A conventional view holds that regulation advantages large companies at the expense of smaller ones, pointing to supposed disparities in political influence and regulatory compliance costs. This account, however, overlooks the myriad ways, both conspicuous and obscure, in which federal law systematically privileges small businesses. Small firms enjoy exclusive access to government grants and loans, preferential treatment in federal contracting, and exemptions from regulations that constrain their larger competitors. Agencies must consider their interests during rulemakings and, in some instances, subsidize their participation in that process. In total, as this Article documents for the first time, over 1,300 statutory provisions explicitly confer legal advantages on small firms. Taken together, these measures constitute a legal regime of small-business favoritism embedded in federal law.
The Article argues that the costs of this regime—undermined statutory objectives, misallocated public resources, ossified regulatory processes, and inefficient firm sizes—are significant and underappreciated. Meanwhile, some of the purported benefits—creating jobs, promoting innovation, and correcting imbalances in political power—are highly contested.
These findings call for a reassessment of small-business favoritism in federal law. The Article concludes with a range of reform proposals, including replacing categorical exemptions with uniform standards, adopting size-based regulatory tiers modeled on progressive taxation, and, for laws targeting negative externalities, imposing production-based taxes calibrated to the size of the harm.