In recent days, Republican nomination front-runner Mitt Romney has come under attack from several of his opponents for the work he did while running financial firm Bain Capital. Was Romney a businessman job creator, or a ruthless turnaround artist out to make a buck? Here are two takes on the issue.
James Pethokoukis
Columnist and blogger, American Enterprise Institute
Mitt Romney is a capitalist. Guilty as charged. When he was running Bain Capital, the firm’s ultimate goal — whether by starting new companies like Staples or trying to improve profitability at existing ones like Domino’s Pizza — was to earn money for itself and investors. Filthy lucre, my friends.
But is that so startling or reprehensible? Only to those with a distorted understanding of what free-market capitalism is — and how it works to enrich society. “To make a profit; that’s the name of the game,” is how the Republican presidential front-runner succinctly puts it in the anti-Bain documentary “When Mitt Romney Came to Town,” a film pushed by Newt Gingrich supporters.
Exactly right. And when a company makes a profit by creating value — which means selling products and providing services that consumers desire — it expands. Jobs are created. Incomes rise. Living standards improve.
But more jobs and higher wages aren’t the primary goal, just a wonderful side effect. Entrepreneurs such as Microsoft’s Bill Gates, Apple’s Steve Jobs and Google co-founders Sergey Brin and Larry Page didn’t set out to create thousands of high-paying jobs. Successful entrepreneurs never do.
Indeed, a 2009 study by the Kaufmann Foundation asked more than 500 company founders why they took the plunge. The two most popular responses were “to build wealth” and “capitalizing on a business idea.” Creating jobs isn’t on these folks’ radar screens, yet the jobs come anyway. That’s the miracle of markets.
And when companies can’t create value and can’t make a profit, the jobs go. That’s the unavoidable misery of markets, and that’s the reality in which Romney and Bain operated. It’s not “vulture” capitalism, as Rick Perry has charged; it’s just plain old capitalism. Romney was no Gordon Gekko, a cinematic corporate raider who wrecked companies simply because they were “wreckable.” He was a corporate fixer and rescuer, though not always a successful one.
Capitalism is, as Austrian economist Joseph Schumpeter famously described it, a “perennial gale of creative destruction.” Gain and pain are inextricably intertwined. Romney no doubt produced some of the latter, but certainly far more of the former.
Michael Maiello
Columnist, The Daily
Mitt Romney’s campaign for president has two legs underneath it. The first is his experience as the governor of Massachusetts. That he was largely a moderate technocrat has given him reason in the primaries to stand on the other leg — his executive experience running private equity investment firm Bain Capital between 1984 and 1999.
Any leg in politics has a knee that’s fair game. Romney can’t claim credit for the jobs that Bain created with an early, venture-capital-style investment in Staples if he doesn’t want to hear about the jobs lost when Bain’s Ampad investment collapsed under its own debt.
In some cases, failed companies still led to profits for Bain shareholders. Those of us who live outside of the world of finance often forget that there’s much money to be made in bankruptcies, liquidations and recapitalizations, often at the expense of other stakeholders including (and especially) company employees, who fall low on the list of priorities in the American bankruptcy code.
The question becomes, “Is private equity good for America?” It largely depends. A mechanism by which money can flow into private businesses is generally good. But priorities matter. The private equity managers and their investors get paid first. The executives of the target company get paid next. The bulk of the target company employees, to the extent that they do not fall prey to cost-cutting, may benefit if the entire deal goes well, or they may not. Workers are a corporate asset, not players in the deal.
In a private equity deal, workers will most likely be subject to efficiencies. Health benefits will be reduced. Pensions will be phased out in favor of 401(k) plans. There may be layoffs with the workers remaining expected to pick up the slack of the departed.
Some Americans will be OK with this. Others won’t.
Another bit of related fair game would be Romney’s tax returns. In investment management, compensation comes in the form of dividends and profit shares that are taxed at a lower percentage than the wages of ordinary people. Bain’s global business also offered Romney ample opportunity to (legally) shelter money offshore. Americans have the right to be curious about this.
