Petaluma, Calif. - President-elect Barack Obama is preparing to create significant changes in federal contracting law that will allow some of the nation's wealthiest investors to receive federal contracts earmarked for small businesses. Under the banner of "increasing access to capital" for small businesses, the policies will allow firms controlled by individual venture capitalist and even large venture capital firms to participate in federal small business contracting programs.

The Obama Administration's new pro-venture capital policy could virtually repeal the Small Business Act for legitimate American small businesses by modifying the longstanding federal definition of a small business as "independently owned."

Under the proposed Obama Administration policy, "independently owned" will be changed to include firms that are not independently owned, but are actually controlled by wealthy investors and possibly some of the nation's largest venture capital firms.

Opponents of the new policy say it appears to be designed more to increase wealthy venture capitalist access to billions of dollars in federal small business contracts as opposed to "increasing access to capital" for legitimate small businesses.

If the policy is successfully implemented it could force the average American small business to compete head-to-head with firms controlled by wealthy investors for even the smallest government orders for goods and services. Thousands of middle class jobs could be lost as billions of dollars in federal small business contracts are diverted to a small number of venture capitalist controlled firms.

The plan will likely include a provision that would exempt the venture capitalist owned firms from capital gains taxes. The Obama-Biden Transition Team website, www.change.gov mentions such a proposal.

The appointment of multi-millionaire venture capitalist Karen Mills to head the Small Business Administration (SBA) is the latest indication that President-elect Obama is moving forward with his plans to divert government small business contracts to venture capital controlled firms.

The National Venture Capital Association (NVCA) and its members have been lobbying for the new loophole in federal contracting law for more than two years. The NVCA and its members have contributed millions of dollars to Obama and key Democratic leaders in Congress such as Nancy Pelosi, John Kerry, Joe Lieberman and Hillary Clinton. (http://www.maplight.org/map/us/interest/F2500) 

"The easiest and quickest way to stimulate our nation's failing economy is for the government to spend infrastructure funds with America's 27 million small businesses that create all the new jobs and employ most Americans," American Small Business League President Lloyd Chapman said. "This new Obama policy will do just the opposite and will push our economy closer to a depression by diverting billions of dollars in federal funds away from middle class America and into the hands of small number of wealthy investors that backed Obama."

We've written before about the American Small Business League, the organization dedicated to seeing that federal procurement quotas are enforced. As things stand right now, of course, they aren't: the amount of federal contracts that go to small businesses is lower than the legally mandated percentage, with over $5 billion in contracts being misreported as having gone to small businesses in 2007 alone; contract quotas for woman- and minority-owned businesses have been similarly not fulfilled.

The ASBL has not been hesitant about laying much of the blame for all of this at the feet of the Bush administration. At the end of last week, though, the group issued a press release preemptively attacking President-elect Barack Obama for allegedly planning to ignore this procurement issue and for generally turning his back on small business owners in favor of venture capitalists. Unmentioned by the press release, but probably not irrelevant to the charge that Obama is favoring venture capitalists over small business owners, is the fact that Obama's pick for head of the Small Business Administration is Karen G. Mills...a prominent venture capitalist

Lloyd Chapman, the group's founder and president, said in the release, "I predict President-elect Obama will not restore the Small Business Administration's budget and staffing as he promised during the campaign. I don't think he will do anything to stop Fortune 500 firms from receiving federal small business contracts. I believe he will sign legislation to create another colossal loophole that will divert billions more in federal small business contracts to billionaire venture capitalists. People need to start noticing the dramatic difference between what Obama said during the campaign and what he is actually doing."

The release pointed to the conspicuous absence of any supportive statements on Obama's famed change.gov transition Website. It also cited the $1 million in campaign contributions that his campaign received from the venture capital lobby, which, it argued, will lead Obama to support a bill called the Small Business Investment Expansion Act of 2007, which will allegedly provide a loophole to continue the flow of ostensibly small business contracts to large corporations.

On the one hand, it seems unfair to blame Obama for things he hasn't done (or hasn't not done) yet. That said, we are glad for the ASBL: it's good that someone is already dedicated to keeping the incoming administration honest on these crucial issues. If nothing else, it helps ensure that we and the rest of the press will be watching. And if Chapman and the ASBL turn out to be right, you can be sure that theirs will not be the only angry voice.

Source:  http://bizbox.slate.com/blog/2008/12/obama_accused_of_turning_back.php