s. 1726, small business economic policy and advocacy reorganization act of 1977 joint hearings

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S. 1726, SMALL BUSINESS ECONOMIC POLICY AND
ADVOCACY REORGANIZATION ACT OF 1977
JOINT HEARINGS
BEFORE THE
SUBCOMMITTEE ON GOVERNMENT REGULATION
AND SMALL BUSINESS ADVOCACY
OF THE
SELECT COMMITTEE ON SMALL BUSINESS
AND THE
SUBCOMMITTEE ON
ECONOMIC GROWTH AND STABILIZATION
OF THE
JOINT ECONOMIC COMMITTEE
UNITED STATES SENATE
NINETY-FIFTH CONGRESS
FIRST SESSION
ON
S. 1726
SMALL BUSINESS ECONOMIC POLICY AND ADVOCACY
REORGANIZATION ACT OF 1977
JUNE 29, JULY 21, AND NOVEMBER 21, 1977
Printed for the use of the Select Committee on Small Business and the
Joint Economic Committee
U.S. GOVERNMENT PRINTING OFFICE
98-762 0 WASHINGTON: 1977
SELECT COMMITTEE ON SMALL BUSINESS
GAYLORD NELSON, Wisconsin, Chairman
THOMAS J. McINTYRE, New Hampshire LOWELL P. WEICKER, JR., Connecticut
SAM NUNN, Georgia DEWEY P. BARTLETT, Oklahoma
WILLIAM D. HATHAWAY, Maine BOB PACKWOOD, Oregon
FLOYD K. HASKELL, Colorado
JOHN C. CULVER, Iowa
WILLIAM B. CHE'RKASKY, Staff Director
ALLEN W. NEEcE, Jr., Legislative Counsel
JOHN M. CROSS, Professional Staff Member
LARRY S. GREENBERG, Minority Counsel
SUBCOMMITTEE ON GOVERNMENT REGULATION AND SMALL BUSINESS ADVOCACY
THOMAS J. McINTYRE, New Hampshire, Chairman
SAM NUNN, Georgia DEWEY F. BARTLETT, Oklahoma
JOINT ECONOMIC COMMITTEE
(Created pursuant to see. 5(a) of Public Law 304, 79th Cong.)
RICHARD BOLLING, Missouri, Chairman
HUBERT H. HUMPHREY, Minnesota, Vice Chairman
HOUSE OF REPRESENTATIVES SENATE
HENRY S. REUSS, Wisconsin JOHN SPARKMAN, Alabama
WILLIAM S. MOORHEAD, Pennsylvania WILLIAM PROXMIRE, Wisconsin
LEE H. HAMILTON, Indiana ABRAHAM RIBICOFF, Connecticut
GILLIS W. LONG, Louisiana LLOYD BENTSEN, Texas
OTIS G. PIKE, New York EDWARD M. KENNEDY, Massachusetts
CLARENCE J. BROWN, Ohio JACOB K. JAVITS, New York
GARRY BROWCN, Michigan WILLIAM V. ROTH, JR., Delaware
MARGARET M. HECKLER, Massachusetts JAMES A. McCLURE, Idaho
JOHN H. ROUSSELOT, California ORRIN G. HATCH, Utah
JOHN R. STARK, Executive Director
Louis C. KRAUTHOFF II, Assistant Director
RICHARD F. KAUFMAN, General Counsel
ECONOMISTS
G. THOMAS CATOR KENT H. HUGHES PHILIP MCMARTIN
WILLIAM A. Cox SARAH JACKSON DEBORAH NORELLI
THOMAS T. DERNBURG JOHN R. KARLIK GEORGE R. TYLER
ROBERT D. HAMRIN L. DOUGLAS LEE
MINORITY
CHARLES H. BRADFORD STEPHEN J. ENTIN GEORGE D. KRUMBHAAR, Jr.
