Last month’s passage of the Jumpstart Our Business Startups (JOBS) Act by Congress has split traditional community activists in a way that is likely to be felt for years. Organizers of the sustainable small business movement are facing off against traditional allies, including consumer advocates, labor, and those worried about the damage that comes from a deregulated financial sector. What is going on?
In late March, a nearly unanimous Congress passed the JOBS Act. At the signing, House Majority Leader Eric Cantor, the clever architect of Republican Congressional attacks on workers and consumers, stood proudly by a beaming President Obama. The bill, which deregulates some types of financial activity, including “crowdfunding,” was hailed by the president as a “game-changer,” saying that it will kick-start the job-creation engine of small business. Supporters such as Silicon Valley venture capitalists, the US Chamber of Commerce, and Wall Street, through the NASDAQ and NYSE, let out a loud cheer at the passage. The Business Alliance of Local Living Economies (BALLE) and East Bay crowdfunding advocates did, too. (Disclaimer: Non-editorial staff at the Express are active with groups on both sides of this debate, including BALLE as well as labor and consumer groups.)
But traditional advocates for consumers were astounded and angry. “You don’t increase jobs growth by rolling back regulatory protections,” Barbara Roper, director of investor protection for the Consumer Federation of America, told Bloomberg News, “and it’s frankly bewildering that the Democrats have been so willing to buy into the traditional Republican argument.”
Coming on the heels of a worldwide financial meltdown caused by lax regulation, progressive activists like Jim Hightower and economist Robert Kuttner also railed against the JOBS Act. A bevy of former SEC regulators and accountants came forward to say that the law will destroy safeguards put in place after the 2008 crash, and even some protections put in place in the 1930s. The JOBS Act “won’t create jobs, but it will simplify fraud,” Lynn Turner, former chief accountant for the SEC, told Bloomberg News. “This would be better known as the bucket-shop and penny-stock fraud reauthorization act of 2012.”
Claims by the likes of Eric Cantor and the US Chamber of Commerce that business-friendly legislation produces jobs followed by contradictory responses from consumer advocates and unions are the normal stuff of Congressional theater. But that the JOBS Act caused such a rift between progressive groups generally allied in their opposition to the bias toward Big Business in Washington is worth noting.
The dispute centers on two major aspects of the new law. The first is that the JOBS Act clears the way for the “crowdfunding” of small enterprises, a longtime goal of those who believe that a vital local community demands a local solution to the financing needs of small businesses. Crowdfunding allows businesses to raise small amounts of money from individual donors without much red tape. Constrained versions of this model already exist in the Bay Area. For example, one can buy a small financial stake in a sustainable farm and receive produce as interest, along with a slow repayment of the original investment. The JOBS Act, however, also allows crowdfunding to exist essentially as a thinly regulated new kind of stock market, in which entrepreneurs can raise up to $1 million in small amounts of money from many individuals. Progressive business advocates believe this is required to invigorate our communities. Critics worry that this provision will give fraudsters a new way to steal from the unsuspecting.
The biggest concern for consumer advocates, however, is that the JOBS Act significantly removes oversight and regulations on companies going public that have less than $1 billion in revenue. The Wall Street Journal reported that this financial threshold applies to 90 percent of initial public offerings. Even huge companies like Zynga, now titled “emerging growth companies,” will have less oversight, thereby harming the ability of investors to understand them when they go public. The result is sure to be more of the financial shenanigans like those that caused the recent financial crash.
The ecstatic support for the JOBS Act by BALLE and small business groups also revealed a rift between advocates for business and those for consumers within the Buy Local movement. As such, where the small business folks go from here on this issue may very well define the future perception of their work.
To their credit, progressive small-business advocates have repeatedly acknowledged that the JOBS Act is a product of legislative logrolling and “far from perfect.” Still, crowdfunding advocates see it as a victory. BALLE Fellow Michael H. Shuman has argued that the JOBS Act “spells the end of Wall Street as we know it,” allowing the “99 Percent” to put “money in the local businesses we love.” But, if so, why were the national stock exchanges some of its biggest supporters?
Shuman also argues that “left critics” of the bill “have tremendously exaggerated the dangers of fraud” in crowdfunding. Consumer advocates disagree. Fraud has been rampant in American finance over the last few years, they argue, and now is not the time to relax what little oversight there is. And, of course, the naming of the law was manipulative. AFL-CIO chief Rich Trumka wrote that “Congress cannot enact such basic legislation as the reauthorization of the Surface Transportation Bill that would create hundreds of thousands of jobs. Instead, this week Congress once again is looking to deregulate Wall Street.”
Bolstering the concerns of consumer advocates that this deregulation will ultimately harm consumers, two companies submitted “confidential” financial plans within hours of the passage of the JOBS Act to the SEC — plans that previously would have been much more open to public scrutiny. One was Legal Zoom, a California company that was bankrolled with tens of millions of dollars from Silicon Valley. The elite like this lessening of public oversight because, as Robert Nelsen, managing director and co-founder of ARCH Venture Partners, was quoted as saying, companies now won’t have to run the risk of “airing all your laundry.” Yet it was that very laundry-airing by the SEC that uncovered improper profit claims in the recent initial public offering from Groupon.
To the credit of the crowdfunding advocates, Michael Shuman, who, along with other local and national crowdfunding supporters, attended the White House ceremony, wrote in a blog after the bill was signed that “25 of the people who were most instrumental in passing the bill — none from Wall Street, by the way — got together to discuss ways we could create internal checks and balances on the marketplace, to improve quality control and help identify hucksters.” But by allying themselves with Republicans and Big Business in their enthusiasm for the JOBS Act, the sustainable business folks are on thin ice.
Labor leader Trumka argued that the JOBS Act was a move against “investors in the real economy and for Wall Street speculators …. When the next bubble bursts, Americans will know who to blame.” Shuman and many East Bay advocates of crowdsourcing beg to differ. But, given their Wall Street partners in the JOBS Act, crowdfunding advocates had better be right, or progressives will never look at the sustainable business movement again in the same supportive way.