Do Federal Agencies Hate Small Businesses?

When being "pro-small business" isn't.

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You might have seen several headlines yesterday saying something like " The Federal Government Misses Small Business Contract Goal." The federal government is obligated to make sure that at least 23 percent of its contracts go to small businesses. They've failed to do that in recent years, it turns out, and the Washington Post reports that mistakes, such as considering subsidiaries of big businesses like Lockheed Martin to be "small businesses" and giving millions of dollars in contracts to them, have been made.

Government contracting has, of course, become a highly publicized and controversial topic in recent years because of the scandals involving Halliburton and Blackwater. The American Small Business League, whose president is quoted in the Post article, puts a lot of effort into making the argument that the federal government is screwing over the little guy in favor of doling out favors to big, connected corporations.

Not to say that this position is necessarily wrong, but there's another side to the story.

Tad DeHaven of the Cato Institute writes about the problems of setting aside contract dollars for any one type of business:

With regard to set-asides, regardless of who gets the government contract, taxpayers lose because they foot the bill.  Because set-asides effectively limit the competition for a government contract, taxpayers can end up paying even more—especially when economies of scale would have allowed a larger business to offer a lower-cost alternative.  Thus, I had to chuckle at the bereaved "small" defense contractor cited by the Post who bizarrely claims that these set-asides "keep down the cost to the taxpayers."

Because small-business owners are also taxpayers, we should not automatically consider "pro-small business" any policy that gives preferential treatment to small businesses if it is also taking taxpayers for a ride.

small business
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