Bloomberg Business Week

January 27, 2012

In mid-January, President Obama announced a plan to merge six government agencies, including the Small Business Administration. The merger, he argued, would save $300 million per year over the next decade and eliminate 1,000 to 2,000 positions, as employees of the merged agencies quit or retire and are not replaced. Several members of Congress on both sides of the aisle responded that the proposal was worthy of careful examination.

The SBA helps small business owners in three main ways. It provides guarantees on bank loans to small businesses, which reduce the lending risk, thus improving owners’ ability to get capital. It also helps with access to federal contracts by training business owners in government contracting and ensuring that federal agencies adhere to congressionally mandated small business set-asides. And it gives small business owners advice on how to run their companies better.

Compared with the multiple disadvantages to small business of eliminating the 3,400-person SBA as a separate agency, the benefits are small, even with the President elevating SBA chief Karen Mills to a cabinet-level post. Although the odds are low that Congress would give the President the authority to merge the agencies in a Presidential election year, small business advocates should push back against his proposal.

FIVE AGAINST ONE

Mergers make sense when the organizations being combined can achieve synergies. When they can’t, the cost of combining efforts and the greater bureaucracy that larger organizations entail make the mergers not worth the effort. The agencies the President proposes combining with the SBA—the U.S. Trade Representative, the Overseas Private Investment Corp., the U.S. Export-Import Bank, the Trade and Development Agency, and the parts of the Commerce Dept. focused on business and international trade—all have a common mission: the promotion of U.S. exports. By contrast, the SBA’s mission is “to aid, counsel, assist, and protect the interests of small business concerns.”

Only about 1 percent of U.S. small businesses export, 2009 Census statistics show, which makes it hard to see where the synergies exist between multiple government agencies designed to promote exports and one designed to help small businesses. Even if the President succeeds with his plan to double U.S. exports by 2015, which is questionable, we still won’t have many small businesses exporting. It’s difficult to see how a lot of them could, given the industries they are in. No matter how good your restaurant, barbershop, landscaping business, or insurance brokerage is—you aren’t likely to export much of anything.

The merger would eliminate the main advocate for small business in Washington. Big business has different objectives than small business. If you combine several agencies focused largely on big company issues with one focused on small company issues, most of the attention of the combined agency will be on big business’s needs.

NO LOVE FOR THE LITTLE GUY

Look at what happened during the financial crisis to see how small business would be hurt by the lack of an advocate. If the SBA did not exist, for example, which agency would have argued for policies to get banks to lend again when credit markets froze in 2008? An agency focused on the concerns of large companies wouldn’t have worried about small business bank loans. It would have advocated, instead, for policies to fix the bond market, since big business obtains much of its credit by issuing bonds.

Or consider the SBA’s efforts to ensure that federal agencies adhere to rules on small business set-aside contracts. Why would the new combined federal agency, whose mission would mostly address big business issues, spend much time ensuring small business’s access to federal contracts? After all, the big companies that would lobby the agency would likely push it to weaken small business set-asides.

Big organizations are often bureaucratic and inefficient. You don’t need to be a PhD economist with a dissertation on diseconomies of scale in administration to realize that creating one big government agency devoted to business and trade isn’t likely to make the government more nimble and responsive to the needs of business than six smaller ones are. Given what it’s like for a small business owner to deal with Washington bureaucrats in relatively small government agencies, one can only imagine what it would be like for them to deal with the larger and (almost certainly) more bureaucratic new agency.

Priced on a per-small-business basis, the SBA is a bargain. An estimated 27.5 million small businesses were operating in the U.S. in 2009, the most recent year data are available. Merging six government agencies, and getting rid of the SBA as an independent agency in the process, will save only $300 million per year. That works out to $11 per business per year. Surely having one part of the government focus on the interests of small companies generates that much value.

Scott Shane is the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University.

In mid-January, President Obama announced a plan to merge six government agencies, including the Small Business Administration. The merger, he argued, would save $300 million per year over the next decade and eliminate 1,000 to 2,000 positions, as employees of the merged agencies quit or retire and are not replaced. Several members of Congress on both sides of the aisle responded that the proposal was worthy of careful examination.

