October 29, 1987

To the Congress of the United States:

I am pleased to submit to the Congress my sixth annual report on the state of small business. This report confirms that the small business economy was healthier at the end of 1986 than at the start of the year, reflecting growth in both new firms and new employment. Our Nation's small businesses fare best with stable prices, low interest rates, and steady growth, all of which were present in 1986.

A healthy small business sector is more than a reflection of the national well-being; it is an active force for change. America's entrepreneurs are continually experimenting with new products, new technologies, and new channels of distribution. Half of all major innovations in the past 30 years were generated in small companies.

The result of all this innovative activity is new companies and more employment for our workers. The great industrial and commercial concerns of our Nation were built by innovators like Henry Ford and Alexander Graham Bell, whose small businesses grew to help shape a new economy. Today, many of America's great corporations rely on small firms as suppliers, manufacturers, distributors, and customers.

A broader spectrum of Americans than ever before is starting businesses. In the past 10 years, the number of businesses owned by women has increased three times as fast as businesses owned by men. Minority-owned businesses have also increased; American minorities are more likely than ever before to be business owners in 1987.

It is critical to listen to the people whose small enterprises comprise such a vital part of our economy. Consequently, in May 1984, I signed into law a bill providing for the 1986 White House Conference on Small Business. This Conference, held in Washington, D.C., in 1986, brought together 1,800 small business delegates from the 50 States, Puerto Rico, and the District of Columbia. The delegates debated and voted on a myriad of small business issues.

In the end, they made 60 recommendations to the Federal government, ranging from reducing the deficit, to easing the terribly expensive burden of liability insurance, to continuing our efforts to enlist small firms in important national research efforts. This last recommendation -- to reauthorize the Small Business Innovation Research Act -- has been signed into law, as have several other bills addressing the delegates' concerns. I can assure the small business delegates that their message will continue to be heard during the 100th Congress.

What benefits the economy also benefits small business. On October 22, 1986, I signed into law the most comprehensive tax reform legislation since the enactment of the Internal Revenue Code in 1954. Culminating 2 years of bipartisan effort, this law cuts tax rates significantly for corporations and individuals alike, and limits or eliminates many special tax advantages. The law is designed to help remove tax considerations from business decisions, which are best made in a free, competitive marketplace.

For the future, I have a very simple goal, which I believe all Americans share. Call it competitiveness or a quest for excellence. The quest for excellence that I envision is not just a legislative package, although legislation will play a part. It is not just another government program, although government will have a role. Rather, it is a great national undertaking that challenges all Americans.

To help achieve this goal, I have submitted to the Congress a major competitiveness proposal to assure that the Federal government does everything possible to make our businesses and workers preeminent in the 21st century. Enactment of my proposal will allow American workers and businesses to meet world competition head-on. This six-part program is aimed at increasing investment in human and intellectual capital, promoting the development of science and technology, protecting intellectual property, enacting essential legal and regulatory reforms, meeting the challenges of international markets, and reducing the Federal deficit.

Promoting flexible job skills and more challenging work for a better work force are important to the competitiveness of American industry. This new program will help workers displaced by adverse economic conditions, technological changes, or increased imports. Small firms -- major employers of first-time job holders, recently unemployed workers, and workers in need of training -- will play a very important part in this program.

This Administration is interested in exploring with the Congress and industry representatives measures that will provide more incentives for American business to advance in research and technological development. To help transfer technology from Federal laboratories to the marketplace, I have signed Executive Order No. 12591 creating incentives for the development and transfer of federally supported innovation. To protect business confidentiality, I am also proposing to broaden legislatively the Freedom of Information Act definitions of trade secrets and confidential commercial information. In addition, I have signed an Executive Order giving businesses an opportunity to object to the government's release of commercial information if disclosure would harm commercial competitive interests.

To maintain the incentives for continued innovation and the protection of intellectual property envisioned by the signers of our Constitution, I have proposed legislation to the Congress that would: protect processes for manufacturing products, restore the time lost by inventors due to government-mandated testing of products, and reduce the incentives for unnecessary litigation.

Regulations and excessive paperwork place small businesses at a disadvantage in an increasingly competitive world marketplace. Over the past decade, small firms have benefited from the more competitive milieu in the deregulated financial and transportation industries. The Administration supports continued deregulation and other reforms to eliminate regulatory obstacles to open competition. I have also proposed statutory reforms to curtail the costly product liability spiral and to amend our antitrust laws to reflect the dynamics of world trade.

U.S. trade laws have been effective instruments for opening foreign markets and defending American industries against unfair practices by our competitors. I have proposed improving those laws that enhance our ability to meet the challenges from abroad without enacting protectionist barriers at home. Our proposals will emphasize opening markets through multilateral negotiations, encouraging adjustment while providing relief to industries injured by import competition, and tightening our laws to deal more effectively with unfair competition.

Finally, improving our national competitiveness means eliminating the Federal budget deficit. Controlling Federal spending remains an essential goal. I have proposed a budget that achieves the Gramm-Rudman-Hollings target by reducing spending, not by raising taxes.

The quest for America's business is to make products more efficiently, to embrace new ideas, and to develop better methods of management and new technologies. In that quest, this Administration will continue to listen to the concerns of small business owners and to press for legislation that will enhance small business' ability to compete. In the final analysis, though, it is the individual decisions and innovative efforts of our Nation's business owners and workers that will forge a new American competitiveness.

Ronald Reagan

The White House,

October 29, 1987.

Note: The report was entitled ``The State of Small Business: A Report of the President -- Transmitted to the Congress, 1987, Together With the Annual Report on Small Business and Competition of the U.S. Small Business Administration'' (Government Printing Office, 345 pages).