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News broke yesterday that President-elect Donald Trump has tapped former wrestling executive Linda McMahon as leader of the Small Business Administration. The announcement immediately triggered sneering and snark from hipsters horrified that anyone related to trashy, macho, violent, misogynistic television would be allowed to sully the hallowed halls of the SBA. “What qualifications” they ask “does she have other than the fact that she donated $6 million to a super PAC funding Trump’s presidential campaign and $5 million to the Trump foundation?”
Actually, McMahon has served as the head of a joint venture which she founded called Women’s Leadership LIVE, which promotes opportunities for women in business and public service. This experience would seem to fit well with the SBA’s programs, including the Women’s Business Centers program and the 8(a) Business Development Program which steers federal contracts to businesses owned by women and minorities.
A better question, one which might be posed by conservatives who are willing to criticize Mr. Trump at this point, is why do we need an SBA? On the campaign trail Mr. Trump stated: “Look at what’s happening with every agency — waste, fraud and abuse. We will cut so much, your head will spin.” Well, where does the head spinning start if not at the SBA? It is hard to imagine an agency more riddled with waste fraud and abuse. Even insiders at the agency have acknowledged the presence of rampant fraud. SBA Inspector General Peg Gustafson, appointed by President Obama, cited widespread fraud in federal small business contracting programs as the number one problem at the SBA.
The small business contracting programs are absolutely ripe for abuse. The 8(a) Business Development Program, for example, is a joke. Set up as affirmative action for business, it allows for small, minority-owned businesses to create a “mentoring” relationship with big corporations. Thus, big business can set a friend up with a small business and “mentor” him in order to win government contracts. The friend of course will get his cut. In 2012, President Obama stated, “It is time to end the diversion of federal small business contracts to corporate giants.” The SBA has repeatedly been caught fudging the numbers in an attempt to elevate the reported amount of contracting dollars which actually went to small businesses.
The SBA’s flagship 7(a) loan guarantee program is basically corporate welfare for the banking industry. The government acts as a cosigner on risky loans issued by private lenders for up to 85 percent of the loss if the applicant defaults on the loan. As a result, lenders are more willing to make the loans because the SBA is ultimately responsible for the bulk of any losses. The SBA charges lenders a guaranty fee and a servicing fee for each loan approved and disbursed, but these fees have never been sufficient and the program continues to rely on taxpayer subsidies.
Apart from the rampant fraud, corporate welfare, and crony capitalism, the SBA’s programs are duplicative. Together, the SBA, HUD, USDA, and Commerce run more than 80 economic development programs and many have the same goals. The amount of waste this causes is obvious. Trump should scrap the entire agency. Both Reagan and Obama proposed merging the SBA with the Commerce department to end the waste, abuse, and scandals. Neither was successful. If Trump is serious about swamp draining, the SBA would be a good place to start. Appointing a major donor to run the agency however, is not a good sign that Trump has anything like this in mind.