Jump to content
The Wifcon Forums and Blogs
Guest Vern Edwards

Small Business policy Is based on a lot of hooey

Recommended Posts

Guest Vern Edwards

In an article in the June 11, 2018 issue of National Review, "Upside of The Upsized," Ike Bannon reviews a book entitled, Big Is Beautiful: Debunking the Myth of Small Business, by Robert D. Atkinson and Michael Lind, published in March by MIT Press. According to Bannon:

Quote

[The authors] take great exception to the narrative of small business exceptionalism, as well as to the regulatory breaks and tax provisions that go to small business, while demonstrating that the "small business as economic engine" argument is largely a crock.

I love it, because, speaking as the owner of a small business, I'm sick of FAR Part 19 and everything associated with it.

According to the description of the book at Amazon.com:

Quote

In this provocative book, Robert Atkinson and Michael Lind argue that small business is not, as is widely claimed, the basis of American prosperity. Small business is not responsible for most of the country's job creation and innovation. American democracy does not depend on the existence of brave bands of self-employed citizens. Small businesses are not systematically discriminated against by government policy makers. Rather, Atkinson and Lind argue, small businesses are not the font of jobs, because most small businesses fail. The only kind of small firm that contributes to technological innovation is the technological start-up, and its success depends on scaling up. The idea that self-employed citizens are the foundation of democracy is a relic of Jeffersonian dreams of an agrarian society. And governments, motivated by a confused mix of populist and free market ideology, in fact go out of their way to promote small business. Every modern president has sung the praises of small business, and every modern president, according to Atkinson and Lind, has been wrong.

Pointing to the advantages of scale for job creation, productivity, innovation, and virtually all other economic benefits, Atkinson and Lind argue for a "size neutral" policy approach in both the United States and around the world that would encourage growth rather than enshrine an anachronism. If we overthrow the "small is beautiful" ideology, we will be able to recognize large firms as the engines of progress and prosperity that they are.

I'm going to buy it, even though I understand that the members of Congress will pay no attention to it.

Share this post


Link to post
Share on other sites

Sounds like an interesting read. Thanks for the recommendation, Vern. And I'm sure many on here sympathize with your disgust for FAR 19 (and a power-hungry SBA)!

Share this post


Link to post
Share on other sites

For the past 9 years I've been searching for some shred of actual empirical evidence showing that FAR 19 provides a net macroeconomic benefit to the American economy.  All I've ever heard is conjecture.

Share this post


Link to post
Share on other sites

I don't think a longitudinal study isolating for the right things is in the cards...there are too many exit ramps, scenic vistas and pretty snapshots to take along the way, so we won't know much about the real impact of small business however long we ask such question of ourselves.

Take for example the authors' observation about small business failure. Anybody can reckon small business failures, in the same way that anyone can count the number of seeds in an apple...but that's a snapshot at an instant...even when the same statistic is gathered in serial fashion every year...it is a series of snapshots and does not tell us what becomes of any given failure or set of failures. 

Instead, what will we imagine if we ask ourselves how many apples in a seed? Similarly, does anyone know the real impact of small business failure and even the prospect of small business failure over time for even one business or in the aggregate, all businesses? We might as well try to discern the Invisible Hand taught by Adam Smith in all the goods and services that surround us.  Attempt to banish the twin horribles of failure and the prospect of failure and society will find out quickly that is does not have the wherewithal to underwrite all success. What does that tell us about failure? What phoenix rises from these ashes we call failure, time and again? What is in the economic DNA of almost every success you and I know?...We will find a lot owing to failure, if for no other reason than that failure tends to be such a generous teacher.

   

Share this post


Link to post
Share on other sites
Guest Vern Edwards

@FAR-flung 1102

So...  does all that that mean you think the current small business policy bog is the cat's meow? (Sorry for the mixed metaphors.)

Share this post


Link to post
Share on other sites

 I once interviewed candidates for a job and asked each "what regulations would you change?" - FAR 19 was the consensus favorite.  

