Four years of chaos with president Donald Trump at the head of the Republican Party have cast the relationship between American big business and their traditional political home in a new light.
The GOP still offers a cozy embrace to high-earning executives and wealthy investors. But what’s good for the boss is not always good for the company—or workers, or long-term prosperity. The lobbying of financial firms to loosen lending rules ahead of the 2008 financial crisis, or the fossil fuel’s industry ongoing last stand against policies to fight climate change provide evidence of that. It’s an old distinction, but one that even the masters of the universe are finally noticing.
Charles Koch, the owner of one of the largest private petroleum businesses in the US who has spent hundreds of millions backing the GOP, recently characterized his work as a mistake. Influential Wall Street titans are now arguing, at least publicly, for a broader consideration of capitalism’s stakeholders around the issue of climate change. Even the US Chamber of Commerce, the country’s most influential trade association and in recent years an arm of the Republican party, underwent a messy pre-election shake-up as it shifted course to endorse a group of incumbent Democratic lawmakers.
Trump is a catalyst for this conversation. On substance, his embrace of new import taxes went directly against the interests of American companies that rely on foreign labor and products. His views on immigration also diverge from American businesses that want access to a global labor market. And prior to the election, researchers at Moody’s attempted to estimate (pdf) the macroeconomic consequences of different election scenarios, and found real GDP would rise most quickly with Democratic control of government.
Beyond policies, Trump’s permanent culture war has made business difficult, with CEOs never sure if an angry tweet would set off a media firestorm or if the president would personally interfere in a merger, renegotiate a contract, or suddenly stop sales to a foreign customer. Competence matters, too: Trump’s bungled pandemic response will cost the economy millions, and investors and CEOs have grumbled about how his refusal to concede has hindered the transition to a new administration.
This could mean that a new president taking office will result in a return to business as usual. But some investors are starting to realize that, between the long-term Republican turn toward Trumpism and the realities of climate change and global competition, their ideological indulgences are taking a toll on the bottom line.
The parties become polarized
The business lobby was once definitionally pragmatic, purchasing politicians of any stripe as needed. But in the last thirty years, as the two national political coalitions sorted into opposing ideological camps, the policy agenda of corporate America became intertwined with bedrock libertarian ideas about reducing the role of government in society.
There’s a reason these ideas appeal to business leaders: All things being equal, less government activity means fewer costly obligations for their companies and lower taxes on their earnings. Trump’s deregulatory push, and the massive tax cut for corporations and the wealthy enacted in 2017, do much to explain why the GOP will remain the home of many executives for years to come.
The fracas at the Chamber of Commerce underscores the difficulty of shaking free from these ideological commitments. “I can no longer be part of this institution as it moves left,” Scott Reed, the Chamber of Commerce’s former political strategist, told Politico on his departure from the organization in September. The Chamber said Reed was fired for cause. Ironically, Reed said one conflict came over spending on Senate races and a specific lack of support for Maine Republican Susan Collins, who wound up winning handily in a result that confounded pollsters.
Still, what Reed accused the Chamber of doing—”hedging its bets with Democrats”—is a tactic one might expect from an influence-buying organization at a time when a Democrat was widely, and correctly, seen as likely to win the White House.
The tension for the Chamber is that the US and indeed most major economies have been run on a mixture of free market, socialist, and mercantilist ideas for more than a century. In a mixed economy, regulated markets fund government-operated social services, while states seek to bolster themselves against rivals with industrial policies and favorable trading rules. The Chamber’s agenda reflects this complexity: The group lobbies for massive defense spending and massive corporate tax cuts; it wants subsidies for some US corporations, but not for others.
This agenda reflects the Republican party’s ideological commitments more than it does the needs of the economy. But those ideological commitments don’t always pay off. The National Restaurant Association, long an opponent of higher wages for workers, told it is rethinking that stance in part to prevent constant employee churn. On Wall Street, the austerity mindset of the GOP is being challenged by some advocates of “left” ideas like Modern Monetary Theory, including executives at hedge funds and financial institutions like Goldman Sachs and Allianz.
“I can see a comfortable relationship between Wall Street and a more progressive Democratic agenda going forward,” former PIMCO managing director Paul McCulley told Business Insider.
No one can ignore the heat
No issue is picking apart business’s relationship with the GOP more than climate change, perhaps because its reality cannot be denied on company balance sheets. The two most politically powerful sectors in the US are energy and finance, and this issue has begun to split them.
Larry Fink, the CEO of Blackrock, is arguing that corporations need to look beyond their shareholders because his massive company’s unique role as an asset manager is owning the entire market. That ownership exposes Blackrock to the petroleum industry’s unpaid tax—the pernicious effect of global warming on insurers, real estate owners, agricultural firms, and virtually everything else.
