The SBA is a mess. Outgoing Administrator Hector Barreto is only part of the problem. The very concept of the agency itself is flawed.
Now let me be clear. Not everything about the history of the SBA has been bad. The most important legacy of the SBA, from my point of view at least, has been its impact on educating small business owners. For years universities shunned entrepreneurship education. I will always remember the day over twenty years ago that I learned this lesson as a young Assistant Professor at the University in Wisconsin - Oshkosh. A very senior Full Professor began screaming at me in the hallway about the new entrepreneurship program I was trying to help get launched.
"Cornwall!! What in the *&%# do you think you are doing? We are a College of Business! Our job is to educate and prepare future corporate leaders, not train a bunch of merchants!!"
During the 1960s through the 1980s, the SBA supported groundbreaking entrepreneurship education programs such as the Small Business Institute (offered consulting to small businesses using teams of business students). The SBA's SBDC and SCORE programs offered free consulting and support to entrepreneurs. The SBA believed in entrepreneurship education long before entrepreneurship education was cool.
But, times have changed. That old professor has retired and entrepreneurship education has exploded to the point that it is now offered in thousands of colleges and universities.
Richard McGill Murphy in his article at Fortune Small Business argues that even the SBA loan programs don't work effectively as a tool for economic development. A very small percentage of businesses have benefited from 7(a) loans, and the 8(a) loan program (for minority owned businesses) has been plagued by allegations of corruption for years.
The agency's primary victims are the entrepreneurs who don't use SBA loans but face competitors who do, and so enjoy lower interest rates and longer repayment schedules. "The SBA is in the discrimination business," Jonathan Bean--a professor at Southern Illinois University at Carbondale and the author of Big Government and Affirmative Action: The Scandalous History of the Small Business Administration--recently told the Senate Committee on Homeland Security and Governmental Affairs. "It takes wealth from all taxpayers and awards loans and contracts to [relatively few] small and minority business owners."
So what to do?
It is time to do to the SBA the same thing that I advocate for the IRS. Tear it down and start over. However, I would not argue for a "new SBA." Rather, I would use this as an opportunity to rethink how we address the needs of our entrepreneurial economy from a much broader perspective.
A good starting point would be the five point plan Steve Forbes has been advocating. (Taken from a recent address at Hillsdale College.)
1. Break Apart the Corporate/Government Complex
Without individual equality before the law, entrepreneurs cannot challenge already existing businesses. Alliances between the latter and government regulators who place barriers before entrepreneurs must be guarded against.
2. Property Rights
We take for granted in this country that if you buy a piece of property, everyone acknowledges that you own it.
3. Low Taxes
Taxes are not just a means of raising revenue for government. They are also a price...When you lower the price of good things -- things like work, success and risk-taking--you tend to get more of them.
4. Deregulation
Getting bureaucracy out of the way will inject a new vibrancy in the economy.
5. Free Trade
Expanding markets and creating greater opportunity for trade benefits all.
In the latter part of the 1900s the last economic era ended. It was a great era that saw the emergence of the US as the major economic power. However, while that era is now over, our approach to public policy is stuck in that old economic paradigm.
We are now in a new economic era that is being fueled by entrepreneurs and their small businesses. Many of these will become the large corporations that will carry us through the coming decades. Which ones they are, we do not know. Only the market can determine that. It is time to let the markets work.
