BUSINESSWEEK ONLINE : NOVEMBER 20, 2000 ISSUE
COVER STORY

What's the Mandate?
The overriding message for the next President: All roads lead to the center

On Nov. 7, just over half of America's registered voters streamed to the polls and rendered a mighty judgment for...your favorite name here. In one of the closest, strangest contests in modern times, the Presidential race between Democrat Al Gore and Republican George W. Bush deadlocked just shy of an electoral majority. While Gore appears to have won the popular vote, the electoral outcome hinged on a recount in Florida--a state where Bush was clinging to a tiny lead. But even as the votes were sifted in the Sunshine State, with platoons of Gore poll-watchers on the alert for ballot-box shenanigans, it was becoming clear that Campaign 2000 was an election like no other, a millennial muddle of epic proportions.

That's because the signals from the citizenry were so contradictory. Everywhere pollsters looked, they found schizoid splits. Americans liked Bush's vision of limited government--and Gore's brand of progressive activism. Roughly a third thought that strengthening Social Security was top priority. But by only slightly smaller margins, others chose tax cuts or paying off the national debt. They enshrined free enterprise and individual initiative yet felt the tug of populist appeals to curb the power of big corporations and wealthy elites (page 44). They longed for change but found comfort in the cushy, 10-year economic boom. According to ABC News exit polls, 56% of voters wanted the country to stay the current course, while 41% favored a ''fresh start.''

In the Presidential race, this riptide of swirling sentiment gave neither side a commanding lead but may have wound up delivering a slight edge in the popular vote to Gore. On the strength of heavy union turnout and intense grassroots support from liberal groups and minorities, he won many of the heartland's big industrial states. But Bush countered with a cunning small-state strategy, picking off redoubts considered Democratic turf--states such as Arkansas, West Virginia, and even Gore's home state of Tennessee. Although victory remained just out of reach as BUSINESS WEEK went to press on Nov. 8, the Texan managed to come as close as he did because his ''compassionate conservative'' appeals made inroads with blue-collar Democrats and independents, among them suburban women who have been hostile to GOP candidates in the past.

In the battle for Congress, the currents ran in the other direction, and Republicans lost ground. Many House Republicans stole their opponents' scripts and waged campaigns that promised to improve education and health care. As a result, Democrats made little headway in picking up the six seats they needed to regain control of the House. As of Nov. 8, the net gain was two, with two slots undecided. The shocker was the Senate, where Hillary Rodham Clinton led a cadre of Democrats that managed to gain at least three seats, a showing that puts the party within a heartbeat of control (page 42).

So what is the meaning of Campaign 2000 and what is the future direction of policy in this divided, but not terribly discontented, nation? All roads lead to the center. Given the split verdicts, neither party can claim a sweeping mandate. Although either a victorious Bush or Gore would put up a brave show, insisting that a win is a win, reality is far different. The lack of national consensus forces whomever is declared the victor to govern incrementally, devoting enormous energy to consensus-building while trying to avoid the traditional post-election tendency to reward base voters with red-meat legislation and controversial appointments.

Concludes Stephen Wayne, a Presidential scholar at Georgetown University: ''The voters' message is: 'Speak softly and pursue a more bipartisan approach.''' In the view of many veteran business lobbyists, that means the new President may have to concentrate more on the bully pulpit to create a sense of national unity than on the traditional 100 Days sprint to put legislative points on the board. ''This may be one of those years when there is no honeymoon,'' says Robert Stovall, senior vice-president of Prudential Securities Inc.

Although caution and gridlock are dirty words in some quarters, that's not necessarily the case on Wall Street. Already, some money mavens are viewing the current stalemate in cautiously upbeat terms. ''Whoever is the victor, they're winning a narrow mandate,'' reckons Martin D. Sass, CEO of New York money-management firm M.D. Sass Group. ''With no clear majority in Congress, it suggests more of the same... and that has been a good environment for the markets.''

Naturally, partisans in both the Bush and Gore camps continue to insist that victory, even the razor-thin variety, is tantamount to validation. ''If we win with a majority of both houses of Congress, of course there's a mandate,'' insists one Bush economic adviser. ''Voters who went for Bush knew they were endorsing tax cuts and some form of entitlement reform.''

