For more than a century, big business has counted on the Republican Party to do its bidding in Washington. Given recent debates over taxes and regulation -- in which GOP lawmakers have catered to corporate interests -- it might seem that not much has changed.
The past few weeks, though, show that everything has changed. Today's Republican Party is turning out to be the worst friend business could imagine, led by politicians who don't understand the modern economy, and, worse, are ready to blow it up on principle.
This spring, as a GOP beholden to the Tea Party geared up for brinksmanship on the debt ceiling, lobbyists for Wall Street and corporations begged Republican leaders to back off. These pleas were ignored, and now a few trillion dollars in shareholder equity, wealth owned primarily by the top 10 percent of the richest Americans and corporate executives, has gone poof.
The story of Republican economic incompetence long predates the Tea Party. The rise of the new right in the 1970s, based largely in the Western United States, pushed aside an Eastern Republican establishment that knew its way around major financial institutions and believed in fiscal prudence. In his memoir about serving as Ronald Reagan's budget director, David Stockman wrote of a White House that fundamentally didn't understand fiscal policy and made gigantic amateur errors in projecting growth rates and tax revenues. That spawned huge deficits and the need for Reagan to reverse nearly half of his 1981 tax cuts. (Yes, Reagan raised taxes: not once, but 11 times.)
The old Republican establishment enjoyed a last hurrah under George H.W. Bush and his Treasury secretary, Nicholas Brady, a graduate of Yale and Harvard who got his start at the august Wall Street firm of Dillon, Read, and Company. Bush was serious enough about fiscal responsibility to back tax hikes to reduce the deficit, but he and Brady proved clueless about how to deal with new competitors like Japan or the recession of 1990–1991.
By the mid-1990s, the GOP had moved squarely to the fringe on economic policy. While Bill Clinton's centrism might have laid the groundwork for a new era of bipartisan economic policy-making, it was not to be because Southern conservatives like Phil Gramm, Dick Armey, and Newt Gingrich pushed the GOP to an extremist anti-tax position. That shift elevated ideology above all else and further sidelined those Republicans who thought in pragmatic terms about the economy.
One such Republican was Paul O'Neill, the former CEO of Alcoa who served as George W. Bush's first Treasury secretary. O'Neill, who had spent a decade as a numbers cruncher at the Office of Management Budget before going to the private sector, found himself marginalized by a president who -- despite his Harvard MBA -- was alarmingly disinterested in economic policy.
In a chilling book about O'Neill's tenure at Treasury, the journalist Ron Suskind depicted an administration of ideologues that squelched internal debate about the economy and pushed this topic to the backburner. It was O'Neill who famously quoted Vice President Dick Cheney as saying "deficits don't matter," a nonchalance about debt that rationalized tax cuts during wartime and trillions in borrowing.
In retrospect, it was sheer luck that Bush happened to have a Treasury secretary, Henry Paulson, who understood financial markets when the 2008 crisis erupted. Paulson barely bothered to consult his know-nothing boss as he worked to avoid another Great Depression.
All this history -- a troubling stew of incompetence and extremism -- helps explain why so many business and financial leaders have defected to the Democratic Party since the 1990s and flocked to Barack Obama's candidacy in particular. (The willingness of Democrats to cater to corporate interests in return for campaign cash has been another factor.) A big irony here is that the more adamant the GOP has become about cutting taxes and gutting regulations, the more it has alienated segments of the business world -- the reverse of the effect you might imagine. By the early 2000s, even as Bush enacted huge tax cuts for the rich, Democrats -- for the first time -- started raising more money than the GOP did from executives who worked in hedge funds, private equity, venture capital, and technology companies. Al Gore won four out of ten of the wealthiest counties in 2000. John Kerry won six out of ten in 2004. Obama won eight out of ten in 2008.
The majority of business leaders remain Republican. But, as it turns out, there are many executives and investors who don't embrace a libertarian vision of economic growth. They don't think that turning back the clock to 1925 and freeing America's Horatio Algers from taxation and red tape is how to advance in today's global economy.
Rather, many believe in a collective vision of wealth creation in which government plays an important role in managing the economy and investing in things like infrastructure, education, and scientific research. Last year, for instance, a group of top CEOs came together to create the American Energy Innovation Council and called on the federal government to invest $16 billion a year in clean energy -- just the kind of spending that today's GOP ridicules. Of course, many business leaders also see government as indispensable in moments of crisis, whether that means stimulating demand with public spending or bailing out large financial institutions. Obama's stimulus was infinitely more popular on Wall Street than on Main Street.
Once upon a time, there were plenty of Republican leaders who balanced this liberal worldview with a commitment to balanced budgets and a light regulatory touch. Not any longer. Just try finding a GOP presidential contender who has anything positive to say about the Troubled Asset Relief Program or the stimulus, two policies that were unequivocally good for business and the economy.
Six months ago, it was common to hear executives and investors expressing buyer's remorse about supporting Obama in 2008. To be sure, some of these folks will be lining up behind the Republican nominee in the 2012 election, especially if it is Mitt Romney. But for many other business leaders, the debt-ceiling fiasco is likely to serve as a fresh reminder that today's GOP can't be trusted when it comes to the economy.