Even if you take the supposition that small business concerns should be favored as a way to drive the economy, I'm not sure the current regs actually help that...and maybe they do the opposite.   Take the notion that many NAICS code thresholds are based on number of employees - the rules encourage companies to stay UNDER those thresholds; to limit the number of jobs they create.   I knew of one company that did sweeping annual layoffs each fall (after busy season) just to ensure they stayed under the headcount caps.   That's the behavior that results from the rules - is that in line with the underlying intent of the rules?   It seems quite the opposite. 

I've not considered pure neutrality (i.e., no economic preferences) as proposed in the book description.   I've thought of lots of tweaks and alternatives to FAR 19, but they all suffer from flaws.   And maybe that's the best case for neutrality.   Besides, build a better mousetrap and the government won't care what size you are.   

The book sounds interesting.

Share this post


Link to post
Share on other sites
4 hours ago, Vern Edwards said:

@FAR-flung 1102

So...  does all that that mean you think the current small business policy bog is the cat's meow? (Sorry for the mixed metaphors.)

No definitely it's not the cat's meow...and I want it to become it to become a thing of the past, but I am afraid of what comes next if we do not reign in a few tendencies first. The "Severeid Effect" (So many of today's problems started out as yesterday's solutions) permeates Washington's political process like an oor. Almost nobody in power is willing to look for inconvenient truth.    Its not mine to play kingmaker or Lord of the Realm, but I really do believe that if we kill the FAR Part 19 process right  now, we also create a vacuum that small businesses are largely unable to fill.  It's just that we create in our current bureaucracy so many problems that only large business has the ability to understand or solve.

My main problem with how we treat small business lies in our byzantine systems and processes (which defy reasonable expectations and common sense)...it stifles so much initiative and often makes it very  difficult to get a business on board and PAID timely for services or supplies rendered without the need for silver bullets or heroic measures.     If a small business cannot get paid timely then THEY are financing government's ponderous machinations...it's wrong but in the current big picture almost inevitable that some will fall prey and their aspirations fade away accordingly.

People's expectations are so low,, we should be able to meet them in making meaningful real improvements in doing the government's business and help many... if only we can manage to work with with an even, steady, and competent hand.  There was a famous Federal Jurist with my all time favorite name: "Learned Hand"...a name for all time to live up to...metaphorically, we need more of those.. .Thank you for your part Vern.  You pull much more than your own weight. Sorry, I think I have mixed a few metaphors, too.  

Share this post


Link to post
Share on other sites
On 6/7/2018 at 1:01 PM, jayandstacey said:

Even if you take the supposition that small business concerns should be favored as a way to drive the economy, I'm not sure the current regs actually help that...and maybe they do the opposite

I sometimes shake my head at the incentive structure that leads small business to argue *in public* that they are not responsible:

http://www.wifcon.com/pd19_6022.htm

 

Share this post


Link to post
Share on other sites

Prime contractors' costs to develop and administer small business reporting programs is not insignificant. And the costs associated with mistakes can be expensive as well.

 

http://www.asbca.mil/Decisions/2017/59876 BAE Systems Southwest Shipyards Mayport LLC 7.13.17.pdf

Share this post


Link to post
Share on other sites
4 hours ago, PepeTheFrog said:

Where are the medium-sized businesses? It's all giant companies and artificially small businesses. Nothing in the middle. Where is the "middle class" of federal contractors?

This one is particularly perplexing. 

The current system is pretty much like a run up to a cliff.   You're advantaged to drive success, then the advantages are pulled away at a point where you may be too small to effectively compete against the big guys, and you're disadvantaged (or even not allowed to compete) with companies that have only 10 less employees than you do.   

So the path becomes, almost invariably, to grow the business to the line then cash out.  Forget about the fact that at the line, you might be the type of business that can REALLY be an economic engine under a more level playing field, generating increasing growth in jobs and revenues.  

Nope - you sell out to one of the big guys, or simply close the doors at that point.    

