Focus 580; Big Government and Affirmative Action: The Scandalous History of the Small Business Administration

Good morning and welcome to focus 580. This is our telephone talk program. My name is David Inge and we're glad to have you listening in the first hour of the show this morning we will be exploring some of the history of the Small Business Administration and entity that continues to exist. And it's been around since 1953 and continues to exist despite having been rocked from time to time by scandal. And also despite the fact that interest in Washington from time to time have said that they thought that the SBA should be closed down. We'll be exploring this area this morning with Jonathan bean. He's associate professor of history at Southern Illinois University and has done some writing on the subject. He's the author of two books one beyond the broker state the history of the federal government's politics toward small business. It's between 1936 and 61 more directly more recent book which is titled Big Government and affirmative action the scandalous history of the Small Business Administration. That's the subtitle. It is published by the University Press of Kentucky. As we talk with our

guests Jonathan being you should certainly feel free to pick up the telephone and call us and ask your own questions or make comments all we ask of people is just that they try to be brief so that we can keep things moving along that anybody is welcome to call here if you're here in Champaign Urbana where we are the number 3 3 3 9 4 5 5. Also we have a toll free line so that means no matter where you are listening around Illinois Indiana in fact if you were listening on the internet wouldn't matter where you were in the U.S. you could call and that he's 800 to 2 2 9 4 5 5 3 3 3 W I L L and toll free 800 1:58 W while Professor bean Hello. Yes good morning David thanks for talking with us. I wanted to show you to be here. Well we'll get into this and in some detail I'm sure but at the conclusion of the book you make a fairly sweeping statement so maybe we can start there as we're getting an overview and that is that the history of the Small Business Administration is a microcosm of American

government in the last half of the 20th century. Yes that's saying a lot. Yes it is. Well let me start off by saying the Small Business Administration. Him represents an institution small business that embodies some of the values that most Americans hold dear like individual ism. Quality of opportunity self-reliance and sense of this that was in 1953 it's been rocked by partisan politics in the 50s between a Republican president and a Democratic Congress that in the 60s it became very much involved with the war on poverty. A pioneer in affirmative action even before the Civil Rights Act went into effect. It promoted black capitalism under Richard Nixon that was a centerpiece of his administration. And in the 1980s it was one of the very few agencies that Ronald Reagan tried to eliminate entirely in fact he tried twice and many observers in the 1980s. This attempt to abolish ESB as a test of the Reagan revolution. And when they failed to eliminate the Small Business Administration

many concluded in the late 80s that the Reagan revolution was dead. It's interesting to look at over time who it is the various political interests that supported the Small Business Administration and why there were Republicans who supported it because they were concerned that they were seen as the party of big business there were Democrats who supported it because they were concerned that people thought Democrats were anti-business in Congress it was supported because it was a way of distributing pork. People who were concerned about affirmative action supported it for that reason. One wonders did anybody support it because they thought it was good for small business. Well you know that's a real tough question the Small Business Administration has always been a pet of Congress. Writer said it you know be it the petty cash drawer of the Congress and the Congress over the years that dumped a number of different programs everything from loans and contracts for small business to disaster loans for people hit by hurricanes and tornadoes and the like. Yet there are people that are sincerely

concerned with promoting small business. There are others who use it to shield themselves from criticism that they don't really represent business that you have. You can have liberals like Ted Kennedy or arch conservative both appealing to the small business 90 ology you know deep the appeal of small business is almost universal. I think maybe behind farmers small business is widely admired throughout American society. But one of the problems is it's an amorphous concept. What is a small business. Members of Congress in their speeches often speak of mom and pop retailers. The corner grocer or druggists and most people when surveyed think a small firm is a mom and pop company with 10 employees maybe 20 employees. But in fact the SBA represents so-called small firms that can have hundreds of thousands of employees.

