SMALL VERSUS LARGE BUSINESSES: WHY IS THERE DISPROPORTIONATE GOVERNMENT AID DURING TIMES OF HARDSHIP?

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Beloved 157 Year Old San Francisco Restaurant to Close Due to Covid (The San Francisco Examiner)

Beloved San Francisco restaurant, Cliff House, shuts its doors for good after 157 years of business. After being burned down and rebuilt on two separate occasions and surviving the depths of San Francisco’s frequent earthquakes, it seemed as though the historical monument was impenetrable. That is, until the Covid-19 pandemic. Businesses around the world are facing the challenges of the Coronavirus outbreak, with over 800 small businesses capsizing a day in America alone and over 60 million people filing for unemployment since March, 2020, it seems no corporations are oblivious to the pandemic’s losses. However, this is not the case. Government relief programs have blatantly favored large, rather unaffected corporations over the truly dire in need small businesses, an injustice frustrating many. 


Small businesses are consistently left in the dust of larger companies during economic crises. Why isn’t the government prioritizing the businesses truly in need?


MY INTEREST

When I was little, I looked forward to going with my parents to Blockbuster to rent a Scooby Doo movie for the night. I loved going to our local bookstore to pick out a few books, talking to the owner, who we’d known for years. Visiting my uncle’s small restaurant in Los Angeles and eating Oreo moon pies and chicken tenders had a special place in my heart.  As I grew up, however, I began to witness the local businesses I had loved as a kid go out of business. Large corporations such as Netflix and Amazon were becoming prominent names I started to hear about, and soon Blockbuster and the mom and pop bookstores I once adored were replaced with movie subscription services and chain bookstores. Passionate family owned small businesses were losing their income at the hands of new and exponentially growing capitalist superpowers, unbeknownst to the time. Looking back, I have come to realize that small businesses are the heart and soul of so many cities and are vital in intertwining a community, thus leading me to my research today. 


THE ORIGIN OF THE PROBLEM 

The Great Depression

The Great Depression was a ten year long economic collapse as a result of an influx of technological advancements and resulting interest in the stock market. With a large amount of new investments, stocks inflated in price, selling for more money than they were worth, causing the US economy to come crashing down in an instant on what is now known as Black Tuesday on October 29, 1929. From 1929 to 1933, unemployment jumped from 3.2% to 24.9%, almost a quarter of the labor force, and 30,000 businesses began failing at a rate of 133 a day (Ohio History Central). The Great Depression was the first glimpse of the differential government treatment small businesses faced; as large corporations were closely tied with the government, they were highly utilized during World War II, while small businesses lost money and status. Remnant of the Gilded Age, big businesses’ names became engrained in American culture, resulting in disproportionate wealth gaps being formed between small and large corporations. 

LARGE BUSINESSES

  • Heavily utilized by government during WWII efforts

SMALL BUSINESSES

  • Pro-small business legislation “fell by the wayside” (O’Mahoney)

A Potential Solution 

During the Great Depression, President Hoover was widely disliked by the public due to his lackadaisical attempts at countering the extreme economic decline, and with the election coming up in 1932, many were hopeful for a new light. In a landslide win, Franklin Roosevelt was elected president of the United States with a new plan in mind: the New Deal. 


FDR’S New Deal

In the first of two New Deals, Roosevelt initiated the National Industrial Recovery Act in 1933, and within it, the NRP, or National Recovery Program. The NRP aimed to build government-business relationships through its fair code system, working closely together to develop their own work codes: setting appropriate prices, work hours, and minimum wage. Unfortunately, with a heavy bias towards large corporations, small businesses were left forced to oblige to the codes set in place by corporations with their own best interests in mind. Large businesses crafting the codes simply ignored their own regulations when deemed necessary, and instantly looked to drive out smaller competition (Leuchtenburg). The codes not only raised small business prices and wages, but also slimmed their margins immensely. And though the system had restrictions in place to punish those (including the creators) for violations of the codes, large businesses’ utilized their close ties with the government to skate by the system, while smaller corporations faced much higher levels of scrutiny: some small business owners even going to jail for refusing to comply with the codes (Hiltzik). Eventually in 1935, the NRA’s previous popularity diminished and was deemed unconstitutional due to its violation of state regulating laws, much to large corporations’ dismay.

PRESENT DAY PROBLEM

Matt “Kush” Kusher stands outside to promote his restaurant during the pandemic (Vox).

The Pandemic 

The Covid-19 pandemic has been an uphill battle for small businesses, with large corporations taking advantage of loan programs intended for those truly in need. In March, 2020 the federal government issued the Paycheck Protection Program through the CARES Act, specifically intended to aid small businesses with less than 500 employees from capsizing. $349 billion dollars were allocated to small business loans, with seemingly strict guidelines on which businesses would be eligible to receive a loan. However, not only was the loan process incredibly difficult to navigate and establish eligibility, since loan applicants were not required to disclose proof that they were struggling financially due to the circumstances, large corporations such as Shake Shack, Potbelly, and Ruth’s Chris took million dollar loans under the guise of “current economic uncertainty”, profiting and expanding from unnecessary aid and relief packages (Silver-Greenberg). Over $243.4 million of the total $349 billion went to publicly traded companies with thousands of employees, leaving a majority of small businesses with little to no loans and left to fire employees to stay in business. Not only were PPP loan request wait times anywhere from the promised three day processing time to months on end, leaving businesses in the dark to if they would even receive money at all, the program highly prioritized large corporations, rewarding them with large loans, while icing out a majority of small businesses only requesting a few thousand of dollars. 