The only thing keeping this from being a disaster for some companies seems to be the inconsistency of the application of small vs large.   As a company becomes larger, it begins to tick off various NAICS codes it can't bid under as small, until it runs out.   Likewise, contracts have various re-certification schedules, where the company might be able to maintain their small status for some time on some contracts.   So the cliff isn't exactly sheer, but it is pretty steep.   Which in some ways is worse.   

As I said above, I've considered what fixes I'd make.  I've thought about patches to the current system, whole new systems, and ditching the system entirely.   The latter seems to make the most sense, yet is least likely politically.    

Which leaves us with a vending machine that everyone seems to know how to shake to get free stuff. 

 

Share this post


Link to post
Share on other sites
On ‎6‎/‎11‎/‎2018 at 8:18 AM, PepeTheFrog said:

They say it's economics but it's really social policy. "Socio-economic."

Well doesn't the FAR in total fall into this category as one could conclude that it as a policy like anything that comes out of the front doors of Congress is a lot of hooey.

 Not saying that FAR Part 19 is perfect but lost in the rhetoric of this thread is a discussion of the whole picture.  A specific not even being discussed is that of unfunded mandates of Congress and the ability of, for instance, the SBA to provide the oversight and assistance necessary to insure something like the 8(a) program works. 

I for one believe that of the $442,486,733,745.14 pie in Federal procurements available for possible participation by all contractors in 2017 that small businesses would have received a whole lot less than their $105,660,294,868.78 piece without FAR Part 19.   And that includes the XYZ small businesses that someday might be the Nike, Apple, Dell, Google, Amazon, H-P, etc. of tomorrow.

Could be that I have drank the Kool-Aid but I think there is something to say in helping give businesses a leg up and at some point cutting them loose to fend for themselves.  So I get lost in the dialog to add even more socio-economic engineering to the Federal acquisition monster by creating "medium size" businesses    Lordy  we are sometimes our own worst enemy!

 

On ‎6‎/‎6‎/‎2018 at 9:50 AM, Vern Edwards said:

I'm going to buy it, even though I understand that the members of Congress will pay no attention to it.

As to the book no doubt a great read.  The authors are innovative thinkers and at times accomplish inroads.   Congress does pay attention to them individually and through the entities they have strong association with.  My concern is that they themselves and through the NGO's that they can effect change through have their own agenda's  that may not be in the best interest of real improvement to Federal acquisition policy in whole or even in part. 

Share this post


Link to post
Share on other sites
Guest Vern Edwards
1 hour ago, C Culham said:

I for one believe that of the $442,486,733,745.14 pie in Federal procurements available for possible participation by all contractors in 2017 that small businesses would have received a whole lot less than their $105,660,294,868.78 piece without FAR Part 19.

That is possible, but impossible to prove without Part 19.

Maybe Part 19 and its predecessors are the problem. Perhaps the policy has infused the minds of acquisition personnel with the notion that "small businesses" are a distinct class of business entities that need special consideration and help in order to compete. Perhaps that has suggested to many that "small businesses" are less competent than "large businesses," otherwise, why would work have to be set aside for them. Once you create such an impression, it's very difficult to convince people that the little guys who need the special help are just as good as the big guys. By creating the special program you are creating, or reinforcing, a prejudice.

So it may be true that Part 19 ensures that small businesses get something that they would not have gotten without Part 19. But maybe Part 19 ensures that they won't get more than they are "entitled" to. We meet the quota and then we're done. Right?

Anyway, don't worry. Small business programs aren't going away. Ever.

Share this post


Link to post
Share on other sites
7 hours ago, Vern Edwards said:

We meet the quota and then we're done. Right?

I haven't seen that when the goal is met that folks are done, whether coerced by regulation or because they want to continue on.  But then again folks might say I have blinders on.

 

7 hours ago, Vern Edwards said:

Anyway, don't worry. Small business programs aren't going away. Ever.

I was reminded of my much younger days - "What,  me worry?"   "Not!" as couple of favorites of mine would say a few decades later.   :D

Share this post


Link to post
Share on other sites
15 hours ago, C Culham said:

I haven't seen that when the goal is met that folks are done, whether coerced by regulation or because they want to continue on.

