Big Government and Affirmative Action

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

Jonathan J. Bean
Copyright Date: 2001
Pages: 240
https://www.jstor.org/stable/j.ctt130hqrn
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  • Book Info
    Big Government and Affirmative Action
    Book Description:

    David Stockman, Ronald Reagan's budget director, proclaimed the Small Business Administration a "billion-dollar waste -- a rathole," and set out to abolish the agency. His scathing critique was but the latest attack on an agency better known as the "Small Scandal Administration." Loans to criminals, government contracts for minority "fronts," the classification of American Motors as a small business, Whitewater, and other scandals -- the Small Business Administration has lurched from one embarrassment to another.

    Despite the scandals and the policy failures, the SBA thrives and small business remains a sacred cow in American politics. Part of this sacredness comes from the agency's longstanding record of pioneering affirmative action. Jonathan Bean reveals that even before the Civil Rights Act of 1964, the SBA promoted African American businesses, encouraged the hiring of minorities, and monitored the employment practices of loan recipients. Under Nixon, the agency expanded racial preferences. During the Reagan administration, politicians wrapped themselves in the mantle of minority enterprise even as they denounced quotas elsewhere.

    Created by Congress in 1953, the SBA does not conform to traditional interpretations of interest-group democracy. Even though the public -- and Congress -- favors small enterprise, there has never been a unified group of small business owners requesting the government's help. Indeed, the SBA often has failed to address the real problems of "Mom and Pop" shop owners, fueling the ongoing debate about the agency's viability.

    eISBN: 978-0-8131-5864-8
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. ACKNOWLEDGMENTS
    (pp. ix-x)
  4. ABBREVIATIONS USED IN TEXT AND NOTES
    (pp. xi-xii)
  5. INTRODUCTION
    (pp. 1-6)

    On 14 January 1999, members of the U.S. Senate gathered for one of the remarkable political events of the twentieth century: the trial of President William Jefferson Clinton on charges of “high crimes and misdemeanors.” Although a presidential sex scandal provided the immediate backdrop, die allegation of corrupt business dealings had prompted the original investigation. A Small Business Administration loan intended for “disadvantaged” minorities was at the heart of the initial probe. David Hale, head of a small-business investment company, had granted a fraudulent loan to Susan McDougal in 1986. Money from the SBA-backed loan ended up in the Whitewater...

  6. 1 POLITICS AND PATRONAGE
    (pp. 7-20)

    The Small Business Administration was born as the unwanted offspring of the Reconstruction Finance Corporation, an agency eliminated in 1953 by President Dwight D. Eisenhower and a Republican Congress. In principle, Eisenhower rejected this government interference in the credit markets and questioned the existence of a separate interest group of small business owners. Nonetheless, he subsequently approved substantial increases in the SBA budget. Partisan politics explain this apparent contradiction. First of all, Eisenhower used the SBA to deflect criticism that Republicans were “the party of big business.” The agency also served as a “safety valve” for small business as the...

  7. 2 SMALL BUSINESS ON THE NEW FRONTIER
    (pp. 21-36)

    During his presidential campaign, John E Kennedy declared, “We stand today on the edge of a New Frontier: the frontier of the 1960s, a frontier of unknown opportunities and paths, a frontier of unfulfilled hopes and threats.”¹ Such grandiose rhetoric placed the president in conflict with business leaders who feared a return of New Deal-style regulation and spending. Kennedy scholars have explored the resulting conflict between big business and the White House but have ignored the role played by the Small Business Administration. Kennedys strong support for the SBA shielded him from criticism that he was “antibusiness.” The agency also...

  8. 3 THE ENTREPRENEURIAL ERA
    (pp. 37-53)

    The years 1963 to 1965 marked the high tide of American liberalism. Policymakers were confident that they could solve problems—poverty, racism, urban renewal—that had confounded previous generations of reformers. Eugene Foley was a product of these heady times. Young, idealistic, and unconstrained in his vision of government-directed change, Foley led the SBA into new policy terrain. Under his leadership, the agency developed antipoverty programs and created a national network of volunteer counselors to provide free management assistance to small businesses. Foley demonstrated the importance of bureaucratic entrepreneurship as a cause of government growth.

