Small Is Beautiful

By Peter Bearse

 

Economically, we have gotten off on the wrong track. This was true for years before the current crisis hit. We had developed a P.T. Barnum economy built on hype, plastic, private greed, excess debt, over-consumption, foreign production, failed government and gross inequality -- rather than real values, savings, domestic production, public hopes, good government and fair returns. Along the way, we were warned, but we ignored signs and signals. There were several bubbles before the latest and biggest to burst -- the savings and loan scandal and the IT bubble among others. There had been earlier “bailouts”. The memory of a major one takes us back 30 years to the Chrysler bailout of 1979.

 

Now that we are in deep sh__, we’ve started down another wrong track with frantic, feverish efforts to act like King Canute, who commanded the retreating tide to turn back. The wrong track can be labeled “Top Down Bailouts for the Big.” National agencies have directed funds to big businesses who, on balance, are job destroyers. The right track is “Bottom Up/Small is Beautiful.” Local governments and community-based organizations are closer to people and their needs. Small businesses are job creators. SMALL IS BEAUTIFUL is the title of a book by E.F. Schumacher that bears rereading today.

 

The big questions before us are: (1) Will we really be able to switch tracks with the President-as-Change-Agent now in charge?, and (2) What would count for real change in a revised “stimulus” package? Answers will hinge on implementation more than ideas. Some of the main elements of the new economic stimulus package being proposed by the President would remain unchanged -- in words. For example, programs to rebuild U.S. “infrastructure” should command a major portion of total stimulus financing. With respect to actual program application, however, the Congress should ensure through its enabling legislation that a major portion of the financing is goes to small businesses and local governments even if major prime contracts go to big businesses.


For “real change” -- change to maximize entrepreneurship, innovation and the numbers of jobs to be created -- will occur only to the extent that the Congress directs a large majority of new stimulus and remaining bailout (“TARP“) monies to the “small” actors and organizations of our economy. Besides small businesses, these include individual entrepreneurs, start-up and early-stage enterprises, Small Business Innovation Research (SBIR) projects, local governments, community banks and non-profit organizations.

 

The challenge, then, lies less with our new President than our old Congress, for real change to generate real benefits to the American people will depend far more on program implementation than policy headlines. Implementation depends on statutory language and administrative rules, both of which depend, first, on how bills are written and passed into law and, second, on whether rules and regulations based on the law actually fulfill the law’s intent. Unfortunately, Congress has been chronically weak and even corrupt with regard to almost any aspect of “implementation.” Usually responding more to media headlines than people’s real needs, Members of Congress like to avoid their responsibility to be “deliberative.” They tend to overreact to headlines, especially when they contain the word “crisis”. They pass even large, complex bills hurriedly (bills that often contain imprecise language), and leave to bureaucratic rule-drafters the responsibility of adding the precision the Members left out. We could write a book about the failings of Congress that may cause fits for the new President, but at least two such books have been written by others. They are titled THE RULING CLASS: Inside the Imperial Congress, and REINVENTING CONGRESS FOR THE 21st CENTURY.

 

The latter paragraph is no diversion from our main concern here -- to identify what should be included in the new stimulus package. The political “sausage” to come out of the Congress might cause us all indigestion, as Congress’ actions on the “bailout” bills already have. So, with this in mind, what are the key new elements of a “small is beautiful” formula for economic recovery? They are:

 

ü *Government procurement to implement stimulus policy (all agencies, all levels): should favor entrepreneurs or small-scale enterprises.

ü *The SBIR program should be significantly expanded.

ü *Local authorities should receive at least 40% of the “infrastructure” financing directly from the federal government (not via state agencies).

ü *Private/public venture capital program: Instead of buying banks, the federal government should use a part of stimulus financing to really stimulate new, innovative business development, working in partnership with reputable venture capitalists.

ü *Promotion of new technologies and innovations: Via expanded federal grant programs for this purpose, including new “green” and alternative energy technologies, working through state as well as federal agencies.

ü *A “Rebuild America” small bond program -- to enable American citizens to invest in their own and our country’s future -- akin to war bonds or savings bonds. Why increase our over-dependence on foreign capital to finance our nation’s economic recovery?

ü *Capital provided for local economic & business development initiatives, on a competitive, matching funds’ basis, for loan guarantees and co-lending with small, community-based banks, credit unions, public-private community development corporations and micro-lenders.

 

Like any large-scale federal undertaking, the approach needs to be deliberate, strategic and long-term, not reactionary, fragmented and short-term. Parts of existing law and regulation will need to be amended to ease effective and efficient implementation of the stimulus program.

 

A continued focus on bigness will saddle our kids with an incredible burden of debt without creation of enough permanent jobs to employ them. The big banks and auto companies that the feds have been assisting are not “too big to fail;” rather, they are too big to succeed. Better to try a “small-is-beautiful” approach.

 

PETER BEARSE, Ph.D., International Consulting Economist and former candidate for Congress. January 26, 2009. Comments welcome to democracyanddevelopment@msn.com.