Battle of the Washington insiders
With the crucial midterm elections upon us, political adversaries Terry McAuliffe and Ed Gillespie handicap the race.
By Nina Easton, Fortune Washington bureau chief

(Fortune Magazine) -- Don't ask Ed Gillespie and Terry McAuliffe to stand close together for a photograph. The two political moneymen can't do it. It's not that Gillespie, the former Republican National Committee chairman, and McAuliffe, the erstwhile Democratic National Committee chair, don't like each other - or that they're political foes. It's just that every time they try to step in close, they dissolve in laughter as bad jokes fly about former Representative Mark Foley, the disgraced Florida Republican accused of coming on to congressional pages.

The men are used to good-natured sparring - Gillespie's down-home delivery has played off McAuliffe's edgy charm on all the Sunday talk shows - but these days the talk is getting serious. With midterm elections coming, the stakes are high.

beltway_battle.03.jpg
Duel: Former DNC chief McAuliffe (left) and ex-RNC boss Gillespie
Tale of the Tape: Political Pugilists
The two political advisors - Ed Gillespie is the Republican, Terry McAuliffe the Democrat - regularly spar. But they have more in common than you might think:
Gillespie - McAuliffe
45 Age 49
New York, Irish, Catholic Background New York, Irish, Catholic
As a top aide to Rep. Dick Armey, helped draft Contract With America. RNC chair: 2003-05 Résumé Called "the greatest fundraiser in the history of the universe"; DNC chairman 2001-05
To Republicans: Define yourself before your opponent can define you. Advice To Democrats: Take the money and run. To Hillary: Run!
First job out of college: Senate parking-lot attendant Relationship to asphalt First business, at age 14: driveway maintenance

Republicans know they will lose seats in Congress and are scrambling to retain control of both houses. Democrats can taste victory - they need to win 15 seats to capture the House - and if they gain control of either house, they'll challenge President Bush on tax policy and Iraq. And Democratic-led examinations of CEO comp and options backdating could put corporate America under renewed scrutiny.

With so much at stake, Fortune asked the two insiders to meet for a no-holds-barred campaign discussion. They have plenty in common: Both are astute fundraisers credited with bolstering the financial fortunes of their respective parties, both are Irish-American graduates of Washington, D.C.'s Catholic University, and both have been writing books about their political lives.

Gillespie, a principal in the bipartisan lobbying and public affairs firm Quinn Gillespie & Associates, has just published "Winning Right," a Republican electoral playbook. McAuliffe, an investor and advisor to New York Senator Hillary Clinton, replies in January with his book, "What a Party!" Here's what they had to say about the election, fundraising, and even their dark-horse picks for 2008.

'06 Election

So we're sitting here, 27 days away from a hotly contested election. What will be remembered as the seminal moment?

GILLESPIE: Boy, it's hard to say before the election. It may be Foley. Obviously I hope it's not the case.

MCAULIFFE: I've been predicting we'd win the House and Senate since before the Foley scandal. I think the end of the Bush administration was Hurricane Katrina.

What worries you most?

MCAULIFFE: Our fundraising has picked up. I just chaired a $2.5 million event at the Clintons' home. But I'm concerned about the money advantage that the Republicans have. I also worry about what could happen somewhere in the world. When things happen of dramatic proportion, there's a tendency to rally around the President.

GILLESPIE: Part of what happens in every second midterm of a two-term presidency is that voters in that party get a little complacent. I worry that not only social conservatives but economic conservatives could be flat in this election, that they may not be as energized to go vote as Democrats are.

MCAULIFFE: I hope we have a great turnout. I think we will. I think people are fed up.

That's a sentiment that makes it more difficult for incumbents, although sitting Congressmen enjoy the benefits of power and a personal connection with voters.

MCAULIFFE: Sure, and name ID and raising money. Generally incumbents don't lose. It's a 99 percent reelect. But there was a poll out this morning in Florida-13, a district that is two-to-one Republican. We're up 13 points there today.

I think you're going to see across-the-board races that no one thought were in play. And I would say there are probably 38 to 40 seats now on the Republican side, after the Foley scandal, that are in play. And in the Senate, races we never thought were possible are now in play. In Tennessee, Harold Ford is now up 51 to 44. New Jersey Senator Bob Menendez is back up seven. So it could be a watershed election.

GILLESPIE: I think there are probably more like 30 Republican seats in play, and probably a dozen Democratic seats. And that playing field is growing and shrinking daily.

MCAULIFFE: Yeah, ours is shrinking. Theirs is growing. (laughs)

Ed, do you feel any shades of 1994 - when Democrats were tossed out and Republicans gained control of the House for the first time in 30 years?

GILLESPIE: That election progressed from an anti-Washington sentiment in the spring to an anti-incumbent mood in the summer to an anti-Democrat sentiment in the fall. We are at an anti-incumbent phase right now. The challenge for Republicans is to not let it become an anti-Republican election. The bigger concern for me is in the open seats. That's where, in a bad election environment, the party in power tends to lose seats.

Take off your partisan hats. Can you assess the impact of the Iraq war?

GILLESPIE: I do think that there's a threshold question before the American voters today. And that is, Is Iraq a distraction from the war on terror? Or is it a central front in the war on terror?

