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The Republican-big business alliance is fraying. Now what?

People attend a Tea Party rally in front of the US Capitol, June 17, 2013, in Washington, DC.
People attend a Tea Party rally in front of the US Capitol, June 17, 2013, in Washington, DC.
Mark Wilson/Getty Images

For a long time, the Republicans have been the party of big business. But for the last several years, that relationship has grown more and more strained.

This strain is about far more than major companies pulling out of the 2016 GOP convention. It's about the way in which the GOP-big business consensus is now being powerfully squeezed by two separate factions within the party: one ultra-conservative, one populist. After four decades of unusual success, the old corporate-Republican alliance looks increasingly weak.

On the ultra-conservative front, a growing movement in and around the House Freedom Caucus has increasingly used the banner of "crony capitalism" to oppose more and more of the mainstream business, Chamber of Commerce agenda. These extremists (who have included Ted Cruz) continue to demand ever-greater government spending cuts. They are willing to hold the debt ceiling hostage. They favor the kind of aggressive brinksmanship that makes the mainstream business community increasingly nervous. Though some of the House Freedom Caucus members are true libertarians, many more are social conservatives, who have demonstrated equal passion for brinksmanship on the funding of Planned Parenthood and related social issues.

On the populist front, an increasingly anti-immigrant, anti-trade, but pro-welfare state (for them, at least) populist sentiment that has been growing among downwardly mobile Republican voters for a while now has found a tribune in Donald Trump. For the sizable part of corporate America that relies on global trade and wants expanded immigration, this represents a real threat.

All this puts many business leaders in an increasingly uncertain position. For decades, they've assiduously invested in the Republican Party, and for decades, their investment bought a solid pro-business consensus — pro-market where it was needed, but not so blindly free-market as to question policies like the research and development tax credit or the Ex-Im bank. It was also solidly pro-trade, and as pro-immigration as it could be.

From the perspective of the Republican business donor class, Mitt Romney or Jeb Bush would have made excellent presidents. But Ted Cruz and Donald Trump are at best wildcards — not just for who they are, but also for the voters that they represent. While it's certainly possible that either Cruz or Trump could fall in line under the tutelage of the Republican business establishment, doing so would be a remarkable turnaround for both. Trump and Cruz have succeeded electorally by taking on the "corrupt" Washington establishment. It's not clear how they can walk this back.

So the Republican Party is clearly changing. But so is American business.

For one, corporate America has become much more progressive on social issues. Note that it is business leaders who have led the fight against so-called "religious freedom" laws pushed by Republicans in Indiana and Missouri and Georgia. In North Carolina, an LGBTQ bathroom law provoked a tremendous business backlash. This is a remarkable level of social activism by big business, which used to carefully avoid these kinds of issues.

Consider the statement from Missouri Competes, a group of blue-chip Missouri companies (including Anheuser-Busch, Alcoa, Dow Chemical, Marriott, Pfizer, and others) in response to state ballot initiative that would let small businesses refuse service to LGBTQ customers:

Missouri Businesses Are United Against Discrimination. Missouri businesses are standing together in support of a state that welcomes all people. These businesses know that treating everyone fairly and equally is essential to maintaining Missouri's time-honored brand as a welcoming and thriving home for the best minds and talented workers who want to help grow business, raise their families, and explore our world-class attractions.

But perhaps even more significantly, the biggest US companies are now more and more global companies. One-third of S&P 500 company sales now come from abroad, and the share of US corporate profits coming from overseas has roughly tripled since 1980, making global trade and flows of capital much more significant. A trade war of the kind Trump has all but promised would be disastrous for most big businesses. If the GOP becomes the anti-globalist party, it also becomes the anti-big business party.

Presidential candidate Donald Trump. John Sommers II/Getty Images

Republican presidential candidate Donald Trump.

As Trump comes closer and closer to securing the GOP nomination, many establishment business Republicans are likely preparing a quiet retreat from presidential politics this year. Maybe a few will even support Hillary.

Most likely, they'll still invest in keeping the House and the Senate in Republican control, making sure that solid mainstream pro-business Republicans can get elected and reelected, and then hope both the Cruz and Trump variants of anti-establishment fervor break. And that in 2020 Paul Ryan can successfully unite the party around a positive, conservative message of low taxes, limited government, free trade, immigration, and inclusiveness.

