Transparency needed in government procurement

Two U.S. House Committees held a joint hearing yesterday on a potential executive order from the Obama Administration that will try to make sure government contracts are not being awarded because of campaign contributions.

This is a seriously important issue for every small business that would like to provide goods or services to the Federal government. Unfortunately, leading the charge against this transparency is the U.S. Chamber of Commerce.

Before the hearing, I participated in a press conference call sponsored by the Main Street Alliance, American Independent Business Alliance and American Sustainable Business Council. I serve on the steering committee for the latter. These organizations also sent a letter of support to the President.

Reporters on the call included the National Journal, NPR, Bloomberg, Roll Call and the Wall Street Journal. You can listen to the entire press conference call here , read the press release here, read some press reports here, here and here and read my opening remarks on the press call below.

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May 12, 2011 press conference call opening statement by Frank Knapp, Jr.

I’m Frank Knapp, President and CEO of the 5000+ member South Carolina Small Business Chamber of Commerce.

Today I am also representing the American Sustainable Business Council, a growing coalition of business networks and businesses committed to advancing a new vision, framework and policies that support a vibrant, equitable and sustainable economy. The Council brings together the business perspective, experience and political will and strength to stimulate our economy, benefit our communities, and preserve our environment. Today, the organizations that have joined in this partnership represent over 100,000 businesses and more than 200,000 entrepreneurs, owners, executives, investors and business professionals and other individuals.

Clearly an important issue in last November’s election was government accountability. And an extremely important tool for achieving that goal is transparency. The public and business community want, no, we demand to know that government decisions are being made in our best interest not for the benefit of deep-pocketed special interests. Transparency is a uniquely American ideal and is at the heart of every campaign finance disclosure and economic interest law in this country.

That’s the reason the groups here today support President Obama’s proposed executive order on disclosure of government contractors’ political spending. Because the Federal Government is the country’s largest purchaser of goods and services, small businesses demand a level playing field so that we can have the confidence that federal contracts are going to the businesses that can deliver the best products at the lowest cost. That’s a Main Street value and disclosure helps get us closer to that transparency goal.

This afternoon two House committees will hold a hearing on the proposed executive order. The title given to the hearing is, “Politicizing Procurement: Would president Obama’s Proposal Curb Free Speech and Hurt Small Businesses”

That certainly sounds like small businesses were invited to the party but reading the witness list it is clear that the hosts don’t intend to let us in the door.

Now small business organizations like ours are use to having our name used as a front for big business interests. The U.S. Chamber particularly likes to drape its big business agenda in a faux small business cloak.

About this executive order, the U.S. Chamber warns that disclosure will have a chilling effect on free speech. But we can’t ascribe a lofty principle to the motives of that organization when the real intention is to protect the ability of its big, dues-paying members to use their campaign checks to influence the procurement process.

The U.S. Chamber’s Board of Directors includes representatives of more than 50 companies that compiled over $44 billion in contracts with the government in 2010. “Free speech” for these corporations and the U.S. Chamber is just a code phrase for maintaining the influence big campaign money has over our democracy and government.

If a new disclosure rule is enacted, it won’t be small businesses that will be burdened. We are not writing big campaign checks so disclosure won’t be hard. The only contractors who oppose disclosure are the ones with something to hide from the sunlight. The ones that don’t believe in the Main Street value of fair competition. The ones that shudder at the thought of transparency because they know that Americans won’t like what they see and will demand even more reform.

Today you will hear from two small businesses that aspire to do business with government. And you will hear first hand why transparency through disclosure is badly needed.

Amazon not giving up

The Amazon.com lobbyists must be busy working the phones to our state legislators and emailing them copies of the story in Saturday’s State. “Amazon vote drives off two firms”, screams the headline.

The story goes on to quote Lexington County leaders who have been at the fore front in pushing for Amazon.com to be the only retailer in the state not to have to collect sales tax on in-state sales. Not one dissenting point of view was included as you would expect in a news story. Not one. Amazon couldn’t have paid for better one-sided news coverage.

