Petaluma, Calif. - 

Dear Mr. Krueger,

Congratulations on your appointment to chair President Barack Obama’s Council of Economic Advisers. I am encouraged by your appointment, as I assume most Americans are. Your credentials and reputation as a leading economist are impeccable.

I would like to bring up an issue that needs immediate attention. Based on the latest U.S. Census Bureau data, small businesses create 90 percent of all net new jobs. The Small Business Administration Office of Advocacy indicates that small businesses are responsible for more than half the private sector workforce, half of GDP and 90 percent of exports. Ninety-eight percent of U.S. firms have less than 100 employees. And yet President Obama’s economic policies do not seem to reflect this. 

Based on economic data, this country needs aggressive programs focused on small businesses. Congress realized this in 1953 when they passed the Small Business Act, establishing the Small Business Administration (SBA) and a federal small business contracting goal (currently 23 percent). That law appears to be an extremely effective tool to create jobs. Moreover, research indicates that Fortune 500 companies have not created one net new job in more than thirty years.

Yet since 2003, a series of federal investigations have found that most federal small business contracts have gone to large corporations in the U.S., Europe and Asia. In 2005, the SBA Inspector General released Report 5-15, describing the abuse as, “One of the most important challenges facing the Small Business Administration and the entire federal government today.”

During his campaign, President Obama recognized this abuse and stated, “It is time to end the diversion of federal small business contracts to corporate giants.”

Federal law defines a small business as being independently owned. This would exclude any publicly traded company. I suggest that President Obama issue an executive order that states, “The federal government will no longer report contracts awarded to publicly traded companies as small business contracts.” This would direct more existing federal infrastructure spending to the middle class than any previous economic policy.

I think this is a very reasonable, deficit neutral approach to boosting the economy and creating jobs. I cannot imagine a downside to ending the illegal diversion of federal small business contracts to large corporations.

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Petaluma, Calif. - Friday Federal Reserve Chairman Ben Bernanke will speak on the economy in Jackson Hole, Wyoming. The latest economic trends suggest that Chairman Bernanke should turn to small businesses to stimulate the U.S. economy.

The U.S. Census Bureau indicates that small businesses create 90 percent of all net new jobs. Small businesses are responsible for half of the private sector workforce, half of GDP and more than 90 percent of U.S. exports. More than 90 percent of U.S. firms have less than 100 employees, and there are more than 28 million small businesses in America.

Since 2009, small businesses have received only a small fraction of the stimulus funds. Economic data indicates the government’s policy of focusing stimulus funds on banks and corporate giants has failed. The latest data from the Labor Department shows U-6 unemployment at 16.1 percent.  The small business sector is the last untapped resource to stimulate economic growth.

Federal law stipulates that a minimum 23 percent of all federal contract dollars be awarded to small businesses. This model uses existing federal infrastructure spending to create demand among the nation’s chief job creators, which increases cash flow, allowing them to expand and hire.

However, the latest analysis of federal contracting data by the American Small Business League (ASBL) indicates that small businesses are receiving far fewer contract dollars than the congressionally mandated 23 percent. Of the top 100 small business contractors during 2010, 61 were actually large businesses or subsidiaries of large businesses.

Some of the companies that received small business contracts in 2010 were General Electric, AT&T, Dell, Raytheon and Lockheed Martin. Also among the 2010 U.S. small business contractors were Italian defense giant Finmeccanica, Rolls-Royce and British Aerospace (BAE).

In Report 5-15, the Small Business Administration Office of Inspector General (SBA IG) described the abuse as, "One of the most important challenges facing the Small Business Administration and the entire Federal government today."

The ASBL maintains that the only way to stimulate the economy is to stop diverting small business contracts to large corporations. 

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Petaluma, Calif. – Tuesday the Obama Administration announced plans to trim regulatory burdens, which it estimates will save businesses more than $10 billion over the next five years. According to the White House Blog, many of the reforms focus on small businesses, including a rule that will accelerate Department of Defense contract payments to as many as 60,000 small businesses.

“Although these seem like noble ideas,” said American Small Business League (ASBL) President Lloyd Chapman, “the Obama Administration continues to ignore the biggest challenge for small businesses: the diversion of federal small business contracts to large corporations.”

Federal law requires 23 percent of all contract dollars go to legitimate small businesses. U.S. Census Bureau data indicates that small businesses create 90 percent of net new jobs. Yet the Obama Administration’s 2010 federal contracting data indicates that most small business contracts actually went to large companies, including Lockheed Martin, General Electric, AT&T, Italian defense giant Finmeccanica and British Aerospace (BAE), among others.  An ASBL analysis of the top 100 small business contractors found that 61 were large businesses.