James Pethokoukis
Columnist and blogger, American Enterprise Institute
Mitt Romney is a capitalist. Guilty as charged. When he was running Bain Capital, the firm’s ultimate goal — whether by starting new companies like Staples or trying to improve profitability at existing ones like Domino’s Pizza — was to earn money for itself and investors. Filthy lucre, my friends.
But is that so startling or reprehensible? Only to those with a distorted understanding of what free-market capitalism is — and how it works to enrich society. “To make a profit; that’s the name of the game,” is how the Republican presidential front-runner succinctly puts it in the anti-Bain documentary “When Mitt Romney Came to Town,” a film pushed by Newt Gingrich supporters.
Exactly right. And when a company makes a profit by creating value — which means selling products and providing services that consumers desire — it expands. Jobs are created. Incomes rise. Living standards improve.
But more jobs and higher wages aren’t the primary goal, just a wonderful side effect. Entrepreneurs such as Microsoft’s Bill Gates, Apple’s Steve Jobs and Google co-founders Sergey Brin and Larry Page didn’t set out to create thousands of high-paying jobs. Successful entrepreneurs never do.
Indeed, a 2009 study by the Kaufmann Foundation asked more than 500 company founders why they took the plunge. The two most popular responses were “to build wealth” and “capitalizing on a business idea.” Creating jobs isn’t on these folks’ radar screens, yet the jobs come anyway. That’s the miracle of markets.
And when companies can’t create value and can’t make a profit, the jobs go. That’s the unavoidable misery of markets, and that’s the reality in which Romney and Bain operated. It’s not “vulture” capitalism, as Rick Perry has charged; it’s just plain old capitalism. Romney was no Gordon Gekko, a cinematic corporate raider who wrecked companies simply because they were “wreckable.” He was a corporate fixer and rescuer, though not always a successful one.
Capitalism is, as Austrian economist Joseph Schumpeter famously described it, a “perennial gale of creative destruction.” Gain and pain are inextricably intertwined. Romney no doubt produced some of the latter, but certainly far more of the former.
Michael Maiello
Columnist, The Daily
Mitt Romney’s campaign for president has two legs underneath it. The first is his experience as the governor of Massachusetts. That he was largely a moderate technocrat has given him reason in the primaries to stand on the other leg — his executive experience running private equity investment firm Bain Capital between 1984 and 1999.
Any leg in politics has a knee that’s fair game. Romney can’t claim credit for the jobs that Bain created with an early, venture-capital-style investment in Staples if he doesn’t want to hear about the jobs lost when Bain’s Ampad investment collapsed under its own debt.
In some cases, failed companies still led to profits for Bain shareholders. Those of us who live outside of the world of finance often forget that there’s much money to be made in bankruptcies, liquidations and recapitalizations, often at the expense of other stakeholders including (and especially) company employees, who fall low on the list of priorities in the American bankruptcy code.
The question becomes, “Is private equity good for America?” It largely depends. A mechanism by which money can flow into private businesses is generally good. But priorities matter. The private equity managers and their investors get paid first. The executives of the target company get paid next. The bulk of the target company employees, to the extent that they do not fall prey to cost-cutting, may benefit if the entire deal goes well, or they may not. Workers are a corporate asset, not players in the deal.
In a private equity deal, workers will most likely be subject to efficiencies. Health benefits will be reduced. Pensions will be phased out in favor of 401(k) plans. There may be layoffs with the workers remaining expected to pick up the slack of the departed.
Some Americans will be OK with this. Others won’t.
Another bit of related fair game would be Romney’s tax returns. In investment management, compensation comes in the form of dividends and profit shares that are taxed at a lower percentage than the wages of ordinary people. Bain’s global business also offered Romney ample opportunity to (legally) shelter money offshore. Americans have the right to be curious about this.
