Business leaders defend free market

The free-enterprise system is under attack as government gets bigger and more intrusive, and the stakes never have been higher, speakers and panelists said yesterday at the Virginia Chamber of Commerce 2009 Conference on Virginia's Future.

Capitalism, far from being the cause of today's crisis, is its only cure, said the lead speaker, BB&T Corp. Chairman John Allison.

His impassioned defense of the free market drew a standing ovation from the 140 businesspeople attending the event at the Richmond Marriott.

"Government policy is the cause of the financial crisis. It is not surprising that the most-regulated segment of society is where the problems started," he said, referring to the financial sector.

Hugh Keogh, president and chief executive officer of the Virginia Chamber of Commerce, said in introductory remarks that "unemployment is at staggering levels and capitalism is under siege."

"An avalanche of legislation is threatening the free-market system," said Dorcas Helfant-Browning, chairwoman of the chamber.

A panel of executives spoke about capitalism at a crossroads.

"As capitalism is compromised, so is our freedom," said Suzy Kelly, chief executive officer of Jo-Kell Inc., an electrical engineering services provider in Chesapeake.

"We are the business leaders. We will pull this economy out of this," said moderator Michael A. Daniels, immediate past chairman of the chamber.

Allison, the BB&T chairman, said he is concerned about the long-term direction of the country.

"We are potentially really heading in the wrong direction," he said. "The country has a failed farm policy, a failed K-12 education system. We knew [government-sponsored mortgage entities] Fannie Mae and Freddie Mac were going broke."

He said the U.S., with its huge and mounting deficits, will go broke in 20 years. "If we continue the current trend, we will be a Third World country in 20 years."

He said the country needs less regulation, not more.

The good news is Americans are naturally entrepreneurial, Allison said. "They don't like big government."

Big government is threatening the basic tenets on which the country was founded: life, liberty and the pursuit of happiness, Allison said.

The attack on capitalism is unending, he said. And yet, "capitalism is the reason we have a high standard of living."

He said Congress should cut taxes and leave capital to people who know how to use it, so they can take risks and create jobs.

"A free-lunch mentality leads to a lack of personal responsibility, and that is the death of democracy," Allison said.

Government intervention may help in the short term but hurt in the long term, he said.

The second phase of the Troubled Asset Relief Program, for example, required healthy banks to take money so no one would know which banks were in trouble.

"It was a rip-off" costing BB&T $250 million, Allison said.

"Regulators are swarming over the banking industry in the United States, making it hard to make loans. BB&T is not making loans we would like to make, and that is happening all over the country," he said.

When President Bill Clinton set a goal in 1999 to have Fannie Mae and Freddie Mac provide at least half of all mortgage loans in affordable housing, it set the stage for the housing bubble that led to the recession, Allison said.

"If you ran the numbers, it was obvious they would go broke," Allison said. But Congress was intent on protecting Fannie and Freddie because of what he called a religious belief in affordable housing.

"All were misled about housing," he said. Residential real estate was overbuilt by $8 billion, and prices rose on average 30 percent more than the market could bear.

"Without Fannie and Freddie, we wouldn't have had the housing bubble," he said. "Only government can make a mistake of this magnitude possible."

The money should have been invested in technology, manufacturing capacity, agriculture and education and not to prop up housing artificially, Allison said.

The free market makes mistakes, but natural market corrections are better than government-imposed regulations that end up making things worse, he said.