Since 2003, a series of federal investigations have uncovered hundreds of billions of dollars in fraud, abuse and loopholes in federal small business contracting programs.

In Report 5-15, the Small Business Administration Office of Inspector General (SBA IG) described the abuse as, "One of the most important challenges facing the Small Business Administration and the entire Federal government today."

In Report 5-16, the SBA IG found large businesses had illegally received federal small business contracts through "false certifications" and "improper certifications." The SBA Office of Advocacy found large businesses had received federal small business contracts fraudulently through "vendor deception.”

Based on information obtained through the Freedom of Information Act, the ASBL estimates that ending this abuse would redirect up to $1 trillion in federal infrastructure spending to the middle class over the next five years.

During his campaign, President Obamastated, “It is time to end the diversion of federal small business contracts to corporate giants.” Yet every day of his administration, hundreds of millions of dollars in existing federal infrastructure spending has been diverted from small businesses to large corporations.

“This latest move is just more smoke and mirrors,” said Chapman.

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Petaluma, Calif. – I had the pleasure of watching your recent interview on CNN. I agree that re-election is the primary motivation for politicians, and to starve them of funding is exactly what needs to be done. Your leadership on this issue is inspiring.

Congress needs to go back to work, focus on job creation and solve the crisis of uncertainty. That said, the most effective economic stimulus President Barack Obama and Congress could implement would be to direct more existing federal infrastructure spending to small businesses, our nation’s chief job creators. This is an issue my organization, the American Small Business League, advocates for on a daily basis.

The latest U.S. Census Bureau data indicates that small businesses create 90 percent of all net new jobs, employ more than half the private sector workforce, are responsible for more than half of GDP and more than 90 percent of U.S. exports. It is clear that economic recovery needs to be based on small businesses.

I think members of Congress realized this in 1953 when they passed the Small Business Act. Today that law requires that 23 percent of all federal contract dollars be awarded to small businesses. Yet since 2003, a series of federal investigations have found most of that money has gone to Fortune 500 companies and other large firms.

In Report 5-15, the Small Business Administration Office of Inspector General referred to the issue as, “One of the most important challenges facing the Small Business Administration and the entire Federal government today.”

During President Obama’s campaign he stated, “It is time to end the diversion of federal small business contracts to corporate giants.”

The Small Business Act defines a small business as generally less than 500 employees and independently owned, which, by definition, excludes publicly traded companies. Therefore, President Obama could stimulate the economy with an executive order stating, “The federal government will no longer report federal contracts awarded to publicly traded companies as small business contracts.” Our research indicates this would redirect up to $200 billion annually in federal infrastructure spending to small businesses.

It is a shame there are not leaders like you in Washington. Maybe with your help, we can communicate this message to Congress and rescue our nation’s economy. 

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Petaluma, Calif. – The following is a statement by the American Small Business League:

President Barack Obama has yet to end a small business contracting scandal that costs the nation millions of jobs every year. This comes as the president wraps up his Midwest jobs tour and the nation awaits his next job creation plans.

The small business community creates 90 percent of net new jobs, according to the U.S. Census Bureau. Yet large businesses annually receive hundreds of billions in federal contract dollars intended for small businesses.

In April 2010, Senator Mary Landrieu (D-LA), Chair of the Committee on Small Business and Entrepreneurship estimated that, “increasing contracts to small businesses by just 1 percent,” would create more than 100,000 new jobs. Based on an American Small Business League (ASBL) examination of government contracting data, and Chairwoman Landrieu’s estimation, ending this abuse would create upwards of 1.8 million jobs.

Since 2003, a series of federal investigations have uncovered billions of dollars in federal small business contracts going to some of the largest companies in the U.S., Europe and Asia. During FY 2010, 61 of the top 100 recipients of small business contracts were actually large businesses.

During President Obama’s 2008 campaign he stated, “Small businesses are the backbone of our nation’s economy and we must protect this great resource. It is time to end the diversion of federal small business contracts to corporate giants.”

Despite the president’s campaign promise, his administration’s most recent small business data includes small business contracts awarded to Lockheed Martin, Raytheon, L-3 Communications, Hewlett-Packard, and AT&T, among many others. The Small Business Administration Office of Inspector General has named the issue the agency’s top management challenge for the last six consecutive years.

According to officials, this September President Obama will announce fresh ideas on job creation, including infrastructure investment and tax cuts. Thus far, he has not addressed problems in the nation’s largest and oldest job creation plan, the Small Business Act. This legislation directs federal infrastructure spending to the middle class by mandating 23 percent of all federal contract dollars go to small businesses.

“The SBA was created by Congress to create jobs and direct federal infrastructure spending to the middle class,” said ASBL President Lloyd Chapman. “President Obama has allowed these programs to be hijacked by large corporations.”

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