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Veronique de Rugy of the American Enterprise Institute. Why?

I’ve long been a booster of small business creation and the need for government to improve the general business climate. The problem is the debate has morphed into a maniacal focus on access to capital. That is important, but the folks in the small business cheerleading squad, generally because they lack strong experience in business creation (otherwise they wouldn’t be doing what they are doing…), ignore the numbers.

Along comes Veronique with a tremendous article in the Cato Institute’s magazine Regulation, which deconstructs the practices of the multi-billion dollar Small Business Administration. (The SBA provides government-sponsored loans and loan guarantees, as well as technical assistance and advocacy to and for small businesses.)

The article, The SBA’s Justification IOU, will not make fans of the agency happy by presenting evidence of its minimal impact and wrong-headed focus, but for Massachusetts the money quote is:

“Of all the unsuccessful businesses [in the 1992 Census survey], 71.7 percent of owners cited inadequate cash flow or low sales as a reason for failure while only 8.2 percent said a lack of access to business loans/credit contributed to the end of their businesses.”

Big picture takeaway? We are not going to address the need for small business creation where we need it most (core urban neighborhoods) with a continued focus on access to capital. The focus has to be on bringing folks with money back downtown. The housing reforms in the Housing Bond Bill, based in great part on Peter Gagliardi’s Pioneer white paper, will pilot a way to do just that. They are not enough, but they are a start.