Jonathan J. Bean, Big Government and Affirmative Action: The Scandalous History of the Small Business Administration. Lexington, KY: University of Kentucky Press, 2001. xii + 224 pp. $29.95 (cloth), ISBN: 0-8131-2187-6.

Reviewed for EH.NET by William M. McClenahan, Jr., Robert H. Smith School of Business, University of Maryland at College Park.

Jonathan J. Bean has authored a well-written book about a troubled government agency. Big Government and Affirmative Action: The Scandalous History of the Small Business Administration makes a significant contribution to our understanding of the postwar growth of the federal government. Few historians have devoted serious study to small federal agencies or the rapid expansion of federal credit facilities from the 1960s through the 1980s. Big Government addresses both. It is a logical extension of Bean's earlier work, Beyond the Broker State: Federal Policies toward Small Business, 1936-1961 (1996), where he chronicled how members of Congress "used crisis rhetoric to secure government assistance for small business during the Great Depression, World War II, and the Korean Conflict." With the creation of the Small Business Administration (SBA) in 1953 out of the ruins of the scandal-plagued, final years of the Reconstruction Finance Corporation, federal policy toward small business entered a new, albeit no less troubled, phase.

Big Government chronicles that history in a concise manner -- less than 140 pages of text, including an introduction, conclusion and eight chapters. The lively narrative progresses chronologically: the first seven chapters address the agency from its creation through the 1970s, while the last chapter quickly covers the Reagan, Bush and Clinton years. Bean's history is premised on the assumption that the modern American state should and does serve as a broker between organized interest groups. However, the SBA does not fit well into this model of a brokered state. Small businesses have never been a strong interest group in Washington. In fact, Bean argues that the post-New Deal brokered state (and the rise of unions and taxes) was anathema to most small business owners. Not until the emergence of the National Federation of Independent Business (NFIB) in the late 1970s has there been a "small business lobby." The NFIB reflected this historic distrust of government and it remained indifferent to the fate of the SBA as scandals swirled around it and the Reagan administration briefly sought its elimination in the mid-1980s.

Small business advocacy has never fit the mold of the "iron triangle" of interests (the agency, relevant congressional committees, and the affected private sector) that has underpinned the growth of government in the postwar period. Support for the agency was centered in broad, but shallow, public sentiment that favored small enterprise and the members of Congress who needed to pay homage to this totem. During the life of the SBA this sentiment has drawn strength from shifting rationalizations. Through the 1970s it validated public and congressional antitrust concerns. Since the 1980s this historic sentiment has been reinforced by "small is beautiful" arguments that small enterprises were the primary engine of American growth and job creation. Consistently, the strongest support for the agency has been Congress, and especially the Small Business Committees. Bean notes that the SBA became a useful conduit for constituent work of these committees. Furthermore, the SBA's decentralized field offices were staffed by individuals "often as loyal to their district congressman as to the agency." The explosion of the use of loan guarantees after the late 1960s masked the true cost of SBA programs. In the magical land of federal finance prior to 1990, such guarantees concealed and deferred the true cost to the taxpayers, and only direct loans "counted" toward the agency's budget.

According to Bean, this explosion of loan guarantees vis-a-vis direct loans, had the long-term effect of converting the nation's banks from SBA opponents, to fervent supporters, who along with Congress were able to stop Reagan administration efforts to kill the agency. Concerns of the banking community about possible federal competition that had been raised in the early years of the agency, melted as expanding SBA guarantees federalized the risk of small business finance. The increasing reliance on loan guarantees reduced the need for SBA staff (especially headquarters staff), as private banks assumed significant processing burdens.

Bean also notes that the symbolic value of the SBA's commitment to small business was compromised by its porous standards for what constituted "small." Congress mandated a definition of small that embraced almost "99 percent of the business population, from sole proprietors to corporations with thousands of employees." In 1966, this definition was malleable enough to allow American Motors (with $1 billion in sales and 30,000 employees) to qualify for federal contractual set-asides, with the blessing of congressional small business committees. Yet, the SBA's mandate to assist small business was flexible enough to embrace financial racial preferences beginning in 1964. Such preferences increased rapidly with the expansion of the section 8(a) federal contractual preference program after 1968. But, this program was plagued by agency mismanagement, political favoritism and corruption. According to Bean, "The consequences of the 8(a) program were perverse. A few well-connected firms received the bulk of the set-asides, while others received nothing. Obsessed with quotas, the SBA provided little practical assistance; indeed, its minority enterprise officials, many of them former civil rights activists, lacked business experience. Not surprisingly, most 8(a) firms never developed into viable enterprises. In a classic case of robbing Peter to pay Paul, the SBA took contracts from some of the least advantaged white companies and gave them to minority firms."

Finally, the caliber of leadership at the SBA has been inconsistent at best. It reflects inappropriate appointments; presidential indifference; the SBA's reputation as a political dumping ground; and the limited attractiveness of long-term federal service in the postwar period.

William M. McClenahan, Jr. teaches business law and public policy at the University of Maryland-College Park. His forthcoming publications include The Market, the State and the Export-Import Bank of the United States (Cambridge University Press), co-authored with William H. Becker; and The Voice of the Marketplace: A History of the National Petroleum Council (Texas A&M University Press), co-authored with William H. Becker and Joseph H. Pratt.