On Heels of Debunked Report, SBA's Office of Advocacy Solicits More Anti-Regulatory Research

by James Goodwin

August 16, 2011

What would you do if a report you funded was debunked by a scathing critique from the nonpartisan Congressional Research Service?  What if you found that the researchers you funded had based 70 percent of their analysis of the costs of regulation on a regression based on opinion polling data?  What if the researchers who had published that opinion polling insisted publicly that their data was never meant to be used for such purposes?  What if a member of Congress had publicly lambasted you for keeping the underlying data used in the study from being examined by the public?

For the Small Business Administration’s Office of Advocacy, the answer appears to be: Stay the Course.  In new research proposal requests I noticed recently posted on the SBA’s website, the SBA appears to have learned little.

The Office of Advocacy’s flawed report that got so much attention is cited regularly by anti-regulatory Members of Congress who like to repeat over and over the study’s thoroughly discredited contention that regulations cost the U.S. economy $1.75 trillion each year.  The study itself was written by economists Nicole Crain and Mark Crain, under a contract from SBA’s Office of Advocacy (“Advocacy”).

The Crain and Crain report is a virtual case study in how not to conduct federally funded research. It was designed to buttress a political argument, not to illuminate an issue. Its methodology was indefensible.  It was conducted without transparency or accountability.  Its peer review was a joke.  And its splashy finding about the costs of regulation has been – quite predictably – used as political ammunition without so much as a peep of objection from the Office of Advocacy. That’s not just my view. No less than the Congressional Research Service (among others) has debunked the report, finding its methodology rife with errors and unsubstantiated assumptions and its conclusions completely unreliable.

Even more shocking is how the Crain and Crain report came about in the first place. The frame of the Crain and Crain report is biased against regulation, because that’s exactly what the Office of Advocacy ordered. SBA’s Advocacy wasn’t interested in a fair evaluation of the regulatory system’s impacts. It called for a study examining the costs of regulations, with no examination of benefits. Think about that for a moment. In the Crain and Crain study, a regulation that saves children’s lives by requiring that extra care be taken with dangerous chemicals, for example, would be regarded as nothing more than an economic drain. Its benefits – saved lives – play no role in the calculation.  Yet, the Office of Advocacy has defended the approach, arguing that the study’s purpose was never to be a side-by-side analysis.

But consider this:  The study did not even examine the regulatory benefits to the small businesses themselves.  In other words, if an individual firm experienced $10 in cost from a specific regulation, but also experienced $11 in benefits from the effects of that same regulation, Crain & Crain would tally it simply as a $10 cost, and tell the readers nothing more. I’m not making this up.

Also absent from the process was any semblance of quality control. In a telephone interview earlier this year, an Advocacy staff member confirmed to me that the office did not contract to receive the underlying data, models, or assumptions that Crain and Crain used in their report. (See page 4 of CPR’s white paper.) Thus, Advocacy entered into an agreement with Crain and Crain to spend taxpayer money on a report whose findings it could not then have verified in any significant way—not even checking the arithmetic. To make matters worse, Advocacy put the Crain and Crain report through a sham of a peer review process, which involved only two reviewers. The authors ignored a significant criticism raised by one of the two reviewers.  The second reviewer wrote only this:  “I looked it over and it's terrific, nothing to add. Congrats[.]” A 12-year-old writing a thank-you note would have more to say!

Will Advocacy learn from these mistakes when it undertakes future sponsored research projects? If a recent (August 3) batch of request for research projects is any indication, then the answer is a big “no.” The suggested research topics in the request are again framed to generate biased, anti-regulatory reports. They sound more like the titles of Rep. Darrell Issa’s anti-regulatory witch hunt hearings than serious research topics.

The most troubling of the requests is for research projects on the “misc topics on impact of regulations on Small Businesses.” One of the listed project topics asks researchers to analyze the “[e]ffects of regulation on independent motor carriers over the last decade.” Motor carriers include commercial trucks and passenger buses (the SBA document doesn’t get more specific about what it’s looking for).  Commercial intercity buses have been responsible for several high profile accidents in the last few years that have involved hundreds of severe injuries and dozens of deaths. These accidents and investigations in their aftermaths have shown the commercial passenger bus industry to be poorly regulated.  Regulatory shortcomings include the lack of commercial driving training requirements for bus drivers, and inadequate enforcement of existing regulations. Yet SBA’s Advocacy is almost certainly looking to try to paint the industry in a better light in hopes of curtailing stronger regulation.

Time will tell whether Advocacy requires the authors of these and other research projects to turn over their underlying data, models, and assumptions for public dissemination; the requests for proposals don’t specify. It also remains to be seen whether Advocacy puts these reports through a proper peer review process prior to their release.

Based on the Crain and Crain study and this latest request for new research projects, the SBA Office of Advocacy appears intent on running an anti-regulatory lobbying shop, much as the U.S. Chamber of Commerce is an anti-regulatory lobbying shop. The SBA Office of Advocacy, however, is taxpayer funded.

The hard truth is that the Advocacy has become an anti-regulatory force, captured by industry and doing its bidding within the federal government. The Senate and House Small Business Committees conduct little oversight of this rogue agency, and it’s independent, for better or worse, of the White House. Advocacy has virtual free rein to advance its brazenly political agenda all on the taxpayer’s dime.

The SBA Office of Advocacy needs to be reformed, and a simple place to start is for it to shape up how it conducts federally sponsored research. Its research objectives should be aimed at understanding issues affecting small business, not at creating political ammunition. It should require recipients of research grants to deliver their underlying data, models, and assumptions along with their final reports, and to make this information publicly available on the agency’s website. It should implement a more rigorous peer review process for its federally funded research projects. For its part, Congress needs to step up its oversight of Advocacy, working to make it accountable and fair.

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Also from James Goodwin

James Goodwin, J.D., M.P.P., is a Senior Policy Analyst with the Center for Progressive Reform. He joined CPR in May of 2008.

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