To Revive Economy, Place a Better Bet on Smalls versus “Too-Big-to-Fail” Companies

Recent economic indicators from the Federal Government estimate that up to 23 million people are out of work or underemployed in America. Solutions exist that could change things practically overnight, but are not implemented. As the economic free-fall continues to plague millions of individuals and families struggling to make a decent living, and if governmental options are available but nothing is being done to solve the problem, the central question is why?

One reason is that many public officials claim the government is broke, suggesting that too much debt leaves few to no resources to support job development and employment training initiatives — but that’s not quite the case. Nationally-recognized attorney, activist and author Van Jones and his Rebuild the Dream organization are launching a new campaign to change the way we talk about our economy and debt. Jones says it’s crucial that we don’t buy the myth that America is broke, while today’s robber barons set the terms of the debate and make off like bandits with taxpayer funds due in part to not paying their fair share in taxes and using corporate money for their own benefit. “We are not broke, we are being robbed,” Jones said, as the basis for Rebuild the Dream’s platform for bottom-up, people-powered activism efforts to help fix the U.S. economy.

What’s not so clear is just how the American people (that would be me and you) are being robbed. But much evidence points to businesses being routinely excluded from governmental opportunities that could significantly improve the economy. This is relevant because research shows most new jobs evolve from entrepreneurial activity (small business), while large enterprises struggle with manageability, generally do not grow organically, or remain stagnant except when they buy existing small companies.

Politicians, both in the Republican and Democratic parties, send mixed messages about priorities and shift blame. 

They confuse the public by portraying many economic problems simplistically. This is due, in large part, to partisan politics that make our government far less effective. The failure of elected leaders to act decisively continues to have serious consequences, but can be corrected through a solution with a comprehensive and inclusive approach emphasizing government contracting for small businesses.

Business as Usual: Preference for Large Corporations

Small business is shortchanged due to politics that allocate more taxpayer funds to corporations – larger businesses that enrich a relative few, including CEOs making millions — while masses in need of jobs are left dangling:

• An expansive project on suicide prevention training, with major funding from the U.S. Army, excludes U.S.-based businesses from providing the professional services due to a Canadian company being the only approved Vendor. This despite the Army labeling the contract as competitive “open market” and being aware of a qualified U.S. small business whose bid is more cost-effective with a proposal that includes more than a dozen diverse consultants or subcontractors in the U.S. that would benefit from the contract.
• A small business based in the Midwest submitted a bid that would have resulted in full-time employment for four individuals, including three recent college graduates, for a mere cost of $120,000 annually. But the Federal Government cancelled the project and did not fund any contract despite requesting bids twice, which gave the impression these were legitimate opportunities for any qualified small business.
• Two human services professionals collaborated on a project providing counseling services to veterans to help readjustment to civilian, community and family life. During the first year of the contract, they billed and earned less than $10,000 combined, and met all required conditions including providing effective services to clients and being responsive to government staff. Yet near the end of the contract’s first year, instead of renewing (allowable up to five years), the Veterans Administration informed the professionals the work would be done in-house moving forward.

I know about these situations because they have impacted my company – a micro, small business operating since 2005 — directly. While giving lip service to supporting economic renewal, the Federal Government (primarily through ineffective and inefficient policies and staff) creates numerous barriers that prevent qualified small businesses from obtaining contracts that could help pave the way for shared prosperity among diverse individuals and communities across the nation.

Compare the examples above to contracts awarded to larger businesses, based on recent announcements by the U.S. Department of Defense:

• Pricewaterhouse Coopers L.L.P., McLean, Va., is being awarded a $76,354,451 indefinite delivery, indefinite quantity contract to provide support services in the areas of management and professional support services, for the Air Force at various locations, with work to be completed by Aug. 22, 2017. 
• Textron Marine and Land Systems of New Orleans, La., was awarded a $9,115,966 cost-plus-fixed-fee contract for the modification of an existing contract to procure field service representative support for the Army. Work will be performed in Slidell, La., with an estimated completion date of Aug. 2, 2013.

