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What do we know about Romney and Bain Capital?

The brilliant phrasemaker Rick Perry has taken to saying that Mitt Romney wasn’t a venture capitalist but a vulture capitalist. Newt Gingrich, who made his post-speakership millions by selling historical insights to clients who just happened to have vital business matters before Congress, has taken to denouncing “crony capitalism.”

Yesterday, I watched the full 30-minute attack video on Romney and Bain Capital that Gingrich’s cronies — excuse me, those running the independent and uncoordinated advertising on behalf of Gingrich’s presidential prospects, which Gingrich knows nothing about except what he reads in the papers — have made available.

The film focuses on laid-off workers from four of the companies that were owned or controlled by Bain Capital during the years Romney was in charge. The workers were ordinary folks who took a serious hit. I feel sorry for them. But I’m sure that millions of workers suffered similar embittering job losses during the same period as part of what capitalism apologists like to call “creative destruction.” The Gingrich cronies are exploiting these folks and the political motive behind the attack couldn’t be more obvious.

Perhaps it is possible to create some kind of clever distinction between the good kind of creative destruction that Gingrich and Perry celebrate as “freedom” and the bad kind that they now attack. But, sorry to be in such a cynical mood this morning, it will turn out that the real distinction is that if Romney can be associated with it, it’s the bad kind. It would be a fair and reasonable question to ask whether Gingrich/Perry ever denounced these particular forms of predatory capitalism during their long years in public life before they found themselves running against Romney.

Personally, I have no sympathy for Romney. He is, by all accounts, very smart and worked very hard and was very successful in business. Although he grew up rich, as the son of a CEO, he has grown much richer (net worth in the quarter billion range), mostly by his work at Bain. He claims that, on net, Bain’s endeavors during his years with the firm created about 100,000 jobs, although he certainly acknowledges that many jobs were destroyed as part of the net-net. The claim, which can’t really be proven or disproven, is fairly silly if you think it through. Bain played a big role in the development of Staples, the business equipment chain, which I understand employs about 90,000, but on the other hand, the growth of Staples undoubtedly caused the elimination of a significant number of jobs from the businesses of its less-successful competitors, large and small.

Last night, watching the PBS “Newshour,” which I had revered for decades as the most serious, substantive daily news show on television, I learned more about Bain and companies like it. I’ll embed the video of the segment below. As usual with the “Newshour,” it is not sexy, but it is whizzer smart and substantive. (Years ago, I heard that the “Newshour” staff had an unofficial that went: “Dare to be dull.”)

As they often do, “Newshour” simply interviewed two reporters (one from Boston Globe, one from Fortune magazine) who have studied Bain Capital deeply. In case you didn’t watch the segment (but really, do), the main takeaway is that no one can reasonably estimate the net-net of Bain’s record as a job creator, but the company was way-above-average at its main job, which was to make money for its investors. (Of course, even that becomes morally complex when you consider that the investors included pension funds, college endowment funds, non-profit associations, etc.) The investors made astonishingly high annual returns on the money they put into Bain (88 percent a year during the Romney years). Bain was so reliably successful that it was able to demand a 30 percent “fee” on the profits it made for the investors, compared to 20 percent for more typical firms in the industry.

The two reporters emphasized clearly that Bain was all about making money for the investors and for itself. If they had cared more about creating jobs than making money for their investors, they could have been sued and certainly would not have continued to have investors pounding on their doors with more money to invest.

Washington Post fact-checker Glenn Kessler, when he looked into the Romney 100,000-jobs claim, noted that in the Romney-era prospectus that Bain used to raise investment funds, it never mentioned job creation as one of its goals or purposes. In fact, the prospectus never mentions the words “job” or “employees.”

Here’s the “Newshour” segment:

Watch What Mitt Romney’s Role at Bain Capital Means for His Presidential Bid on PBS. See more from PBS NewsHour.

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Comments (14)

  1. Submitted by James Hamilton on 01/12/2012 - 11:23 am.

    Ed Lotterman discussed the same subject this morning, from a broader perspective:

    http://www.twincities.com/lotterman

    The bottom line, for me, is that Romney doesn’t deserve either credit or blame for creating or destroying jobs. His business was, in substantial part, to look for opportunities to make money off of other people’s mistakes. Bain apparently did that quite well under his leadership.

  2. Submitted by Gavin Sullivan on 01/12/2012 - 12:07 pm.

    Romney’s 100k jobs claim is dubious (Gingrich is a hypocritical Public Antiintellectual, Perry an economic ignoramous)–though as a pro-growth type I welcome firms such as Bain analyzing American firms and filtering for entities whose market value isn’t being fully realized. Firms should not act as social service agencies and need not reflect upon their impact on overall employment. ‘Predatory capitalism’ is positive-sum in the longer run; if both anti-Romney Republicans and most Democrats are now united in opposing our Bains, we may all pay, via dampened growth.