The SBA helps small business owners in three main ways. It provides guarantees on bank loans to small businesses, which reduce the lending risk, thus improving owners’ ability to get capital. It also helps with access to federal contracts by training business owners in government contracting and ensuring that federal agencies adhere to congressionally mandated small business set-asides. And it gives small business owners advice on how to run their companies better.

Compared with the multiple disadvantages to small business of eliminating the 3,400-person SBA as a separate agency, the benefits are small, even with the President elevating SBA chief Karen Mills to a cabinet-level post. Although the odds are low that Congress would give the President the authority to merge the agencies in a Presidential election year, small business advocates should push back against his proposal.

FIVE AGAINST ONE

Mergers make sense when the organizations being combined can achieve synergies. When they can’t, the cost of combining efforts and the greater bureaucracy that larger organizations entail make the mergers not worth the effort. The agencies the President proposes combining with the SBA—the U.S. Trade Representative, the Overseas Private Investment Corp., the U.S. Export-Import Bank, the Trade and Development Agency, and the parts of the Commerce Dept. focused on business and international trade—all have a common mission: the promotion of U.S. exports. By contrast, the SBA’s mission is “to aid, counsel, assist, and protect the interests of small business concerns.”

Only about 1 percent of U.S. small businesses export, 2009 Census statistics show, which makes it hard to see where the synergies exist between multiple government agencies designed to promote exports and one designed to help small businesses. Even if the President succeeds with his plan to double U.S. exports by 2015, which is questionable, we still won’t have many small businesses exporting. It’s difficult to see how a lot of them could, given the industries they are in. No matter how good your restaurant, barbershop, landscaping business, or insurance brokerage is—you aren’t likely to export much of anything.

The merger would eliminate the main advocate for small business in Washington. Big business has different objectives than small business. If you combine several agencies focused largely on big company issues with one focused on small company issues, most of the attention of the combined agency will be on big business’s needs.

NO LOVE FOR THE LITTLE GUY

Look at what happened during the financial crisis to see how small business would be hurt by the lack of an advocate. If the SBA did not exist, for example, which agency would have argued for policies to get banks to lend again when credit markets froze in 2008? An agency focused on the concerns of large companies wouldn’t have worried about small business bank loans. It would have advocated, instead, for policies to fix the bond market, since big business obtains much of its credit by issuing bonds.

Or consider the SBA’s efforts to ensure that federal agencies adhere to rules on small business set-aside contracts. Why would the new combined federal agency, whose mission would mostly address big business issues, spend much time ensuring small business’s access to federal contracts? After all, the big companies that would lobby the agency would likely push it to weaken small business set-asides.

Big organizations are often bureaucratic and inefficient. You don’t need to be a PhD economist with a dissertation on diseconomies of scale in administration to realize that creating one big government agency devoted to business and trade isn’t likely to make the government more nimble and responsive to the needs of business than six smaller ones are. Given what it’s like for a small business owner to deal with Washington bureaucrats in relatively small government agencies, one can only imagine what it would be like for them to deal with the larger and (almost certainly) more bureaucratic new agency.

Priced on a per-small-business basis, the SBA is a bargain. An estimated 27.5 million small businesses were operating in the U.S. in 2009, the most recent year data are available. Merging six government agencies, and getting rid of the SBA as an independent agency in the process, will save only $300 million per year. That works out to $11 per business per year. Surely having one part of the government focus on the interests of small companies generates that much value.

Scott Shane is the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University.

NEW YORK (TheStreet) -- Don't listen to all the balderdash coming from the Republican Party, especially its shrinking roster of presidential candidates, about how President Obama is anti-business. Or JPMorgan's Jamie Dimon whining that the Obama administration has some kind of animus toward Wall Street.

The truth of the matter is that Barack Obama is a pro-business president. He may not be up there with the comatose Herbert Hoover or the regulation-chopping Ronald Reagan, but the anti-business rap on the man is sadly misplaced. This is a man who appreciates business and isn't terribly concerned with consumer or small-investor interests, and he and his team prove that just about every day.

It's not just his big-ticket pro-business moves, such as the auto-industry bailout and the economic stimulus -- ultimately a business-revival program -- that have put Obama way up there in the pantheon of pro-business presidents. We have his appointments, which hardly have been flag-waving Marxists.

There is Bush administration retread Timothy Geithner, a close friend of the banking industry and Wall Street, as a Treasury appointment. And his failing to go to bat for Elizabeth Warren as head of the Consumer Financial Protection Board. Important as all these pro-business actions and omissions surely are, Obama has been pro-business in a lot of little ways that often go unnoticed.

