How to Save American Middle-Sized Businesses from the Coronavirus Supply-Chain Crisis

Congress passed an $8.3 billion spending bill to address the coronavirus epidemic, but the bill will not protect small companies. Republican Senator Marco Rubio put forward the idea of mass direct government lending to American small and medium-sized businesses. But Democrats, who have traditionally advocated for such a policy, now oppose it. 

 

 

Last week, Congress passed an $8.3 billion supplemental spending bill to address the coronavirus crisis. The bill has a number of parts, including aid for cities and states, pandemic response and vaccine research, and $7 billion in loans for small businesses hit by the disaster. At first blush, it seems like the legislation is not that big a deal, a narrowly written bill directly responding to a crisis. But I’ve spent some time calling around Congressional contacts, and I think this legislation is the start of a couple of important political trends.

 

First, Congress has just taken the lead over the executive branch on governing. Trump initially asked for just $2.5 billion to address the crisis, and Congress rejected that immediately and put in a larger number. Just for a frame of reference, Singapore has spent $4.5 billion on its response, and Singapore has one seventieth the number of people. Getting something in the right ballpark would be $300-400 billion, so the amount Congress passed isn’t sufficient. Even so, it is still the case that Congress is taking the lead on setting policy and governing during a crisis. That’s a shift in institutional power.

 

Second, while the Trump administration is floundering, it is not the Democrats, but a younger generation of Republicans, led in this case by Josh Hawley and Marco Rubio, who are actually the most radical in terms of seeking public political action to address the economic fallout from the disease. Hawley just introduced legislation to give authority to the FDA to investigate drug and device shortages, a basic antimonopoly tool. This is necessary, because pharma is using trade secret laws to hide where their factories are located. And Rubio, as I’ll go into, is trying to expand government lending to businesses working on supply chain problems.

 

The Supply Chain Crisis

 

I’ve been going through hearings that the United States Trade Representative held when Trump first put on China tariffs a couple years ago. Any company could come and testify about why imposing a tariff on their particular item coming from China would be disruptive, because of their strong dependence on China and lack of alternative source of supply. We are dependent on China for everything from barite, which is a chemical that goes into fracking drills, to electronics to bowties to pesticide inputs to pharmaceutical precursor inputs, to chemical inputs that go into the ink for the dollar bill to the raw dye that we use for military camouflage uniforms. And that’s just what they complained about.

 

Rubio’s response to this crisis is to use his position as the Chairman of the Small Business Committee to resurrect an old approach Americans used to build up the military prior to World War II, which was called the Reconstruction Finance Corporation. Imagine the bank bailouts, only put to use financing industry, and that’ll give you a sense of what the RFC was. In negotiations over the Congressional response package to the coronavirus, Rubio put forward the idea of mass direct government lending to American small and medium-size businesses to break bottlenecks in our supply chains for manufacturing. He sought to expand what’s called the Economic Injury Disaster Loan program, which allows the Small Business Administration to start lending money directly instead of just encouraging banks to do so.

 

Direct lending from the government to small businesses is something Democrats have long sought. Larger businesses tend to have lower capital costs, which gives them a competitive advantage, and generally Democrats believed that the government should step in and fix that by providing low-cost capital for the little guy. So for a Republican to be taking the lead on small business lending is unusual. What’s even more unusual is that the final package didn’t include what Rubio sought, because House and Senate Democrats opposed granting expansive authority to the SBA. Democrats think of themselves as the party of government, but in this case, they are the ones blocking the use of public power to structure economic activity.

 

Now, the Democrats have their reasons. The SBA is slothful and isn’t set up to do mass direct lending of the kind Rubio wants. Since the beginning of the Obama administration, Democrats have tried to use government for various ends, including spurring lending during the foreclosure crisis, but largely to no avail. So there is tremendous distrust of the institutional competence of the government to operate effectively. And up until very recently, Republicans vehemently opposed this kind of policy.

 

For example, in 2015, the Democratic Chair of the Small Business Committee, Nydia Velazquez, proposed a policy to expand the mandate of the SBA into more financing of manufacturing enterprises, and Republicans were hostile. Donald Trump also doesn’t make any of this easier, considering that enabling him to have access to more resources tends to make Democrats leery.

 

There’s also a basic concern that small business lending to promote manufacturing won’t work, because after the pandemic passes we will simply destroy or offshore the supply chains once again. There are good reasons to assume that. To take just a simple example, in the biotech space, as the coronavirus burns through the world, Thermo Fisher is buying Qiagen, which makes testing kits for… the coronavirus. If this merger is approved, it will leave one less major competitor in the biotech supplier market. And while I don’t know much about this market, Qiagen stock is popping, suggesting there is market power at work.

 

All these reasons aside, the attempt by Rubio to address the supply chain problem isn’t just opportunistic, but part of a shift by the GOP in terms of how they understand governing. Last year, Rubio argued for a government-led industrial policy to take on China, and issued a report attacking the financialization of the economy. The shift is real, and not a result of coronavirus. Even Mitt Romney made steps back in September to turn against the power of financiers. In other words, this crisis is accelerating a change in philosophy on the right already underway.

 

In other words, we’re in a moment of political chaos, with a huge trust gap between the parties. And this is where you come in. Because while Republicans and Democrats can argue about what to do, they all want to hear from people working in and around business about how the coronavirus is affecting their supply chains, what they make, their ability to serve customers, and whether workers are in a safe environment. They want to know how the coronavirus affecting small and medium-sized businesses. More broadly, they want to know why is it so hard to have a supply chain based in America? Is it financing, distribution, market power, etc? How they answer that question will determine what kind of response they will make to the government’s ability to finance business.

 

So if you have thoughts, send me an email. There’s going to be a Congressional hearing next week, and I’ll take some of your comments and put them into a statement I will submit for the record. If you want a more structured questionnaire, my colleague set up this form where you can leave feedback on what you’re seeing as a result of the Coronavirus.

 

Normally I try to end these essays with a rousing call or some sort of dramatic conclusion. But this case, the story’s not over, and you’re a part of it. So there we go.

 

Matt Stoller is the author of Goliath: The Hundred Year War Between Monopoly Power and Democracy and Director of Research at the newly-founded American Economic Liberties Project. This text originally appeared in BIG, Stoller’s newsletter on the politics of monopoly. You can subscribe here

 

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