In my blog on Thursday I said, “Now attention must be paid to the Senate. Amazon.com hasn’t been paying possibly six digit fees to lobbyists just to give up as long as the legislature still has a breath of life this session.” Saturday’s front page story tells me that I was correct.

But let’s make sure we all know what the Amazon proponents actually said in the story. One potential manufacturing prospect for Lexington County is “abandoning consideration”. The other was led to “suspend interest” several weeks ago because of the controversy. Neither of these prospects were in the bag as we thought Amazon was. This might simply have been a convenient excuse for the prospects to say no to Lexington County because it sure wasn’t because the state and county didn’t deliver on everything they promised in writing to Amazon.

And while we were all embroiled in battle here with Amazon, Wall Street didn’t care. The company’s stock rose 7.9 percent to reach an all-time high the same day our House voted down the sweetheart sales tax deal. According to a Seattle Times story, the jump in stock price was because investors approved of the company’s efforts to “grab a bigger share of the e-commerce market.”

And how is Amazon grabbing a bigger share of the market? By bullying states like South Carolina into giving them an unfair competitive advantage over the state’s existing brick-and-more and online stores that have to collect sales tax on in-state sales.

The House vote on Wednesday wasn’t only important for fairness to our existing small businesses, it was also important to the national effort to force all online retailers to collect sales tax regardless of the location of the customer.

Jeff Milchen, co-founder of the American Independent Business Alliance, in his commentary in the April 28th issue of Business Week recognizes South Carolina’s courageous stand against Amazon.com.

(S)state bills closing the Amazon loophole do help level the playing field for many businesses and build momentum for needed national reform such as that proposed by Senators Dick Durbin (D-Ill.) and Mike Enzi (R-Wyo.), who plan to reintroduce the "Main Street Fairness Act" during the current session. Their bill would ratify the Streamlined Sales and Use Tax Agreement, a compact developed by a coalition of state government representatives to harmonize sales tax policies. The bill also would give states the authority to collect tax on interstate sales under these simplified rules.

South Carolina should be proud of taking a leading role in leveling the playing field for all retailers. Let’s not succumb to hyperventilating about possible prospect losses and instead listen to our Commerce secretary, Bobby Hitt.

South Carolina, like our neighboring states, has similar incentives for new and expanding businesses. Incentives are but one of the reasons that companies choose to locate or expand in our state. South Carolina continues to be a national leader in work force development and has one of the most business-friendly climates in the country. A dispute over a sales tax exemption will not change the state’s international and national reputations as a desirable business location.

Amazon.com’s business plan revealed

Amazon.com is scared. Scared that if it is forced to follow the laws that apply to every other small business retailer, it can’t compete. Not only here in South Carolina, but across the country.

So the business plan of the company is to force states to make exceptions to tax laws. Amazon does this by waiving promises of lots of jobs and major investment to suck in public and private economic development folks with visions of professional achievement and personal financial gain. And if there is resistance, Amazon.com and their supporters start bullying officials and opponents with their deep-pocketed attacks and misinformation campaigns.

As I (here and here) and others have been saying, the sales tax exemption for Amazon.com is an unfair competitive advantage, which will harm the small business retailers across the state that have to collect the state sales tax.

Yesterday, I spoke with the co-founder of American Independent Business Alliance, Jeff Milchen, about Amazon. He has extensive knowledge of the company's operations around the country and pointed me to the 2008 Annual Report of the company.

In that report on page 14, Amazon.com lays out why it must have an exemption to collecting state sales tax.

A successful assertion by one or more states or foreign countries that we should collect sales or other taxes on the sale of merchandise or services could result in substantial tax liabilities for past sales, decrease our ability to compete with traditional retailers, and otherwise harm our business.

Free market be damned!

Amazon.com’s business plan is based on the company receiving an unfair competitive advantage over other businesses courtesy of the state taxpayers. The company is not run by business geniuses. It’s run by thugs that blackmail states into letting them not obey the laws that all other businesses must obey.

The South Carolina Legislature and its counterparts in every state must start standing up to Amazon.com and tell the company that they won’t throw small business retailers under the bus for a few pieces of gold.