After Barack Obama took office in 2009, Apple, Nike, and several large utility companies left the Chamber because of the organization’s opposition to a climate bill that would have capped the emissions of US companies and created a market for them to sell the unused portion of their quotas, the same policy that helped defeat acid rain in the US. The bill passed the House but was never brought to the floor of the Republican-controlled Senate.
In 2017, Trump pulled the US out of the Paris Accord, an agreement entered into by Obama that for the first time set global emissions reduction targets. This time, the dividing lines were more complex: Inside the administration, Scott Pruitt, the former oil lobbyist leading the Environmental Protection Agency, made the case to abandon the treaty, while economic adviser Gary Cohn, the former president of Goldman Sachs, and secretary of State Rex Tillerson, the former chief executive of Exxon Mobil, argued that the US should stay the course. This time around, the Chamber of Commerce backed the climate deal.
That doesn’t mean the Chamber has found religion on climate change, though. It supported the Trump administration as it rescinded Obama-era auto emissions standards in 2018. California’s state government fought Trump and a coalition of automakers in court to maintain higher standards. If California won, the most populous US state would effectively set high standards across the country.
With Biden’s election, General Motors flip-flopped, exiting the lawsuit and effectively conceding that the new president will return the higher standards. No doubt part of the calculus is the industry’s increasing realization that electric cars are the future. Still, GM execs must be totting up the legal and publicity costs of the decade-long fight against higher standards and wondering if it was really worth it.
The same dynamic plays out across multiple venues. Criticism of the financing of politically controversial activities like petroleum extraction, gun manufacturing, or private prison operation from activists and investors alike has those industries demanding protection from what the Wall Street Journal editorial board calls “liberal intimidation campaigns.” In response, a Trump-appointed bank regulator has now proposed a rule that would make it impossible for banks to deny business to these industries without an elaborate, time-consuming risk analysis. The bank lobby is now fighting this rule, arguing that Trump’s appointee is “telling senior management and bank boards that they cannot be trusted to make good decisions.”
The politics of business is intersectional now
Globalization makes all these calculations even more complicated. Consider Apple and Nike, companies that made news for lobbying against a bill that restricts US access to forced labor in China, where both firms manufacture a significant share of their products. Those companies want a free hand abroad to save money with production abroad—but the bulk of their profits come from sales in countries that take worker protections seriously.
Apple CEO Tim Cook wants his company’s political operatives to bolster anti-discrimination rules that protect LGBT people in the US, even as he wants avoid rules that make it hard to tap China’s reeducation camps for workers. What political coalition does that priority set belong in?
The growth of the professional class in an increasingly services-driven economy contributes to this trend. College-educated and often high-earning, they might relate to a message of low taxes and economic competition, but they are also concerned about the longer-term consequences of climate change and inequality of all kinds—in wealth, but also in race and gender. The divergence between the professional class and the ultra-wealthy complicates claims by the GOP to represent “business.”
The two-party system in the US offers a binary choice to its participants—if not Republicans, then Democrats. The wider coalition of the center-left party makes it easy for Republicans to argue that the party is anti-business, but actual policymaking tends to prove that wrong. Biden’s Treasury Secretary nominee, Janet Yellen, has attracted criticism from an influential Republican lawmaker as beholden to “warmed-over Marxist garbage.” Meanwhile, the actual banking lobby welcomes the former Chair of the Federal Reserve as a predictable policymaking voice.
In reality, Democrats embrace two broad approaches to policymaking, which might be symbolized by Elizabeth Warren-style capitalism or Bernie Sanders-style democratic socialism. The former view is that markets are essential to prosperity, but they must be regulated in the public interest; the latter that markets are often an obstacle to equality, and where they exist they must follow strict rules. You can see why these two wound up in the same party, and also why there was such enmity between their 2020 presidential campaigns.
The Biden administration will lean toward the regulated markets model, but it will face constant pressure from internal foes of market policy. Businesses are now deciding whether they want to engage in this debate—or continue to bet on returning control of government to the Republican party in 2024. In the meantime, the dynamics of a Democratic president and a Republican–led Senate are familiar to many in the investment community. Under president Obama, Republican obstruction and brinksmanship led the US to lose its AAA sovereign debt rating, and saw among other failures a missed opportunity to reform the US immigration system.
Trade organizations preparing their 2021 briefs face a choice between another four years of partisan attrition warfare, or an opportunity to explore new coalitions that, if not promising a fantasy of capitalism red in tooth and claw, might improve their ROI. The Larry Finks and Charles Kochs of the world have embraced high-minded discussion of alternative agendas, but real change will come when their money talks.