Learning from the deficit-reduction talks

Business negotiators would do well to avoid repeating Washington’s mistakes.

By — on / BATNA

Does anyone down there know how to cut a deal?” Senate Republican Mitch McConnell said to Vice President Joe Biden. It was Sunday, December 30, 2012, the day before the “fiscal cliff ” deadline, and the minority leader had phoned Biden out of a sense of desperation, report Patrick O’Connor and Peter Nicholas in the Wall Street Journal.

Two days prior, on December 28, President Barack Obama had assigned McConnell and the Democratic majority leader, Harry Reid, to work out a Senate deal to lower the federal deficit through tax increases and spending cuts. The House of Representatives had just rejected an agreement negotiated between Obama and House Speaker John Boehner. The Senate was the country’s last hope of avoiding the fiscal cliff. If Congress and the White House failed to reach an agreement by the close of 2012, the impasse would trigger widely unpopular across-the-board tax increases and spending cuts that some predicted would lead to a new recession.

Hours after the meeting with Obama, aides to McConnell sent their first offer to Reid: a proposal to raise taxes on families earning more than $750,000.

Reid’s office took nearly 24 hours to respond. McConnell’s team began to suspect that Reid was stalling to try to force Republicans to accept a backup deal that would raise tax rates for all Americans earning more than $250,000.

The two teams exchanged offers back and forth on Saturday. McConnell lowered his request to a $550,000 cutoff for families. Reid’s office stalled, then finally revealed the following afternoon that it would not be sending a counteroffer.

Finding himself without a dance partner, McConnell turned to his old colleague Biden. The two had jointly negotiated the last big U.S. tax compromise in 2010 and knew each other well. “You and I should be able to get this done,” McConnell reportedly said, “but I need you to engage.”

After conferring with his boss, Biden did engage. Over the next day and a half, Biden, McConnell, and their aides worked furiously toward a resolution, reportedly talking 15 times. Ultimately, they reached a deal to raise rates on individuals earning more than $400,000 and couples earning more than $450,000. The agreement, which passed both houses of Congress, also extended unemployment insurance for a year and postponed $110 billion in planned spending cuts for two months.

Few Americans liked the deal. Fewer still were impressed by how Washington had managed its self-imposed negotiations, which Congress had set into motion when a bipartisan congressional “super committee” failed to negotiate recommendations on deficit reduction in November 2011. In this article, we look at what went wrong—and right—as a means of showing you how you can do better in your own negotiations.

1. Focus on problem solving, not positions.
The deficit-reduction negotiations got off to a rocky start as both sides staked out extreme positions. Republicans announced publicly and repeatedly that they would not allow taxes to rise even on the wealthiest Americans, and they also demanded significant spending cuts. At the same time, Democrats said they would not budge from their positions of higher taxes for the wealthiest and no significant spending cuts.

“The lines between the sides were clearly drawn,” says Program on Negotiation faculty member Daniel L. Shapiro. This type of positional bargaining makes it extremely difficult for negotiators to work together. Fixated on the negotiation as a win-lose battle, Republicans and Democrats were unable to work together to attempt to craft a creative, mutually beneficial agreement. (For more on the dangers of making rigid public pronouncements, see the sidebar “To Publicize or Not to Publicize?” below.)

What’s the key to avoiding positional bargaining? Rather than looking at the other side as your adversary, consider the problems you both share and think about how you can work together to address them. Democrats and Republicans disagreed on a lot, but they did agree that the federal deficit needed to shrink. By focusing on this shared problem from the start, they might have come together sooner and avoided the need for frantic last-minute negotiations.

2. Bring the right people to the table.
For two years, Obama viewed House Republican leaders as the path to legislative advances, as shown by his decision to negotiate directly with Boehner and House Majority Leader Eric Cantor on deficit reduction. But because of deep divisions within the Republican caucus, the agreement Obama forged with Boehner proved to be a dead end.