M. CATHERINE MILLER MARK R. POLICIeNSKI
SUBCOMMITTEE ON ECONOMIC GROWTH AND STABILIZATION
HUBERT H. HUMPHREY, Minnesota, Cochairman
LLOYD BENTSEN, Texas, Cochairman
SENATE HOUSE OF REPRESENTATIVES
ABRAHAM RIBICOFF, Connecticut RICHARD BOLLING, Missouri
JACOB K. JAVITS, New York LEE H. HAMILTON, Indiana
WILLIAM V. ROTH, JR., Delaware GARRY BROWN, Michigan
MARGARET M. HECKLER, Massachusetts
(11)
CONTENTS
Statement of Senators- Page
Humphrey, Hon. Hubert H., a U.S. Senator from the State of
Minnesota _----------___---_--- I1
McIntyre, Hon. Thomas J., a U.S. Senator from the State of New
Hampshire _--_-----_--- 2,
241, 309
Statement of-
Burrell, Dr. Berkeley G., president, National Business League -153
Doyle, Prof. George A., chairman, Economics and Foreign Affairs
Department, Assumption College _-_-_-____-- -_-- ____ 177
Kallek, Shirley, Associate Director for Economic Fields, Bureau of
the Census, U.S. Department of Commerce -_-_-__- __- __ 310
Krasnow, Herbert, president, National Association of Small Business
Investment Companies, accompanied by Walter Stults, executive
vice president - _---- _---- _----------------- 16
Lesher, Dr. Richard L., president, Chamber of Commerce of the
United States -_--------------------------- 191
Liebenson, Herbert, executive vice president, National Small Business
Association _----------__-__-- 69
McDonough, Leo R., executive vice president, Smaller Manufacturers
Council _----------_----- 75
McKevitt, James D. "Mike," Washington Counsel, National Federa-
tion of Independent Business- _-__-_-_- _-------------- 3
Mitchell, Mary T., Deputy Director, Division of Bank Supervision,
Federal Deposit Insurance Corporation _-_-__-- _ 334
O'Malley, Hugh B., general counsel, Small Business Service Bureau- 184
Pearsall, Duane D., president, Statitrol Division, Emerson Electric
Co _---------------------------------------193
Stewart, Milton, chairman, Research Council for Small Business and
the Professions _--_---_- __-_-_-_--- _-_- __354
Travis, Roger E., president, Smaller Business Association of New
England, Inc - _--_-------- ---------------------- 120
Weaver, Hon. A. Vernon, Administrator, Small Business Administra-
tion, accompanied by William T. Gennetti, General Counsel, SBA 261
Weil, Hon. Frank A., Assistant Secretary for Domestic and Inter-
national Business, Department of Commerce, accompanied by
Elmer S. Biles, Senior Economic Adviser, Bureau of the Census- 289
Williams, Hon. Harold M., Chairman, Securities and Exchange
Commission - -242
EXHIBITS
Letter dated June 30, 1977, to Mike McKevitt, Washington counsel,
National Federation of Independent Business, from John R. Stark,
Executive Director, Joint Economic Committee - - - 139
Letter dated July 29, 1977, to Mr. Stark, from Mr. McKevitt ----- 141
Letter dated June 30, 1977, to Herbert Liebenson, National Small Business
Association, from John R. Stark, Executive Director, Joint Economic
Committee ------------------------------------------- 150
Letter dated June 30, 1977, to Prof. George A. Doyle, chairman, Eco-
nomics and Foreign Relations Department, Assumption College, from
John R. Stark, Executive Director, Joint Economic Committee --- 230
Letter dated July 6, 1977, to Mr. Stark, from Professor Doyle ---- 232
Letter dated June 30, 1977, to Dr. Richard L. Lesher, President, Chamber
of Commerce of the United States, from John R. Stark, Executive
Director, Joint Economic Committee - ------- 234
(m)
IV
Letter dated July 29, 1977, to Mr. Stark, from Ivan C. Elmer, Director, Page
Center for Small Business - 236
Letter dated July 27, 1977, to Frank A. Weil, Assistant Secretary for Do-
mestic and International Business, Department of Commerce, from
Senator Thomas J. McIntyre, chairman, Subcommittee on Government
Regulation and Small Business Advocacy -303
Letter dated September 19, 1977, to Senator Thomas J. McIntyre, chair-
man, Subcommittee on Government Regulation and Small Business
Advocacy, from Frank A. Weil, Assistant Secretary for Domestic and
International Business, Department of Commerce -304
Bureau of the Census proposal for the development of a small business
economic data base - 314
Article, "Survey of Terms of Bank Lending," prepared by Paul W. Boltz,
Division of Research and Statistics, Federal Reserve Board, from Federal
Reserve Bulletin, May 1977 - 339
APPENDIX
Section-by-section analysis of the "Small Business Investment Policy and
Advocacy Reorganization Act of 1977"- 363
Statement of the National Venture Capital Association, "Emerging In-
novative Companies-An Endangered Species," November 29, 1976-_ 365
