As November approaches and health care reform is once again high on the national agenda, it is worth recalling how the last major effort met its end. In the summer of 1994, organized small business dealt a decisive blow to President Clinton’s health plan. The National Federation of Independent Business (NFIB) and local Chambers of Commerce joined forces against a lynchpin in the reform process: Representative Jim Slattery of Kansas, a key member of the House Energy and Commerce Committee. Slattery, who had promised to support a compromise proposal, was running for governor and anxious about opposition from the state’s small employers. Fearful of their influence, Slattery withdrew his support. The bill never made it out of the committee, and Clinton’s most important domestic policy initiative was dead.
For close observers of American politics, this story fits a familiar pattern. While NFIB is relatively small—600,000 members compared to AARP’s 38 million—it is remarkably powerful. Fortune has frequently named it the most powerful business lobby in Washington, and in 2005 Republican members of Congress identified it as the most powerful congressional lobby. And just last month, Republican presidential hopeful John McCain deemed the organization sufficiently important to provide the keynote address at its National Small Business Summit.
NFIB, whose members typically have fewer than five employees and $350,000 in gross sales, has a clear ideological thrust: it favors lower taxes, opposes minimum wage increases, and generally embraces small-government, free-market policies. The organization sets its policies by polling its members, and thus claims to represent the political views of small-business owners. Opinion surveys, however, cast some doubt on these claims. Such surveys suggest that NFIB’s opposition to government intervention in the market runs counter to the outlook of many small-business owners. Like small-scale employers in other industrial democracies, they recognize that state social supports—from education and training to health care—supplement workers’ wages and benefits, and help small businesses recruit and retain their workers.
How, then, has NFIB become the voice of American small business? And does it really represent the views and best interests of small-business owners? As the 1994 health care story indicates, these are consequential questions for American democracy. “Small business” occupies a special place in the country’s political imagination, and, imagination aside, NFIB has a significant impact on public policy. If NFIB does not really represent the full spectrum of small business interests, perhaps other organizations are needed.
The current health reform debate highlights the weight of these concerns. Today many states are trying to expand insurance coverage through public programs like Medicaid and the State Children’s Health Insurance Program (SCHIP). Some states are also considering more controversial employer mandates. Fair-Share legislation, which requires large firms such as Wal-Mart to provide health benefits for their workers or pay into a public fund, has passed only in Maryland but has been discussed in thirty-three states; Massachusetts’s comprehensive reform includes a smaller but broader mandate, and a similar program is now under consideration in Pennsylvania.
Some employers favor such mandates: they could level the playing field by requiring all firms to pay something toward the health insurance of their workers and reduce health care costs for everyone by ensuring comprehensive coverage and decreasing reliance on expensive emergency care. But NFIB opposes all employer mandates or levies on uninsured firms. In Maryland it actively opposed the Wal-Mart plan theroughout the lengthy, contentious debate. In 2007, the California chapter of NFIB came out against a plan to impose a payroll tax and to require employers to set up pretax health care accounts to pay premiums. Big business and their representative organizations have shown greater support for these plans. Some groups, such as the Business Roundtable, have come out in favor of SCHIP as a key public program.
Instead, NFIB has lobbied extensively, at both the state and federal level, for the Association Health Plan (AHP). This model makes “association-sponsored plans” easier to establish and implement. Under an AHP, insurers can sell coverage either to members of an association directly or to an association on behalf of members. If an insurance company sells to an association, the plan is regulated according to the rules governing large group insurance, which provide far fewer safeguards to consumers and allow plans to charge members in poor health higher premiums. The Congressional Budget Office has estimated that AHPs would increase premiums for 75 percent of small businesses. Thus, NFIB has chosen to support a measure that satisfies its self-interests by expanding incentives to join the group, but may fall short of meeting its members’ needs.