One point that the American Motors Corporation was certified as a small company so it's the concept of small business is popular but there's been some controversy over what exactly is a small business and does a small business interest even exist. Well that's a fascinating question and I think I want to indeed as you suggest one of the points of controversy is over time people have allowed this definition of small business to be to put it mildly to be flexible depending on what sort of interest they were they were after. And I think in that particular case the one that you point to some people would say well how in the world could you view American Motors as being a small business. In fact what from time. Time people have said as well it can be a big industry. But if it's a small if it's a smaller player in a big industry then we will consider that a small business which doesn't in a way as you say really square up with what most people think of when they think of small business which is truly something that only has maybe 10 or 20 people working right.

Right. And so the political appeal is undercut by some so much of the agency's resources going to what I call not so small businesses companies that can do well on their own you know truly small businesses. Our guest may this be a good place to reintroduce our guest is Jonathan bean He is associate professor of history at Southern Illinois University and has written about both federal government policy toward small business and also about the history of the Small Business Administration in fact his most recent book is dealing with that the title is big government and affirmative action. That subtitle is The scandalous history of the Small Business Administration. It's published by the University Press of Kentucky. And questions are welcome. Three three three. W I L L toll free 800. Two two two W. I love the Small Business Administration came to be during the Eisenhower administration and it doesn't seem that that he was that part of the motivation there was indeed did have to do with this idea that people saw the

Republican Party as being the party of big business. So here in choosing to in a public way support small business they were trying to counter that big business image. Yes that's right. The Republican Party has an interesting relationship with the Small Business Administration over the years because some in the party conservatives especially have have considered the whole mission of the agency contradictory I mean after all government assistance to bolster free enterprise is a contradiction and it did not and violate the Eisenhower's conservative philosophy. But politically it was ideals an ocular Republicans against the charge that they represented big business. And later after the Civil Rights revolution of the 1960s. Republican presidents like Richard Nixon and Ronald Reagan who became big promoters of affirmative action for minority enterprise to inoculate the Republican Party against the charge that it was racist it wasn't concerned with minorities.

So it's the political relationships between the SBA and the Republican Party are fascinating to trace over the years. You know that's that's also another little interesting chapter you know one would not have thought that Richard Nixon would have been the most progressive guy on a topic like that and yet here his administration was embracing this idea of developing and fostering Black Enterprise. Right. Well in fact the agency was pioneering affirmative action for black business and other minority businesses. Years before Richard Nixon came along but it was under the radar. One of the most interesting things that I found was that in August 1963 that was the month that Martin Luther King Jr. marched on Washington and gave his I Have A Dream speech. A young administrator of the SBA Jean Foley decided that he was going to help black businesses. And he set up an economic opportunity loan program to give loans and other assistance to disadvantaged business owners.

And when the riots broke out in the 60s. This these programs to aid the black capitalist gain popularity I mean both the Democratic and the Republican parties. And when Richard Nixon ran in 1968 this was going to be his Republican version of what Foley had been doing for years with it with the FBI had been doing for years. And you've got William Buckley and Ronald Reagan and Richard Nixon all thing that affirmative action was was necessary. And in the early 70s you have Democrats charging that this was reverse discrimination so it's you can't you can't take what we think of today the party's positions on affirmative action and project them back into the past. In fact the Republicans have laid the foundation for minority set aside and loan programs over the years. Just we can we should go on and talk about about what happened when this strong affirmative action Jenna came along and that was in the Kennedy

administration. Just real quick to wrap up but talking a bit about the early years the during the Eisenhower administration the function of the SBA at that time was pretty much just a loan money. Is that what it was about. Yeah. Seen primarily as a sort of a government lender a bank for small businesses and it made direct loans and it was very unpopular with private bankers at the time because they thought that the SBA was in competition with them. That was its primary mission. Well in later years the SBA started to make a loan guarantees instead working with banks and so banks became big supporters of the SBA. But yes you're right that it's my mission in the early years was simply to make loans. It was said it was during the Kennedy administration when there was growing concern about the issue on the federal level of civil rights that now we start to see within the SBA this growing interest in supporting minority owned business and a lot of that apparently did indeed have to do with this man.

