Serious About Shrinking Government? Cut the SBA

I wrote in November that if Elon Musk’s Department of Government Efficiency (DOGE) was really just code for slashing government output, the administration might as well drop the pretense and call it what it is: the Department of Government Downsizing (DOGD).

Well, here we are more than six months later, and with Musk now saying his time as a Special Government Employee is over, it seems I was right. In his short, frenzied tenure, he oversaw an indiscriminate purge of federal workers, and the cuts show no signs of stopping even in Musk’s absence. Indeed, the DOGE team’s general goal—to shrink the federal footprint—is widely shared among White House officials, and administration is also pushing a “Big Beautiful Bill” full of tax and spending cuts, so the effort is likely far from over.

So, assuming the Trump administration is serious about shrinking government, why not eliminate an agency whose sole purpose is to distort market outcomes by privileging firm size over performance and productivity? When it comes to government waste, the Small Business Administration (SBA) is low-hanging fruit that has been over-ripe for a long time. It’s time we cut it.

Back in 1932, Adolf Berle and Gardiner Means predicted in The Modern Corporation and Private Property that the largest 200 firms would control all corporate wealth by 1970. Congress responded two decades later by establishing the SBA “to aid, counsel, assist and protect, insofar as is possible, the interests of small businesses.”

The problem? That grim prediction never materialized. The size structure of the U.S. economy has remained remarkably stable. As Elaine Tan documented, the largest 200 and 500 corporations held 38.85 percent and 50.08 percent of total corporate assets in 1946, respectively. That share peaked in 1968 and has gradually declined since. By 1997, the top 200 had lost more than a third of their share, while the top 500 fell only slightly, to 50.14 percent.

And it’s not just a historical anomaly. As ITIF has shown using U.S. Census data, industrial concentration has barely moved since 2002. If anything stands between us and monopolistic control, it’s the Department of Justice, not the SBA.

Moreover, as Mike Lind and I showed in our book Big Is Beautiful: Debunking the Myth of Small Business, on average, large firms outperform small ones across nearly every meaningful economic metric—from productivity and wages to environmental compliance and employee benefits.

So, the question we should ask the SBA is the same one that the Bobs ask in Office Space: “What would you say you do here?”

The answer, in short, is that it subsidizes and protects small businesses. The SBA helps small firms secure federal contracts, something they could do just as easily by signing up for public bid announcements like everyone else. It provides direct and guaranteed loans, essentially picking winners and losers—even though, if a business is creditworthy, banks should be willing to lend to it without taxpayer-backed guarantees, and if a business isn’t creditworthy, it shouldn’t get a loan.

Worse still, most SBA loans don’t go to innovative start-ups or small manufacturers that could eventually compete globally. From 2010 to 2019, they overwhelmingly supported local-serving enterprises: restaurants, dental offices, landscaping services, gyms, salons, and even 6,197 beer and liquor stores. In fact, among the SBA’s top 40 industries receiving 7(a) loan guarantees in 2020, none were manufacturers competing internationally. All were local services.

In other words, these loans support businesses that would almost certainly be replaced by another small business if they didn’t receive help from the SBA. Does anyone honestly believe that without SBA intervention Americans would be deprived of six-packs after work?

Then there’s the SBA’s Office of Advocacy, whose job is to shield small businesses from regulation. But why should a company with 499 employees be exempt from rules that apply to a company with 501? If a regulation is essential to protect the public, it should apply to all companies. If it isn’t, it should apply to none. Yet the Office of Advocacy has lobbied to exempt small tobacco companies from FDA oversight and to weaken FAA safety rules for small aircraft repair shops. Because, apparently, protecting small businesses is more important than protecting lives from cancer or plane crashes.

To be fair, the SBA does serve a few legitimate functions that should be preserved, namely disaster loans. But FEMA or the Commerce Department could easily take over that role. The SBA also provides export counseling, a job Commerce already does well. There’s no reason these duplicative efforts couldn’t be consolidated into Commerce.

DOGE, take note: Efficiency means producing the same with less, not less with less. Yes, the government should continue offering disaster loans and export assistance. But no, it doesn’t need multiple agencies providing the same functions. If DOGE existed to streamline government, as advertised, it should agree.

It would be one thing if SBA programs actually grew the economy. But they don’t. Firm size and productivity have a nearly linear relationship. Bigger firms tend to produce more value per worker. Without the SBA, the number of corner cafes and liquor stores across America would likely remain the same, because customer demand, not federal largesse, determines their existence. Not to mention the fact that decades of research shows that real economic dynamism comes from new firms, not small ones.

Under the status quo, the SBA continues to skew competitive markets, handing out loans and federal contracts based on headcount instead of performance—rewarding inefficiency and punishing scale. That should stop. At this point, it’s clear the Trump administration’s endgame is to shrink the federal workforce. So, it should have no problem eliminating an agency that doesn’t just fail to create economic value but actively undermines it.

Of course, DOGE probably won’t touch the SBA. It’s popular with banks nationwide, which love offloading their lending risk while keeping the revenues. Big corporations support it as political cover. (“See? We like small businesses too!”) And many of Trump’s core voters are small business owners who might hate government, but like their own handouts and exemptions. But it would be refreshing to see an administration that claims to champion free markets actually let markets decide the size mix of firms in the U.S. economy, rather than letting Washington pick favorites.