By JACK FARIS

Americans love competition. We thrive on it. It sparks ourelections, generates pride in virtually every national sport and is recognized as the bedrock of our free enterprise system.

No one loves competition more than small-business owners do. That’s why there are more than 22 million of them operating today. Their confidence and their ability to find the right business niche drives our economy to greater heights each year. They love going head-to-head with competitors and testing their mettle.

But some competitors of small business don’t share those ideals of fair play. For example, federal prisons. They had a sweet deal with the Department of Defense. Their labor was provided by convicts, their overhead was paid by tax dollars and, most importantly, they didn’t have to worry about competition.

That is, until the small-business group NFIB challenged their unfair practices and won the right for small firms to compete for contracts that had been automatically handed over to the prisoners.

Government is not the only place where unfair competition exists.

Last year, NFIB raised the specter of anti-competitive practices going on among Rural Electric Cooperatives (RECs). Yes, those good old co-ops created in 1914 to help bring electricity to rural areas.

Determined to shed light on the chicanery among RECs, NFIB alerted the IRS that some were using their tax-free status to compete against small businesses by selling appliances, satellite TV receivers, propane gas, heat pumps, water heaters, natural gas, Internet services, credit cards, personal computers, digital cameras, electric and gas grills, fireplaces and landscaping services. In one southern state, a co-op even had the arrogance to offer customers an electric water heater for 99 cents a month, with service and installation, and a replacement when needed. No small business could compete against that. In a study for the Tax Foundation, economist William Orzechowski reported that REC business operations created serious problems for the propane industry. He described how the co-ops use the substantial assets they have acquired, such as a huge customer base, for low-cost marketing.

They engage in “crafty cross-subsidization,” taking advantage of federal and state income tax exemptions, loan guarantees and interest rate subsidies.

Orzechowski found that the co-ops used preferential access to federal power, and monopoly franchises “to enter the propane market and drive out private companies.”

Clearly, the competition from co-ops and other tax-exempt organizations is a threat to taxpaying, free-market entrepreneurs.

NFIB, along with eight other organizations, took their case directly to the Commissioner of the IRS, Charles Rossotti, appealing for him to reverse previous IRS rulings that allowed electric co-ops to sell propane under their tax-exempt status. He agreed and on August 30, the agency made propane sales by co-ops subject to taxation.

That and a companion ruling against a telephone co-op are the first steps toward forcing non-profit organizations to compete fairly or stay out of such businesses. This is not the end of the story; it’s another chapter in the continuing effort to unfair competition out of business.

JACK FARIS is president of the National Federation of Independent Business, the nation’s largest small-business advocacy group.