Why, then, does NFIB adopt “small-government,” “conservative” positions on health care reform and countless other issues? One answer is ideological: small-business owners have traditionally been characterized as hostile to government. The standard argument says that this opposition reflects concerns about higher taxes, disruption of the free market, and loss of autonomy. In addition, even when policies appear to deliver short-term benefits, small-business owners may oppose them for fear that expansive policymakers might exploit such changes to enact more comprehensive or costly policies in the future.
NFIB’s own polls convey precisely this profile of small employers. In the early 1990s the group reported that only 25 percent of its members favored a government-funded single-payer health plan, and 82 percent opposed a minimum wage increase. In a 2006 ballot, four out of five members opposed the creation of a paid Family and Medical Leave program funded by withholdings from employee wages, and over 90 percent opposed any government sanctions on businesses that do not provide health care for their employees. In the most recent NFIB survey of “Small-Business Owner Concerns,” three of the top six concerns involved taxes. But do these polls of members mirror the opinions of the broader small business community, or are NFIB members a more select group?
A variety of sources suggest that the small business community has much more diverse political preferences. In a 2000 American Express poll, 82 percent of small-business owners cited “improving schools/training young people for work” as a very important issue to them, more than the number choosing tax cuts (74 percent) and reducing government regulations (72 percent). Another 77 percent cited health care for employees. Although small-business owners are generally thought to oppose the minimum wage, a 2007 survey indicated that 70 percent supported an increase in the federal minimum. Perhaps most surprising, in the 2004 presidential election only 3 percent of small-business owners identified taxes as the crucial issue informing their voting choices—a percentage that mirrored the population as a whole.
Or consider health care. One study found that two-thirds of small-business owners supported a universal health care system, and half of all small employers surveyed preferred that this system be government-run. In 1992 the National Association of Health Underwriters found that 70 percent of owners of firms employing between two and fifty workers supported expanding Medicaid to cover more uninsured workers and their children. In many cases, these studies found that small-business owners are more amenable to a government role in health care than their big business counterparts, even though organizations representing big business have been more publicly supportive of government help.
Presidential election data confirm the ideological diversity of small-business owners. On the eve of the 2004 presidential election, 95 percent of NFIB members planned to vote for George Bush, yet 41 percent of small-business owners voted for John Kerry, and only 39 percent were registered as Republicans.
Of course, it is difficult to be sure about the policy preferences of small-business owners: polls are ambiguous and respondents highly responsive to fluctuations in economic and social conditions. In addition, small-business owners may base their political preferences on non-economic factors like religion, ethnicity, or a party identification they grew up with. Finally, small-business owners may be uncertain about how to advance their economic interests, in part because they lack the information required to analyze the likely impact of public policies. What seems clear, though, is that there is considerable political diversity in the small-business community.
Moreover, even when employers express conservative ideological preferences in the abstract, they often support specific reforms involving a more assertive role for government. While a more minimal government might make strategic sense to a small-business owner who wishes to compete with rivals in jurisdictions with low taxes, small firms also have compelling reasons to endorse government policies that promote economic growth broadly and that support production processes within the firm. Indeed, all sorts of firms, from low-wage employers to high-tech startups, may benefit from expansionist government policies.
In our service economy, large numbers of low-skilled workers have low-wage jobs in the small-business sector. Small firms employing low-skilled workers find it particularly difficult to provide benefits, and the American welfare state has increasingly been called upon to fill the gap. The Earned Income Tax Credit, for example, underwrites incomes for low-wage workers while increasing the labor supply in low-wage service industries. Food stamps, child care subsidies, and public health programs such as Medicaid and the State Children’s Health Insurance Program increase productivity and reduce turnover among low-wage workers, to say nothing of improving their quality of life, at virtually no cost to their employers.
The shift from manufacturing to services has also created more high-skilled jobs in the small business sector. This rise in skills in services has moved the small-business profile beyond the “mom and pop” retail store to include independent fashion designers, travel agencies, community newspapers, photographers, accountants, and IT consultants who work from their homes. These small companies often require employees to possess post-secondary education, technical training, and systems management and accounting acumen. High-skilled firms have needs different from low-skilled ones, but public policies are just as important for them. These firms tend to employ highly educated and potentially mobile workers who are attracted to communities with good schools and universities, well-maintained recreational facilities, and effective environmental policies. Moreover, when workers lose their jobs, unemployment insurance gives them the economic security to defer work in order to train for new skills. Here, too, there are bases for supporting a more active government as a way to ensure the supply of skills on which small businesses will build in the future.
