Are Republicans and Business on the Rocks?

Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to the Bloomberg View. Follow him on Twitter at @smihm.
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In recent days, some stalwart allies of the Republican Party -- Wall Street bankers along with several business lobbying groups -- have warned against the government shutdown. Rather than endorse House Republicans' campaign to destroy the Affordable Care Act, business and financial leaders have politely suggested that the more radical elements Republicans are getting a bit carried away.

On Sept. 30, the Chamber of Commerce released a letter counseling the House of Representatives -- read: Tea Party Republicans -- to cease and desist. It was signed by more than 250 business groups, including the National Association of Manufacturers and the Business Roundtable. Wall Street titans such as JPMorgan Chase & Co. Chairman Jamie Dimon, Goldman Sachs Group Inc. Chairman Lloyd Blankfein and others have made similar pleas in person.

This rift between business and the Republican Party is unprecedented. For much of the past century, important business interests have pushed Republicans to combat the "creeping socialism" inaugurated by the reforms and regulations of the New Deal. Over the years, the alliance successfully eroded the power of unions, and rolled back burdensome regulations and progressive taxation.

Now, however, the business community is facing the political equivalent of blowback, as a core group of House Republicans lead their party in staking out increasingly inflexible positions that could unsettle the economy. Over the coming days and weeks, these business leaders will plead with Republican lawmakers to end the shutdown and avert a U.S. default. This unexpected friction may suggest that a political cycle that began 80 years ago is finally coming to a close, with profound ramifications for both parties.

In the 1930s, Republican policies were blamed for the Great Depression, forcing the party to begin a decades-long journey in the political wilderness. The business community was equally shell-shocked by the collapse. As the historian Kim Phillips-Fein observes in her illuminating book "The Making of the Conservative Movement from the New Deal to Reagan": For "the leaders of the American business class, the Great Depression was a political disaster as much as an economic one. Just a few years earlier, businessmen had been the heroes of American politics."

By the late 1940s and 1950s, a change had taken place. The siege mentality of business leaders was on display at a closed-door meeting of the National Association of Manufacturers in 1950. The lead speaker was Lemuel Bouware, a General Electric Co. executive. Franklin Roosevelt, Harry Truman, the labor leader Walter Reuther "and their ilk are the avowed enemies of American business," Bouware declared. "They consider the American businessman a thief, a cheat, and a coward. The time has come for the American businessman to stand up and take a stand for what he believes."

Bouware was the leading edge of a remarkable counterrevolution against the New Deal, recruiting disenchanted Democrats such as Ronald Regan to the Republican fold. In the 1950s, Bouware's movement came to include corporate executives, bankers and libertarian thinkers. They funded think tanks, lobbying groups and other organizations dedicated to rolling back the regulations, reforms and restrictions put in place during and after the Roosevelt administration. Bouware was fond of making his managers read Friedrich Hayek as well as John Flynn's "The Road Ahead," a 1949 free-market rant against the New Deal popular during the McCarthy Era. Many years before the Tea Party fastened on to the epithet, he thought the real threat to America wasn't communism, but socialism, "a disease which fastens itself on the body of a weakened society."

And many years prior before Glenn Beck, Rand Paul and others discovered Hayek, Ayn Rand, and other luminaries of libertarianism, key business leaders read these thinkers and came away as converts. At the time, however, their fervor put them well outside the mainstream of the Republican Party, which had resigned itself to accommodating the leftward drift of the country.

When Dwight Eisenhower became the first Republican president since Hoover, many of the more radical business leaders in this movement viewed him as a "collectivist." This was a gross exaggeration, though Eisenhower was sympathetic to the New Deal in many ways. When he proposed to expand health-care coverage for ordinary Americans by having government backstop private insurers against potential losses, NAM called the plan a "first step in the direction of socialized medicine." The proposal was defeated.

In succeeding years, the business revolutionaries pushed the Republican Party to embrace free-market principles and renounce "socialist" programs. In time, the business revolt against the New Deal centered around what historian Elizabeth Tandy Shermer has described as the "sunbelt capitalism" of Barry Goldwater and his allies. Their numbers included Richard Lesher, a free-market radical who helped make the U.S. Chamber of Commerce a central institution in his battle to "turn the country away from its drift towards socialism"; Jay Van Andel, who helped found Amway Corp. and joined Lesher at the Chamber; and Walter Wriston, the Citicorp executive who pioneered financial deregulation.

At the same time, lobbying groups became central to the cause. As the historian Benjamin Waterhouse shows in a soon-to-be-published book, "Lobbying America: The Politics of Business from Nixon to NAFTA," groups such as the Chamber, NAM and the Business Roundtable pushed a program of free-market policies in the 1970s, paving the way for the Reagan revolution. A growing number of high-profile politicians embraced the cause.

By the 1980s, Waterhouse observes, the business counterrevolution began to fracture, as supply-siders in the movement warred with deficit hawks. At the same time, some business interests disenchanted with free-market fundamentalism began staking out more moderate positions.

But something else began to happen, too: Republican legislators who had been reliable representatives of the business community began calling the shots. This became evident well before the Republican Revolution of 1994, when Lesher's Chamber of Commerce lent its tentative support to President Bill Clinton's plans for health-care reform. The reaction from Newt Gingrich, John Boehner and other young congressional Republicans was swift. In Boehner's words: "Once a foot soldier in the battle against big government, the Chamber appears now to be a lap dog of the administration."

The Chamber quickly reversed its position; the Republican Revolution took place later that fall; a disastrous government shutdown soon followed.

The divisions that appeared then in the Republican Party have persisted and grown larger. With the rise of the Tea Party, House Republicans in Congress are staking out positions and using tactics that Boehner himself seems barely able to endorse, much less control. Worse, the business community finds itself at odds with its one-time allies.

Business interests may well find themselves coming to the same realization as Reagan did when he worked with Bouware at GE: "I didn't leave the Republican Party; the Republican Party left me."

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