If that's the case, not a lot of business leaders are acknowledging it. ''I don't know many people who went for Bush because of his tax cut,'' says former Netscape CEO James Barksdale, who supported the Texan. ''It's because he backed off some of the harsh, right-wing rhetoric of four years ago and took issues away from the Democrats.''

When the fog of confusion in Florida finally clears, we'll have a winner--but winning under such extraordinary circumstances makes victory bittersweet. Job One for the new President-elect is reaching out to opponents and pledging a mild form of coalition government. Either Bush or Gore might be tempted to sooth partisan passions by putting a few opposition members in the Cabinet.

Washington cognoscenti speculate that the Texas Governor could seek out conservative Dems such as former Georgia Senator Sam Nunn, Representative Charles W. Stenholm of Texas, or Washington superlawyer James C. Langdon Jr., an old Midland (Tex.) buddy, for Cabinet jobs. Since Gore is considered more of a partisan and would have to deal with a GOP-controlled Congress, he would face even more clamor to reach out. He might consider Republicans such as ex-New Hampshire Senator Warren Rudman and former Missouri Senator John C. Danforth, a pair of straight-arrows with a bipartisan streak.

The forced move toward the center would also compel the next President to refocus his agenda on less controversial items that could stand a chance in a Congress near political parity. The starting point is clear: Both Bush and Gore made education reform their top campaign issue, and the differences between the parties on schools aren't immense. Democrats favor more money for school construction and hiring new teachers. Republicans stress accountability, parental choice, and more local experimentation.

The major sticking point is a call for private-school vouchers. But after pro-voucher initiatives were crushed in California and Michigan (page 46), the cause has lost steam in Washington. ''Education will be the great healer issue,'' predicts former Republican Representative Bill Paxon of New York, and both Bush and Gore aides agree. Business couldn't be happier. ''The closer the election, the better,'' says John Kernan, CEO of Lightspan Inc., a San Diego-based educational software maker. ''Both parties want to spend more on education.''

Business reps also think that after GOP House members' success in appropriating the health-care issue on the stump, it will offer another avenue for bringing warring sides together. Even before the election, Congress was edging toward accord on legislation that would give enrollees in managed-care plans more clout against HMOs and insurance companies. If Bush is President, he's likely to sign a measure that grants HMO members a limited right to sue. He accepted similar legislation in Texas when the political winds shifted. Gore would prefer a bill with more teeth but would have a hard time getting it past a deadlocked Senate. The result, says Thomas A. Scully, president of the Federation of American Hospitals: ''You will probably get a moderate patients' bill of rights'' in 2001.

Similarly, both candidates embraced a new drug benefit for seniors, and Congress tried but failed to enact such a measure earlier this year. Democrats favor a new drug-purchase plan under Medicare, which would provide a limited benefit for all seniors. Republicans would rather have the government subsidize drug purchases through private insurance--especially for low-income seniors.

If Bush rules the White House, he would be tempted to win friends and influence people by finding a middle ground. The solution: ''It will have to be some kind of hybrid government-private program,'' says a pharmaceutical industry lobbyist. Conservatives still hope to use the benefit as the incentive for broad-based Medicare reform. But the votes for that may not be there in a gridlocked Congress.

Normally, you wouldn't think that tax cuts might be considered a unifying issue in the 107th Congress, but the gulf between Republicans and Democrats will narrow in the wake of the election. Both Bush and Gore proposed big reductions, there's money in the federal till to finance a significant cut, and the need for fiscal stimulus may be growing as the economy slows from the combined effects of Federal Reserve interest rate hikes, costlier oil, and sinking stocks.

Bush's $1.6 trillion proposal to slash rates and provide targeted relief for married couples, charitable giving, education, and long-term care looks like a nonstarter--though he would be obligated to fight for it for awhile. Why? Memories of the ''read my lips'' flip-flop that crippled his father's Presidency. Gore, for his part, sought $500 billion in targeted tax breaks for nearly everything that moved.

