SMALL BUSINESS AND CAPITAL OWNERSHIP DEVELOPMENT ACT OF 1978 THURSDAY, MARCH 16, 1978 U.S. SENATE, SUBCOMMITTEE ON ECONOMIC DEVELOPMENT, MARKETING, AND THE FAMILY FARMER, The subcommittee met, pursuant to call, at 10:07 a.m., in room 424, Russell Senate Office Building, Hon. Sam Nunn, chairman of the subcommittee, presiding. Present: Senator Nunn. Also present: Larry M. Yuspeh, financial analyst; and Judith K. Hillegonds, staff assistant. STATEMENT OF HON. SAM NUNN, A U.S. SENATOR FROM THE STATE OF GEORGIA Senator NUNN. The subcommittee will come to order. The Small Business Administration's so-called 8(a) minority business development program has failed to develop viable, private sector businesses. Through the use of sole source Federal contracts in conjunction with management, technical, and financial assistance, the 8(a) program is supposed to develop strong and growing minority small businesses. I say frankly as we begin these hearings, all evidence is that the program has not gone that way. The 8(a) program has fallen far short of this goal. Of over 3,700 firms that have participated in the program since fiscal year 1968, only 33 have both completed the program and are known presently to have a positive net worth. A SBA internal review board report and a General Accounting Office report requested by the Senate Small Business Committee have generally agreed on the reasons why the 8(a) program does not develop viable, private sector firms as it was originally intended to do. The GAO report found no area of 8(a) program management to be adequate. There are too few staff, and they are poorly trained. Many SBA business development specialists, according to the GAO, cannot even read a financial statement. No management and technical assistance is available under the program and the process for determining which Federal contracts shall be available for the program is grossly inefficient. One of the underlying reasons for the utter failure of this Federal minority business development effort is that the program has no legislative basis. (1) The 8(a) program simply evolved as a result of Executive orders issued by Presidents Johnson and Nixon in response to the report of the Commission on Civil Disorders, known as the Kerner commission. The finding that triggered the 8(a) effort was that minorities had not become part of America's free-enterprise system. They enjoyed no appreciable ownership of small businesses and did not share in the community development and redevelopment process. The report, therefore, recommended that steps be taken to increase the level of business ownerhsip by minorities so that they would have a better opportunity to become an integral part of our Nation's free-enterprise system. Certainly, I agree, and I believe that the overwhelming majority of Americans would agree with this goal as well. Because of the failure of the minority business development effort, I am proposing the "Small Business and Capital Ownership Development Act," which we will hear testimony on today. The bill creates a small business and capital ownership development program, which is headed by a Presidentially appointed director. The bill's key purpose is to develop capital ownership through the development of small business ownership among socially or economically disadvantaged persons from groups that own and control very little productive capital. This legislation thus gives form, direction, and purpose to a business development program for minorities. For the first time, a Federal minority business development program would have its basis in legislation. I might add, I am not wedded to the provisions of this proposal. I am openminded about it. I have introduced a proposal so that we can have a basis for discussion; a basis for critiquing it. I hope we can, through the process of these hearings, improve the legislation as we go along, and I encourage all witnesses to really speak freely as to how you see the present program, and also, the problems you would foresee as to the proposal I am making. This morning, both public and private sector representatives will comment on this proposed legislation. Senators J. Bennett Johnston and Lawton Chiles will offer their views. We will also hear from Administration witnesses-Anne Wexler, the Chairperson of the Federal Interagency Task Force on Women in Business and A. Vernon Weaver, Administrator of the Small Business Administration. A panel of Georgia businessmen will also comment. Also, the American Insurance Association will evaluate the surety bonding provisions under consideration. Representative Joseph P. Addabbo was not able to be with us this morning to present his statement. Without objection, his remarks will appear in full in the record at this point. [The prepared statement of Hon. Joseph P. Addabbo follows:] Thank you for your invitation to appear before your Subcommittee and present testimony on your Bill to create a Small Business and Capital Ownership Development Program. I had hoped to present my statement