    During this period, the SBA...

  9. 4 CRISIS AND CONSOLIDATION
    (pp. 54-69)

    “The Sixties” conjures up images of a nation torn nearly asunder by racial and political conflict; popular memory flickers with televised footage of police brutality and riots, assassinations and antiwar demonstrations. The years between 1965 and 1968 were among the most tumultuous of this crisis-filled decade. The easy, can-do confidence of the early sixties gave way to overheated rhetoric and apocalyptic predictions of race war, yet America survived the upheavals of this period.

    This was similarly a period of crisis and consolidation for the SBA. The “urban crisis” forced the agency to expand its affirmative action programs and make them...

  10. 5 THE AGONY OF HILARY SANDOVAL
    (pp. 70-81)

    President Richard M. Nixon had high hopes for achieving policy successes through the Small Business Administration. The agency catered to small business, an important constituency in Nixon’s “Silent Majority.” The SBA also provided a showcase for the administration’s highly visible “black capitalism” initiative. Nixon’s unusually keen interest in small business ensured the survival and growth of the SBA into its third decade.

    Unfortunately, the spotlight of media attention illuminated the failings of SBA leadership. Nixon’s choice of administrator, Hilary Sandoval, was sick and ill-equipped to manage a government agency. The SBA subsequently became embroiled in scandals that undermined agency morale...

  11. 6 THE SMALL SCANDAL ADMINISTRATION
    (pp. 82-94)

    Following the Sandoval debacle, the SBA desperately needed competent leadership. Sandovals successor, Thomas S. Kleppe, improved agency operations and presided over an election-year surge in spending that reflected the political cycle of agency growth. With presidential backing, the SBA also expanded its affirmative action programs over opposition from Congress. Yet the agency still suffered longstanding problems, including a disorganized bureaucracy and a decentralized field structure that produced several scandals.

    The SBA’s interest-group environment was also beginning to change. Historically, the agency and its congressional allies had failed to organize small business owners into a group with strong ties to the...

  12. 7 SMALL BUSINESS IN AN AGE OF BIG GOVERNMENT
    (pp. 95-109)

    During the 1970s, government agencies poured forth regulations affecting nearly every aspect of business. The perceived threat of big government galvanized small business owners and fueled the rise of an influential interest group led by the National Federation of Independent Business. However, the SBA was a weak advocate for small business, largely because of its position within the executive branch. On several important issues, the SBA allied with the president against small business interests. Consequently, the agency gathered little support from the small business lobby in Washington.

    This period was critical for the development of the SBA’s affirmative action policies...

  13. 8 ETERNAL LIFE
    (pp. 110-127)

    In 1979, Ronald Reagan told an audience of small business owners that “a government program . . . is just about the nearest thing that we know of to eternal life.”¹ As president, Reagan tried unsuccessfully to abolish the SBA, thus illustrating the apparent inevitability of government growth. Yet this episode also underscored die agency's weak interest-group support; small business owners were indifferent to the fate of their federal representative. In other areas, such as affirmative action, Reagan abandoned his commitment to limited government by expanding quotas. In short, the Reagan years offered a mix of principle, pragmatism, and political...

  14. CONCLUSION
    (pp. 128-136)

    The history of the Small Business Administration is a microcosm of American government in the last half of the twentieth century. From the partisan budget battles of the 1950s to the Reagan Revolution of the 1980s—with stops along the New Frontier, the War on Poverty, and the populist backlash of the 1970s—the agency participated in the broader movements of the American body politic. This concluding chapter considers important historical themes and the changing relationship between small business and government.

    The modern American state is premised on the notion that government can and should serve as a broker between...

  15. APPENDIX A: CHRONOLOGY
    (pp. 137-140)
  16. APPENDIX B: GRAPHING GROWTH
    (pp. 141-144)
  17. NOTES
    (pp. 145-188)
  18. BIBLIOGRAPHY
    (pp. 189-214)
  19. INDEX
    (pp. 215-226)