There’s a wave coming, but it’s not the one you think

Most in Washington are debating whether there will be a red wave this November and, if so, how large it might be. Yet, whether it turns out to be a wave or a ripple for Republicans, the twin tides of progressivism and populism are bringing a much larger wave that will crash down on businesses. 

From The White House to statehouses, skepticism, scrutiny and pressure will rise as a new wave of politicians from both parties is elected in November for whom criticizing business has proven to be a resonant line of attack on the campaign trail and in office. This means businesses have more at stake this fall than just which party controls Congress and state legislatures.  

While businesses may expect Republicans to form a bulwark against excessive regulation and taxation, with the party likely to gain control of the U.S. House and possibly the Senate, the reality may be quite different. Like Democrats after the 2018 midterm election, Republicans are sharpening their knives to exert full oversight authority over an executive branch held by the opposing party. Companies and industries could get caught in the crosshairs of GOP-led investigations, just as they did when Democrats took control in January 2019.  

Those investigations are likely to include the Biden administration’s COVID-19 response, and health care firms working on these efforts undoubtedly will find themselves ensnared in such oversight. With funds flowing to green energy projects, Republicans will search for the next Solyndra among the beneficiaries. Financial institutions should anticipate questions as a GOP majority looks into the Biden administration pressuring investors against financing fossil fuel projects and toward embracing a broad range of environmental, sustainability and governance (ESG) initiatives. 

As the administration moves forward with Medicare drug price negotiations and other measures to rein in prescription costs, Republicans are likely to be both friend and foe to the pharmaceutical industry. Fintech firms may find themselves caught between regulators and legislators as Republicans scrutinize the Consumer Financial Protection Bureau’s aggressive approach. Even investigations seemingly disconnected from business, such as Hunter Biden’s overseas business endeavors, have the potential to disrupt U.S.-China relations and other trade interests. 

Thus, for a range of sectors, a Republican Congress may not translate into relief, even as President Biden dusts off the “phone and pen” of executive action, leaving businesses fighting a two-front war in Washington.  

Further complicating businesses’ ability to navigate both Congress and state legislatures will be the number of new members populating those chambers, many of whom will be less experienced and more ideological than their predecessors. With at least 56 open seats on congressional ballots and potentially more than two dozen incumbents losing in November, the 118th Congress will be one of the largest freshman classes in three decades. This shift also will happen in state legislatures, where newcomers will win one in four seats thanks to the highest level of open seats in five election cycles.  

Among these open seats are legislative leaders such as Arizona House Speaker Rusty Bowers, Rhode Island Senate Majority Leader Michael McCaffrey, and Wisconsin Assembly Majority Leader Jim Steineke. While the latter two decided to retire, rather than seek re-election in the face of primary challenges, Bowers was one of numerous Republican incumbents to lose in primaries this cycle. Thus far, Republican incumbents have been losing at over twice the rate of the past two election cycles, generally losing to more populist challengers. The same has been true to a lesser extent among Democrats. 

As a result, when state legislatures are sworn in next year, majority parties are likely to grow even more dominant in more than two-thirds of state legislative chambers. In other words, red state legislatures are going to get redder and blue state legislatures will get bluer, with even more states under solitary party control. That means fewer checks on partisan excesses. 

As the political center has fewer representatives in government, companies will have to navigate this widening gap in policy direction between states. Moderate Democrats who held back the excesses of progressivism and the free market mantra of Republicans that similarly curtailed populist impulses have both ebbed in recent election cycles, and the expectations for November suggest they will remain far out at sea. This reality places businesses in a precarious position as they face mounting pressure to choose sides in the debate. Yet when businesses do take a stand — or no stand — they are bound to alienate a swath of policymakers and stakeholders. Firms must understand that while they may have earned and maintained a great deal of trust, it will take a lot to ensure that trust withstands the growing tide of politicization.  

As the wave of competing pressures from fresher, more partisan faces in Congress and state legislatures hits shores, businesses will have to adjust how they approach their advocacy. They cannot wait for the election results to begin assessing risks and challenges, or what range of stakeholders and policymakers will shape those outcomes. Smart firms are spending this fall waxing their surfboards to ride the coming wave as smoothly as possible. That means assessing where and how risks could emerge next year, and mapping which stakeholders are likely to be allies or opponents in those debates. Firms that wait to build the knowledge they need to form an effective strategy are more likely to be drowned in the wave.  

Jeff Berkowitz is the founder and CEO of Delve, a Washington-based competitive intelligence and risk advisory firm for companies and industries. He spent more than a decade in politics and government, leading research and messaging operations at the White House and State Department, on presidential campaigns, and for national industry and advocacy organizations. Follow him on Twitter @jberk.