in person, but unfortunately, my schedule will not permit me to attend your hearing on March 16. Therefore, enclosed is my prepared statement which I would like to submit for inclusion in the record. I appreciate the opportunity to express my views With kindest regards and best wishes, I am Sincerely, Joseph P. Addabbo Statement of Honorable Joseph P. Addabbo, Chairman House Committee on Small Business Before the Senate Select Committee on Small Business March 16, 1978 I deeply appreciate the opportunity to appear before this distinguished Committee to express my views concerning the Senate Bill to create a Small Business and Capital Ownership Development Program. As you are aware, the House Committee on Small Business has favorably reported H.R. 11318 which, among other things, makes substantial improvements to the 8 (a) program. I am sure that our mutual action in this area will result in measurable improvements to a program which, unfortunately, has suffered in part because of a lack of Congressional direction. Needless to say, I am in full accord with those provisions of your Bill which are identical to H.R. 11318, such as the increased ability of SBA to select potential 8(a) contracts, the discretionary waiver of bonding requirements, mandatory participation of 8(a) firms in the negotiations of terms and conditions of proposed 8(a) awards, due process guarantees to previously deemed eligible firms and the requirement that SBA must determine, before it certifies a company eligible, that it can provide the requisite technical and management support to promote competitive viability of the firm within a reasonable period of time. I do, however, find serious problems with the criteria for eligibility created by the Senate Bill. In the first instance, the Bill allows for personal eligibility based upon a finding of social or economic disadvantage. Therefore, this provision would conceivably allow a wealthy person to vie for program eligibility merely upon a showing of "social" disadvantage. If the purpose of these amendments is to attempt to place capital in the hands of those who do not have it, as recited in Section 1 of this Bill, then why should we allow the wealthy those who have capital to participate in the 8(a) program? The Bill, therefore, appears inconsistent in this respect. The purpose of 8(a) should be to assist those individuals who suffer not only from adverse social pressures but also from a lack of capital. We must target this 8(a) assistance to those who need it most and no one can honestly deny that a person who is both socially and economically disadvantaged is most deserving of this help. Since resources are limited, to adopt the approach either social or economic disadvantage recited in this Bill would potentially allow a wealthy person to displace from the program an individual who is both socially and economically disadvantaged. That inequity should not be allowed. Therefore, I propose that the basic statement of eligibility should be expressed in terms of both "social and economic" disadvantage. With respect to eligibility, there is a further consideration which must, I believe, be legislatively recognized. Adopting the premise that both social and economic disadvantage is the operative criterion, we cannot realistically assume that such disadvantage accrues to all classes of people on a proportionately uniform basis. It is a fact of the American experience that certain racial and ethnic minorities have, in disproportionate numbers, suffered economic and social deprivation because they are minorities because they have been identified as members of certain groups which the dominant society has discriminated against. Our eligibility criteria, therefore, cannot equitably be applied in a racially neutral manner because the history of our country is not one of racial neutrality. I According to the latest available statistics, racial minorities account for over 18% of the United States population, but own only 3% of the businesses. This meager 3% accounts for a mere .71% of the total receipts of all businesses in this country. have annexed to this statement more detailed statistics which blatantly point out the depressed condition of certain racial and ethnic groups in the business world. I must stress in the strongest terms that these statistics are not the result of random chance. Something has prevented equitable minority participation in our economy and that "something" is discrimination; we cannot be totally neutral in our actions because neutrality simply is not just. The presumption that certain classes of minorities are disadvantaged is without legitimate challenge, and I urge that this presumption be legislatively recognized. Therefore, I believe the Senate Bill should be amended to recognize the reality of our present day economy and our national history which has shaped it. In short, I urge the adoption of the eligibility criteria created by H.R. 11318. That measure creates a rebuttable presumption that Black Americans, -2 |