The more than 500 point drop in the stock market on Thursday shows that neither the public nor investors think lawmakers in Washington have developed a process or the details necessary to solve the national debt crisis. This is despite agreement to raise the debt ceiling by $2.4 trillion on Tuesday.
Unless Congress, now at a record low 14% public approval rating, finds a better way to deal with partisan conflict than it has in the past year, the country risks lapsing back into the kind of recession, or worse, that we had in 2008, the last time the stock market dropped that much: 5% in the last week, 11% in two weeks.
But the problem is fixable, mostly by learning from the mistakes of the past year:
1. Pick A Dispassionate Panel. Congress has another 10 days to pick a 12-member panel, six each by Democrats and Republicans, to make recommendations on $1.8 trillion in spending cuts for the next 10 years. The more that panel members are picked for their dispassion, the more likely there will be good agreements. In the past year, the debt controversy has been characterized by heated, emotional, partisan statements. These drove the parties farther from reasonable discourse and they had to make an agreement at the 11th hour to narrowly avoid a first-ever U.S. default on repayment of its borrowings.
Unless the panel can do its work well between now and Nov. 23, when its proposals are due, the country will be right back into a heated and likely dysfunctional debate on spending cuts. So it is very important to have just the right process.
2. Consult Widely. The debt reduction panel should send a memo to all 535 elected members of Congress asking for debt reduction ideas, in writing. Lawmakers are already complaining that the panel will usurp their power by having sole authority to propose debt reductions, with only an up or down vote by Congress at the end. The panel should also send requests for ideas to states, local governments, think tanks and corporations.
The panel should bend over backwards to include various constituencies with their ideas. The more that people are included, the less emotion there will be about being left out. That means less rancor, less fighting, more information processing and more contributing of ideas. Small incentives, say, 1% of the first year savings, should be provided to communities and other organizations for original ideas that are approved and that work. The panel should use rotating staff resources of congressional lawmakers to enhance inclusion. The more people involved from Congress in the process, the more buy-in and less conflict at the end.
Consultations should not just be about savings, but also new revenue or export activities.
3. Be Positive. About $1 trillion in savings have been identified so far; the panel is to address the other $1.8 trillion of the total $2.8 trillion in cuts to be made over the next 10 years. One way to look at it is that we are already more than a third of the way there. The public should be informed in detail of the $1 trillion in spending cuts agreed to so far. This is more than the budget of most of the world's countries. Anything that can be done to instill a sense of accomplishment will motivate people.
4. Start With The Easy Things. The panel should start its $1.8 trillion in decision with the easy things: those that are not as controversial as health care or family planning. These include inefficiencies detailed by the U.S. Government Accountability Office, an arm of Congress. The easiest billions would motivate the public and cause the panel to be more cohesive. There should be a daily or weekly thermometer-like graphic in the media, with details of what the panel has approved for saving since the last period, and in total.
5. Assign Roles. Instead of having a committee of the whole, panel members should each take a subject area and mine it for savings. One panel member and a small staff would take health care, another education, yet another, family issues. This may seem obvious to some, but the panel's structure will have an important effect on the success of its work. I say this as an expert in negotiation, which includes how to structure interactions.
6. Collaboration, Not Conflict. The biggest mistake Congress made over the past year was not working together in a positive, productive fashion. Collaboration produces four times as much value as conflict, studies show. That means starting with things on which one agrees, trading programs that the parties value unequally and using a set of fair standards the sides agree on in advance.
It also means not demonizing each other, calling each other names, not walking out on each other and generally increasing the level of civility. The panel should institute process rules to enforce this. And the panel should resist conflictive pressure from lawmakers and others trying to strong-arm the process.
7. Being Incremental. Another big mistake Congress made over the past year was proposing competing grand schemes of several trillion dollars each. The bigger the request, and the greater the distance between the parties, the higher the perceived risk -- and the less likely the chance of an agreement. The panel should make a lot of small moves. If an issue seems too big, it should be divided into several smaller issues and solved one issue at a time.
8. People First. Panel members are not negotiating with spread sheets or reports; they are negotiating with other people. To the extent to which they have a good personal relationship, more trust will develop, more listening will occur and more agreements will follow. The members should start by getting to know each other, then developing a process, and only then should they tackle the substantive issues.
9. Budget The Time Available. Close to a deadline, the quality of agreements goes down, emotion rises, and information processing declines. The panel needs to draw up a time line for its work and stick to it. Any time-consuming, controversial issue that it comes upon should be postponed after a set amount of time.
10. Manage The Communication Carefully. The panel cannot do its work in the middle of a fire drill. The panel should have offices away from Capitol Hill and Washington and be shielded from partisans, the media and others who could be disruptive. The inclusion of ideas mentioned earlier should be managed through specific channels, and in writing. Open-ended discussions should not be permitted. The panel should have peace and quiet to carefully consider its work.
An outside process expert or intermediary may be useful to head off flare-ups that may arise within the panel, and time-consuming and debilitating conflicts that could occur with members of Congress.
The panel will find its work easier if it and the Congress follow steps such as these. And the public will be grateful for the result. Not doing something like this will make it much harder to reach an agreement. Congress has another chance to show the public it is not dysfunctional.
Stuart Diamond, a Professor at Wharton Business School, is the author of Getting More: How to Negotiate to Achieve Your Goals in the Real World (Random House/Crown Business, 2011). He has written frequently on the debt issue.
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