Maybe this happens. But it seems more likely that the GOP consensus that business elites hoped to maintain in the candidacy of, say, Jeb Bush, is now gone. The voters have thoroughly rejected it, and the two outsider factions within the party are now large enough to demand a new consensus that can only be far less less favorable to big business (though it may be better for small businesses, especially those who would benefit from high tariffs).

Put another way, the future is looking more and more difficult for Paul Ryan. And if not Ryan, who could else could possibly straddle the diverging factions of the GOP?

Certainly, the future depends in part on who holds power, how the parties react, and how the issues change. But if Hillary Clinton is the next president and Democrats have a majority in the Senate in 2017 (the most likely scenario), they would likely push issues that could deepen the conflicts in the Republican Party, especially on trade, modest immigration reform, corporate tax reform, rebuilding of infrastructure, college affordability, and possibly pro-business energy sustainability. Clinton may also return to her early campaign theme of tackling "quarterly capitalism," a semi-progressive reform that many in the corporate world actually support, because they'd actually prefer to do more long-term planning in a way that gives them more managerial autonomy.

Democratic Presidential Candidate Hillary Clinton. Joe Raedle/Getty Images

Democratic presidential candidate Hillary Clinton.

It is also admittedly simplistic to reify "big business" as if all large companies were the same. For example, fossil fuel and other carbon-intensive industries have made heavy bets on Republicans, in hopes of stopping any progress on regulating or taxing carbon, and may be likely to continue to do so no matter what. More broadly, almost all industries' contribution patterns are now either solidly pro-Republican, a mix of pro-Republican and pragmatic (giving to Democrats on key committee positions), or purely pragmatic, as political scientists James Gimpel, Frances Lee, and Mike Parrott have found.

Only a few industries, perhaps most notably the tech sector, have more often favored Democrats in recent years. But this is significant, because the tech industry is rapidly becoming the most powerful industry in Washington. And arguably, there is a new type of "Silicon Valley Democrat" that could play a key role in transforming Democrats into the urban party of "innovation," willing to make big investments in research and technology and public education while shedding old loyalties to labor unions in favor of more flexible work.

It's also possible that related industries with forward-looking technologies (think autonomous vehicles, renewable energy, various forms of artificial intelligence) may find that more regulation is actually helpful, since it can actually help create new markets to advance new technologies. These industries may actually need active government, which the Democrats will be happy to provide.

It's also worth noting that over the last several election cycles, Democrats have done better and better among those making over $200,000, with Obama beating McCain out among these voters in 2008, for the first time in a long time. Arguably, in the telling of Thomas Frank, Democrats have already become the party of the "professional-managerial class," having long-ago abandoned their promise to the party of the people in favor of fealty to their coastal elites. Now, as the sectors represented by these coastal elites become a more central part of the economy, it is only natural Democrats will more and more become the pro-business party.

Certainly, many business elites may still find considerable value in supporting Republican obstructionism because it can stop unwelcome regulations, and they may reasonably fear the kinds of sweeping changes that a Democratic majority in the House and Senate might undertake. Concerns about taxes may continue to be important. And many individual Republicans in Congress have been reliable advocates for various parochial industry and corporate concerns. But then again, so have many Democrats. And more may be willing to do so, especially when friendly industries are making the asks.

How we got here

One way to understand the current political moment is to see it as the culmination of four decades during which the growing political activity of business has fundamentally reshaped how Washington operates.

Let me explain in a little more detail. (And for those who want even more detail of the history of corporate lobbying, you can find it in my book on the growth of corporate political activity in Washington, The Business of America is Lobbying; those who want less detail should skip ahead to the next subhead).

In the early 1970s, the business community, facing an onslaught of new regulation, mobilized en masse to fight back, with great success, building a favorable alliance with Republicans, especially in that strong defender of free markets and smaller government, Ronald Reagan.

Rhetorically, business leaders sold the glories of free enterprise, devoting considerable resources to making the intellectual case for unfettered capitalism as the policy cure-all: The more government got in the way, the worse the economy did.

And so, under the logic of pure free enterprise, industry after industry was "deregulated" in order to make it more competitive.

But more often than not, deregulation was just a form of "re-regulation," in which new complicated rules replaced old complicated rules. Only under the new complicated rules, big companies were allowed to grow bigger across more lines of business, and government regulators were put in a weaker position to prevent consumer abuses.