These two contracts are cited from a longer daily listing of multi-million contracts routinely given to large businesses, and specifically because they involve professional services normally performed just as well by small businesses. In other words, the services provided do not require rocket-science levels of knowledge as specialized engineering or other technical expertise contracts would. Small businesses know their limits and would never attempt to compete with companies far more experienced in highly-technical professions such as making weaponry for the U.S. Armed Services.

We already know the results when large businesses grow too big to manage effectively, as a searing article in Rolling Stone by Matt Taibbi explores various scams that imploded with institutions deemed too big to fail (June 21, 2012, “Learned From the Mafia: How America’s biggest banks took part in a nationwide bid-rigging conspiracy – until they were caught on tape.” (Source)

Politicians out of Touch with Average Americans

The current crop of public officials apparently downplay the role of many “too-big-to-fail” corporations that created the current economic chaos, apparently without learning valuable lessons or making necessary corrections or other changes in how they conduct business. At the same time they engage corporate special interests and minimize the risks of betting on big, they fail to remove multiple barriers that would make it possible for small businesses to step in as the better bet for boosting economic recovery. From the position of being underdogs and inherently structured with room to create new job opportunities, small businesses give the rest of us a better chance for prospering – not just executives or a select few who have access to privileges based on political affiliations.

As Republican Governor and Presidential Candidate Mitt Romney recently said in his speech to a group of supporters at a private fundraiser in Minnesota, big businesses are “doing fine.” Romney said big businesses get timely loans, can deal with all the regulation, and get tax breaks. “But small business is getting crushed” and “We’ve got to make it easier for small businesses,” Romney was quoted as saying (in an article by Emily Friedman, ABC OTUS News, 8/23/2012).

Yet, after listening to the Republicans’ speeches in the week of their national convention, many have raised the question of who really matters to them. As a recent email titled, “Do they Care?,” from the Democratic Governor’s organization asked, does anyone matter to the Republicans other than corporate special interests and billionaire donors who power their campaigns?

Just as Romney has given lip service to supporting small business, President Barack Obama also said in recent months that the status of the private sector is in good shape. But both Romney and Obama failed to report one reason larger companies are stable is because of government. Indeed, despite obstructionist Republicans who have indicated interest in seeing Obama fail and backed their intentions by countless distractions that have little to do with the economy, Democrats also share blame for the current status quo to some extent.

President Obama needs to take a closer look at the Federal Contracting and Procurement area since some Federal staff are not facilitating contractual processes in an above-board manner, yet also not being held accountable. Yet, it is clear Romney is as out of touch with the realities of struggling Americans as he accused Obama of being.

In an August 28 article, “The Secret Weapon: All of Us,” New York Times Op-Ed Columnist Nicholas D. Kristof makes the point well that Romney himself, while apparently hardworking, cannot simply claim to be a self-made businessman in building his Bain company partly because tax loopholes helped him “build his fortune, and other loopholes gave him the low tax rates to retain it.”

Kristof further provides an example of a presenter at the Republican National Convention, Sher Valenzuela, who along with her husband built an upholstery business that currently employs dozens of workers, citing Media Matters for America’s documentation of Valenzuela’s company having received Small Business Administration loans of $2 million, in addition to $15 million in mostly noncompetitive government contracts. And, apparently, Valenzuela has been previously quoted as describing government assistance as an entrepreneur’s “biggest ‘secret weapon.’ ”

Limited Accountability and Executive Privileges

Beyond bailing out banks, government continues to enlarge coffers and make expansion of big businesses greater despite severe problems with accountability.

Here’s the crux of the matter: Due to little accountability with large government contracts given to large companies, executives of these companies benefit far more than workers. They get larger salaries and bonuses, yet often fail to add new jobs or provide subcontracts that could boost small businesses. Imagine how 20 small businesses could benefit far more than one large company and many people could be employed from divvying up $2 million salary for a single CEO obtained from a government contract.

While large corporations are not the enemy per se and they provide many advantages and benefits, the issue of accountability is important. Do only a few benefit from a corporation due to who the decision-makers are (some are more selfish than others)? The size of a company, particularly when too large, can affect how effective a company is, whether corporate values are easily manipulated or compromised, and how resources, including profits, are allocated. Given the hierarchal leadership paradigm of most large companies, it doesn’t take a stretch of the imagination to understand why accountability should not be taken lightly.