Or consider small employers who hire employees from dual-earner families. As more women enter the workforce, family-friendly policies such as quality child care and flexible family leave curb absenteeism and improve worker retention rates. Here, again, public policy can play an important role in helping to ensure the wellbeing of a company’s workers.
Finally, the erosion of traditional, employer-provided health care makes government subsidies for health benefits more essential than ever. Between 1989 and 2003, the employment-based coverage of private-sector workers fell 15 percent. By 2004 nearly one-fifth of working Americans lacked health insurance. Small companies have struggled the most to provide health coverage. While 98 percent of firms with over 200 employees offered health insurance to their workers in 2005, only 47 percent of firms with fewer than ten employees did. Skyrocketing health costs, which can be partly attributed to uncompensated care for the uninsured, are largely to blame. But health coverage, heavily subsidized by the government even when provided by employers, improves employees’ productivity by allowing workers to seek medical help before they fall into crisis.
Historically, American employers have been responsible for a whole range of social policies responsive to workers’ needs in what has been called the “shadow welfare state.” Where other countries created government-funded health insurance, training programs, child allowances, and pensions, the United States developed employment-based benefits, largely in collective-bargaining negotiations. This system of private social provision has particularly disadvantaged small employers, which lack the organizational slack and economies of scale to make cost-effective commitments to training and health programs.
If small-business owners are not so ideologically uniform, and if government intervention would benefit some, then what does account for NFIB’s small-government conservatism? The reasons may be more organizational than ideological. Even when individual business owners do favor more proactive government policies, the nature of American business organizations (including the difficulties of starting new groups) presents real hurdles to the expression of their preferences. In short, NFIB’s monopoly on the small business voice, achieved through effective organization and strategy, may be keeping alternatives off the agenda.
In general, business interests are thought to have disproportionate lobbying power because of their extraordinary resources, shared preferences, and ability to organize more or less everyone as a class. On the first of these there is a great deal of supportive evidence. But business may be less cohesive, and business preferences less uniform, than is commonly believed. The United States, with its two-party system, lacks both a dedicated business party to unify diverse corporate interests and a strong labor movement in opposition to which industries might be motivated to resolve their differences. Therefore, compared to other industrialized countries, the business voice in the United States is quite fragmented, and competing employers’ associations act more like sales organizations than like decision-making bodies.
Because of this fragmentation, business associations often resort to a least-common-denominator politics: they express broad, predictable principles, but seldom take the lead on more politically contentious ventures. While employers are good at opposing regulations that offend their short-term self-interest, they enjoy less success in supporting policies to further long-term, collective concerns. When compared to their counterparts in other countries, interest groups in the United States are typically better at blocking policies they dislike than advancing alternatives that they prefer.
In fact, small business organizations have been especially successful—perhaps more successful than organizations representing large firms—at blocking new policies. One reason for their effectiveness is the symbolic appeal of small business to the general public and the ability of the sector to exploit this appeal in the media. A 2005 Harris Interactive telephone survey found that 90 percent of respondents believed big business had too much power and influence in Washington, while fully 92 percent thought that small business had too little power. The obstacles to small employers in wielding individual influence—their numbers, diversity, and apparent lack of prestige as individual enterprises—turn out to be a source of strength in pressing their claims in the modern media environment and, consequently, in Washington political channels.
Second, the major small business groups have proven adept at forming single-issue coalitions. Such coalitions might include NFIB, the National Association of Wholesaler-Distributors, the National Restaurant Association, the National Retail Association, and large firms with many low-skilled workers, such as PepsiCo. The small-business lobby has explicitly tried to establish itself as an independent voting block. As NFIB’s grass-roots organizer R. Marc Nuttle put it last year, “Christians did not realize how big they were. Pat Robertson put a face on them and I intend to do that for small business.”