Council of Small and Independent Business Associations tax bill, 1977 376
Statement of Dean A. Treptow, president, The Brown Deer Bank, Brown
Deer, Wis - --------------------------------------------- 388
Letter dated March 2, 1978, to Senator Thomas J. McIntyre, chairman,
Subcommittee on Government Regulation and Small Business Advo-
cacy, from Gerald M. Lowrie, executive director, American Bankers
Association, Washington, D.C - 394
HEARING DATES
June 29, 1977:
Morning session -1
July 21, 1977:
Morning session -- 241
November 21, 1977:
Morning session ------------------------------ ----- - 309
S. 1726, SMALL BUSINESS ECONOMIC POLICY AND
ADVOCACY REORGANIZATION ACT OF 1977
WEDNESDAY, JUNE 29, 1977
U.S. SENATE, SUBCO-rITrEE ON GOVERNMENT REGu-
LATION AND SMALL BUSINESS ADVOCACY OF THE
SELECT COMMITrEE ON SMALL BUSINESS AND THE
SUBCON1I3TTEE ON ECONOMIC GROWTH AND STA-
BILIZATION OF THE JOINT ECONOMIC COMMITTEE,
WVashngton, D.C.
The subcommittees met, pursuant to notice, at 10 a.m., in room 424,
Russell Senate Office Building, Hon. Thomas J. McIntyre, and Hon.
Hubert H. Humphrey, chairmen, presiding.
Present: Senators Humphrey, McIntyre, and McClure.
STATEMENT OF HON. HUBERT H. HUMPHREY, A U.S. SENATOR
FROM THE STATE OF MINNESOTA
Senator HUAMPHREY. We will open the hearing of our respective sub-
committees chaired by Senator McIntyre and myself to listen to our
witnesses.
I consider it a great honor to share, on behalf of the Joint Eco-
nomic Committee, the chairmanship of this hearing with my distin-
guished colleague, Senator McIntyre.
The bill that we are considering this morning, S. 1726, the Small
Business Economic Policy and Advocacy Reorganization Act of
1977, is in my judgment the most important small business legislation
in recent years. I am not saying this out of any pride of partial
authorship. Taken in its entirety the measure is an amalgam of pro-
posals developed by Senator McIntyre, myself and others who are
committed to strengthening the small business community.
Rather this legislation is important because it represents what I
consider to be a successful effort to forge these ideas into a comprehen-
sive proposal that raises consideration of SBA and small business
needs to the highest levels of program and policy development in the
Government and gives the SBA the additional tools it must have to
fully respond to small business requirements. I think it goes without
saying this statement indicates that I have long felt that the Federal
Government has not given adequate attention to the rather unique
needs of small business. All of our tax laws and public policy laws are
based on business. That generally means the larger businesses which
have greater access to our capital markets, that have a competitive ad-
vantage and many other advantages.
There are two chief components of the proposed legislation. It
would establish a Division of Advocacy and Economic Research and
(1)
2
Analysis within SBA to represent and promote the interests of small
business among all Federal instrumentalities that affect small business
in significant ways. Thus, an important step will be taken to fully
coordinate the activities of SBA within the family of major Federal
departments and agencies. As a result, the quasi-orphan status of SBA
that exists despite the immense importance of small business to our
economy would at last be ended.
Second, the bill would establish a small business economic policy
under which the administration would be required to annually assess
the investment and other substantive needs of small business as a
major component in the fiscal and monetary policy and program plan-
ning and develop specific proposals to meet these needs.
In addition to the legislation itself this hearing is important for an-
other reason. As far as I know this is the first time that members of the
Joint Economic Committee have participated in joint hearings to
consider legislation which addresses the Joint Economic Committee
policy of strengthening the small business sector of our economy. In
this respect the hearing is extremely gratifying to me. I hope that the
precedent we have established here this morning will be repeated many
times in the future with other committees of the Congress.
With Senator McIntyre and other members of the Joint Economic
Committee and the Select Committee on Small Business, I am looking
forward this morning to the testimony of our distinguished witnesses.
STATEMENT OF HON. THOMAS S. McINTYRE, A U.S. SENATOR FROM
THE STATE OF NEW HAMPSHIRE
Senator MCINTYRE. Thank you, Mir. Chairman.
