Thought of the Week:
I like to play a little $5 Nassau on the golf course, fill out an NCAA March Madness tournament bracket or two, even wager a bit on Fantasy Football with friends. But it was shocking for me to read this week that Phil Mickelson, the six-time major golf champion, bet a total of more than $1 billion over the past three decades, losing upwards of $100 million. The story as recounted in Golf Digest served as a reminder that very few turn a profit gambling and there is quite a bit to lose when taking unnecessary risks. While every investment involves a certain degree of risk, companies can insulate themselves by doing their due diligence, and every well-designed due diligence program includes a government affairs component. Today, more than ever, companies and organizations are impacted by the laws, regulations, and policy developments coming out of Washington. A strong and deeply integrated Government Relations function is often a critical part of business success, particularly with regard to fulfilling mission statements and achieving internal and external goals. Today’s successful Governmental Relations offices are adept at educating policymakers about issues, alerting business executives to legislative/regulatory risks and opportunities, and lobbying to ensure company views are heard in policy debates. Today’s increasingly challenging advocacy environment is littered with complex legislation and regulation, 24/7 news cycles, entrenched partisanship, and an ever-growing number of players. Case in point, yesterday’s announcement by the Biden administration of an Executive Order (EO) on outbound investments to China. The order represents one of the most significant U.S. government actions to date on how investors may deploy capital abroad. While focused on AI, quantum computing, and semiconductors, the EO does not just cover investments in capital but also on the intangible benefits that come with investments that could create a national security gap. On Capitol Hill Senate Majority Leader Schumer (D-NY) will attempt to codify the EO into law through passage of the National Defense Authorization Act (NDAA). Not only would codification highlight Democratic support of the White House, it would force bipartisan agreement on a subject that has seen competition among members on both sides of the aisle to be tougher on China. According to people in the know, there will be immense pressure over the next year to expand the EO to other sectors, and it will present risks to other investments in China. One should look to the White House’s emerging/critical technologies list as a start to see which new technologies might be added—biotech, nanotechnology, and advanced manufacturing to list a few. The current expectation in Washington is that the EU, Japan, and others will eventually join on. In terms of a timeline, the EO will officially be published next week; publication will trigger a 45-day comment period; it will take at least several months to clear all comments; and a final rule may come out in early 2024, with actual implementation following closely thereafter. The bottom line: any foreign company with a U.S. subsidiary that is involved in these investments in China will need to undertake a due diligence inventory to gauge the EO’s business impact.
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
The Conference Board Recognizes Improved CEO Confidence, Yet Still Advises Caution. The Conference Board’s Measure of CEO Confidence improved to 48 in Q3, up from 42 in Q2 (a reading below 50 reflects more negative than positive responses). However, recession fears remain. In fact, despite the brighter outlook, most CEOs still anticipate that an economic downturn lies ahead. In Q3, 84% of CEOs report that they are preparing for a recession over the next 12–18 months, down from 93% in Q2. That said, the vast majority of CEOs continue to expect a short and shallow US recession, with just 4% now expecting a deep American recession with major global spillovers—down from a high of 13% in Q4 2022. At the same time, the proportion of CEOs expecting no recession at all climbed steadily from 2% in Q4 2022 to 17% in the latest survey. Although companies are still hiring and increasing paychecks, attracting qualified workers remains difficult for the majority of companies. While 74% of CEOs plan to raise wages by more than 3% over the next year, the competition for talent is fierce: 40% of CEOs expect to ramp up hiring in the next 12 months, and another 40 percent are maintaining the size of their workforce—a sign of labor hoarding in an extremely tight labor market.
Eurasia Group Calculates that a Republican Electoral College Bias is not Baked in for 2024. That the Electoral College is biased toward Republicans is an oft-repeated notion in U.S. political discourse. While Republicans enjoyed a slight Electoral College bias in 2016 and 2020, they may not be able to count on the same structural advantage in 2024. The bias of the Electoral College is assessed by calculating the difference between the election winner’s national popular vote share and the popular vote share in the “tipping point” state, which pushes the winner over 270 electoral votes. In 2016 and 2020, the tipping point state was Wisconsin, which voted 3.8% more Republican than the country as a whole in 2020. However, when compared to 2020, although Republicans have gained in the Northeast and West, Democrats have made inroads in the Upper Midwest. While Democratic gains in the Upper Midwest could flip closely-fought states such as Wisconsin and Michigan in their favor, additional GOP votes in the Northeast and West are essentially wasted in terms of Electoral College votes, as they will not overturn insurmountable Democratic margins there. This could eliminate the Republican advantage in the Electoral College or even introduce a slight Democratic advantage if a state more Democratic than the nation as a whole, such as Nevada, becomes the tipping point state. The partisan bias of the Electoral College has shifted over the years. In the 2008 and 2012 elections, Colorado, which leans Democratic, was the tipping point state, providing an advantage for former president Obama. A shift back toward Democrats would likely reduce the odds that the Party attempts to reform or eliminate the system in a second Biden term.