“they’re destroying us, they’re ripping us apart, they’re tearing out the heart and soul of the city.” – Rory Cox, San Francisco small business owner

(Sf Gate)

The Local Effect

Locally, in the Bay Area especially, PPP loans have been incredibly sparse, with hundreds of billions of dollars going to wealthy companies, causing many small businesses to be driven out of business for good. As of last month, a Beacon Economics study reveals “half of [small businesses] in San Francisco are closed compared to a year ago” (Louie). Even small businesses who have been lucky enough to even receive any loans at all have only received a portion of their requested amount, only enough to bail them out for a few months. Bay Area businesses have been forced to fire employees and rely on GoFundMe to simply avoid foreclosure and potential bankruptcy, an urgent issue that still is yet to be addressed. San Francisco is among the cities hit the hardest by the PPP’s unjust system. To fight for their rights and receive the relief they deserve, allied small businesses in the Bay Area formed the San Francisco Small Business Alliance. The group has focused on voicing their discontent with the PPP system through their Facebook page, as well as through public comment dials.

The San Francisco Small Business Alliance expresses the impact of the pandemic on local businesses.

WIDE SCALE SOLUTIONS

The first step in wide scale change is a crackdown on antitrust laws. Large businesses have managed to skate by the SBA system for far too long, increasing corporate power at the expense of small businesses, and creating strict regulations through antitrust laws would allow small businesses to have a fair chance at receiving loans at the same rates large companies are. Among the antitrust laws, there must be additional penalties for companies who promote anti-competitive behavior, such as taking advantage of PPP loans. 

(Image: Yale Insights)

The next stage of reform is a revision or overhaul of the current PPP system. The program is riddled with issues of establishing eligibility, processing delays, not providing requested loan amounts, and icing out small businesses entirely. President Biden’s recent legislation, the American Rescue Program, ARP, is a step in the right direction. The ARP allocates $15 billion to the SBA to provide grants to small businesses, with 5 of the 15 billion designated to businesses with under 10 employees and a lost revenue of at least 50% (Federal). This contrasts to the previous system, which contained lenient regulations, and no structural process or funds directly allocated towards small businesses. Additionally, the new legislation works to crack down on large corporations who may try to take advantage of the system, by subjecting lobbying limits and honing in on specific credentials such as income and number of employees to keep better checks on businesses.


WHAT YOU CAN DO

There are many ways to counteract this small business injustice. On the community level, the most simple yet vital way one can support the small business struggle is to shop locally. Many have faced cash-flow issues during the pandemic, and decline in customer demand can easily push them out of business. Shopping locally works to support the community as a whole, with every $100 spent resulting in $68 staying within the community, versus the contrary $43 shopping at large businesses (Haimerl). Your dollar alone can help feed families in need, and can even prevent a beloved business from sinking.

(Image: Pottsmerc)

 

Additionally, another simple yet effective way to aid small businesses is to advertise and promote them. If you are financially unable to support local businesses, following their Instagram page to help them grow a following, leaving a positive Yelp review, contributing to a GoFundMe page, or word-of-mouth are all excellent and valuable ways to show your support. Even seemingly simple acts can be incredibly beneficial towards those struggling to stay afloat during Covid times, and on the individual level specifically, we have the power to allow our communities to thrive. Amplify small voices, shop locally, and get to know business owners to understand their struggle.


RESOURCES

  • Support the SFSBA! 
    • https://www.sfsmallbusinessalliance.org/ 
  • Bay Area business directory (type “small business” into the search bar!) :
    • http://local.sfgate.com/en-US/search#!San%20Francisco,%20CA/small%20business/2/relevance/{} 
  • Read about the American Rescue Plan:
    • https://www.whitehouse.gov/briefing-room/legislation/2021/01/20/president-biden-announces-american-rescue-plan/ 
  • Contribute to a small business GoFundMe:
    • https://www.gofundme.com/small-business-relief-fundraisers 

 

 

Thank you for taking the time to visit my website! Were you aware of the struggles small businesses have faced while trying to receive government loans during the pandemic? I would love to hear your thoughts on my topic. Please feel free to use the comment section to express any questions or even state your favorite small businesses for others to visit themselves. 

3 Comments

3 comments

  1. Erin_114

    Hi Rachel – As a fellow Bay Area resident, this topic really hits home for me as well. I have seen some of my favorite restaurants and stores close over the course of the pandemic, and I didn’t know about the problems small businesses were having with receiving government help – I’m glad to hear about the revisions that have been made to this system through the ARP. Can’t believe that nearly half the small businesses in SF have closed… I will continue to shop local!

  2. Ella Mertz

    Hi Rachel!
    First of all, great job! As a person with a lot of family members who are small business owners, this topic was really important to me. I love how you well informed you were about this topic and how you offered some resources and ways to help at the end of your presentation.

    1. Ella Mertz

      Also, is there a specific sector or type of small business that got affected the most by covid? why?

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