We’ve witnessed many executives obtain unfair advantages from their positions of power, including some like the jailed former Tyco Co. chief, Dennis Kozlowski, who used company money as if it were his piggy-bank and spent outrageous sums for parties, home decorating and other personal expenses.

In an article, “Should CEOs Worry About ‘Too Big to Succeed?,’” published August 1, 2012, author James Heskett (Harvard Business School’s Working Knowledge publication) writes: 

Governments in the United States and Europe have been preoccupied with the question of financial institutions becoming too big to fail. But recent data points have me asking whether the relevant question should be whether financial (and other organizations) bear a greater risk of becoming too big to succeed.

Citing various frictions and inefficiencies that accompany bigness, this excerpt from Heskett summarizes comments on the topic:

Tom Dolembo supported the thesis, citing as a cause the lack of sufficient organic growth as opposed to the growth by mergers and acquisitions. As he put it, ‘Too-bigs are enormously complex, with massive, self-defeating strategies at war within, producing a lower return.’ Phil Clark concurred, saying that ‘It is about people and relationships. Unfortunately, many corporate leaders focus on profits and the Wall Street drivers toward big business and profits. It has become the death knell for many corporations.’

Tom Dolembo, Founder of Newnorth Institute, commented:

Breakdowns, rather than breakups, will probably become the norm. Too-bigs are enormously complex, with massive, self-defeating strategies at war within, producing a lower return. It is impossible to manage these companies…We are experiencing the international financial equivalent of Garrison Keillor’s ‘Lake Wobegon Pontoon Boat Races.’ Expecting everyone in these enormous, unwieldy companies to be above average simply defies logic. Managing around it is often catastrophic.’

Another commenter, Phil Clark of Clark & Associates, wrote in response to the Heskett article:

If employees become marginalized (company too big to keep the personal touch) the corporation suffers. It is about people and relationships. Unfortunately, many corporate leaders focus on profits and the Wall Street drivers toward big business and profits. It has become the death knell for many corporations. It would have been the death knell for many more over the past few years if there had not been intervention. Too big to succeed is likely the more relevant viewpoint . . . Is there a ‘right size’ for a company? Not sure. I expect that varies. Yet, somewhere we have lacked the ability to know when that point has been reached and have marched blindly over the cliff, usually at a tremendous loss of the employees involved.

A recent Institute for Policy Studies (IPS) report showed that CEO paychecks and bonuses take up more company profits instead of creating new jobs. The IPS report lists 26 companies that paid their CEOs more than they paid the federal government in taxes and, on average, the companies generated net income of more than $1 billion in the US, the study said.

Corporate tax cuts, instead of helping the overall economy, contribute to lining the pockets exponentially for many executives and shareholders at the same time that many companies downsize or transfer positions to foreign countries and pay employees overseas even less than their American counterparts.

Real income after inflation has dropped for most workers. Workers are not secure in jobs with family-supporting wages. They face pay cuts and are forced to do more work for less money. Companies are creating even more anxiety and stress for workers about potential for the next round of lay-offs, decreased benefits and higher costs for health insurance, as well as cancellation of vacation days, among other issues. A number of businesses that thrive from government support in some form have made not only workers and taxpayers but also consumers (via higher prices for goods and services) collectively pick up the tab for their mismanagement.

Big Barriers and Bias against Smalls in Government

While favoring corporations (and their largest financial contributors), politicians allow the government that obtains much money from taxpayers to routinely exclude or exploit viable small businesses that could revitalize the economy. Since small businesses make up the bulk of the private sector and could help reduce unemployment significantly, why are they shortchanged and hurting the most?

Our government is not diligently paving the way for small businesses to survive and thrive through this difficult economy, and in large part due to those who run Federal contracting and procurement at various levels of government: The people who work for the government make up a large part of the problem in terms of ineffective and inefficient decision-making.

Government discretion is code for contracting officers and other staff doing whatever they want, as if public dollars belong to them personally and not the people of the United States. The requests for proposals are so long and bulky, and filled with legal jargon that makes the government itself unaccountable to the public (much less to small businesses attempting to do business with the government), that no real clarity exists in many contractual opportunities.

