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Bain Capital, Job Creation, and the Rise of Independents (Unrelated…)

Posted on in Community, General, News

I know I am going to hear it from my friends and family for this one (I can hear LD now…), but I find the criticism of Mitt Romney for his work at Bain Capital to be misdirected (at best).  Everyone, from the DNC to his fellow Republican candidates, has been hammering him for his jobs record at Bain.  To be fair to Romney’s critics, Romney himself opened the door by claiming, without much evidence, that he created over 100,000 jobs while at Bain.  Now his critics have begun to shine a light on his record, revealing that Romney in fact cut a large number of well-paying jobs.  Romney didn’t help himself yesterday when he said, “I like being able to fire people.”

The most honest voice in this debate seems to be Marc Walpow, a former managing partner at Bain who said, “I never thought of what I do for a living as job creation.  The primary goal of private equity is to create wealth for your investors.”  Marc is absolutely right.  Creating jobs is not what Romney was there to do – he was there to build a financially successful firm, which means giving investors the best financial return.

Romney’s critics have a number of better arguments to use against him.  He has spent much of the last 20 years running (unsuccessfully) for office, has held multiple positions on multiple sides of multiple issues, and has a very hard time inspiring people – a critical skill for the leader of the free world.  But like him or not, if you are going to judge Mitt Romney, you have to use the right metric.  In private equity, that’s not job creation.

I fear this is a minority viewpoint, so I look forward to hearing your views.  Do you agree or am I taking crazy pills?

Also, in case you missed this, make sure you read two important pieces that came out this week on the rise of Independents.  Yesterday, Gallup released a new poll showing that a record high of 40% of all Americans (!) identify as an Independent.  Just today, Third Way, the well-respected center-left think tank, published a report  showing that, because New Hampshire has open primaries, 40% of those who vote today will be politically independent.  New Hampshire has gained almost 3,500 independents in the last four months of 2011, a period that also saw a decline in membership of both parties.  Third Way has found a similar pattern in battleground states across the country.

 

Comments

  • Anonymous

    As long as Rmoney keeps touting his “record of job creation”, the criticisms are justified. Although I agree his “multiple personalities” are of more concern – which Rmoney would one vote for?

  • Shawn

    It is what it is and it ain’t what it ain’t…great read!! Creating jobs from a business that is created from the ashes of a failure, is still creating a positive in an otherwise hopeless situation.

  • http://twitter.com/branchespsp Jennifer Cochran

    Great post. 
     Agreed on all counts.  But, the best news is the trend toward sanity you mentioned at the end : 40% independents is a sliver of light in an otherwise dark, dark tunnel.

  • Roy Mitchell

    Bain Capital was certainly not an employment agency.  It sounds like some of the businesses they bought and carved up were profitable but the sum of the parts were more valuable than the whole.  As a result many the businesses were closed. They have every right to maximize their investment but employees in small towns that are displaced and maybe to old to be retrained should be heard as well.    

  • http://twitter.com/ComplainerNow The Complainer

    You’re not David Brooks, so stop contradicting yourself.

  • Jerome Megna

    I agree with Geneuwin and I really like his/her new spelling (Rmoney) of this Front Runner’s last name!  Once you say, “I have been responsible for helping to create hundreds of thousands of [new] jobs . . . .” you open yourself up to all kinds of justifiable attacks and criticisms.  This was not the mission of Bain Capital.  But I think it has been the bane of Mr. Rmoney!  8>)
     

  • http://www.danaseilhan.com Dana Seilhan

    Agreed with Geneuwin.  If he’s going to say he created jobs then that’s the metric we’re judging him by.  But I’d like to know why we even care how good someone was at running a corporation.  The United States isn’t a corporation, as Paul Krugman so astutely pointed out recently, and we don’t need it run like one.  (Krugman needs to take his own advice and stop thinking “free trade” is a panacea for economic ills, however.  There is a place for economic protectionism even if it doesn’t always protect a corporation’s bottom line.)

  • Emotional Chic

    I most certainly  agree that the Many Moods of Mitt should and I am sure they will be given all the attention they deserve. However the Bain horse should be ridden all the way  and if the other “candidates” are the ones on that horse right now–all the better.

  • SpreadEagle

    Predator Capitalism at its best.  It should be an issue.

  • Bobcato28

    I agree with everything you are saying, but that is what I got out of his critics.  HIs job was to make money for his investors, which he seems to have been good at.  It was never about jobs. Sometimes he created them, sometimes he didn’t, but jobs didn’t matter.

  • Wes

    I agree that there are numerous other arguments on which to be critical of Romney.  On issue after issue he has taken whichever position for the elctorate he’s trying to appeal to which will enhance his prospects of getting elected.  This is despite the fact that his current position may be diametrically opposed to one he campaigned on previously.  I don’t think that anyone, regardless of where they are on the political spectrum, can be sure of where Romney stands and what his core beliefs are with the exception of two things – he’s all about 1) Romney and 2) the 1%.

    I don’t, however, believe the criticism of Romney on his private sector experience is misdirected.  He opened the door to this the minute he made the claim to have created thousands of jobs due to his actions as CEO of Bain Capital.  Certainly, once he made this claim, it would be unrealistic not to expect his political opponents to be critical of his claim if it does not hold up to scrutiny.  Given the general economic situation in this country and with the unemployment level where it is, this is certainly a justifiable subject of inquiry that we should all have an interest in examining.  He could well be the next President of the United States and we should know what road he’d lead us down economically.  This road is not only relevant in deciding if one wants to support Romney or not, it’s also critically important in terms of deciding what type of economic policies we want any of our political representatives/leaders to pursue in order to improve our situation.