Observatory Group Sees a Third-Party No Labels Candidate Swinging the 2024 Election to Former President Trump. Third Party group No Labels’ claim that their ticket could win the presidency is “a fairy tale” in that national polling shows that at best a No Labels ticket could win 5-15% of the popular vote, and no Electoral College votes. While No Labels cites an internal poll that shows 59% of Americans “would consider” a third-party candidate, this claim has little correlation to real-world intent because “would consider” is so nebulous. Consider that the Biden/Trump vote is largely already baked in, with each winning in the low to mid 40s% range, but Trump’s floor and ceiling are almost exactly the same number, whereas Biden’s has more variance. It is for this reason that a No Labels ticket would impact Biden more negatively. If No Labels does run a ticket, it will likely throw the election to Trump, meaning No Labels would be the decisive factor in this election. Although Cornel West’s Green Party run could also prove decisive for Trump by grabbing a small percentage of the African American, No Labels is seen as the bigger risk to Biden given its strong appeal in swing states. At present, RFK, Jr. is vying to be the Democratic candidate, and isn’t talking about a third party run, but given his anti-vax and anti-Ukraine aid positions, he could actually take more GOP votes than Dem votes should he run as an Independent. Bottom Line: given the risks of one or both of No Labels or Cornel West running, the chances are that Biden loses and Trump wins a 2nd term.
“Off the Record”
Nearly two-thirds (65%) of K Street leaders think the government will shut down on Oct. 1, the start of the new fiscal year. Even more (80%) think there will be a government shutdown sometime before January. While the House and the Senate still need to pass 12 appropriations bills, they currently have very different approaches to FY2024 spending. In the House, appropriators are marking up funding bills at levels significantly lower than what was agreed to in the debt-limit compromise between Speaker McCarthy and President Biden; the Senate has been using the levels outlined in the Fiscal Responsibility Act. In fact, the House is having trouble just bringing bills to the floor, and even abandoned efforts to consider the Agriculture bill before recess because GOP leaders didn’t have the votes. Meanwhile, the Senate cleared all 12 appropriations bills out of committee before leaving for the August recess. With both chambers in recess until after Labor Day, when Congress comes back in September lawmakers will only have a few weeks to reach a government funding agreement. It remains unclear if Congress can even pass a short-term continuing resolution (CR) to give both parties more time to reach a longer deal. If Congress doesn’t pass all 12 appropriations bills by January 1, 2024, a 1% across-the-board cut, as laid out in the debt-limit compromise, will be enacted. K Street Democrats are a lot more pessimistic about the government shutting down sometime before 2024—91% versus 73% of Republicans. The likelihood of other legislative priorities passing this year, according to K Street: (1) Farm Bill: a majority (66%) agree it’s likely Congress will reauthorize the Farm Bill; (2) Cannabis Banking Reform: only 14% of lobbyists think that’ll happen; (3) FAA Reauthorization: 80% think it’s likely Congress passes a reauthorization bill; and (4) Rail Safety: 49% think Congress will pass legislation.
In Other Words
“Of course [Trump] lost. Joe Biden’s the president…I think what people in the media and elsewhere, they want to act like somehow this was just like the perfect election. I don’t think it was a good-run election. But I also think Republicans didn’t fight back. You’ve got to fight back when that is happening,” Florida governor and 2024 presidential candidate DeSantis on the 2020 election.
Did You Know
This week, President Biden established a 1 million acre zone surrounding the Grand Canyon as a national monument, thereby protecting the area from uranium mining. Thus far, the president has established five national monuments under the Antiquities Act of 1906. While Biden has already surpassed former President Trump in terms of establishing monuments, he falls far behind President Obama. The presidents who have created the most number of monuments under the Antiquities Act are: (1) Barack Obama, 29; (2) Bill Clinton, 19; (3) Theodore Roosevelt, 18; (4) Jimmy Carter, 15; (5) Calvin Coolidge and Woodrow Wilson, 13; (7) Franklin Roosevelt, 11; (8) William Taft, 10; (9) Herbert Hoover, 9; and (10) Warren Harding, 8.