Small Businesses Create Jobs or $600 Won't Do It, Jobs Will

President Bush intends to nominate Steve Preston, the current Administrator of the U.S. Small Business Administration (SBA), to run the Department of Housing and Urban Development. The housing crisis has been prevalent in the news. But our economic problems have been worsened by the marginalization of the agency Mr. Preston is now running. It's time for a critical look at what has happened to the SBA.

Successive interest rate cuts by the Federal Reserve and the stimulus package the President has signed into law may help our ailing economy in the short run. But the roots of the problem go much deeper. Our homes are losing value, access to credit is drying up, the stock market is volatile and food and fuel prices are skyrocketing - all signs that consumer spending will continue to shrink.

And $600 won't do the trick. The best way to get people spending again is to create good jobs at good wages. Over the past 15 years, small businesses created over 93% of all net new jobs. That is almost 22 million new jobs. In fact, during the first four years of this century, large businesses have already shed over 3.6 million jobs. Today, small businesses make up 99.7 percent of all employer firms. The best engine for job growth and the economy continues to be small business.

Despite the great advantages of small businesses, the Bush administration has counter‑intuitively starved the Small Business Administration of the staff and resources it needs to advance this crucial sector of our economy. And now, the credit crunch is hitting small business hard. Earlier this year, the Federal Reserve found that a third of U.S. banks had tightened lending standards for small business loans.

Under the Bush Administration, the SBA has sustained the largest budget cut - 40 percent - of any federal agency. The Democrats in Congress were able to restore a portion of that funding and it now stands at a 25% cut. But that's still the largest of any federal agency. How many dynamic entrepreneurs have been denied a chance to contribute to our economy and help it grow? Back in 1969, a little company called Intel got started with help from the SBA. And there have been many similar success stories ‑ until the short‑sighted Bush cuts.

The SBA should immediately be empowered to issue more loans, more rapidly ‑ to help entrepreneurs start new businesses and to help existing small business owners expand. In the long term, the Small Business Administration's budget should, at a minimum, be restored to its Clinton Administration levels of close to $1 billion a year. That is about half of what we spend in Iraq ‑ in one week. We are starving the American Dream that our military is meant to defend.

Perhaps most important, the business community must push Congress and a new President to re‑imagine the SBA's mission and purpose. We need to look at small business and entrepreneurship through the prism of the globalized economy. That means paying more attention to the effects of trade and immigration policies on small business. It means widening the scope of businesses the SBA supports beyond conventional cottage industries. It means focusing on new public/private partnerships for business development. It means empowering the SBA to make loans to nonprofit organizations that fill in many gaps in government services. And it means raising the ceiling on the size of the businesses the SBA helps. Our major trading partners all provide SBA‑style services, products and loans to mid‑sized companies. But too many American businesses lose this kind of assistance just when they're getting big enough to compete internationally.

We don't yet know if we are facing a recession that will be short and shallow or long and deep, but that is precisely why boosting small business in this unsteady environment is such a smart move - it works in either scenario, because good jobs at good wages is the right solution every time.


Fred P. Hochberg is Dean of Milano The New School for Management and Urban Policy and was deputy administrator and acting administrator of the Small Business Administration from 1998 to 2001.