  3. Submitted by David Stovall on 01/12/2012 - 12:33 pm.

    The bottom line in all this is that this flack has boomeranged on Gingrich, Perry and the conservative wing of the Republican Party. Romney had actually been rather low-key in mostly just stating he was a businessman who knew how to create jobs. Now it comes out he made 88% return for investors during his tenure and had basically an 80% success rate with companies already in trouble. You cannot have those kind of returns and success without creating value in our economy. This net net is just going to flag the fact that Romney’s humble claims as a successful businessman were rather understated.

  4. Submitted by Ray Schoch on 01/12/2012 - 01:16 pm.

    Thanks for this piece, Eric. I couldn’t stand to watch *anyone’s* 30-minute political ad, much less one put together by Mr. Gingrich’s allies.

    “Job creation,” “job preservation,” “workers as human beings,” etc. has nothing to do with capitalism, especially the corporate variety. It’s all about making money, has nothing to do with national interests, or what’s good for the state (both capital and lower-case) or the public. Lower costs and higher returns are the name of the game, and a true capitalist cares deeply, sensually, perhaps religiously, about profit above virtually everything else. Mr. Romney, granted that he enjoyed a substantial head start, seems to have been very good at making money.

    I’ve already forgotten the name of the CEO, but I do remember writing friends at some length months ago when it was announced that Polaris was shutting down its manufacturing facility in Osceola, WI, and moving the 500 or so jobs to Mexico, where pay rates were a small fraction of what the non-union workers in Wisconsin were getting. For taking $18 million annually out of the local economy, devastating hundreds of families, the town and the local school district, but boosting both profits and the return on Polaris shares substantially, the CEO was rewarded with a handsome bonus on top of his already-substantial salary. When you worship profit, the community doesn’t matter, and that CEO was doing exactly what the company’s board wanted and expected him to do.

    That seems of a piece with Bain. Wealth doesn’t automatically disqualify Romney from the presidency by any means, and since more than half the U.S. Senate’s members are millionaires, Mr. Romney will fit right in with the unspoken interests and agendas of his fellow plutocrats. Indeed, though the numbers are very much less, Mr. Obama is also a millionaire, at least in terms of net value, if not of current income. The paltry $400,000 annual salary of the President could be donated entirely to charity without harming the standard of living of Mr. Romney or his family in the slightest. If he’s elected, it’ll be interesting to see what he does in terms of charitable giving, which is, of course, not at all a requirement of the office.

    It’s worth remembering that Franklin Roosevelt arrived in the White House by a somewhat similar route, having been born into one of the country’s wealthiest families in the late 19th century. That, of course, is why FDR is a figure still vilified as a traitor to his class in a lot of country clubs, while I had relatives whose lives were ruined by the Great Depression who, in their dotage decades later, had a framed portrait of Roosevelt hanging on the living room wall of their modest rented quarters.

    That said, I’m reluctant to cast Romney’s behavior – and Bain Capital is simply one example of many that illustrate the amoral nature of big-time business – as particularly reprehensible, at least on its face. His company wasn’t in business to create jobs, save communities, or improve the nation’s economy. He was born into a society that worships wealth, had the good genetic fortune to be born into that society to parents who could provide him with substantial advantages, and took advantage of the head start he was given to increase his lead over most of the pack. No doubt he “worked hard” at his job, though the physical demands placed upon executives of that pay scale are few, and “labor” in any traditional sense rarely plays much of a part.

    That Republicans, whose worship of business is the stuff of legend, and the right-wing branch of the party, whose devotion to entrepreneurship is similarly religious in tone, would support Romney for the office of the presidency over a mere community activist who still has occasional fits of humanitarian instinct, is not only no surprise, it’s something of a no-brainer.

    Perhaps his stint as Governor of Massachusetts provided Mr. Romney with at least a hint of *noblesse oblige,* that public-spiritedness that so often characterized FDR’s tenure, and that seems completely absent in the political right today. Or not. Mormons are noted for taking care of their own, and much less so for caring about the fate of mere Gentiles (non-Mormons). That Romney might be personally ruthless will be forgiven if it turns out to be the case. Apologists for that combination of wealth and ruthlessness have abounded since the first monarchy, thousands of years ago, and there are people writing already that, if ruthlessness is, indeed, one of Mr. Romney’s defining characteristics, perhaps it’s what the country needs at the moment.

    Personally, I find that view beyond appalling, but it’s just one old guy’s opinion. Maybe if I were Warren Buffet it would matter more.

  5. Submitted by Paul Brandon on 01/12/2012 - 01:46 pm.

    If success is forcing businesses into bankruptcy and firing their employees.

  6. Submitted by Peder DeFor on 01/12/2012 - 02:29 pm.

    But if you add in the ‘jobs saved’ dynamic, the amount of jobs climbs to almost half a million.

