February 3, 2011
The Small Business Administration’s 8(a) program sets aside federal contracts for minority-owned or other “disadvantaged” small businesses. In his book on the “scandalous” history of the SBA, author Jonathan J. Bean sums of the program’s sordid legacy:
The original goal of the 8(a) was to promote “black” and “brown” capitalism, but program incentives encouraged companies and SBA officials to merely play at capitalism by showering a few favored firms with contracts. Prodded by quota-minded presidents, 8(a) officials considered only volume; they did not develop these firms into competitive companies. Not surprisingly, business owners with political connections thrived in this artificial environment. Politicians wrapped themselves in the mantle of minority enterprise, presumably a good cause that excused the program’s shortcomings.
If Bean were writing his book today, he would probably include a chapter on the 8(a) program and Alaskan Native Corporations, which were created by a federal law in 1971 that “intended to settle longstanding land claims by Alaska natives and provide economic opportunities.” After Congress allowed the ANCs to participate in the 8(a) program in 1986, powerful Alaskan Senator Ted Stevens won them additional privileges.
In the past couple of years, controversy has erupted over the ANCs’ ability to subcontract work out to companies all over the country, including companies that are hardly small or “disadvantaged.” Because the 2009 stimulus bill required recipients to publicly report subcontractors, researchers at ProPublica have been able to get a clearer idea of who is benefitting from the ANC privileges:
An analysis by ProPublica, drawing on detailed reports of federal stimulus projects, shows for the first time that ANCs turned to subcontractors at twice the rate of all other federal contractors and significantly more often than other small, minority-owned firms.
And at least some of this work has gone to large firms—General Electric, Kiewit and Lockheed Martin—the stimulus reports show, echoing government audits that have fueled the criticism of ANCs.
Through September, ANCs had won stimulus contracts worth $823 million for 742 projects, according to the most recent government data. More than 350 projects, or nearly half, rely on subcontractors to do at least some of the work.
By comparison, all other stimulus contractors subcontracted more than 5,600 of nearly 26,000 stimulus projects, or 22 percent. Other minority-owned firms hired subcontractors on 33 percent of their projects.
The entire ProPublica report should be read to fully appreciate the egregious nature of these set-asides. The bottom line is that the federal government shouldn’t be in the business of favoring – or disfavoring – any race. And if policymakers really want to help small minority-owned businesses, they should roll back the punishing regulations and taxes that make it difficult for businesses of all races and sizes to survive and thrive.
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