Wasn't that essentially the root issue in the Kingdomware decision?   That the VA stopped doing SDVOSB set-asides once the goals were met?  

Only one example, I know...and this was a bit of a corner case due to the uniqueness of the VA and SDVOSBs...but the practice seemed to be there.    

Share this post


Link to post
Share on other sites
27 minutes ago, jayandstacey said:

Wasn't that essentially the root issue in the Kingdomware decision?

No expert on the case in total but yes it was part of the argument by the VA/Government but they did not hold to using goal accomplishment as reason when the case got to the Supreme Court.   Makes me wonder if they knew it would not hold water as I suspect again by experience with other agencies where I have never was told or knew by statements by others in  agencies  that set-asides would be or have been abandoned for full and open competition when goals were met, SDVOSB or otherwise.  Or maybe the VA just picked the wrong thing to convince the Supreme Court on why their actions regarding their "rule of two" was the right approach.

Share this post


Link to post
Share on other sites
Guest Vern Edwards
On 6/11/2018 at 11:18 AM, PepeTheFrog said:

 

 

On 6/14/2018 at 10:00 AM, FrankJon said:

 

I don't know how you reached your conclusion, that the 8(a) Program is "explicitly" based on race. In order to be eligible for 8(a) status a firm must be a small disadvantaged business (SDB). The eligibility rules are in 13 CFR 124.

In order to an SDB a small firm must be at least 51 percent unconditionally owned by a socially and economically disadvantaged person. According to the rules, a socially disadvantaged person is:

Quote

Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities. The social disadvantage must stem from circumstances beyond their control.

Race is only one source of social disadvantage. Other sources are ethnic identity and culture. The census bureau considers race and ethnicity to be "two separate and distinct concepts." According to the American Heritage Dictionary, ethnic means:

Quote

Of, relating to, or characteristic of a group of people sharing a common cultural or national heritage and often sharing a common language or religion.

According to SBA regulations:
 

Quote

(b) Members of designated groups.

(1) There is a rebuttable presumption that the following individuals are socially disadvantaged: Black Americans; Hispanic Americans; Native Americans (Alaska Natives, Native Hawaiians, or enrolled members of a Federally or State recognized Indian Tribe); Asian Pacific Americans (persons with origins from Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China (including Hong Kong), Taiwan, Laos, Cambodia (Kampuchea), Vietnam, Korea, The Philippines, U.S. Trust Territory of the Pacific Islands (Republic of Palau), Republic of the Marshall Islands, Federated States of Micronesia, the Commonwealth of the Northern Mariana Islands, Guam, Samoa, Macao, Fiji, Tonga, Kiribati, Tuvalu, or Nauru); Subcontinent Asian Americans (persons with origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives Islands or Nepal); and members of other groups designated from time to time by SBA according to procedures set forth at paragraph (d) of this section. Being born in a country does not, by itself, suffice to make the birth country an individual's country of origin for purposes of being included within a designated group.

(2) An individual must demonstrate that he or she has held himself or herself out, and is currently identified by others, as a member of a designated group if SBA requires it.

(3) The presumption of social disadvantage may be overcome with credible evidence to the contrary. Individuals possessing or knowing of such evidence should submit the information in writing to the Associate Administrator for Business Development (AA/BD) for consideration.

Note that groups like Asian Pacific Amercans are not racially defined. They are "persons with origins" in places like Vietnam and Nepal are not racial in nature. The regulation then goes on to say:

Quote

(c) Individuals not members of designated groups.

(1) An individual who is not a member of one of the groups presumed to be socially disadvantaged in paragraph (b)(1) of this section must establish individual social disadvantage by a preponderance of the evidence. Such individual should present corroborating evidence to support his or her claim(s) of social disadvantage where readily available.