Eugene Foley who headed the SBA at that time. What was this also in a deliberate sort of policy position taken by the Kennedy administration. No in fact this what's interesting is that when Foley took over he he participated in the march in Washington and he was very eager to promote social change and to help minority businesses. But when the Civil Rights Act of 1964 was passed there was a big debate over whether or not the act was going to require special preferences for minorities and opponents claim that that was the case. So they got a provision in that the nothing contained in the act would require special preferences. So today we look at the Civil Rights Act as landmark legislation in Maine and it was that it barred discrimination in employment and public accommodations. But to Foley and his aides in the SBA they wanted to go further. They wanted to take positive action on behalf of

minority businesses. And at that time you couldn't for example you couldn't even ask people to classify themselves according to the race so they would have had to develop a system of racial profiling too. To eyeball job applicants and lone applicants and determine whether or not they were minorities and then make special efforts to help them so there was this tension there in the early days between the colorblind conception of civil rights and the desire of fully to go beyond color blindness and and to embrace sort of a color conscious programs for black and minority business owners and two to go to the level of the administration in its interest in the SBA. I mentioned before it seemed that here there was the the interest was as had been the case sort of one way with Eisenhower when they wanted to say well we're not the party of big business C we're in favor of small business. The Kennedy administration was saying hey don't say that we're anti business. See we're supporting small business.

That's right. That's right you see the same sort of thing in the Democratic Party and with Jack Kennedy. Jack Kennedy had very real problems with the big business community there were high profile confrontations and particularly with the steel industry when Kennedy thought that this the deal executives had agreed not to raise prices. They did and he began to wiretap them and send FBI agents to their homes and so on so there was there was bad blood between big business and President Kennedy. Kennedy made an effort to reach out the small business argue that Americans largest corporations are only the tip of the iceberg and that affect most business owners were behind him. And when Kennedy and Johnson passed the big tax cut of 1964 they made a point of emphasizing that the tax cuts were going to help small business especially. Well we touched on the fact that. That starting in the Kennedy administration in large part because of the efforts of the man who

was running the SBA at the time there was this growing emphasis on trying to support minority owned business because that was part of the larger civil rights and anti-poverty agenda that began in the Kennedy administration and of course continued into the Johnson administration. Looking at that being the one of the stated. Motivations there and then if you look at what actually happened did and did in fact that happen and did minority owned businesses benefit did it actually work the way people argued that it could or should. Well first the programs again they had to be technically colorblind 1064 1965. This is before people could come out publicly for racial preferences. So the standard was economic disadvantage. You had to be a poor person you could be white you could be Hispanic you could be African-American. The emphasis was on fully called The Negro allowance and he made an effort to reach

out to them. But in fact the program was a disaster. Government agencies including the SBA were not good at identifying entrepreneurism unemployment lines and helping them establish competitive businesses. One early student of this program the economic opportunity loan program said it was quote a device for perpetuating rather than alleviating poverty of 70 percent of the loans were delinquent. One SBA official said putting these people in business was like putting him in the ring with Muhammad Ali. You know once they started to get hit there wasn't much we could do. So the businesses failed in droves and it really backfired there was this effort to come up with conspicuous examples of minority success and that the agency was creating conspicuous examples of failure. And so black militants and black power advocates in the 60s are savagely attacking the SBA even as the the agency is pushing the racial angle up to

do more for black business. This fellow that we've been talking about Mr. Foley I think that he was only head of the SBA for a couple of years. That's right. And then when he left it was not in terribly good shape. Having said that though did did he end his tenure did that leave a stamp on the SBA that that continued for a long time. Yes. You know here's the ministration was marked by two events he came in with a march on Washington which was sort of the high tide of the moderate civil rights movement and he carried through his minority business agenda until he left in August 1065 Well that was the month that the the huge Watts riot broke out in Los Angeles and with when the riots broke out in the mid 1960s that further entrenched racial preferences because white officials in the government and in the SBA were faced a real crisis.

