SAN FRANCISCO'S ECONOMY – not to mention its social ecology and quality of life – depends overwhelmingly on small, locally owned, independent businesses. The corner stores, the local cafés, the restaurants and nightclubs that keep neighborhoods alive at night, the merchants and the massage therapists, the software start-ups and the scrap-metal warehouses ... they not only provide goods, services, and entertainment for San Franciscans, but they also create the vast majority of the net new jobs in the city, and they have for years.

And yet, when the mayor and the big downtown lobbying groups talk about the "business climate" in the city, they're talking about what's good for Pacific Gas and Electric Co., the Gap, and Charles Schwab, not what's good for the thousands of tiny, small, and mid-size operations that don't belong to the San Francisco Chamber of Commerce, don't give campaign contributions, and don't hire big-ticket lobbying firms. The truth is, San Francisco doesn't do nearly enough to help the type of business that keeps the city alive.

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The downtown types don't like to say it, but the truth is, the interests of big and small business in this city aren't always in synch – and a lot of times they're diametrically opposed. The most obvious example is the local business-tax system.

The city's main business taxes have always been some combination of payroll and gross-receipts levies. They've also always been essentially flat. That means that a neighborhood merchant with five employees and a few hundred thousand bucks a year in revenue pays the same percentage as the Gap. It's regressive, it's unfair – and it's bad for the economy.

Then there's the price of electricity (and the reliability of service). PG&E's soaring rates are taking as much as $620 million a year out of the local economy, our own research shows (see "The $620 Million Shakedown," 9/4/02) – and on the commercial side, the ones who are hardest hit are small businesses. And yet, the business groups constantly fight any attempt to bring down rates by creating a public power system – siding with one big firm at the expense of thousands of smaller ones. And although Sup. Chris Daly called for it two years ago, the Controller's Office still hasn't done a report on the economic impact of high power rates. The city hasn't even set up an ombudsperson or a real complaint office to help track problems with PG&E.

And there are the constant battles over land use and zoning. The big developers have driven countless small businesses out of town over the years, destroying affordable space in favor of high-rises and pricey commercial projects, and the Residential Builders Association, with its uncontrolled agenda of demolishing low-rent industrial buildings and filling up empty space with expensive condos, has done extensive damage.

The Small Business Commission is nice, as far as it goes – but it's constantly understaffed, underfunded, and treated as a political afterthought.

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While San Francisco is letting small businesses twist in the wind, the Bush administration is moving to eliminate one of the most successful small-business loan programs in the nation. As Matthew Hirsch reports on page 19, the Small Business Administration is cutting funds for the so-called 7(a) program, which provides a government guarantee for small start-up loans for entrepreneurs who wouldn't otherwise qualify for bank credit.

These sorts of loans are exactly the sort of economic-development program that federal, state, and local agencies should be promoting. They encourage new business creation – which is a far, far better and more effective means of building economic vitality than tax breaks and special favors aimed at encouraging existing big businesses to relocate.

And the cost is minimal: the entire federal subsidy for the program was $12.5 million last year. Considering the economic benefits of the program, San Francisco should step in and fund the program on a local level if the feds cut it back.

There's a lot the city can do for small business – and most of it doesn't cost much. The chain store bans in Hayes Valley and North Beach are a great model for addressing one of the most pressing issues for local merchants, and the supervisors ought to extend the ordinance to every neighborhood commercial district in town. The city's tax structure is a mess, and as part of the overhaul that's badly overdue, the Board of Supervisors should create a progressive business tax that ensures the biggest businesses pay more (and some of the smallest pay less). The Small Business Commission should have the resources to take the lead on issues like responding to blackouts, bad PG&E service, and high rates.

National Small Business Week (April 25 through 30) gives politicians a chance to issue proclamations and mouth the words – but San Francisco has a chance to demonstrate how to make support for small business a central part of the city's economic development policy.