The Chamber of Commerce Has It Backwards

by Simon Johnson | October 15, 2009

The U.S. Chamber of Commerce is opposing the administration’s proposed Consumer Financial Protection Agency, on the grounds that it would hurt small business. Their argument is that this agency will extend the dead hand of government into every small business.

For the Chamber of Commerce, government is the enemy of small business and should always and everywhere be fought to a standstill. Chamber Senior Vice President (and former Fred Thompson campaign manager) Tom Collamore sees this as “advocacy on behalf of small businesses, job creators, and entrepreneurs” (quoted in the WSJ link above), and the Chamber has launched the “American Free Enterprise” campaign.

Somewhere, the Chamber’s senior leadership missed the plot. What brought on the greatest financial crisis since the 1930s? What has hurt, directly and indirectly, small business of all kinds to an unprecedented degree over the past 12 months? What is killing small and medium-sized banks at a rate not seen in nearly 80 years?

It’s the behavior of the financial sector, particularly big banks and their close allies--by consistently mistreating consumers. And the letter and spirit of the regulatory regime let them get away with it.

Some members of Congress honestly believe that consumers should have a free choice, unfettered by any kind of restriction, regarding the financial products they buy.

But spend time talking to any marketing professional or call them to testify before your committee--or just ask Mr. Collamore, who was previously at Altria. The state of knowledge regarding how to persuade people to buy stuff is impressive, the degree of potential manipulation for consumer preferences is simply stunning, and the “innovations” in this area are not slowing down.

The scope for taking advantage of consumers in subtle ways, or outright duping them, is probably higher for finance than for any other sector. For fairly obvious reasons, people are more likely to misunderstand credit than, say, furniture. Ambitious executives have therefore hammered hard on borrowers. And the implications--as you have seen and are still seeing--of systemic financial misbehavior are awful in terms of human impact and essentially without limit in terms of ultimate macroeconomic downside.

Unscrupulous Finance has brought us down and will do it again. Those most damaged now and in the future include small and medium-sized business owners who are trying to treat customers fairly.

The Chamber of Commerce is fighting the last war (or the one before that). Their small business membership should wake up to the current reality and press the Chamber hard to change its position before it is too late.

President Obama needs to go over the heads of the Chamber’s leadership, reaching out to and running ads directly targeted at its small business membership. The White House has to tackle this head on, framing the issue clearly for people with the help of very clear TV and radio ads. The Chamber of Commerce is arguing that unfettered finance is good for small business. They are wrong.

[Cross-posted at The Baseline Scenario.]

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