America's cities were burning in Detroit and 967 for example. Twenty five hundred small businesses were looted or burned. It was literally like a wartime bombing. And so there was a greater greater urgency to do more to help black business owners in the inner city. We as you move then into the. Republican administration of Richard Nixon and we talked before about the fact that he indeed this administration did embrace the idea of Black Enterprise and black entrepreneurial ism and so continued to continue to support the program. Did things did they did things change or did they mostly stay the same from the Democratic administrations into Republican. Well under Nixon what we had is a huge upsurge in loans and government contracts given to minority businesses not just African-Americans but also Hispanics American-Indians and Asians. And there was one program in

particular which has since become notorious It's called the Section 8 a program. This is a program that allows the SBA to set aside contracts for minority businesses actually at the time they're called disadvantaged. Businesses these firms don't have to compete. They don't have to bid for the contracts they're given the contracts that very lucrative prices. They give an additional assistance. So this this program really became the centerpiece of Nixon's black capitalism and it's still the centerpiece of the government's efforts to help minority business. Now at the same time throughout the Nixon administration both his terms Democrats were attacking these programs as promoting reverse discrimination. Even labor unions the AFL CIO said that Nixon's black capitalism program was quote anti-democratic apartheid. So you've got you've got a

strange partisan line up during the Nixon years and it's not until later in the 1970s and 1980s that Democrats embraced programs like Section 8 day that are targeted at minorities. It seems also that this is. You know the the the subtitle of your book mentions scandal. This seems like this is the point where we really start to see indeed what what clearly seemed to be scandal and issues of corruption. Right right. And I watch a lot of the scandal not all. Flowed out of the black capitalism program the Nixon administration intervened on behalf with particular black firms for example that were supporters of President some of these firms were engaged in criminal activity and ended up embarrassing the administration later. But there was this that the program is racialized politicized the Section 8 program because it allowed the SBA to take a particular firm and give it to the

store and to take a particular contract and give it to a to a firm of its choosing introduces all sorts of political pressures. And those who are well-connected often receive many of the contracts. And the SBA was trying to encourage white business owners to partner up with minority businesses which on the one hand make sense who after all as has the capital and the expertise in business it was primarily white business owners. But what happened was many of these partnerships were bogus. They were friends of the black business owners were fronts for white corporations. They received the contracts and in turn the white corporations did most of the work. So there was a really very effective at promoting competitive minority businesses. We are just about at the midpoint of this first hour of focus 580 and I should take a moment here to introduce Again our guest. We're speaking with Jonathan bean He is associate professor of

history at Southern Illinois University. He's the author of Beyond the broker state a history of the federal government's policies toward small business. One hundred thirty six thousand sixty one. And the book we're talking about here this morning. Which is an exploration of the history of the Small Business Administration and that book is titled Big Government and affirmative action. The scandalous history of the Small Business Administration that subtitle in this book is published by the University Press of Kentucky. And of course questions are welcome. The number here in Champaign Urbana 3 3 3 9 4 5 5. Also have a toll free line that was good anywhere that you can hear us around Illinois Indiana any place else and that is 800 to 2 2 9 4 5 5 match the letters and the numbers you get w i l l 3 3 3 w. while toll free 800 to 2 to WY look at when all of this is going on. Who is it that is organizing to represent the interests of small business. Because I

think some people clearly would have said that really that the Small Business Administration really wasn't doing that and it was an arm of the government anyway. So what there were there were privately organized networks there's the Chamber of Commerce there's that was the National Federation of Independent Business right. That's right. When did that particular that group come along. Well during the year before the 1970s small but the small business community was terribly disorganized and Congress didn't take the existing small business lobby seriously. But in the 1970s with a great increase in government regulation and the creation of agencies like Occupational Safety Health Administration and consumer protection legislation small business owners really felt overwhelmed and overburdened by government. And so there was a great movement in the 1970s among small business owners to to organize and to make their voice heard in