The negotiations finally broke through when McConnell and Biden teamed up just a day before the fiscal-cliff deadline. McConnell then brought Reid on board, and together they persuaded reluctant Senate members to accept the negotiated deal. Boxed into a corner, House Republican leaders put the bill up for a vote, and Democrats “pushed it over the finish line,” writes Jonathan Weisman in the New York Times.

To publicize or not to publicize?

At the height of his negotiations with John Boehner, President Obama made public appearances to promote his perspective and encouraged citizens to use social media to share how across-the-board tax increases would hurt them if the nation went over the fiscal cliff. The campaign appeared to win points for Democrats and put pressure on Republicans to compromise.

In general, however, we achieve more when we negotiate in private, says the Program on Negotiation’s Daniel L. Shapiro. Negotiators benefit from a “wall of privacy” behind which they can float proposals and concessions without the risk of publicly committing themselves. That may explain in part why Mitch McConnell and Joe Biden’s last-ditch private negotiations were successful—and Obama’s deal with Boehner was not.

The maneuvering illustrates the importance of questioning whether you’re meeting with the right person (or people) before you sit down at the negotiating table. In particular, consider two key criteria. First, identify whether you are likely to have good rapport with a counterpart. Though there are various reasons McConnell and Biden eked out a deal, including the threat of a ticking clock, the trusting relationship they had established through past successful negotiations was clearly an important factor. A strong relationship isn’t essential to effective negotiation, of course. But at the very least, try to assess whether the other party will negotiate in good faith.

Second, think strategically about how a potential negotiator’s constituents could influence the process. You may have great rapport with your counterpart, but does her organization have any incentives to block a deal? Is there a way you can work around potential deal spoilers? At this writing, Washington faces another round of crisis talks over the federal debt ceiling and spending cuts. It won’t be surprising if, as a result of the deficit talks, the White House approaches the Senate as its primary negotiating partner in Congress and treats the House as an afterthought.

3. Anticipate fluctuating BATNAs.
The idea of entrusting a congressional supercommittee with deficit reduction was dreamed up in 2011 during negotiations between Obama and Congress over whether to raise the federal debt ceiling. The fiscal cliff “trigger” was added to give committee members from both parties a strong motivation to reach agreement.

In the article “When Compromise Seems Elusive” in our October 2011 issue, we described the trigger as a “bad BATNA”—the opposite of the “best alternative to a negotiated agreement” that negotiators typically try to build. Ideally, the threat of the fiscal cliff should have inspired the supercommittee—and, when it failed, congressional leaders and the White House—to work together to reach a better outcome. The threat of cuts to domestic spending was supposed to have spurred Democrats to compromise, and the specter of military cuts was meant to do the same for Republicans. The possible expiration of Bush-era tax cuts was supposed to have scared everyone.

Whether good or bad, BATNAs often fluctuate as a negotiation unfolds, and this BATNA was no exception. After Obama won reelection in November, the BATNA didn’t seem as bad to Democrats. If the Bush tax cuts expired at the end of 2012, the revenue produced would be adequate to offset cuts to domestic spending triggered by an impasse in the deficit negotiations. Moreover, polls showed that more Americans would blame Republicans than Democrats if the country went over the fiscal cliff. As a result, the negotiating behavior of Obama and congressional Democrats at times suggested that they did not feel strongly motivated to compromise. In the end, it was up to the Republicans to blink.

A bad BATNA or other type of contingent contract that delays negotiation of certain issues until a future date can allow negotiators to move forward temporarily. But keep in mind that BATNAs are ever-changing—and what looks like a strong incentive today may be a weak one a year from now.

3 keys to avoiding the cliff

  • Treat your negotiating counterpart as someone who will help you solve a shared problem rather than as an adversary.
  • Set up the right negotiation by carefully analyzing who can help you meet your goals.
  • Anticipate that any negotiating conditions you put in place now may be less effective as time passes.

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