Third, the small-business lobby is successful in altering the fortunes of federal legislation because the influence of small business groups has grown with their close connections to the Republican Party. Since Ronald Reagan’s first term, the Republicans have used them as allies in policy fights on issues as varied as family leave and corporate taxation. In 2004, NFIB endorsed 265 Republican candidates and only 4 Democrats, and 95 percent of its political action committee’s substantial donations went to the Republicans. Because of this alliance with the Republican Party, support for more active state policies is risky, although the recent shift of power in Congress—as well as a change in the leadership of NFIB itself—has led the organization to pursue alliances with moderate Democrats. Other shifts in the political climate, such as the movement toward broad-based health care coalitions in search of a genuine compromise, have also moderated NFIB’s policy profile in recent months. Whether these developments will continue to move the organization toward the center remains to be seen.
Finally, NFIB obtains political clout by relying on members’ expressed preferences: policy positions are based on national member ballots and state surveys, which are made available to legislators. If a substantial majority of members—generally the threshold is 70 percent—favor one side of an issue, the national organization regards the vote as a mandate to lobby. Some of the state affiliates have lower thresholds.
The design of NFIB’s member polling, however, gives reason to believe that it might not represent its own membership, let alone the small-business community more broadly. Ballot summaries rarely convey the complexity of bills and the effects they are likely to have on small business. For example, many health care and wage reforms include provisions to offset burdens for small employers that might serve to increase support for these measures. On some of the most complex issues, taking a meaningful position from a simple poll is almost impossible. In these cases, NFIB is virtually unable to act, unless staff members elect to abandon their politically effective practice of polling before lobbying. Interviews with NFIB staffers indicate that health reform may in fact require such a move.
If many small-business owners support NFIB policies, many others clearly do not. If these differences are important to enough small-business owners, should we expect to see new organizations reflecting the broader range of views in the small business sector?
Such an organization did exist for some years, though in attenuated form. The American Small Business Alliance was founded in 1996 to offer business owners an alternative voice in the political and policy arena, particularly on the issue of affordable health care. Its executive director, attorney Joel Marks, struggled to find a niche for the group in the crowded Washington interest-group landscape. In several states, the group was commissioned to organize support among small-business owners around specific legislative battles and referenda initiatives. Marks hoped to develop the group’s research capacity and form a kind of think tank for small business interests, which would also promote the sector’s interests through opinion pieces and congressional testimony. But financial support for these efforts was difficult to come by; no sustaining sponsors for ASBA emerged during its formative years.
In 2000 ASBA received a small grant to allow it to explore a state-based strategy. The grant provided for the creation of a chapter in Maine and would initially pay the salary of an executive director. The group hoped that local successes might lead to additional local or national support. The Maine chapter (MSBA) quickly found a place in state politics. The Governor appointed the organization’s director to his health care task force as its small-business representative. It was involved in the state campaign for comprehensive health care reform, and received small grants from the Environmental Defense Council and the Maine Health Access Foundation. The MSBA director testified on several occasions before state legislative bodies, and at one point the organization had 180 members. But it never developed much momentum. The cost of joining was low, but the director found it difficult to build membership, and the group is now moribund.
The evident gap in the representation of small business interests did not stay unfilled very long. Small Business Majority (SBM) was founded in 2004 as a national NFIB alternative. The organization’s agenda focuses on common small-business concerns: health care, access to capital, taxes, and government support for technology. In 2007 it sponsored a California poll that revealed broad support among a random sample of small-business owners for government-sponsored tax reform. As we write, SBM is in high demand as various donors recognize its potential to contribute to the coming national health care debate.
State-based organizations have arisen as well. In South Carolina, the Small Business Chamber of Commerce formed in 2001 as an alternative to the state Chamber and NFIB chapter, and has vocally supported more active government policies, particularly in health care. However, the organization’s membership is largely made up of trade associations (most notably and controversially the Trial Lawyers Association), and it is widely perceived as the product of one particularly media-savvy leader rather than of any substantial portion of the small business community.