Contract opportunities are being advertised on government sites as “Open Market” even though some Federal Agencies already have a company in mind, but when other small businesses apply (which can be time-consuming), their efforts are inconsequential. How about stop pretending something is Open Market when a decision has already been made — why ask for additional bids from small businesses? Why all the hoop-jumping and repetitive paperwork required even for relatively minor/ tiny contracts? Why ask small businesses for more than one proposal submission, then tell them the project is being canceled and no contract award happens?

There are extreme hoops that small businesses jump through, unnecessarily resulting in wasted time and effort due to no intentions to award some advertised contracts.

Small businesses are sometimes exploited, as if their time and effort invested does not matter — such as when Federal staff do not allow Administrative costs to be included for reimbursement, when they re-post and request re-bids multiple times, only to cancel an RFP and provide no legitimate reason.

Some small businesses are treated as if they should not be allowed to make profits in their cost quotes. Yet, read through daily Department of Defense new contract notices and you will see multi-million dollar contracts to large companies where some CEOs make not just huge salaries but justify bonuses, and no one has a problem with their extreme profit margins.

Federal Contracting Officers can arbitrarily reduce small business access to opportunities when they hit set-aside target goals, as if there should be no flexibility to exceed a certain number. Large companies with taxpayer-funded contracts are rarely held accountable to provide Subcontracts with small businesses.

The Department of Defense recently issued a notice that the U.S. Army awarded the company Noblis Inc. of Falls Church, Va., a $9,900,000 firm-fixed-price contract to provide Environmental Advisory and Assistance Support to the U.S. Army Corps of Engineers, with work to be performed in Washington, D.C., and an estimated completion date of July 31, 2017.

For a contract worth more than $9 million within five years, a lot of executives at Noblis Inc. will no doubt feel quite secure with five years of guaranteed funds from the Federal Government. Yet a small business in the Midwest was stripped of a potential five-year contract through no fault of its own. The contract paid less than ten thousand dollars its first year — measly in comparison to the multi-millions routinely given to large companies – but was not renewed, allegedly for the purpose of saving the government money. Go figure.

A Way Forward

It’s clear that although many Americans may not realize the scope of governmental barriers to small businesses that could pave a road to improving the economy, we have to harness power for change. We need to demand more from elected public officials to support small business equity and big business accountability. After all, a vast number of government contracts are funded by taxpayers and should directly benefit more people than just a relative few.

We need to reject the nonsense spouted mostly by Republicans that implies those struggling financially are at entirely fault, lack discipline to maintain employment, or want to depend too much on government for handouts. The flip side of this is that the wealthy have had no help from government or anyone else. That’s a bunch of bull.

The middle class matters. It implies balance between wealth and poverty. Yet, barriers are increasing in various professions including institutions of higher education as an August 22, 2012 article by Sarah Kendzior explains:

Professors Making $10,000 a Year? Academia Becoming a Profession Only the Elite Can Afford…One after another, the occupations that shape American society are becoming impossible for all but the most elite to enter. (Sources Al Jazeera and AlterNet)

Whether an individual is financially stable or economically destitute, they have some worth. Value is not measured only by net worth. Being human, those willing to work hard and do their fair share should have access to options, not have a government that limits or allows others to restrict opportunities that impede upward mobility. Why would anyone want to invest in getting an education if the only door step they will land on is poverty. Hope accompanied by action, and resources for support, should be within reach.

Sister Joan Chittister , a Benedictine nun, author and speaker, has been quoted as saying: “Longing is a compass that guides us through life. We may never get what we really want, that’s true, but every step along the way will be determined by it.”

In challenging the myth promoted by some who believe their wealth is entirely earned by themselves and they are completely self-made, a Massachusetts Democrat running for Senate, Elizabeth Warren, said the following last year: “There is nobody in this country who got rich on his own — nobody!” she said. “You built a factory out there? Good for you. But I want to be clear: You moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you all were safe in your factory because of police forces and fire forces that the rest of us paid for . . . You built a factory, and it turned into something terrific or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.”