Last week the Small Business Administration retracted its proposal to alter a powerful federal designation that affects the work of almost every federal agency. Only "small businesses," designated as such by SBA, are eligible for SBA loans and roughly a fifth of federal procurement contracts. But SBA's "size standards" also grant to small business privileges to challenge agency regulations both in rulemaking and rule enforcement periods. Defenders of agency effectiveness have more at stake in the debate over the definition of small business than is immediately apparent. SBA is charged with providing loans and other advantages to small businesses within each industry. But deciding which businesses are small can be complicated. Because a "small" oil company is much larger than a "small" barbershop, SBA must establish the definition of a small business within each separate industry. For over 600 industries, the number of employees a business has determines its size classification. Revenue- (or receipt-) based size standards are employed for almost 500 other industries. SBA limits itself to 30 possible receipt-based size caps (ranging from $750,000 to as high as $48.5 million), five employee-based size standards (ranging from 100 to 1500 employees), and two standards based on other measures. Apparently, limiting to 37 the total set of options for choosing a receipt or employee cap in each industry simplifies things: SBA need not tinker with the exact number of employees that differentiates a small business from a large one, but it need only make adjustments when an industry has changed significantly. Presumably, SBA uses receipt-based standards in the belief that receipts are a better reflection of market share than employee counts in some industries. However, in an attempt to abandon years of using the more traditional receipt-based standards, the proposed rule would have applied an employee-based size standard to all industries, eliminated revenue-based standards entirely, and reduced the number of size standard levels from 37 to 10. According to the SBA, roughly 34,000 businesses would have lost "small business" status, while approximately 35,000 would have gained it. In its March 19 proposal, SBA claimed that the current structure is too complicated, despite its having "worked well" for many years, and that businesses seeking government contracts have too hard a time figuring out what size standard applies to them. Particularly, businesses that operate in multiple industries might encounter both receipt- and employee-based size standards in order to apply for one contract. After commenters displayed a "significant level of interest" in the proposed change, SBA extended the comment period from May 18 to July 2 and received over 3,700 comments, most in opposition to the proposal. While many commenters agreed that simplification is a good idea, some, like the Contract Services Association, denied that any problem exists at all, arguing that finding the applicable size standard is simply a matter of reading a table. Senator John Kerry suggested in his public comments that businesses are intimidated or confused not by SBA size standards but by "burdensome paperwork and reporting requirements . . . and an unlevel playing field in the competition between small businesses and firms that are other than small." The strongest criticisms came from businesses expected to lose "small business" status and their advocates. The American Bar Association argued that it is unfair to ruin thousands of businesses that were formed and structured in good faith as small businesses solely to meet government contracting needs. Many have suggested such businesses should be grandfathered into status. Senator Kerry also wrote, arguing that the proposal might result in substantial job loss during tough economic times. But while Kerry has argued for providing more access to loans and government procurement contracts for small business, his arguments did not accommodate other public interest concerns about aspects of the definition of small business. Those interested in curbing the influence of business on federal agencies see the small business tag as a backdoor method of slowing the regulatory process. Because of three important federal statutes, rulemaking is more burdensome when the proposed rule has a significant economic impact on small business. When the economic impact is significant, agencies must justify the rejection of less economically affecting alternatives. OSHA and EPA are further required to consult with a panel of small business representatives. Agencies face even more significant obstacles when enforcing rules against small business. After an agency has issued a citation for violating a rule, small business owners may petition agencies to reduce or waive penalties on the basis of their economic impact to the business (as long as the violations are neither criminal nor "pose serious health, safety, or environmental threats") or may file a grievance in court against an agency if it feels "adversely affected or aggrieved" by a ruling. The court, in turn, may suspend regulations and force revisions that are conducive to small business interests or establish that certain regulations cannot be enforced against any small entity. Small businesses may also bring a civil action for attorney's fees whenever a citation is found to be unreasonable or excessive. These wide protections already cover some very large businesses. In fact, 97 percent of all American businesses fit into the SBA definition of "small business." Well over half the industries in the country are covered by either the 500 employee-based size standard or a $6 million receipt-based standard. A contractor making up to $17 million a year, a chemical company with as many as 1,000 employees, and a petroleum refinery with no higher than 1,500 employees are all considered "small business" by SBA. In addition, "small businesses" may be responsible for significant harm to the public interest. As noted by a recent AFL-CIO fact sheet, establishments with fewer than 100 employees -- all of which are considered "small businesses" -- maintain higher rates of fatal occupational injury than do businesses with 100 or more employees. Making matters worse, the proposed change in SBA's definition could very well have resulted in more and larger businesses gaining small business status. While only 1,000 businesses would have immediately gained the "small business" classification according to SBA estimates, many more could have used the employee-based standards to gain the designation by outsourcing employees. Outsourced and subcontracted employees are not counted toward employee-based size standards. Thus, the SBA proposal could have encouraged the practice of outsourcing or subcontracting for businesses seeking to win or maintain "small business" status. Outsourcing has become an increasingly important -- and controversial -- business practice over the last few years. In a recent cover story, Time Magazine listed 11 percent of American jobs at risk of outsourcing, including telephone call center employees, computer operators, data enterers, business and financial support, paralegals and legal assistants, diagnostic support service staff, accounting, bookkeeping, and payroll staff. Some NAICS industry sector categories that are currently covered by receipt-based standards and may be particularly vulnerable to outsourcing are Data Processing Services; Financial Investments; Funds, Trusts, and Other Financial Vehicles; Professional, Scientific and Technical Services; Administrative and Support; and Waste Management and Remediation Services. Noteworthy industry subsectors include Offices of Lawyers, Marketing Research and Public Opinion Polling, Translation and Interpretation Services, Document Preparation Services, and Travel Agencies. It is unclear how much larger the incentive would have been for businesses to outsource in order to maintain or achieve small status. But the industries most affected by outsourcing are the ones currently using receipt-based size standards. So whether "small business" protections provide greater incentive for businesses to outsource, businesses which already outsource would have been more likely to gain small business status. As SBA continues to consider moving away from receipt-based standards, the backdoor widens, and obstacles to agency functioning are increased. On a broader note, it is questionable that SBA would propose to eliminate receipt-based standards and decrease the number of size standard levels in the first place. One of SBA's original missions was to protect competition and market access for smaller businesses. Receipts have traditionally been a critical tool in determining the market share or market dominance of businesses, presumably in industries where there is little correlation between employees and market share. Multiple size standard levels have been in keeping with the intent of the Small Business Act, which states, "the Administrator shall ensure that the size standard varies from industry to industry to the extent necessary to reflect the differing characteristics of the various institutions." As Kerry puts it: "The variety of goods and services being provided to the government has increased not declined." Moreover, the diversity of American industry has grown not shrunk. It is no longer clear how much effect government loans and contracts might have on the competition in a particular industry. But, in the current state of affairs, where the vast majority of businesses in the nation are considered small -- indeed, entire industries are considered "small" -- and industry hostility to public welfare regulation has been echoed in the highest levels of this administration, it should come as no surprise that SBA proposed to increase rather than decrease the number of high-income businesses considered "small."