* Groups like Club for Growth gain prominence with GOP
* Business leaders urge agreement on debt ceiling
* Chamber lobbyist says can no longer work with 16 in House
By Gabriel Debenedetti and James B. Kelleher
Oct 2 (Reuters) - Big business, a traditionally powerful but pragmatic player in Republican policy-making, has found itself outflanked and marginalized by smaller conservative groups opposed to compromise in the country's current fiscal crisis and the looming showdown over the debt ceiling.
As the shutdown of the government approaches its third day, business leaders and groups like the U.S. Chamber of Commerce are worried about the economic implications of a standoff over the debt limit, but their pleas have not moved the Republican leadership in the House of Representatives to action. Meanwhile right-wing groups like the Club for Growth and Heritage Action have gained traction, particularly as Tea Party-aligned lawmakers rise in prominence.
The U.S. Chamber's chief lobbyist said 16 House Republicans are now "out of earshot" for the Chamber, enough by his count to stymie legislation.
These lawmakers do not listen to their own Republican leaders and are oblivious to national polls, said Bruce Josten, the Chamber's executive vice president for government affairs. "They aren't going to listen to anybody except what they are being told from home."
Led by a group of conservative members, Republicans wanted to tie continued government funding to measures that would undercut President Barack Obama's signature healthcare law. The dispute threatens to merge with an Oct. 17 deadline for Congress to authorize an increase in the government's debt limit, or risk an unprecedented default.
The Chamber, which has opposed long opposed Obama's health insurance reforms, on Monday sent a letter to lawmakers from over 250 business groups, urging them to fund the government and raise the debt limit while cutting entitlement spending.
While the letter was addressed to all lawmakers, the message was clearly directed more at Republicans, with whom the Chamber has historically had far more influence.
Despite the letter, the impasse continues, with both sides blaming each other for intransigence.
The shutdown began on Tuesday after Democrats rejected Republican efforts to undercut the Affordable Care Act. Also known as Obamacare, a key piece of the program went ahead on Tuesday as people enrolled in new online insurance marketplaces.
The Republican Party is traditionally seen as supporting business interests while maintaining strong ties to leading industry groups such as the U.S. Chamber of Commerce, which helps fund candidates' campaigns and lobbies for corporate-friendly measures in Congress. In the 2012 election cycle the Chamber spent nearly $28 million campaigning against Democrats, out of $32 million overall, according to Washington research group the Center for Responsive Politics.
In the budget dispute, the House Republican leadership has aligned with lawmakers sympathetic to the Tea Party in opposing a deal to end the shutdown, despite the pleas of business groups like the Chamber and Fix the Debt to avoid actions that would damage the economy.
With many Capitol Hill staff members off work because of the shutdown and Boehner meeting with Obama in the White House on Wednesday evening, the speaker's office did not immediately respond to questions about the Chamber's letter or the speaker's relationship with the business community.
Former House Republican leadership spokesman Kevin Madden said party chairmen and big donors used to have a more exclusive level of access to persuading legislators. "It's become a much more competitive market for (leadership's) attention."
UNEASE AND FRUSTRATION
Paul Stebbins, executive chairman of the board at World Fuel Services Corp in Miami, said the Republican willingness to allow a shutdown created "a very deep unease" among his fellow business leaders as they look ahead to the debt ceiling fight.
Honeywell International Chief Executive Dave Cote, a self-proclaimed "lifelong Republican," said he was frustrated with the party's unwillingness to agree to a deal.
Major bank executives including Goldman Sachs' Lloyd Blankfein and JP Morgan Chase's Jamie Dimon met with Obama at the White House on Wednesday to discuss the budget impasse and the debt ceiling, but they did not go as a group to Capitol Hill, and none were scheduled to meet with Boehner or Republican Senate Minority Leader Mitch McConnell of Kentucky.
After the White House meeting, Blankfein said the executives, in Washington as part of the Financial Services Forum, wanted lawmakers to understand "the long-term consequences of a shutdown - we're already in the short-term consequences of a shutdown - but certainly the consequences of a debt ceiling (not being raised), and we all agree that those are extremely adverse."
Blankfein implicitly criticized Republicans for using Obamacare as a weapon. "You can litigate these policy issues. You can re-litigate these policy issues in a political forum, but they shouldn't use the threat of causing the U.S. to fail on its ... obligations to repay on its debt as a cudgel," he said.
A short-term shutdown would slow U.S. economic growth by about 0.2 percentage points, Goldman Sachs said on Wednesday, and a weeks-long disruption could weigh more heavily, at 0.4 percentage points. If Congress fails later this month to raise the $16.7 trillion borrowing cap, the United States would go into default, likely sending financial shockwaves around the world.
United Technologies Corp, which makes Sikorsky helicopters and other items for the military, said it would be forced to furlough as many as 4,000 employees, if the U.S. government shutdown continues through next week, due to the absence of government quality inspectors.
RISE OF CONSERVATIVE GROUPS
Much of the far-right antipathy for big business began in 2008, with the passage of the Troubled Asset Relief Program that critics equated to a bailout of major banks and corporations.
While long-standing industry groups like the Chamber have lost some of their sway over House Republicans, conservative organizations like Heritage Action have taken their place, some observers said.
Heritage Action is the political wing of the Heritage Foundation, a conservative think tank run by former Tea Party Republican Senator Jim DeMint of South Carolina since January.
Stebbins, of World Fuel Services, said single-issue groups like Club for Growth, an anti-tax advocacy group with a political action committee, were playing an outsized role in driving the politics behind the impasse.
"I think that one of the things that pragmatic businesspeople resent is that these absolutist imperatives become the litmus test whether you get to succeed politically," Stebbins said.
Led by former Indiana congressman Chris Chocola, Club for Growth has heavily supported Texas Senator Ted Cruz, whose 21-hour speech on the Senate floor last week helped set the stage for the budget fight.
In addition to lobbying members of Congress, Heritage Action also puts out a scorecard ranking lawmakers and funds aggressive advertising and publicity campaigns for its favored issues and officials.
Club for Growth is a juggernaut campaign funder of fiscally conservative Republicans.
Leaders from both Heritage Action and Club for Growth acknowledged that the Republican Party was indeed distancing itself from traditional business interests.
"The nature of the (House Republicans) has changed, and we think we have had something to do with that, with our support of some of the candidates we've endorsed," Chocola told Reuters, noting that "our goal is to be cheerleaders rather than obstructionists," and that he no longer speaks with Republican leadership.
Heritage Action spokesman Dan Holler said his group is in "constant communication" with leading Republicans, and that the lawmaker movement away from big business interests showed more attention is being paid to constituents.
Both Holler and Chocola pointed to their opposition to authorizing the Export-Import Bank as an example of their disagreement with the Chamber.
"There's an awakening in the Republican Party that being in favor of free markets and less government doesn't mean that you're going to be pro-big business," Holler said.
"Now you're getting to the point where (members of Congress) are saying, 'I don't care if groups like the Chamber of Commerce are lobbying for a tax credit,' or something like that."