Washington. And the vehicle that most of these politically active small business owners join was the National Federation of Independent Business which I think by the end of the 1700 had something like 700000 members. You know this is the 1970s of the period in which the small business lobby comes of age. But what's ironic for the SBA is that it. Yet if I be a small business model B couldn't care less about the SBA and the loans that it made was skeptical about the minority programs. What organized small business community was interested in was less government and particularly deregulation and that's something that the SBA wasn't pushing very hard and 1970s. We come to let's come now to the election of Ronald Reagan because this is this is pretty good. Interesting. Another interesting part of this story and that is that here we have an administration who comes into office

with the the stated intention to scale down the size of government to curb the size of government and to curb spending and that there were in fact people in the administration maybe not necessarily Mr. Reagan himself but people in the administration who thought pretty high on their list of stuff that they wanted to get rid of was the Small Business Administration and as you suggested the beginning of the program when it was clear that that effort was not going to be successful. Some people said right there. Well so much for the Reagan revolution. What Who was it within the administration that West targeting the SBA and what were the reasons for that. Well. The true believers the Reaganites those who embrace a lot of the faire economics did not like the Small Business Administration because they thought as government meddling in businesses affairs you know there was no rationale in their opinion for government aid to a selected group of businesses. So you may have violated their laws a fair

philosophy and the fact that you had had so many scandals over the years in the minority business program but in other programs Mafia loans were made. Bribery and some of the offices of the SBA and what was exposed in the 1700s. So that the Ds Reaganites thought that the SBA was the worst of all the agencies and they could appeal the Reagan on this basis Reagan came into office in 1980 promising to roll back government. And that's exactly what the small business advocates were demanding in 1980. And so it was consistent with Reagan's philosophy I mean Reagan's philosophy was government is not the solution to our problems. Government is the problem and they could point to the SBA as as being representative of the problems of quote big government. Reagan also said that the closest thing to eternal life was a government agency which is something he found out when he tried to kill the SBA and in the mid 80s.

Well what one of the good points I think you raise in the book is just. And you know maybe that doesn't really matter that Mr. Reagan himself wasn't specifically interested in the SBA but that it was more than him it was the people who were advising him particularly David Stockman who was the the budget director who were targeting the SBA as far as the president was concerned that much that age and that specific agency might not have been on his radar screen unless of course someone said to him here's the worst possible example that we can and we can find is right here in that he would have said well yes like I see what I see what you mean and let's do something right. Right. David Stockman who was Ronald Reagan's budget director and really put together his early budgets. Getting rid of the SBA was on his agenda. And Reagan backed Stockman Stockman tried to eliminate the SBA but the truth is that Stockman ended up concluding that in his bitter memoir of those years

there were no real conservatives in Congress because when he went to Congress to to eliminate the SBA that the publicans couldn't even find sponsors for this for this bill. So that again was sort of the death now of the Reagan revolution by 1985 and 1986 and Stockman ends up concluding in his memoir that getting rid of the SBA really wasn't Reagan's idea it was his idea. Now you know we did Duggal a bit earlier about the fact that that the Kennedy administration they liked the idea of supporting the SBA because they could say You see we're not anti-business. And that then the Eisenhower administration liked the idea because they could say well we're not just the party of big business here we're supporting small business that anybody within the Reagan administration say you know if we go after the Small Business Administration then someone's going to come say well you don't you don't really care. You don't care about business you know care about small business. You know that in fact that that someone perhaps. On the other side of the aisle would say ha now we see what Republicans really believe in right.

Right. Well. Reagan did order big cuts in the SBA budget during his very first year and then the country pointed into recession and there were moderates within his administration in particular Elizabeth Dole who ran. When in fact with an Office of Public Relations he was concerned about how the pope how the president was perceived by the public. And she wrote a memo big vs. little business arguing that Reagan was going to be perceived as being anti small business as being uncompassionate if he didn't support further increases in government spending on small business and on minority business. We touched on the idea that from time to time the SBA has been plagued by scandals here one of the big ones in fact happened during the Reagan's restoration maybe one of the biggest political scandals of the of that decade of the 80s. This was involving a corporation called Wed tax. Maybe you could tell a little bit of that's for sure.