Meanwhile, against the logic of pure enterprise, Congress passed 15,000 changes to the US tax code over a 20-year period, following the Tax Reform Act of 1986. Contrary to the free enterprise idea that markets should be markets, individual industries and individual companies spent decades lobbying to argue why they were special and therefore deserved some particular tax break, and that the government had a compelling interest in achieving an outcome that markets on their own were not achieving.

When Republicans took back control of the House in 1995, the new leadership was explicit in its seeking a deep partnership with big business. "We say to the lobbyists, 'help us,'" then­-House Majority Whip Tom DeLay said in 1996. "We know what we want to do and we find the people to help us do that. We go to the lobbyists and say, 'Help us get this in the appropriations bill.'"

Tom DeLay later attempted to institutionalize the GOP-business alliance as the "K Street Project." The basic vision was simple: Business would help Republicans get elected with generous campaign donations, and also provide lobbying jobs for Republican staffers. Republicans would happily outsource policy guidance to K Street. Principles be damned, power was power. It was machine politics at its best and worst.

Republican leaders, for example, saw no contradictions with their free-market, small-government rhetoric in a massive government subsidy to the pharmaceutical industry by expanding Medicare to cover prescription drugs, and then explicitly preventing the government from negotiating bulk discounts. Some true small-government conservatives complained, but GOP leaders ignored them. In 2005, the Bush administration attempted the partial privatization of Social Security (a priority of Wall Street), and later attempted a major business-friendly immigration overhaul. But both failed, in large part because Republican voters didn't want them. Looking back at these fights and contradictions, one can now see the beginnings of the two factions now closing in on the big business-GOP consensus.

How TARP + Obama precipitated the GOP-big business crack-up

But the above conflicts were mere rumblings. The real earthquake year was 2008, when the financial crisis hit, the government bailed out the big banks, and Barack Obama was elected president along with a unified Democratic Congress.

The TARP bailout was a transformational moment in American politics because it sent a clear signal that big business and big government were in cahoots, at the expense of everyone else. The system really was rigged. Wall Street had grown too big to fail. And rather than letting the market work, there was big government, just handing out taxpayer money to the banks, with barely any strings attached, while everyone else suffered through the recession on their own.

As the Obama administration became responsible for implementing TARP (and the bailout of the automobile industry) it became easier and easier for Republicans to tag Democrats with the crony capitalist label. It also didn't hurt that Obamacare was passed with the support of major pharmaceutical and insurance companies.

Unified Democratic control freed Republicans to attack big government in a way in which they couldn't when they were in power, and still were big government. Now, with Republican trust in government at all-time lows, attacks on the corruption of Washington swept through the right-wing media echo chamber and gained force in the emerging Tea Party movement.

Tea Party protester. Scott Olson/Getty Images

Tea Party members rally to protest President Barack Obama's proposed "Buffett rule" tax plan on April 16, 2012, in Chicago, Illinois.

Now the Koch brothers and their network of ultra free-marketers saw an opportunity. They saw this new angry anti-government sentiment as something that could be nurtured into a true libertarian rejection of government, their ultimate objective

And so, with their support, a new cadre of hard-right Tea Partiers in Congress demanded radical cuts to government spending and true adherence to market principles, steeped in decades of small-government free-market rhetoric that had once been funded by the Chamber of Commerce and its allies to make the case against government regulation. But now the true conservatives sought to defend free enterprise against the Chamber of Commerce. Oh, the irony!

One way to observe the growing split within Congressional Republicans is to plot the relationship between US Chamber of Commerce and the Koch-funded Americans for Prosperity scorecards, as political scientists Alexander Hertel-Fernandez and Theda Skocpol have done in a fascinating new paper, "Billionaires against Big Business: Growing Tensions in the Republican Party Coalition."

What you can see in these plots is that over the last several Congresses, the correlation between the two scorecards has become increasingly negative, meaning that the two groups are increasingly at odds with each other.

Source: Billionaires against Big Business: Growing Tensions in the Republican Party Coalition, Alexander Hertel-Fernandez and Theda Skocpol

Billionaires against Big Business: Growing Tensions in the Republican Party Coalition, Alexander Hertel-Fernandez and Theda Skocpol.

