The Anti-Regulatory Crowd's Small Business Rhetoric Is a Scam

Just as The Sixth Sense makes more sense when you realize that Bruce Willis’s character has been dead the whole time, the Small Business Regulatory Flexibility Improvements Act (SBRFIA)—the latest antiregulatory bill being championed by antiregulatory members of the House of Representatives—makes more sense when you realize that it has nothing to do with helping small businesses at all.  Rather, it’s all about helping powerful corporate interests increase their profits at the expense of public health, safety, and the environment.   The twist ending to this nightmare of a bill is that real small businesses—the very entities the bill’s sponsors claim to be helping—are left in a worse position than if the bill were never enacted at all.

Conservative members of Congress have long pretended to care about small businesses—at least, insofar as it helps advance their broader antigovernment campaign.  To this end, these lawmakers have succeeded in building a complex legal apparatus that purports to strengthen the voice of small businesses in the rulemaking process.  Under a series of laws starting with the Regulatory Flexibility Act, agencies must undertake various analyses of their rules’ impacts on small businesses, and their compliance with these requirements is overseen by a powerful agency known as the Small Business Administration’s (SBA) Office of Advocacy.  As first detailed in a 2013 CPR white paper, however, the dirty secret behind this Potemkin’s village is that these institutions serve the interests of the large corporations that already dominate the rulemaking process to the exclusion of both small businesses and public interest advocates.

At the hub of this complex apparatus—making sure that everything continues to operate smoothly—is the SBA Office of Advocacy itself.  This small, under-the-radar bureau effectively functions as the antiregulatory sister to the much better known White House Office of Information and Regulatory Affairs (OIRA).  Like OIRA, it works on behalf of powerful corporate interests to attack crucial regulatory safeguards for protecting the public.

Last summer, the Government Accountability Office (GAO) confirmed that the SBA Office of Advocacy was little more than a shill for big business in a damning report.  The GAO could find no evidence whatsoever that the SBA Office of Advocacy was actually working to help real small businesses.  Under the Regulatory Flexibility Act, the SBA Office of Advocacy is supposed to comment on pending agency rulemakings to highlight concerns that small businesses have with them.  However, the SBA Office of Advocacy could provide the GAO with no evidence that its decision to intervene in particular rulemakings was ever motivated by concerns raised by small businesses.  Nor could the SBA Office of Advocacy provide any evidence that the substance of its comments were based on actual small business concerns.  Indeed, the GAO could find no evidence that the SBA Office of Advocacy had ever spoke with any real small businesses at all.

Instead, on the basis of several Freedom of Information Act (FOIA) requests, CPR and the Center for Effective Government has found copious evidence that the SBA Office of Advocacy takes its marching orders from powerful trade groups, such as the American Chemistry Council—groups that no have no legitimate claim to serving as a representative of small businesses interests.

The bottom line is that the SBA Office of Advocacy serves only to hurt small business rather than help them.  The SBA Office of Advocacy functions as a free lobbyist working on behalf of large businesses that small businesses are struggling to compete with already.  Meanwhile, those small businesses remain marginalized from the rulemaking process.

So, if the sponsors of SBRFIA were really interested in helping small businesses, they would do something about this mess.  Instead, SBRFIA doubles down on it, by amending the Regulatory Flexibility Act to expand the SBA Office of Advocacy’s power to interfere with rulemakings.  Among other things, SBRFIA would expand the number of rules that must go through the full set of analyses mandated under the Regulatory Flexibility Act by extending these requirements to include those rules that only have an “indirect impact” on small businesses.  Because the SBRFIA doesn’t define the term “indirect impact” clearly, virtually every rule could be swept into the Regulatory Flexibility Act’s time-consuming and wasteful analytical process.

A separate provision in the Regulatory Flexibility Act requires a narrow universe of rules to go through a small business panel review process before they can be formally proposed.  In theory, this process is supposed to give small businesses a chance to weigh in on the rules while they’re still early in their development process.  In reality, big businesses have used this process as a chance to attack agency rules behind closed doors before the public has even had a chance to see them—an opportunity they have used to great effect over the years by delaying and derailing several crucial rulemakings.  SBRFIA would expand this review process to cover a huge universe of rules. 

Finally, the SBRFIA would expand the Regulatory Flexibility Act’s regulatory look-back process to make it more onerous and to cover more rules.  Without a larger budget, agencies would spend so much of their resources on reviewing their existing rules—the vast majority of which are uncontroversial—that they would be unable to continue moving forward to address new and pressing threats to the public interest.

In short, the SBA Office of Advocacy uses the power granted to it by the Regulatory Flexibility Act in ways that fundamentally harms small businesses.  By granting the SBA Office of Advocacy more of this power, SBRFIA would only cause more harm to small businesses.  That’s why it is supported by conservative lobby groups that purport to represent small businesses, such as the National Federation of Independent Businesses (NFIB), but not by real small business groups.

If Congress was serious about helping small businesses, there are several things it could do, though.  For starters, it could limit the SBA Office of Advocacy’s definition of “small business” to include only firms with 20 or fewer employees; right now, the SBA Office of Advocacy can advocate for “small” oil refineries that have up to 1500 employees.  It could also prohibit the SBA Office of Advocacy from communicating with firms that do not meet this definition of “small business” and with trade associations that do not work exclusively on behalf of firms that meet this definition of “small business.”  Of course, the supporters of SBRFIA will do none of these things, and then we will know who they are really looking out for.