Well by the late 1970s there had been many experts say in the press and by congressional committees of minority France again these were companies that were. They had black or Hispanic or Asian business owners fronting for white corporations. The biggest example of this is what you refer to the web tech company. It was located in the South Bronx was originally called well bellows the simply just a small metal stamping company. And in 1980 Ronald Reagan visited the bombed out South Bronx and promised to do something to lift up that destitute section of the country. This company well below had a philosophy that appealed to Ronald Reagan Their slogan was off welfare on well built. They got into the Section 8 program the minority set aside program because one of the owners was Hispanic. So what they proposed to do was to have the government give them contracts a contract. And

they in turn would hire people who were on welfare. So this is going to be sort of a hand up not a handout. Reagan love this idea he invited the head of this company John Maryada to the White House and described him as a hero for the 80s. But what ended up happening was that the company was a Ponzi scheme. They bribed SBA officials they bribed members of Congress. Mariel Biagi a Democrat from New York was described as a hero cop turned congressman on the take also bribe Robert Garcia who was a former head of the Congressional Hispanic Caucus bribed Clarence and Michael Mitchell who were prominent civil rights leaders and their uncle who was head of the Congressional Black Caucus dropped his investigation of the firm and and retired from Congress before any kind of action could be taken against him. So again this is sort of a test case for the Reagan revolution in the inner city and it highlighted all

the corruption the fraud and the incompetence inherent in these minority business programs. And just in the interest of bipartisanship I suppose we should also mention another scandal this during the Clinton is very I'm sure people will have some vague memory of this. It concerned a little real estate project called Whitewater. That's right. Whitewater again with a float from a minority business program the investigation into becoming incredibly complex and I think most people lost track of what was going on. But in the beginning it began with the fraudulent granting of a disadvantaged business loan to Susan McDougal Susan McDougal received a 300000 disadvantaged business loan backed by the SBA. That $300000 ended up in a partnership Whitewater Development by the McDougal's and by the Clintons. The person who made that loan to Susan McDougal charged that Bill Clinton had

urged him to do so to break the law. The McDougal's David Hale and Governor Jim Guy Tucker were wrong. Convicted of defrauding the SBA and as we know there was an independent counsel appointed a Whitewater investigation began and ended up with blue dresses and young interns and impeachment. But all began with a corrupt granting of a disadvantaged business on a no with the Bush administration the Bush administration comes into office not purpose not necessarily talking about closing down the SBA but certainly cutting cutting the budget of the SBA. You talk about the first Bush presidency. Well I guess I was I guess I thought that it was that was the current President Bush who had done that. Maybe I'm tell you he had made up the balls on what happened during the Reagan years was that the FBI sort of leveled off and Reagan was successful in and checking the growth of the FBI. But since 1989 Reagan left office

the law was made by the FBI had ballooned from 4 billion to 20 billion under Clinton. And you're right the current President Bush is proposing to cut back. And but we'll just have to wait and see. We are at the point where we have just about 10 minutes left in this part of focus 580 And for anybody who's tuned in I do again want to mention introduce our guest Jonathan Bean is associate professor of history at Southern Illinois University. And if you're interested in looking at the history of the small biz. This administration he provides a good concise tale in his book Big Government and affirmative action. The subtitle is The scandalous history of the Small Business Administration the books published by the University Press of Kentucky and is out fairly recently just came out a couple of months ago. And your questions are certainly welcome. The number here in Champaign Urbana 3 3 3 9 4 5 5 toll free 800 to 2 2 9 4 5 5. So it seems Ed as you just said it remains to be seen what this administration might

have to say about small business and obviously right now it's occupied with other sorts of things. But it seems that it's been around for such a long time and certainly has it and it must have some constituencies and in spite of the efforts of probably the administration that placed the greatest emphasis on cutting government. It's still there. One would have to expect the chances are probably pretty good that the Small Business Administration is going to keep going. Right right. And I think there's no doubt of that. There is some controversy over the minority business programs the Supreme Court case it's going to be heard this month at the end of this month Adarand which challenges the constitutionality of these so-called disadvantaged business programs. And so what's up the wait and see what the courts decide in terms of racial preferences. B the future of those is open to question.