Helpfully, Hertel-Fernandez and Skocpol also break down these correlations by issue area, showing where the greatest areas of disagreement are. Not surprisingly, the scorecards diverge most notably on infrastructure, budgets, and taxes. By contrast, the two groups remain aligned on campaign finance (both oppose reform), on energy and environment, and regulation generally.

Source: Billionaires against Big Business: Growing Tensions in the Republican Party Coalition, Alexander Hertel-Fernandez and Theda Skocpol

Billionaires against Big Business: Growing Tensions in the Republican Party Coalition, Alexander Hertel-Fernandez and Theda Skocpol.

Note, however, that the Chamber and AFP do agree somewhat on issues of immigration, trade, and entitlements. Yet, against this consensus stands Donald Trump. Arguably, it is on these issues where the actual Republican voters are the angriest, and feel most betrayed by their party leaders.

In earlier work on the Tea Party, Skocpol and Vanessa Williamson had picked up on this tension. As they noted in The Tea Party and the Remaking of Republican Conservatism, "not a single grassroots Tea Party supporter we encountered argued for privatization of Social Security or Medicare along the lines being pushed by ultra-free-market politicians like Representative Paul Ryan (R-WI) and advocacy groups like FreedomWorks and Americans for Prosperity." But they found plenty of anger towards immigrants.

In other words, Republican voters were never all that cool with the Trojan horse of Koch-funded anti-government advocacy, which also supported immigration and free trade. The Kochs and their allies simply mistook anger towards the Obama administration for a genuine passion for small government.

This mistake created the opening for Trump. Drawing on the flames of anger the Tea Party had fanned, Trump came along as someone who could not only speak to that anger, but could also offer the populist policies that many of the angry GOP voters actually wanted — the best of both worlds!

With these twin revolts enjoined, the classic pro-business, "establishment" Republican candidates in the 2016 GOP presidential primary got creamed. Though many like-mounded souls still exist in Congress, few are now getting elected. Their numbers are shrinking, and their ability to forge consensus is vanishing.

So, to summarize briefly: Against growing government regulation in the 1970s, business made large-scale investments in politics, finding a friendly alliance with the Republican Party. To justify its policy agenda, business cultivated a popular faith in the power of free markets. But it turned out that the business agenda was really just a pro-business agenda, not always a pro-market agenda, which fueled some backlash.

This backlash mixed with an anti-Obama backlash to fuel an anti-government agenda that began to cut against the mainstream business agenda. It also fueled a general sense of anger that elites had let Republican voters down, which Donald Trump has now channeled in a way that better reflects that actual issue profile of many Republican voters. This has split apart the old Republican-big business consensus in ways that make it hard to see how it comes back together.

Arguably, big business is now a victim of its own success. If business leaders had not pushed public policy quite so relentlessly and successfully toward allowing them to gain an outsize share of the wealth of society, there would not be the level of voter anger and resentment. There would not be so many working-class whites whose increasingly dire economic prospects have made them eager for Trump's nostalgia-tinged nationalist populism.

And perhaps had corporate-funded free-enterprise foundations and advocacy think tanks not been so effective in spreading the gospel of free markets and limited government, there would have been less ideological soil in which to plant a far-right challenge to perceived "corporate cronyism."

But fear not for big business

The crack-up of the Republican-business alignment doesn't necessarily mean that corporate America won't continue to succeed in Washington. It just means that there won't be one clearly pro-business party. Instead, for the immediate future, both parties will likely have corporatist and populist wings, and businesses' successes will come from careful building and nurturing of cross-party coalitions. (Though eventually, I expect Democrats to be the pro-business, urban cosmopolitan party while Republicans become the nationalist populist exurban party as my New America colleague Michael Lind has also predicted.)

All of this will lead to a period of depolarization, in which a corporatist-populist dimension of politics will exist somewhat separate from the long-standing Democratic-Republican dimension of political conflict. Or, put another way, both parties will have internal insider-outsider conflicts for a period of time, making them looser coalitions.

This will offer some new opportunities for populists who want to challenge corporate power, creating openings that did not exist until recently. It's a real chance for political entrepreneurs to challenge some of the most egregious upward-redistributing policies.

But mostly, it's still hard to see corporate America not winning, even in this shifting environment, unless this moment opens up space for some major political process reforms.

Businesses devote remarkable sums of money to politics, and large corporations are now politically engaged in ways that are unprecedented in American political history. And if anything, the new politics will just mean more money spent on lobbying. Which will probably translate into more policy victories.