Small business set asides are the various preferences given in government contracting to small businesses or businesses that otherwise fit various socio-economic criteria (woman owned, veteran owned, etc). A pure set aside means that the contract must be awarded to a firm that meets those criteria. Most large contracts are awarded with subcontracting requirements, that certain percentages of subcontracts or subcontracting dollars must be awarded to vendors of various certifications. The question of “why?” is frequently over looked since it seems obvious at first that helping small businesses is a good thing and especially businesses that would be otherwise disadvantaged.
Whether this is true or not depends on whether reality reflects the idealized world of small, almost Jeffersonian businesses competing against large, oligopolistic businesses run by lizards with a blood lust for human babies. Reality, as it turns out, looks quite a bit different.
First, it’s critical to remember that the set asides depend upon company ownership (for the most part) and not worker composition. This matters a great deal if the implicit purpose of the set aside is to aid a certain socio-economic group. Look at the line up at this woman owned business, TranTech - http://www.trantech-inc.com/about4.html. The CEO and owner is a woman, but the rest of her management board is comprised of middle aged, white males, all culled from other government contracting posts. And what of the rest of the company? With the newspapers alive with stories of insufficient women in the engineering field, is the company required to employ a certain number of women to maintain its special status? No, it’s not. But by virtue of the fact that the owner is in a specially appointed demographic, the company gets competitive protection. Who benefits? One woman, and her retinue of experienced not-quite-underprivileged executives.
Surely, you could object, all of her employees gain, too! But don’t the employees of a Fortune 500 company gain, too? What makes the employees of the former more worthy than the employees of the latter? At least the Fortune 500 company is (most likely) publicly traded and therefore accountable to shareholders and a public body. Not to mention the fact that the publicly traded company’s profits are distributed to thousands upon thousands of owners, many of which are institutional investors serving thousands more, including the proverbial “widows and orphans”.
It might be the case, that like with affirmative action, one of the goals of these set asides is to attune the market to small businesses and special socio-economic businesses. But again, this status rests almost entirely on the position of the owner(s), and few companies are evaluated, technically or otherwise, by the gender, race, or wealth of the owner.
Instead, I think, the set asides form a convenient and opaque way for the government to transfer its largess to special interests, specifically those special interests deemed special by our special Congressional Representatives. The public interest groups are too interested in how many contracts Halliburton was awarded, and don’t care if Joe Bob’s Acme Technology company was awarded a million-dollar contract with minimal competition.