The possible compromise? Enacting marriage-penalty and estate-tax relief, which almost became law this year and which both candidates back. ''The new President will find leftovers on his plate,'' says corporate rep Kenneth M. Duberstein, chief of staff for Ronald Reagan. ''These things, rather than new items, will take up most of the tax focus.''

In the end, new tax breaks for charitable giving, education, and health insurance, along with relief from the Alternative Minimum Tax might make it into a 2001 bipartisan package. And if the economy heads south, modest rate relief could also be included. Total pricetag of a new tax package: in the $600-billion-to-$800-billion range. That's not going to make supply-siders happy, but with divided government, that may be the best they can get.

What bites the dust in such a narrowly focused agenda? Many things of importance to the parties' true believers. For instance, a President Bush might have to forgo his grand scheme for private Social Security investment accounts. A new Presidential commission would provide options for partial privatization, but votes may be lacking on a divided Hill. He could get a modest increase for military readiness and a pay raise but lacks the muscle to snare additional billions for a Star Wars anti-missile system.

Gore, for his part, could expect Congress to deep-six many of his new entitlements, such as his Retirement Savings Plus plan, which gives middle-class workers both a tax-free savings account and a government match. The Veep has proposed some 200 new microprograms during the campaign, and they would be whittled down to a nub by Republicans and leery conservative Democrats. Both candidates are free-traders, Bush more than Gore. But a new hemispheric trade pact and restoration of the President's authority to negotiate ''fast-track'' deals could face tough sledding in a Congress cast in cement. Fast track ''is a nightmare of an issue,'' says Steven Rattner, managing principal of New York-based Quadrangle Group, an equity fund. ''I wouldn't count on it happening right away.''

The biggest losers in the current deadlock are the ideological core groups who believe they were responsible for their champions' White House win. Their prize: a Presidential pen and a nice pat on the head. Religious conservatives now are unlikely to gain more than a token gesture on tough new abortion curbs. As for the Supreme Court, a President Bush would ''not get right-wing appointments through the Senate,'' says Emory University political scientist Merle Black.

Gore's can't-do list is even more daunting. His debts to labor include everything from paid family leave to legislation barring permanent replacements for striking workers.

To some in the business world, the prospect of creative gridlock is hardly distressing. ''We have become comfortable with a Washington unable to do a thing,'' says Daniel E. Laufenberg, chief U.S. economist for American Express Co.

Fair enough. But to America's foreign allies, a U.S. leadership vacuum and political paralysis are not cheery prospects. Some government leaders may wonder whether a hobbled President and Congress can muster the political will for a continued U.S. leadership role abroad, particularly since Bush has talked about pulling U.S. troops out of NATO peacekeeping missions and Gore has scared foreigners by sounding like a labor-owned protectionist.

But some mellow Europeans sound just like U.S. business execs when they speculate that America's move toward the center will prove beneficial by rubbing the rough edges off of either Bush's or Gore's agendas. ''It means [U.S. leaders] will have to start from a basis of consensus,'' says Klaus Barthel, a Social Democratic member of the German parliament. ''They can't polarize.''

Still, what if a foreign adversary, such as Iraq's Saddam Hussein, decides to take advantage of the U.S. political impasse by testing the sanctions on his regime? Big mistake, says Marc C. Ginsberg, a senior foreign-policy adviser to Gore: ''Saddam should have his head examined if he thinks a close vote somehow suggested the Republicans and Democrats are not united against him.''

While officials in foreign capitals puzzle over the political Balkanization in Washington, the capital's legions of nervous lobbyists, misfiring pundits, battered bureaucrats, and assorted hangers-on remain on tenterhooks. The most relaxed people in this scenario are the voters, who seem oddly at peace with the split verdict they have delivered, and those business execs who think a hamstrung Washington is the perfect accompaniment to Thanksgiving turkey. ''There has been a lot of rhetoric, but you'll see more compromise,'' says top Democratic fund-raiser Eli Broad, CEO of insurer SunAmerica Inc. ''The republic will survive.''

By Lee Walczak, Richard S. Dunham, and Howard Gleckman in Washington with bureau reports

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