(2) Evidence of individual social disadvantage must include the following elements:

(i) At least one objective distinguishing feature that has contributed to social disadvantage, such as race, ethnic origin, gender, physical handicap, long-term residence in an environment isolated from the mainstream of American society, or other similar causes not common to individuals who are not socially disadvantaged;

(ii) The individual's social disadvantage must be rooted in treatment which he or she has experienced in American society, not in other countries;

(iii) The individual's social disadvantage must be chronic and substantial, not fleeting or insignificant; and

(iv) The individual's social disadvantage must have negatively impacted on his or her entry into or advancement in the business world. SBA will consider any relevant evidence in assessing this element, including experiences relating to education, employment and business history (including experiences relating to both the applicant firm and any other previous firm owned and/or controlled by the individual), where applicable.

(A) Education. SBA considers such factors as denial of equal access to institutions of higher education, exclusion from social and professional association with students or teachers, denial of educational honors rightfully earned, and social patterns or pressures which discouraged the individual from pursuing a professional or business education.

(B) Employment. SBA considers such factors as unequal treatment in hiring, promotions and other aspects of professional advancement, pay and fringe benefits, and other terms and conditions of employment; retaliatory or discriminatory behavior by an employer; and social patterns or pressures which have channeled the individual into nonprofessional or non-business fields.

(C) Business history. SBA considers such factors as unequal access to credit or capital, acquisition of credit or capital under commercially unfavorable circumstances, unequal treatment in opportunities for government contracts or other work, unequal treatment by potential customers and business associates, and exclusion from business or professional organizations.

An economically disadvantaged person is:

Quote

Economically disadvantaged individuals are socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged.

Anyone interested in this topic should read 13 CFR 124 in its entirety.

In short, Pepe and FrankJon, you guys aren't reading the rules very carefully, if at all. 8(a) Program eligibility is not "based on" race. 8(a) eligibility can be established on any of a number of bases, not just race.

I don't mind discussing things like this, but if we are going to discuss it let's do it like pros, not like amateurs.

Share this post


Link to post
Share on other sites
2 hours ago, Vern Edwards said:

The census bureau considers race and ethnicity to be "two separate and distinct concepts."

 

3 hours ago, FrankJon said:

racial and ethnic classes of people.

 

 

Share this post


Link to post
Share on other sites
On 6/14/2018 at 11:02 AM, Vern Edwards said:

I don't mind discussing things like this, but if we are going to discuss it let's do it like pros, not like amateurs.

To be clear, my post wasn't meant to take a position on the merit of the 8(a) Program. I simply learned something about the 8(a) Program that I was shocked I hadn't learned before.

In my post, I mentioned ethnicity in addition to race. I thanked Pepe for calling my attention to the topic.

Share this post


Link to post
Share on other sites

Anytime we stray into this area, I must review the discussion word for word as a matter of policy.  I will do that at a future date.  I am not claiming that anyone wrote anything improper but I will say that my version of strict scrutiny makes the SCOTUS or any other court look like kittens.

Share this post


Link to post
Share on other sites
Guest Vern Edwards

I don't think any of Pepe's last post was funny, and I'm not talking about what he said about me. He cannot prove his assertions. Everything is innuendo. They are expressions of feelings that don't belong in this forum.

Share this post


Link to post
Share on other sites
On 6/14/2018 at 1:19 PM, PepeTheFrog said:

Where are all the white men with 8(a) contracts? Oh, right. They're not "socially disadvantaged."

Pepe, while it is a small sample size, I have an 8(a) client who is a white male from Appalachia.  I guess a (very) few poor white males do qualify.  As for Hispanics, right after graduating from college, I taught high school in Texas.  One of the Spanish teachers was a blond blue eyed Spanish man.  There are many people like him from Latin America who would be eligible for 8(a) status.

Share this post


Link to post
Share on other sites

Vern posted Big Is Beautiful: Debunking the Myth of Small Business, by Robert D. Atkinson and Michael Lind to begin this topic.  I thought it would be opinion-based but I think it may be supported by facts.  One of the authors is President of the Information Technology and Innovation Foundation.  The author has made the book circuit and lists reviews and interviews on the linked page that add information.  I found an interview interesting.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×