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American Capitalism's Other Side

July 25, 2002

American Capitalism's Other Side


Andy Grove, a founder of Intel, summed up the mood of recent weeks when he said he is "embarrassed and ashamed" to be a corporate executive in America today.

Like so many other great successes, Intel was, in its early years, nurtured by an economic system that encourages innovation and entrepreneurship — and helped by institutions like the Small Business Administration. In return, the company grew into an example of American ingenuity.

Historically, America's small- business owners have always focused on fundamentals: they concentrate on creating something of value, generating jobs and profits in the process. At the heart of the current corporate quagmire is a departure from these principles.

Driven by the perceived imperatives of the stock market, many corporations have skewed their priorities. Meeting quarterly earnings projections has become more important for them than building long-term shareholder value. The result can be seen in the implosion of giant corporations, thousands of layoffs and evaporating retirement savings. This spectacle has cast a pall not just over corporate America but over the American brand of free-market capitalism.

Despite the pessimism here and abroad, most American corporations are aboveboard in running their businesses and recording their bottom lines.

But more important, it's just not true that as big corporations go, so goes the American economy.

During the 1990's, more than 80 percent of the net gain in new jobs was not from corporate giants, but from small companies involved in a range of businesses (far broader than the dot-coms). By the end of the decade, nearly half the work force was employed in small businesses. Their efforts powered the record economic growth of the 1990's.

Government and business leaders from around the world come to our country to learn how we nurture and sustain small entrepreneurs. But we are not doing nearly enough to show the world this side of American capitalism. The Bush administration removed the Small Business Administration from the cabinet and proposed cutting the agency's funding by over 20 percent. Worse, it aims to reduce the agency's lending capacity by 50 percent. This year, there is $9.4 billion available for small-business loans guaranteed by the agency. For next year, the administration is proposing less than $5 billion. At a minimum, the administration should restore or even increase the agency's lending capacity, especially since access to capital may now be sharply curtailed.

At a time of shaken confidence in American business, the administration should also work to put the small-business model at the heart of our global economic message. It should invest more resources to encourage the growth of small businesses in the developing world through microlending institutions. Microloans give people the opportunity to improve their lives and become stakeholders in their societies. Microlending nurtures the fundamental values of democracy and helps them take root.

Businesses based on jobs and profit, not the gambles of the stock market, are the real foundation of American capitalism. I have never heard small-business owners say they were embarrassed by what they do; they are rightfully proud of the enterprises they have built.

Fred P. Hochberg was deputy administrator and acting administrator of the Small Business Administration from 1998 to 2001.

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