It is a distinct honor for me to join with Senator Humphrey in
cochairing this morning's hearing on S. 1726, the "Small Business
Economic Policy and Advocacy Reorganization Act of 1977." The
most able Senator from Minnesota at one time served on the Select
Committee on Small Business and has been a long time champion,
as you all know, and supporter of small business.
Since coming to the Senate in 1963, it has been my privilege to
serve on two commitees dealing with small business-the Small Busi-
ness Subcommittee of the Banking, Housing, and Urban Affairs Com-
mittee and the Select Committee on Small Business. As a member of
both of those committees, I have chaired dozens of hearings dealing
with an incredible array of problems and issues confronting the small
business community. If I had to pick one recurring theme that per-
vaded all of those hearings, it was the lack of any hard, meaningful
small business data that could be used to measure and quantify the
particular problem being addressed. Countless witnesses and recog-
nized experts have been able to demonstrate, for example, that smaller
concerns have extraordinary difficulties in raising sufficient debt and
equity capital. But in the final analysis, no government department,
agency, or private sector group has been able to accurately translate
into exact dollar amounts this capital short-fall or state in precise
terms the number of independent businessmen affected.
I could go on for the remainder of the morning citing instances
where statistical data was not available or was found wanting when
we were trying to assess legislation or regulations.
3.
Suffice it to say, that the time has come where we can no longer tol-
erate this "seat-of-the-pants" analysis. The bill before us today repre-
sents what I believe to be a landmark piece of legislation for small
business in that it finally provides the executive branch, Congress,
SBA, and the small business groups with the tools to effectively, effi-
ciently, and thoroughly analyze all aspects of the current status of
our Nation's small and independent concerns. In addition, it puts all
elements of the Federal Government on notice that the economic well
being of this economic sector is one of our country's top priorities.
The President, members of the Cabinet, other high economic policy-
makers and data gathering agencies are directed to give the millions
of small- and medium-sized concerns the time and attention they
deserve and which is so long overdue.
Today we will hear from several witnesses. To help expedite the
hearing and at the same time, to assure that their views will be given
thorough consideration by both committees, we have requested the
gentlemen appearing today to participate in one of two panels. At this
time I would ask the following members of the first panel to come
forward:
Mr. Mike McKevitt, Washington Counsel, National Federation of
Independent Business; Mr. Herbert Krasnow., president, National As-
sociation of Small Business Investment Cos.; Mr. Herbert Liebenson,
executive vice president, National Small Business Association; Mr.
Leo McDonough. executive vice president. Smaller Manufacturers
Council; and Mr. Roger Travis, president, SBANE, the Smaller Busi-
ness Association of New England. Mr. Lewis Shattuck, executive vice
president, will accompany Mr. Travis.
This is our first panel. If I have overlooked any associates, would
you please introduce them for the record when it comes your time to
testify.
If it is agreeable with my colleague, we will call on the panel to tes-
tify briefly in the order in which we called them-that would be Mc-
Kevitt, Krasnow, Liebenson, McDonouglh, and Travis. I have no idea
how long your statements are, gentlemen, but you must make them
concise. *We have about 1½/2 hours and both Senator Humphrey
and I would like to ask questions. Your statements, of course, will ap-
pear in their entirety in the record. With that, we recognize Mr.
McKevitt.
STATEMENT OF JAMES D. "MIKE" McKEVITT, WASHINGTON COUN-
SEL, NATIONAL FEDERATION OF INDEPENDENT BUSINESS
Mr. McKEvurr. Thank you, Senator McIntyre. Mr. Chairman.
First of all, I would like to request that my statement be placed in
the record. I will make brief remarks, highlighting the statement itself
and the feelings of the National Federation of Independent Business.
Above all I would like to say that this is substantive legislation and
good legislation. I think that it is particularly nice to comment on
this legislation while the chips are really down in the small business
corner. My compliments to both of you. You both have been good
friends of ours for a long time.
T would like to hit on the good points of the bill. I think, first of all,
Filat while it is not cabinet status per se, the fact that the bill elevates
4
the Small Business Administrator to executive level one is going to
give him a lot more clout in the White House. I have seen the psycho-
logical effects of status elevation in the past in previous administra-
tions and I am sure the chairman has as well, even much more so than
I. I think this will be a big step forward for the Small Business Ad-
ministration to have this elevation in status given to the Small Busi-
ness Administrator.