I think we have a caller getting lined up and again I just want to mention that for people who are listening to your questions and comments are certainly welcome Don't wait till the very end. If you'd like to be a part of the conversation here in Champaign-Urbana. The number is 3 3 3 9 4 5 5 and toll free 800 to 2 2 9 4 5 5 have a color and Cristal like that's line number four right here. Hello. Hi I think I would defang big big but government is lend it to regulate the economy like regulate it has it it keeps the agency did it to protect the consumers and the public and the way I would not sign it is hurting people. Business doesn't want any regulation that's been the whole stress since Reagan. They want to weaken laws that protect labeling of the consumer products. And they've been fighting them for trying to get smarter. They've been cutting back the amount of money appropriated for this. Yeah they should really increase it so we have stronger

regulation like this when it radiated food label because it would be like saying it's a place and it is. Also big government really to get rid of all regulations like don't regulate nuclear energy chancing the NRC is very weak and I would say that the government has but is what people need they don't want a government that doesn't control corporations do whatever they want and as far as away Larry's concerned I don't know if the professor is right because what I have read is this. And it totally is a silly question but what I have read is that she didn't know she wrote a letter asking if it was appropriate to get loans from the government especially small business gets appropriations for so that Big Business can say we're doing this for little businesses and actually whether it's agribusiness and small Francisco's egg or business it gets most of the money off family for everything that exists only created and on the farm

independently and in food it is cheaper when you have small farmers and they take pictures of land for Robert Stillman books he's a real familiar sight. Part burned me a color but you're right so many points and we don't have a whole lot of time and I have some other callers maybe we'll give our chance guest a chance to comment on the oddities of physically respond to you by big government is one of the themes of my book but by that I mean I'm trying to understand why does government grow and why do government programs like the SBA which have been so troubled why did they grow. And secondly I think people across the board liberals and conservatives recognize that regulations are justified but that they place special burdens and small business and so small businesses have been exempted from some of those regulations. Let's go to we have somebody on a cell phone Let's go right there on line number two. Hello. Oh yes I have two questions. One in reference to the subject of OFB was my understanding the bad loan repaid as banks suffered the loss

of that rock. Well the loan was repaid. The question is whether or not it was granted under false pretenses. In other words she was certified as disadvantaged by a venture capital firm that specialized in disadvantaged businesses and that venture capital firm received SBA finds the person who ran that venture capital firm David Hale decided that everyone in the state of Arkansas. Disadvantage because you listen you know you looked at the education levels you look the income levels and so on. It's all a part of the problem Disadvantaged Business programs is that the SBA is really not looking into what people are doing. And for example it has to will lie on the statements that a person is of a certain race and it is difficult to prove that that's not the case. Well I'm sure there are abuses like that but I can tell you my

own experience with various government program. The program missed set up by misrepresentation dishonesty. There's a clause called The BUT or clause which gap the sign saying that but for this grant for this loan this project what not happen and 95 percent of all of that's a lie. Right. Logic's going to happen the developer simply trying to sweep the bill a little by getting you know this government assistance whatever it is. So what do some dad in terms of claiming to be a disadvantage first of the first place if she's a woman she has the advantage of the society. And I always thought it was a real stretch for the prosecutors to make such a big leap to claim that that misrepresentation the trip all the way back to Clinton. Now now. Well the Cancun connection was never proved. But back when women were when the charges thrown out there that were never proved. The charges were never all that but I do apologize for the cards right.

