Congress Is Right to Challenge the SBA's Program Expansion
In office for less than two months, Maria Contreras-Sweet, the new head of the Small Business Administration, is already embroiled in a dispute with Congress over the direction in which her agency is moving. The SBA has been pushing educational initiatives for high-potential startups and for larger and older small businesses in place of programs for its traditional constituencies. Members of the House Small Business Committee on both sides of the aisle have criticized the move. And, on this issue, they are right.
The dispute was triggered by the SBA’s efforts to reallocate funds from its Small Business Development Center (SBDC) and SCORE programs to an educational program for owners of larger and older small businesses and a program to fund new business accelerators. The change means the agency will allocate fewer of its resources to helping micro-entrepreneurs start businesses.
But the real fight isn’t about money. It’s about who should decide the agency’s direction and what principles should guide their choices.
Congress, not government bureaucrats, should decide what types of small-business support programs this country should have. They are the ones accountable to the voters for how tax dollars are spent. And they are the ones with the legal authority to create small-business support programs. As Oregon Democrat Kurt Schrader put it in a recent House Small Business Committee hearing, “It’s our job, not yours, to come up with the programs that should be going forward.”
Moreover, the SBA is taking advantage of a loophole to put its new programs in place. The Small Business Act grants the federal agency the authority to establish pilot initiatives not authorized by Congress, as long as those programs are of limited cost and duration. Congress’s intent in providing this authority was to give the agency flexibility in carrying out the legislative body’s wishes. But, as the House Small Business Committee recently wrote, the SBA “abuses this authority” by setting up pilot programs that do not expire and by failing to seek Congressional approval for its initiatives. In fact, the House Small Business Committee found that 17 of 22 SBA educational initiatives have been put in place without specific Congressional authorization.
Economic efficiency, not agency ambition, should guide the choice of entrepreneurship-support programs. The agency should not add programs that duplicate efforts undertaken in other parts of the government. A 2012 Government Accountability Office (GAO) report found 52 overlapping federal entrepreneurship-support programs among the SBA and just three other federal agencies. Moreover, several SBA educational programs duplicate the efforts of other SBA training initiatives.
Only when the private sector fails to allocate resources efficiently should the government intervene in the marketplace. But some of the agency’s programs target needs that the private sector already satisfies. The agency’s new initiative for older and more established companies, for example, duplicates programs administered by Goldman Sachs and the Ewing Marion Kauffman Foundation.
Similarly, in a recent Congressional hearing, Congresswoman Nydia Velasquez, Democrat of New York, asked rhetorically about the SBA’s new accelerator program: “What gap are you filling that the private sector is not?” The Congresswoman indicated that there is no market failure justifying government intervention because the private sector has already poured $5 billion into 100 accelerators on its own.
Ironically, Ms. Contreras-Sweet and her predecessor at the SBA, Karen Mills, may be accomplishing something few in Washington have been able to achieve in recent years – motivating bipartisan support for legislation. The recent efforts by the SBA to expand its educational programs have both Republicans and Democrats on the House Small Business Committee suggesting legislation to limit the SBA’s discretion in establishing new programs.
Scott Shane is the A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. His books include Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live by (Yale University Press, 2008) and Finding Fertile Ground: Identifying Extraordinary Opportunities for New Businesses (Pearson Prentice Hall, 2005).