I think we do need a Small Business Economic Council. I think it
is going to take more than an advocate to really pound home the mes-
sage of small business. It needs the firepower to bring in the different
cabinet people with the Small Business Administrator chairing this
council to give small business the clout it should have. Considering the
fact that 56 percent of the private work force today is employed by
small business, I believe that is a significant enough reason to have a
Small Business Economic Council.
So far as the credit information is concerned, in a recent survey of
our membership-which now exceeds one-half million-we have
found that 82 percent of them have to rely on banks for capital, and
oftentimes they borrow more than once during the year. So there is
obviously a great need for credit information, and I think the report-
ing requirements in this bill would be beneficial. However, we do meet
this suggestion with mixed emotions.
In light of the concern about paperwork expressed by our member-
ship and by small business in general, we wonder about the reaction
you might have if you are going to require that every bank has to re-
port on all the different loans it makes. Possibly as alternatives, you
might want to consider either a random sampling or a requirement
that they report every other year, to avoid the intensive paperwork
that you would have under the particular provisions now in the bill.
Senator MCINTYRE. That is a good point, Mike. Every once in a
while on the Panerwork Commission, we will say to these very good
bureaucrats: "Why are you asking for reports four times a year?
How about twice a year? How about once a year?" Anything to re-
lieve this mass of strangulation in triplicate or whatever they call it
out there in Chicago. So I agree that we should not increase the pa-
perwork burden for small business.
Mr. McKEvITT. I think we could get good profiles by random sam-
pling rather than requiring 100-percent reporting.
The next thing we had a question about-what is meant by medium
size business and why is that in the bill?
We are also concerned about the credit allocation and economic
planning language. There has been a great deal of concern by our
membership in the past about credit allocation and long-range eco-
nomic planning. 'So we must note our concern on this point.
Finally, on the advocate itself. I think Walter Stults put it well in
the hearing just before this one-your best advocates really are your
business association groups and active Members of the House and
Senate who are the bird dogs. They will always be your best advocates
of small business. If we are going to have an advocate in SBA, I think
the advocate should be independent and he should serve, possibly, a
set term. He ought to be addressing himself primarily to the substan-
tive issues of inflation, of taxes, of matters which are everyday prob-
lems to small business, and he or she should have the freedom within
their own power to do it.
5
That is a summary of the National Federation of Independent Busi-
nesses' sentiments.
Senator McINTYRE. Would you have a tenure of 3 years without any
responsibility to the President?
How are you going to make this advocate independent? Supposing
he is not for the Consumer Protection Agency and the President has
been very strong for it? Will he be able to say that small business is
not for this and still hold his job?
Mr. McKEvIrr. Yes.
Senator MCINTYRE. Should he be able to make such a statement?
Mr. McKEvirr. Yes.
Senator MCINTYRE. But he will not get reappointed.
Mr. McKEvI r. That is alright.
Senator MCINYRE. Thank you.
[The prepared statement of Mr. McKevitt follows:]
6
National Federation of
N F IB
^ ^ Independent Business
STATEMENT OF
JAMES D. "MIKE" McKEVITT
Washington Counsel
National Federation of Independent Business
BEFORE: SUBCOMMITTEE ON ECONOMIC GROWTH AND STABILIZATION
OF THE JOINT ECONOMIC COMMITTEE
SUBCOMMITTEE ON GOVERNMENT REGULATION AND SMALL
BUSINESS ADVOCACY OF THE SENATE SELECT COMMITTEE
ON SMALL BUSINESS
SUBJECT: SMALL BUSINESS INVESTMENT POLICY AND ADVOCACY
REORGANIZATION ACT OF 1977
DATE: June 29, 1977
Mr. Chairman, as Washington Counsel for the National Federation
of Independent Business (NFIB), I am pleased to appear before you
today to indicate NFIB's overall support of the Small Business
Investment Policy and Advocacy Reorganization Act of 1977.
On behalf of our 510,000 small and independent member firms,
I would like to express NFIB's deep appreciation to the Subcommittees
for their efforts to try and insure the well being of small business.
There is no need for me to comment in detail upon the particular
problems that small businessmen and women encounter in attempting to
establish or maintain their business enterprises. (See Table 1).
You are well versed in these matters. Unless something is done soon
to relieve the burdens of inflation, taxation and government regulation,
and to ease the access to available credit at reasonable interest