next president’s administration, from Dodd-Frank reform to the anticipated overhaul of the Affordable Care Act.

If you ask small business owners what they need to grow and thrive, they will talk about lower taxes, less burdensome regulation, and—what I spent four years working on as the head of the SBA and what I continue to write about today—access to capital.

SBA’s flagship loan programs are made through more than 3,000 banks, where the private sector picks “winners and losers” and the government provides a guarantee in areas where the bank wants to make a loan but needs some credit support. This allows women-owned small businesses, minority-owned small businesses, and others in underserved geographies to get credit even if the private sector market is not fully providing access.

As my co-author Brayden McCarthy and I detail in research released last month, the credit gap in small-dollar loans—those under $250,000, which is the size that 76 percent of small businesses say they need—is very real. While new private sector players like online lenders can help in this segment, they will certainly not replace the SBA. A well-functioning, low-cost agency—that expands access to credit to small businesses across America with an overall loss rate under 5 percent—should be viewed as a huge asset, as it most certainly was when I joined the agency in 2009 at the height of the credit crisis.

SBA’s loan guarantee programs were actually a mechanism that helped unlock capital to small businesses at a time when most banks had stopped lending to small businesses altogether. In fact, SBA’s guarantee brought many banks back to small business lending, helping resuscitate this critical sector of our economy right where it was needed, on our nation’s Main Streets.

The effectiveness of SBA programs also explains why during my time at the SBA, we hosted more than 150 delegations a year from countries around the world who wanted to use the agency’s programs for small business assistance in their own country. The Chinese visited nine times. And, David Cameron’s U.K. government borrowed from the SBA’s contracting efforts, setting an even higher small business contracting goal than ours here in the United States (25 percent versus our 23 percent) and achieving it in less than two years.

Yes, the government reorganization proposed by President Obama would have consolidated small business in one place (his proposal would have put parts of the small business activities from the Departments of Agriculture, Treasury, and Commerce under a newly aligned SBA department), but the principles of those programs would have remained the same – give small businesses the access to capital, counseling, and contracts they need to grow and create jobs works well and, in the current structure, gives taxpayers a pretty good bang for their buck.

Making government work better is a goal everyone can get behind. To get there we should consider SBA as an effective public-private partnership model that increases US economic growth and helps create access and opportunity for all Americans.

Related reading:

Where Could More Regulation Help Small Businesses? Online Lending.
The State of Small Business Lending: Innovation and Technology and the Implications for Regulation
Business Research That Makes for Smarter Public Policy

About the Author

Karen Mills is a senior fellow with Harvard Business School and the Harvard Kennedy School focused on competitiveness, entrepreneurship and innovation. She was a member of President Obama's Cabinet, serving as Administrator of the US Small Business Administration from 2009 to 2013.

Post A Comment

In order to be published, comments must be on-topic and civil in tone, with no name calling or personal attacks. Your comment may be edited for clarity and length.