There are also small-business organizations in many parts of the country that form to promote local businesses and community vitality. These groups often begin for economic reasons (for example, to compete with chain stores), but then weigh in on local politics. For example, the Business Alliance for Local Living Economies (BALLE), a loose confederation of small-business owners with 15,000 members in fifty-one networks in the United States and Canada, promotes members’ products and local businesses and supports public policies that buttress local economies and encourage environmental protection. The American Independent Business Alliance opposes “big box” retail establishments and the use of tax subsidies that undercut locally based businesses. The membership of these groups is quite diverse, yet firms have been joined together by their political priorities for sustainable local economic development.
What can we learn from the experience of the American Small Business Alliance and other small business organizations? What are the possibilities for the emergence of a politically powerful, alternative organization for small business?
It is unlikely that alternative small-business organizations can be launched solely by funds raised through memberships. In Maine, for example, ASBA quickly enrolled a core group of members, but found it difficult and costly to recruit beyond that initial cohort. Perhaps membership recruitment is limited because small-business owners have not been sufficiently exposed to ideas about high-wage, high-skill public policies. If that is so, costly and deliberate recruitment efforts may be necessary. A rival small business organization would also have to confront NFIB’s competitive advantage in the provision of individual benefits to members, such as access to health insurance.
Individual sponsors and interest groups would have to subsidize the founding and development of alternative groups. Each year advocacy organizations already spend millions to promote public policies and oppose alternatives supported by conservative small-business organizations. A small fraction of those funds, if diverted to support alternative small business groups, could provide the financial foundation of an effective rival to NFIB.
Who are potential sponsors? Labor unions are occasional supporters, but can hardly be relied on to support business organization. Mainstream foundations concerned with economic development could help. Many such groups, after all, make grants to the Corporation for Enterprise Development, Good Jobs First, and other groups doing research and advocacy for policies supportive of high-wage businesses with low environmental impacts. But these foundations, though sponsors of “high-road” policy approaches, have been slow to make grants designed to redress directly the imbalance between liberal and conservative influences in the realm of small-business lobbying.
As for NFIB, the organization has recognized that it cannot sit on the sidelines during the current health care debate. With new leadership, it has taken a number of steps that suggest a potential change in strategy. In the last year it has joined the Divided We Fail Coalition alongside a major union and AARP, announced a new campaign called Solutions Start Here that intends to ratchet up the discussion of small businesses and health care and includes universal coverage as one of its ten guiding principles, and will spend the next year collecting information on members’ preferences with an eye toward supporting some sort of health care reform in 2009. Specifics have yet to emerge, and what remains to be seen is the extent of NFIB’s willingness to compromise on employer mandates, taxes to pay for reforms, and an expanded role for government in helping small-business owners and employees obtain health insurance coverage. We must reserve judgment on whether there is a genuine organizational shift afoot.
Small business owners occupy a Norman Rockwell-space in the American imagination. But as our analysis suggests and experiences in Washington and the nation’s state capitals repeatedly reveal, the appeal of small business has been appropriated by a powerful interest group that does not fully represent the views of small-business owners. Small business is not the only arena of American politics in which the dominant interest groups do not align well with the spectrum of preferences held by the people they represent. But because of NFIB’s power, it may be the most politically consequential, and also the most ripe for encouraging alternative groups that can speak for those who currently have little political voice.
Nicole D. Kazee is a PhD candidate in political science at Yale University and a fellow at Demos in New York City. She was previously a fellow at the Brookings Institution and the Miller Center for Public Affairs.
Michael Lipsky, Senior Program Director at Demos, was previously Professor
of Political Science at the Massachusetts Institute of Technology and is author of
Street Level Bureaucracy.
Cathie Jo Martin is Professor of Political Science at Boston University. She is author of Stuck in Neutral: Business and the Politics of Human Capital Investment Policy.
Todd O. McCracken, President of the National Small Business Association, responds.