It's imperative, from a national security perspective, that a free and stable Iraq be established in the heart of the Middle East over all those vast oil resources. Not because it is good for the Iraqis, although it would be. But because it is good for the American people.

MCAULIFFE: Most Americans are feeling an economic pinch over the course of the last six years. But Iraq will probably [go down as] one of the greatest colossal blunders in the history of American foreign policy.

Let's talk money. We've seen a rise in 527s, which are advocacy groups not bound by campaign-finance limits. In 2004 they were a huge presence on the airwaves. Terry, do you worry about these groups, many of which are to the left of the party's base, defining the Democrats' message?

MCAULIFFE: Listen, if there are people out there raising money and trying to get people registered to vote, and getting them ginned up and fired up, great. Go do it.

GILLESPIE: In 2004, when you took the 527s for Kerry and put them together with the Kerry campaign and the DNC, Republicans were far outspent. But I don't think 527s spend the money as efficiently as the parties do. We outperformed by keeping it all in-house.

The Republican's Election Day machinery has served it well.

MCAULIFFE: Believe it or not, when I went into the DNC [in 2001], Al Gore had gotten 50 million votes and we did not have one name of one voter on file! I inherited a party that was spending millions of dollars a year and leasing space. We were $18 million in debt. We didn't even get online until '03. We didn't have a TV facility. We paid our debt off for the first time ever. We built a new headquarters, and we built a 175-million-name voter file. We were 20 years behind where they were.

Let's talk about microtargeting, a technique the parties borrowed from corporate America to identify friendly voters based on their consumer tastes, reading tastes and so on. How has that practice evolved?

GILLESPIE: They are constantly getting to greater levels of granulation on this. We do have a pretty good understanding of how to identify voters who are registered but haven't voted in a while and who - by virtue of their automobile registration, their magazine subscriptions and some other lifestyle choices - would [most likely] vote Republican if they voted.

MCAULIFFE: We're behind on this. We had to start from scratch. Traditionally the Democratic Party would ship money out to individual, targeted states [to build voter files]. What drove me crazy as a businessman is that we paid for all of it. Yet at the end of every campaign, we never got any of the data back. And some of these consultants would take it and then go back to their commercial clients and sell it. So I came in and said, "Those days are over."

'08 Election

There's a new book, Applebee's America, that argues that people vote "with their hearts, not their heads." Have we moved past the days of "It's the economy, stupid?"

GILLESPIE: If there's a sense that if I vote for this person my job is less stable - or my wages are less likely to increase - I think the economy is always a factor. I think the [gut instinct argument] is more true in presidential politics than it is in congressional politics.

At the presidential level there is no doubt that a lot of people make a decision based on a gut feeling they have about this person having the reins of our country, and having to see him or her in their living room every night for the next four years.

MCAULIFFE: Just remember, our country is very closely split, about 45 percent Republican, 45 percent Democrat. And we're fighting over anywhere from 6 to 10 percent who are true swing voters. Generally, at the presidential level they watch all three presidential debates. And they usually make up their mind a week or two before the election.

Terry, a lot of Democrats privately worry that a House controlled by Democrats, with Nancy Pelosi in charge, will hurt the prospects for Democrats, particularly Hillary Clinton, in '08. Do you worry about that?

MCAULIFFE: I hear this theory all the time from political strategists who say it is easier to win '08 if you don't have the House and Senate after the '06 election, so you can blame everything on them. I'm with the camp that wants the House and Senate. I'll be very clear: I'll take it.

Your upcoming book describes your early advice to Hillary Clinton, as First Lady, that she run for Senate.

MCAULIFFE: We were coming home from a ski vacation in Utah on Air Force One. I said, "Let's go." I'm from upstate New York. She's from Illinois, the southern part. She spent a lot of time in Arkansas. You look at upstate New York, that's her territory. I want her to run in '08. But listen, she takes everything I say with a grain of salt because I'm the ultimate optimist.

Of course in politics there is a danger - particularly in presidential races - of being the front-runner. We've heard criticism of Hillary from within her own party, and now the Democrats are in full-fledged attack on John McCain. Ed, how do you avoid the pile-on?

GILLESPIE: I don't know that you can. The handicapping starts so early now that it has already begun. Hillary Rodham Clinton is a front-runner for the Democrats. I don't take as much joy in that prospect as some of my Republican brothers and sisters. I think she would be a very formidable nominee. It would be a mistake to underestimate her.

Terry, who do you predict is going to be the leading Republican alternative to McCain in 2008?

MCAULIFFE: Mitt Romney. I think he has a great business background [and] has done some great things on health-care initiatives in Massachusetts. You know, Ed and I have actually seen him on speaking engagements. He trudges around with his PowerPoint presentation. If he can deal with the religious issue [Romney's a Mormon], I think that he would be formidable.

Ed, who is the un-Hillary in the Democratic race?

GILLESPIE: [Wisconsin Senator Russ] Feingold is an interesting figure. He's from the Midwest, from a swing state near Iowa. I think he is intellectually honest. John Kerry suffered because he voted for the war and then voted against funding for the troops in Iraq. Feingold voted against the war. But once the troops were in combat, he voted to fund them. And he's the only Senator who voted against the Patriot Act, which will resonate with core Democratic voters. I'm not sure that will serve them well in the general election if he gets the nomination. But to me he is a dark horse.

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