But the point is that the loan was fraudulent. Women at that time were not considered disadvantaged business category in fact the Congressional Black Caucus fought throughout the 1970s and 80s to keep them out of these programs. But what it sounds like to me of a fraud was committed by David Hale the owner of the FDIC. Now the second question. Sure. Now you have got to act. I was told by the SBA Administrator at our Illinois office that 80 percent of the loans that they have made or she have made at that time I think this would have been repaid. No she said we get the worst application we get people that can't get loans anywhere else and 80 percent of them are successful. You know people enjoy giving us a black eye or not you know big good lenders. Right right. Well one of the points I make is that all the programs that have been have been failures of the loan guarantee program has been fairly successful in the loans are repaid

the management assistance program that they have called score which is made up of Retired Executives who lend their advice to small businesses that has been a success. So I don't want to give the impression that the agency is in our now failure. We just have a couple minutes left. The caller will forgive me I want to try to get some other folks. And we'll go to Chicago next line one. Hello. Yes hello yes. Oh I wonder what the professor would think I run a small business since the steel mills closed back I'm 85 and I basically think we're living in a country that's not all set up for small business it's set up for large multinational monopolies and that the whole idea that we were top school you know the dream everybody start their own business it's to me it's basically a fraud it's a mirage that's sort of you know foisted on people to get people to try it and I think it's I would never do this again I think we're the the stupidest thing I ever did I got a job in another factory I mean it's the Small Business Administration to me it's

sort of like it's they're they're they're the. There they're trying to do a very small thing compared to this just world when the benefits that accrue to these really large corporations I mean home people in Chicago were given 1.3 million dollars by the city of Chicago to help them build two stores. It was done in the name of economic development. And if you think about it Hall that really happens is all the small mom and pop hardware stores in the neighborhood get put out of business by that one. It was a point to make in my book it was and you know I assume that the business that you were operating was very small. Yes B.A. concerns itself with quote small business but its definition of small businesses out of stretchable and it you know it's been criticized over the years for not focusing most on the truly small businesses the mom and pops that need the help. Instead it's focusing on businesses that have dozens or hundreds of employees who can pay back their loans so that they haven't taken big risk over the years.

Thanks for the call appreciate it let's go here to line 3 in Champaign for one last person. Well yes I would just like to follow up on the last caller by saying I mean don't we don't we need to think about this problem differently Do we really have a free enterprise system in this country. Do does the government really regulate large corporations or too large corporations by a large write their own rent regulate reget regulations in order to to limit the competition from small businesses and to sort of create monopolistic practices or do optimistic practices. Doesn't don't. Large corporations basically want to socialize the costs of research and infrastructure and so forth and then generate profits once the public has has made it possible for them to get to do so so don't we. Don't we need to begin to think differently about the relationships between large multinational corporations and the U.K. and the corrupt government and and the fact that you know maybe a few saucers or parts are thrown to small businesses but that's really

in the in the context you know it that shouldn't be understood in the context of the government interfering with free enterprise but in the context of the government just sort of lightening the blow a little bit in terms of their fit their policies which basically favor large business. Well. I think both of the last two callers we raise a point that the government's doing things for big business that might place small business at a disadvantage. And one of the things the small business lobby is very concerned with an SBA has gotten better at over the years is serving as an advocate for small business before different government agencies regulatory hearings in the way. So I think that's an important role that the SBA has to play to make sure that the small business point of view is taken into account when considering some of these bigger economic issues. But should we have a society you know which you know you know I mean shouldn't there be a larger philosophical question being asked here about just about the

power of large corporations and you know our economic system. And and the fact that they're there basically publicly supported although people don't realize that. I mean look at Boeing coming to Chicago and so forth. Look at military spending look at infrastructure. Look at the environmental costs that are paid by all of us but not by corporations. I mean should we be giving the beginning to ask different questions about what kind of a society we we we actually want you know. Anyway did you raise different issues on the whole the whole topic of corporate welfare. But I do think that there have been successes. The regulatory load has been lessened on small business and while free enterprise isn't completely free in this country. The barriers to small business in this country pale in comparison to those in Japan or Western Europe for example. So there are those opportunities for growth.

We're going to have to stop because we're here at the end of the time we want to say press being Thanks very much for talking it was day we appreciate it. Our guest is Jonathan being He's associate professor of history at Southern Illinois University. His book if you'd like to look at it is titled Big Government and affirmative action the scandalous history of the Small Business Administration published by the University Press of can.