What a GOP-controlled Senate means for U.S. business by Sanjay Sanghoee @FortuneMagazine November 5, 2014, 11:01 AM EST E-mail Tweet Facebook Google Plus Linkedin Share icons This week’s midterm U.S. elections marked a major victory for Republicans in the Senate. The GOP now controls both chambers of Congress. This could be good news for U.S. business — but not for the obvious reasons. Conventional wisdom might suggest that the business-friendly Republican party will use their influence to repeal or scale back many regulations and programs unpopular with U.S. businesses, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Affordable Care Act, efforts to curb tax dodging deals, and restrictions on drilling for oil in protected areas. However, it is unlikely that the GOP will do nearly as much on this front as executives might think. While regulations and restrictions are usually viewed unfavorably by businesses, the public often perceives them differently. Dodd-Frank, for example, is onerous for banks but seems to be popular with many Americans, who understandably want protection against the type of Wall Street excess that led to the subprime mortgage crisis in 2008 and nearly destroyed America’s economy. And with the upcoming Presidential election in 2016, it’s likely that Republicans will want to court the populist vote and avoid antagonizing average voters by peeling back laws that protect consumers and the economy. Instead, the real benefit to businesses of a Republican-controlled Senate will be economic stability in the way of ending political gridlock in Washington. In our previous setup, where the House of Representatives was controlled by Republicans and the Senate by Democrats, partisan compromise was nearly impossible to achieve. This was largely because of self-interest combined with many constituencies needing to be served simultaneously. For instance, a major corporation that requires a large Spanish-speaking labor force might desire the legalization of undocumented immigrants from South America, whom they could hire to fill vacant positions. A Democratic Senator from the state in which the corporation resides might naturally be inclined to support an easy pathway to citizenship for such undocumented visitors. The Senator’s support for immigration reform might be due to campaign contributions from the corporation or due to a belief in the positive economic impact of immigration on her state; but it doesn’t matter. What does matter is that a Republican Congressman whose constituents feel that illegal immigrants consume resources meant for legal citizens, or take jobs away from local workers, could similarly feel pressured to oppose any legislation providing a pathway to citizenship even if it serves a valid national interest. In other words, the conflicting personal interests of the Congressman and the Senator would automatically pit them against each other on this issue and make it extremely difficult to find compromise. If this sounds familiar, it’s because we have seen a version of this dynamic many times over the past few years; including, most disturbingly, during the political fight over the federal budget and debt ceiling in 2013 – which led to a government shutdown. This dynamic, however, could now change. With Republicans controlling both houses of Congress, the endless conflicts and Byzantine horse-trading resulting from the parochial interests of individual politicians can (hopefully) be minimized. Without Congressional Democrats to worry about, the GOP can move at least some type of productive agenda forward. While it’s true that there is dissent even within the GOP, and Sen. Ted Cruz has threatened to pursue a highly confrontational agenda after the midterms, such a loose-canon mentality is not necessarily the rule. Another Tea Party favorite, Sen. Rand Paul, has gone in the other direction, siding with the more moderate Republican establishment — probably to win favor with mainstream Americans. That leaves the GOP with only one party to negotiate with: the White House. President Obama, for his part, can simply veto anything that is extreme, which gives him leverage to push for moderation and compromise without the incessant Congressional bickering that prevents such dialogue from happening. The crucial difference is that the White House’s constituency is the nation as a whole and not 50 different states with conflicting interests, including within the Democratic party itself, which could make it easier for the President to find common ground with Republicans. Will this happen though? There isn’t much choice for either side. Given their extremely poor track record of bipartisanship and governing over the past several years, both political parties need to clean up their act in order to win back the confidence of the nation – including the President. Even the business community doesn’t really trust Washington to make rational and balanced decisions that can provide stability for the markets. From an overdue reform of our complex tax code to visibility on interest rates and a cohesive foreign policy that protects our global economic interests, U.S. companies need clarity and action from Washington. The simpler structure of a Republican Congress and a Democratic White House, with minimum factonalism within Congress, the President speaking for the Democrats in one voice, and both sides exerting enough power to force compromise, could potentially bring the nation to the political center. That may not give the business community everything it wants, but it will certainly give it more than what the extreme politics of Washington has given it so far, and will be sustainable in the long run. That is a good thing. Sanjay Sanghoee is a political and business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, as well as at hedge fund Ramius. He has an MBA from Columbia Business School.