Yesterday the private equity backed restaurant chain, Shake Shack, decided to give back the $10 million it borrowed from the Paycheck Protection Program. CEO Randy Garutti said it was because it no longer needed the money, but we all know the real reason: the company got caught.
The public outcry against the company came when the PPP ran out of money, something I told viewers on CNBC would happen just three days after the program began. It wasn’t a difficult prediction. And because the funds were thoughtlessly distributed on a “first come, first served basis”, as opposed to giving preference to those with the greatest need, businesses run by MBAs and supported by investor networks managed the SBA and Treasury’s shifting rule changes to get first in line. Those with the greatest need were held up just long enough for all the money to be gone by the time they figured out the rules of the game.
An entire generation of family-owned businesses is now at risk of going out of business. Harvard Business School reported this week that 28% of Main Street businesses don’t expect to make it another month. Despite that, 30% didn’t plan to apply for the loans, convinced the system was rigged against them and the government wouldn’t forgive their loans.
It would be simplistic to blame the shortcomings of the PPP on a single leader, or a political party, or the Shake Shack. But when things consistently fail in the same way, it’s time to acknowledge systematic issues. Make no mistake, as Michael Porter and Katherine Gehl point out in their seminal work on political reform, nothing is broken in Washington. Over and over we see evidence of a system that works as designed. Our mechanism of legislation and policy has shifted once and for all to rely on those with financial power to represent Americans, and they get a great return on their investment.
But immense wealth does not give one the capacity to speak for the owner of a barber shop in Worland. Had the small businessperson a voice in allocating $2 trillion in taxpayer money, organizations which employ 59% of the workforce might have gotten more than 17% of the funds. Someone in the room might have pointed out that when so many of the recipients are first-time borrowers, a system of “first come, first served” can’t possibly be expected to allocate the funds to those most in need. The owners of a cafe in Rock Springs may have asked why, under the PPP, payments made to their bank or landlord were to receive special incentives, while making good on what they owed the folks who cleaned the rest rooms had to wait.
We’ve been here before. In 2008, when the financial system collapsed, costing 8.7 million people their jobs and another 10 million their homes and savings, banks that received bailout funds were shamelessly allowed the following year to pay $1.6 billion in compensation to the same top executives who had created the need for the bailout and helped design the program.
Less than a decade later, Congress passed a tax bill delivering 83% of the cuts to the top one-percent, with no plan to fund upcoming Social Security and Medicare entitlements that determine whether retirees can pay for both groceries and their prescription drugs. The 503-page bill was voted on four hours after being completed—written by lobbyists, unread by Congress.
When the political system turns to the leaders of Blackstone and Citicorp to represent the needs of a business owner in Gillette, it should leave us unsurprised that with legislation intended to save small businesses, New York and the Shake Shack win, while Wyoming and the lumber yard loses.