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The Hastert Rule Makes Congressional Collaboration Almost Impossible

Nov. 10, 2015
To move forward in manufacturing and supply chain, the U.S. needs infrastructure that facilitates, rather than stonewalls, the finding of middle ground.

Two issues important to business are consistency and compromise. For instance, no company likes to see the “rug pulled out from under” the normal course of business, and most companies understand that for the ordinary course of business to proceed both sides of a negotiation need to come away feeling like they have won something.

As I’ve previously written, today’s politicians seem dead set against compromise. It wasn’t always this way. Former Republican President Ronald Reagan was a master at finding middle ground as was shown in his negotiations with former Democratic House Speaker Tip O’Neill. When Reagan and O’Neill parlayed, there was always enough “meat on the bone” such that both sides came out thinking they had gotten a fair deal. And while “politics was politics” even back then, there was none of the extreme political rancor that exists today, both personally and on a party level. Most people don’t remember but when O’Neill retired from Congress, President Reagan named him as ambassador to Ireland, which shows a completely different environment and level of statesmanship than we have today.

Does this mean that all of our current politicians are extremists? I don’t believe so. A major difference between then and now is that in the meantime the parties have instituted structural elements that make collaboration almost impossible. And the Hastert Rule is the most blatant example of this.

I’ll elaborate more about former Republican House Speaker Dennis Hastert (whom the rule is named after) later, but for now I’ll just describe it:

No bill will be introduced in a Republican controlled House of Representatives unless it could pass entirely based on Republican votes.

I’m sure the Democrats also have rules and practices that reduce the opportunity for compromise, but none are more blatantly and proudly proclaimed than the Hastert Rule. What this rule results in is a small minority of Republicans having, for all intents and purposes, control of all House legislation. This is something I’m pretty sure the Founding Fathers wouldn’t have wanted. And additionally, because it structurally prevents finding middle ground, the Rule imposes a framework that permits a small House minority to cause significant interruptions—and damage—to the normal course of doing business.

Following is a real-life example of how the Hastert Rule works:

A small group of Republicans (which I refer to as uber Free Marketeers) decided that the U.S. Export-Import Bank is anti-capitalistic, i.e., that as an institution it picks winners and losers. Theoretically this group probably has a point. After all, through this bank U.S. taxpayers subsidize financing of exports by assuring potential customers will have favorable financing available to them. Under the Hastert Rule these uber Free-Marketeers prevented the House of Representatives from voting on the periodic re-authorizing of the Bank, whose Congressional Charter expired on June 30. The good news is that in spite of his party’s “Rule,” in his last week as Speaker John Boehner finally allowed a vote and reauthorization was passed 313 to 118, a 75% to 25% majority. In other words, all along, if only a vote had been allowed, there is no doubt that the Bank would have been re-authorized. You might ask, “So what’s the harm in a four-month lapse?” I’ll cite one example of its impact.

In September—prior to the reauthorization—General Electric announced that they will be closing their Waukesha, Wis.-based Power and Water Engine manufacturing facility and relocating the manufacturing of the product line it produced to a facility in Canada. GE cited the congressional lapse in reauthorizing the Export-Import Bank as the sole cause of making this move. GE says, and I believe them—I’ve had enough experience in international trade to know this is true—the company couldn’t even get into negotiations with potential non-U.S. clients without having Export-Import Bank financing available.

The immediate result will be the loss of 350 manufacturing jobs. The secondary result will be that the business of 400 suppliers (remember, this is a column on Next Generation Supply Chain) to the engine operation—most located in the U.S. —will be at risk. For instance, Wisconsin suppliers alone sell $47 million dollars of goods and services to this plant.

Republican politicians are pooh-poohing GE’s explanation. Rather, they say GE is relocating the plant because U.S. corporate tax rates are too high and our country has too many regulations, environmental and otherwise. I’m sorry, but in this case I believe GE—the last time I checked Canada had nothing over the U.S. on either taxes or regulation. And Canadian wages are essentially the same as those in the U.S., so it wasn’t an issue of cost. What Canada does have which the U.S. has lacked in recent years is the certainty of their own version of an Export-Import Bank that every couple of years won’t be attacked by a small bloc of uber Free Marketeers empowered by the Hastert Rule.

Remember, the goal of this bloc is not to create lapses in the bank, but to eliminate it. Companies have been very vocal over the years in talking about the negative impacts of these attacks on business and jobs. With the latest lapse in authorization GE (and several other firms) decided enough is enough. So, in this instance, through the Hastert Rule those uber Free Marketeers have picked Canadians as winners with the result that U.S. citizens will lose their jobs.

What about Denny Hastert? He recently pled guilty to averting federal banking rules by withdrawing millions of dollars in small amounts (under $10,000 a transaction) to try to keep those withdrawals off of bank regulator radar screens. According to his 15-page plea agreement, Hastert promised in 2010 to provide $3.5 million to someone identified only as Individual A “in order to compensate for and keep confidential his prior misconduct” against that person decades earlier. Hearing about this, I have two questions. How does a guy who was a Yorkville, Ill. high school teacher and wrestling coach and then spent the next 30 years in Congress end up with this much petty cash? Second, what was the misconduct he was so afraid would become public?

Well, Mr. Hastert has been a lobbyist since retiring from the House so I think that answers the first question. To answer the second, all you need to do is Google “Hastert” to see that he was being blackmailed by someone who was threatening to make public allegations that while a teacher Hastert sexually abused an underage male—one of his students. You can make up your own mind if the allegations seem to carry weight but the fact that $1.7 million in “hush money” had already been paid by Hastert to Individual A seems like a pretty convincing “smoking gun” to me.

If they are true, Hastert’s actions are both sad and heinous. This whole scenario has led me to wonder whether the Republican Party will continue to use his name on one of their benchmark rules in the House of Representatives. I hope they do. Why? Because as we’ve seen from the cited GE example, the result of this rule is no less sad and heinous to American workers who lost their jobs due to the lapse in the U.S. Export-Import Bank than Hastert’s alleged actions were on the impacted student(s).

To move forward in many areas, but especially manufacturing and supply chain, the country needs infrastructure that facilitates, rather than stonewalls, the finding of middle ground. Companies and employees that compete effectively shouldn’t have to worry about having the government pull the rug out from under their efforts by a small blog of extremist congressmen wanting to make headlines.

The last few articles have all focused on fairly serious issues. To lift the mood a bit, the next one will center on an actual experience I had with a client involving corndogs.

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