  7. Submitted by Neal Rovick on 01/12/2012 - 02:32 pm.

    The worthwhile question is to ask what is the candidate’s vision for the ordinary workers and citizens of America.

    There have been far too many admiring statements from the right regarding the “vitality” of economies like China, Hong Kong, Singapore, etc., based upon their “ease of doing business”, and far too many disparaging remarks on the the “socialist hellhole” stereotype of Europe.

    The question needs to be asked in a straight-forward manner:

    Where would you rather work and live–Europe or China?

    Remember, the wealthy are protected and live a life of luxury everywhere. The difference is that in China, there is more for them to keep.

    Twisting everything for the benefit of corporations and their leaders really guarantees nothing for the ordinary worker and citizens.

    That has been the clear lesson of the past 30 years.

    The confounding of capitalism and democracy is merely a handful of dust in the eyes of voters. After all, history and the current world world are full of examples of capitalism without democracy.

  8. Submitted by Paul Brandon on 01/12/2012 - 08:39 pm.

    “But if you add in the ‘jobs saved’ dynamic, the amount of jobs climbs to almost half a million.”

    Peder–
    What is the amount (number?) of jobs that you are referring to?
    Does that include jobs added at Staples ten years after Romney left Bain (he was never directly connected with Stables)?
    Does it include the number of jobs lost in previously solvent companies that went bankrupt after being acquired by Bain and drained of their assets?

  9. Submitted by Jon Kingstad on 01/12/2012 - 10:04 pm.

    Whatever Romney and Bain did, it would be a crime if it wasn’t done by people with a lot of money behind them. Only in the USA and some Banana Republics and Africa can you steal a corporation, steal the pension assets of its employees, fire them all and then be considered a qualified person to be President. I suppose it makes some sort of sense that if your country is a kleptocracy, like the US has become, your CEO should be an accomplished crook.

  10. Submitted by Paul Brandon on 01/12/2012 - 10:17 pm.

    The bottom line is, as Eric points out, Bain and Romney did exactly what a corporation is supposed to do: make money for its shareholders.
    Romney can certainly claim credit for this achievement.

    The next question here is whether that qualifies Romney to be President. His record as a governor would appear to be more relevant than his performance in the private sector, but he gives it much less emphasis.

    I thought we’d gotten away from “the business of America is business”, although some people seem to want to return to the ’20’s.
    To be fair to Coolidge, the full quotation is:

    “After all, the chief business of the American people is business.” However, Coolidge goes on to say that, “Of course the accumulation of wealth cannot be justified as the chief end of existence.”

  11. Submitted by kelly schultz on 01/13/2012 - 11:09 am.

    And I am fairly certain that, should Romney get elected, he will do the same thing for the country as he did for Bain. Increase the wealth of his already rich constituents by sacrificing the welfare of the middle class, the elderly and the poor.

  12. Submitted by Eric Ferguson on 01/13/2012 - 01:57 pm.

    I don’t understand how leveraged buyouts can’t be prosecuted as fraud. They borrow a large amount of money, lard it onto the purchased company as if it’s a separate entity, then they not only stiff the creditors by going into bankruptcy, but they steal the cash by using the purchased company cash to pay themselves dividends and management fees. Taking management fees out when yo own the business? Paying yourself dividends from a company losing money? What Romney does isn’t merely predatory and destructive (non-creative), it’s fraud. How can it possibly be legal?

  13. Submitted by Jon Kingstad on 01/13/2012 - 03:25 pm.

    #12: Eric, that’s a very good question. I’ve wondered about that for a long time. In fact, I know a couple of characters did go to jail for doing stuff like this: Michael Milkin and Ivan Boesky back in the 1980’s. But incredible as it may seem, the theory up from that time until maybe 2008 and maybe still today is that fraud is impossible and not a problem in an efficient market which corrects for that and you cannot disturb the operation of an efficient market. You need to read former regulator, attorney and now economics Professor Bill Black (“The Best Way to Rob a Bank is to Own One”) on how this kind of thinking created the S & L debacle and still continues today. If you only look at the facts, Romney and Bain Capital is no different from say, Charles Keating, who also went to prison. But when you disregard the facts in favor of some dumb theory, or might I say, ideology, Romney is a “job creator” and a capitalist.

  14. Submitted by Richard Schulze on 01/15/2012 - 09:26 am.

    @13
    /”this kind of thinking created the S & L debacle and still continues today”./

    In a round-about way are you asking whether taxpayers should accept “privatize the profits and socialize the losses”?

    Perhaps the Presidential candidates will ask the American consumer this during the general election campaign.

    @12
    Assuming a company has 2 ways to raise capital, borrowing or issuing shares.

    Borrowing costs are cheaper than the cost of issuing shares.

    Shareholders want a larger ROI than lenders due to the higher risks they take – being behind lenders in a bankruptcy.

    Debt is usually advantageous.
    We learned in 2008 that it is the lubrication of our economy. ;^)

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