    In my looking into the activities of Bain Capital while Romney was CEO I’ve found that there is very much which is not known.  No doubt there will be much more information that comes out in the days, weeks and months ahead.  It does appear that early on, Bain pursued a business model that actually founded and/or acquired and built companies.  Staples, which has been a quite successful company falls into this time period.  Apparently it wasn’t too long before Bain Capital changed it’s business model to one that focused on leveraged buyouts.  It’s while operating under this business model, that Bain’s activities are drawing scrutiny and criticism.  

    For most of us, we heartily favor an economic model where an individual or collection of individuals takes an idea for a product or service and builds a business that grows, employs people, and as it’s successful, contributes to the overall economic well being of the country.  When you take an idea for a product  or service and go through the steps to bring that product or service to market – and it’s one for which there is a market, you have added value by the labors of all those involved as well as the capital it took to allow that to happen.  You have created wealth.   However, when  a company borrows money, often from the pension fund of the employees of the company it’s buying out (That’s the ‘leverage” part.) and reduces wages or benefits (euphemistically referred to as part of making an enterprise more efficient) and then transfers the debt incurred in buying the target company while it strips the company of its valuable assets and sells them off we have quite a different result.   It does result in considerable profits to the investors in the firm performing the leveraged buyout. But it also can, and often does, result in the bankruptcy of companies, loss of employment to those employees left out in the cold with the demise of the company  and certainly no contribution to the economic health of the country.  It does not create wealth.  It merely takes wealth from those involved in the target company and transfers it to the investors of the company conducting the leveraged buyout.    

    Mr. Walpow’s statements are quite accurate.  It is the function of private equity firms to maximize the return on investment.  Whether jobs are created or lost in this process is irrelevant to a private equity firm.  While creating and maximizing profit is the raison d’etre for any for profit business in a capitalist economic system, the role of governments in the economy, is to determine the economic model for a country and to decide what “rules of the road” should apply in the nation’s economy.  It’s these “rules of the road” which have changed so dramatically over the last few decades and allowed a leveraged buyout model to exist.

     Advocates of laissez faire capitalism, would adhere to the belief that the invisible hand, where when every individual pursues their own self interest, will result in the optimal economic situation for us all.  We’re all familiar with the terms “supply side economics”, “trickle down economics” and “Reaganomics”.  In the field of economics they are merely different common terms used to refer to what is known in the economic world as “neoliberal economics”.  It’s roots lie in the Austrian school (Frederick Hayek and others) and rose to prominence in this country through the University of Chicago School of Economics, the most well known member of which was Milton Friedman.  In essence, neoliberal economics is merely the latest incarnation of laissez faire capitalism.  We have been pursuing this path for over the last thirty years.  While presidents, senators and members of congress from both major parties have been instrumental in making policy changes that pursue this economic model, they have been advanced far more by Republicans.

    It’s of interest to note several things regarding this pursuit of laissez faire capitalism that we’ve been pursuing as a country. 

    Over the last thirty plus years since we went down the road of pursuing this economic model we have seen the wealth of this nation increasingly concentrated in the hands of an increasingly small number of individuals.  We have seen the income of the very few people at the top of the economic pyramid grow dramatically, while those further down the pyramid of wealth have seen their income decline to where, corrected for inflation, it has been stagnant or declined.  And we have seen and ever increasing percentage of our population (Currently, I believe at 46%.) go into poverty or approach being in poverty.

    This isn’t the first time we’ve gone down the road of Laissez faire capitalism.  We pursued the same model during the 1920′s.  It led to the same conditions of disparity of wealth and income that we are experiencing today.  It led to the crash and the Great Depression with all the poverty that resulted in.  We also followed it during the “Gilded Age” of the robber barons.  Again, we were a country marked by a great disparity of wealth and income and there were a number of financial crises in this time period.  You might say there is a pattern here.

    There is another relevant historical record that is relevant to the business model pursued by Bain Capital (as well as many others).  In this same period of the last thirty years or so we have been decreasing the percentage of our total economic output resulting from our manufacturing sector and greatly increased the percentage resulting from the financial sector, of which Bain Capital is a part and Mitt Romney not in inconsequential figure in.

    A financial sector is necessary and provides a valuable function in an economy.  It can provide the capital necessary to get an enterprise off the ground or to allow it to grow and become successful.  It is also a source of loans for individuals to buy houses, cars, etc. as well as providing insurance for a wide variety of needs.  However, we have seen a dramatic increase in the growth of the financial sector of our economy and the proliferation of a wide variety of exotic financial instruments.  Over the last several hundred years we have seen Spain, Holland, and Great Britain each rise to the peak of their power.  Each subsequently evolved into pursuing an economic model which favored expanding the financial sector of their economies and decreasing the portion of their economies to actually producing things.  Then, each declined precipitously and have never regained their prior status.  Historian Kevin Phillips has written about this in considerable detail, including what it could portend for us.  This is not a pattern I would like us to serve as an example of in the future.

    Examination and scrutiny of any candidates background and evaluation of their stand on policies and issues, economic and otherwise, is critical to being able to evaluate that candidate prior to our deciding for whom we should vote.  Romney’s background is no different.  Unfortunately, I don’t see a single Republican candidate that isn’t in favor of this same economic model.  Many Democratic politicians, too.  For the life of me, I don’t know how we change this without campaign finance reform.