By Scott Shane
Bloomberg Businessweek
May 20, 2011

Last week, the Senate officially gave up efforts to pass the SBIR/STTR Reauthorization Act of 2011. Promoted as crucial for small business, the bill's primary goals were to extend the Small Business Innovation Research (SBIR) program, which sets aside a portion of federal agency research budgets for small businesses, and to make it possible for venture capital-backed companies to tap SBIR funds. The legislation had passed committee 18 to 1 and seemed destined to pass easily through the Senate. While some see the bill's failure as an example of the failure of Congress to help small business, I see it differently.

The final bill's provisions wouldn't have done much for most small businesses. The 4,000 or so high-tech small businesses that get SBIR funds would have seen some additional federal dollars set aside for them. The couple thousand venture capital-backed companies started every year would have been able to tap those funds. That's about it. (The National Venture Capital Assn. reports that only 2,749 companies received venture capital financing in the U.S. in 2010.)

The bill could have made a difference to many more businesses had Senator Olympia Snowe (R-Me.)'s amendment to it been included. The measure would have required federal government agencies to assess the impact of new regulations on small businesses before putting them in place. Senate Majority Leader Harry Reid (D-Nev.) refused to allow debate on it, which left the final bill irrelevant to most of our 30 million business owners.

Small Business vs. Regulation

It's clear that Snowe's amendment would have affected Main Street. According to a 2010 study commissioned by the Small Business Administration, businesses with fewer than 20 employees spend 36 percent more per employee than large businesses do to comply with federal regulations.Regulatory compliance has gone from being a minor issue for small business owners to becoming their third greatest problem in the past few years, according to the May 2011 Small Business Economic Trends, a publication of the National Federation of Independent Business. Seventeen percent of the 1,985 NFIB members who responded to the survey included in the Trends report see government regulation as the biggest problem currently facing small business.

The bill's failure doesn't mean that small high tech companies seeking SBIR funding will be cut off. Just a few days ago its top sponsor, Senator Mary Landrieu (D-La.), filed an extension to continue the current version of the program for a further year. While the extension doesn't increase the SBIR set-asides (the one that failed in the Senate did), it doesn't allow venture capital-backed businesses access to SBIR funding either. This will reduce the need for non-VC-backed companies to compete with their venture capital-backed counterparts to get access to that federal money.

If Congress wants to help small business, it needs more lawmakers to act as Senator Snowe has done. Congress needs to put forward legislation aimed at fixing the problems most small business owners face today—not issues that matter only to a select few. Refusing to debate important issues likely means that the big questions won't be addressed in the limited time Congress has to devote to small business legislation. That simply isn't what Main Street needs.

Scott Shane is the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University.