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March 2009

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,
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:
Government procurement to implement stimulus policy (all agencies, all levels):
should favor entrepreneurs or small-scale enterprises.
The SBIR program should be significantly expanded.
Local authorities should receive at least 40% of the “infrastructure” financing
directly from the federal government (not via state agencies).
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
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.
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
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