There are two recent examples of what I'm talking about.

First there was the announcement that came out of the White House the other day that the president was elevating the head of the Small Business Administration to a Cabinet post, while consolidating and reorganizing other business-related departments, eliminating the Commerce Department as it is currently constituted.

I have to admit that I did not react favorably to this idea at first. The White House fact sheet pretty much oozes election-year politics: "Looking to make our government leaner, smarter and more consumer-friendly, the President will call on Congress to reinstate the authority that past Presidents had, over decades, to reorganize the government."

Since Congress isn't going to do a blessed thing that Obama wants, even if he just needs a new pair of shoelaces, you can bet that this government reorganization isn't going to happen. But notice that immediately thereafter, Obama actually invokes our 31st president: "With the exception of President Ford, every President from Herbert Hoover to Ronald Reagan had reorganization authority." That was a tipoff to the true impact of this proposal.

It sounded to me like a sop to small-biz owners, but it was actually one of the pro-business moves that Obama is noted for. That is, pro-big business.

The American Small Business League didn't care for the idea, with its president, Lloyd Chapman, saying: "They're not trying to save money; they're trying to close the agency because large corporations want 100% of federal contracting dollars."

Yet, sure enough, the idea was favored by the Financial Services Roundtable, a big-business lobby that fights for Wall Street and big-money interests on Capitol Hill.

Republicans on Capitol Hill immediately put up a fuss, but really, what's a Republican not to love about this guy? Obama may not have rampaged through the rust belt as Mitt Romney did when he was at Bain Capital, but his heart is surely in the right place.

The same can be said for the people he has appointed to top-level jobs in the regulatory apparatus. The jury is still out on Richard Cordray, who was appointed to the job that Elizabeth Warren should have gotten at the CFPB, but we have the stellar record of obstructionism set by Geithner, who skillfully derailed Obama's plan to dismantle Citigroup, as described in Ron Suskind's book Confidence Men.

Obama's chairperson on the Securities and Exchange Commission, Mary Schapiro, is exceeded in her lassitude toward big business only by his attorney general, Eric Holder, who has yet to prosecute a single major Wall Street banker for criminal acts in the run-up to the 2008 financial crisis.

Schapiro's SEC is still smarting from the smackdown it got from U.S. District Court Judge Jed Rakoff, who castigated the agency for its longtime policy of letting corporate miscreants get away with "neither admit nor deny" settlement language. In reaction, Schapiro's fraudbusters showed their stuff by coming up with a change in policy. Such language would no longer be allowed in settlements with people and corporations that have been found guilty of criminal wrongdoing.

So, in other words, "neither admit nor deny" is out of the question in instances where it doesn't mean a thing, because criminal liability has already been established! I tell you, not even Harvey Pitt, George W. Bush's horrendous SEC chairman, could have produced a more vacuous public-relations gesture.

Yet while the press-release machinery grinds on, you can bet that those hard-working watchdogs at the SEC are every bit as diligent as they were in the days when they let Bernie Madoff get away with murder.

That brings me to the second recent news item that illustrates the pro-business bent of this administration. "Broker Fiduciary Rule Officially in Limbo," goes the headline from Investment News. President Obama may talk like a "socialist," as the GOP and the right like to put it, but when it comes to regulatory inaction, he is a veritable George Babbitt.

It seems that a full year has passed since the SEC first talked about strengthening protections for investors by instituting a uniform fiduciary standard for retail investment advice. As law professor Larry Ribstein pointed out when the idea first surfaced, broker-dealers would be required "to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice."

As you can imagine, the SEC can't very well impose such a radical requirement without doing a lot of studying -- slow, slow studying, so slow that the good Prof. Ribstein passed away since he wrote that item to which I linked in the last paragraph.

The rule will have to wait until after the elections, apparently. The slower, the better, so that it can be watered down, ignored and perhaps forgotten.

Those of us who aren't happy with our vigorously neglectful pro-business president will just have to live with it, because the alternative could only be much worse. But you'd think that the beneficiaries of his pro-business policies would at least appreciate the kind of gem that they have in the White House.

Gary Weiss's forthcoming book, AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on February 28, 2012. Follow him on Twitter: @gary_weiss.