CPR Report: Small Business Administration’s Office of Advocacy Dances to Big Business’s Tune

Congress created the Office of Advocacy (Office) of the Small Business Administration (SBA) to represent the interests of small business before regulatory agencies.   It recognized that, unlike larger firms, many, if not most, small businesses can’t afford to lobby regulators and file rulemaking comments because of the expense involved.  The Office was supposed to fill this gap by ensuring that agencies account for the unique concerns of small businesses when developing new regulations.  Instead, as new reports from the Center for Progressive Reform and the Center for Effective Government document, the Office of Advocacy is using its resources and influence to weaken the regulatory process, usually at the behest of big business.

The Office of Advocacy has steadily expanded its role in the rulemaking process, creating numerous opportunities to oppose regulation, slow the regulatory process, and dilute the protection of people and the environment against unreasonable risks.  Its activities are frequently undertaken in conjunction with corporate lobbies and trade associations that represent the interests of their large business members. Often, it is difficult to find even a sliver of sunlight between the positions taken by the Office and those taken by such prominent regulatory opponents as the big-business-focused U.S. Chamber of Commerce.  It turns out that's not by accident: The Center for Effective Government’s report exposes emails between the Office and big business interests demonstrating that the Office takes its lead from big business lobbyists. 

The Office of Advocacy bolsters its anti-regulatory efforts by sponsoring research projects with the obvious aim of weakening the U.S. regulatory system. Non-governmental researchers carry out these projects under contracts awarded by the Office with little in the way of oversight or peer review.  At least in some cases, these "research" papers are thinly veiled political documents. The most egregious example is the 2010 study by economists Nicole Crain and Mark Crain, which purported to find that the annual cost of federal regulations in 2008 was about $1.75 trillion.  As CPR and others demonstrated, the Office ignored serious methodological problems with the report, which rendered it implausible, apparently because the results fit with the Office’s anti-regulatory narrative. 

The CPR and CEG reports detail the numerous ways that the Office has worked to subvert the regulatory process at a time when the United States faces a problem of under-regulation. You read that correctly; the problem is under-regulation.  For years now, we've heard big business interests and their allies in Washington argue that supposed overregulation is hampering the economy.  That's a tough argument to sustain, if you think about it.  Regulations protecting workers from injuries, protecting people who breathe from unhealthy air, or those who drink water from all manner of pollutants all have enormous impact on Americans' health and safety, and with that comes a hugely positive economic impact.  But the Crain and Crain report is typical of the tactics industry uses to make their case: It completely ignored such benefits of regulation, and their economic effects.  That's not exaggeration; Crain and Crain say right at the top of their report that they're not even going to consider the economic benefits of regulation.  That's exactly the rhetorical approach of industry and regulatory opponents on Capitol Hill.

The truth is that our regulatory system is too weak, and we see the evidence of that in such high-profile incidents as the BP spill in the Gulf of Mexico, the seemingly countless outbreaks of disease caused by foodborne pathogens, in the unhealthy air that still hangs over many of our cities and more. The regulatory system is supposed to protect public health and safety against such unacceptable risks, but the destructive convergence of inadequate resources, political interference, and old laws written for a different era often prevents regulatory agencies from fulfilling this task in a timely and effective manner.

We can protect the public, the environment and the interests of the small business community, of course.  The CPR report makes a number of suggestions as to how this might be accomplished.  For example, the report recommends that Congress revise the Office of Advocacy’s small business size standards so that they define a “small business” as only those firms with 20 or fewer employers.  Under the current standards, a “small business” can include any petroleum refinery that employs fewer than 1,500 workers or any chemical plant that employs fewer than 1,000 workers.  Revising these absurdly overbroad size standards will help to ensure that the Office’s focus is restrained exclusively to those truly small businesses whose voices are seldom heard in the rulemaking process.  The report similarly recommends that Congress enact legislation prohibiting large business from participating in or surreptitiously using small business surrogates in the Office of Advocacy’s small business outreach efforts, such as Small Business Regulatory Enforcement Fairness Act (SBREFA) panels.  As documented in the CPR and Center for Effective Government reports, lobbyists for large corporate interests continually abuse these efforts.

No doubt the President and Members of Congress have been reluctant to call the Office of Advocacy to account for fear that they will be accused by their political opponents of being against “small business.”  The truth is that the Office of Advocacy’s activities harm the public and are often unresponsive to the interests of small business.  But it needn't be: With a recast mission and a restored focus on helping truly small businesses, the Office of Advocacy can play a critical role in assisting small businesses to thrive, all while promoting public health and safety. 

The CPR report, Distorting the Interests of Small Business: How the Small Business Administration Office of Advocacy’s Politicization of Small Business Concerns Undermines Public Health and Safety, was written by CPR Member Scholar Sidney Shapiro and CPR Policy Analyst James Goodwin.