Tuesday, January 10, 2012

Capital Crime: Mitt Romney's Foes Denounce Creative Destruction

The Wall Street Journal had a Big Story purporting to analyze Mitt Romney's record at Bain Capital. Not surprisingly, some of Bain's investments failed, while others did exceedingly well

Mitt Romney's political foes are stepping up attacks based on his time running investment firm Bain Capital, tagging him with making a fortune from the rougher side of American capitalism—even as Mr. Romney says his Bain tenure shows he knows how to build businesses. 
Amid anecdotal evidence on both sides, the full record has largely escaped a close look, because so many transactions are involved. The Wall Street Journal, aiming for a comprehensive assessment, examined 77 businesses Bain invested in while Mr. Romney led the firm from its 1984 start until early 1999, to see how they fared during Bain's involvement and shortly afterward. 
Among the findings: 22% either filed for bankruptcy reorganization or closed their doors by the end of the eighth year after Bain first invested, sometimes with substantial job losses. An additional 8% ran into so much trouble that all of the money Bain invested was lost.
Another finding was that Bain produced stellar returns for its investors—yet the bulk of these came from just a small number of its investments. Ten deals produced more than 70% of the dollar gains. 
Some of those companies, too, later ran into trouble. Of the 10 businesses on which Bain investors scored their biggest gains, four later landed in bankruptcy court.

The WSJ did not find any widows and orphans whom Mitt had thrown out into the snow. They also did not make much of an effort to double-check Mitt's claim that he had created 100,000 net jobs over the course of his career. Still, this is a valuable, comprehensive look at an aspect of Mitt's career that will not escape scrutiny should he face Obama in the general election. In anticipation of this, Romney's GOP rivals have raised the Bain issue (you could say they're "Raising Bain"), each in their own ham-fisted way

It was unclear how much damage had been done by a mess of his own making in which Romney declared "I like being able to fire people," in addressing his desire for greater competition between health insurance companies. 
His opponents, Republican and Democratic alike, quickly seized on the comment as evidence of an out-of-touch politician and coupled it with attacks over his record at Bain Capital, a firm that bought companies and restructured them. 
"Governor Romney enjoys firing people. I enjoy creating jobs," Huntsman said.
In a remarkable turnaround in a party known for being friendly to business, Republicans seeking to slow Romney down sounded more like populists as they bashed Romney's work as a venture capitalist. 
Gingrich, brooding over negative attacks from Romney and his backers that knocked him out of the front-runner position, has launched the toughest onslaught on Romney. 
"Mitt Romney was not a capitalist during his reign at Bain. He was a predatory corporate raider," says a video produced by a pro-Gingrich group.

Criticizing Romney for "firing" people is all the rage, and it's certainly true that Democrats will demagogue the issue, but it is truly disheartening to see Republican politcians, especially ones fighting for the mantle of "conservative," to attack Romney for firing some folks. Sorry, boys, that's how the system works. I thought it was Democrats who wanted to create "permanent" employment, which experience has taught only leads to permanent stagnation. 

That's not to say Romney's business background should be treated as a net plus. In fact, wealthy business people like him are often mediocre (at best) at politics, both in getting elected, and at serving in office should they actually win. The ability to amass millions of dollars simply does not translate into the ability to amass millions of votes. We learned that anew in California when we ran, not one, but two moderate CEO's from the cutting edge tech industry against moss-backed liberals. In retrospect, neither Meg Whitman, nor Carly Fiorina had a chance, although Fiorina proved to be a feisty scrapper. They might have checked the correct ideological boxes, and presented comprehensive plans to reform the state, but when the first political challenge came - like, say, Gloria Allred showing up at a press conference with a rogue illegal immigrant maid - they were flummoxed, fatally so.

Romney's a little different. He came from a political family and saw governance and campaigning from the ground up. He even had a front row seat for one of the great political implosions of all time. And, Romney did win one election and served a term as governor of Massachusetts. He's not a neophyte and it shows. The guy is extraordinarily well prepared. He's also been very good at defending the theory and practice of capitalism. His comments like "corporations are people" and "I like being able to fire people" may sound like they're drawn from an Oliver Stone script, but that doesn't mean he's wrong. He's right! In fact, Romney's been at his best challenging the political shibboleths of the modern era, which used to be the sole provenance of the left, but apparently have been adopted by some on the right as well. 

But, there are times when Romney's lack of political knowledge really shows. A perfect example came during the now infamous exchange over banning contraceptives. Romney handled the question very well, in fact, saying it was a silly hypothetical because no states were presently planning to ban contraceptives. But, he has no idea how close he came to falling into a trap, and that only George Stephanopolus's inept questioning saved him. You see, George (or whomever it was who drafted the question) was trying to get Mitt to agree that, no, a state does not have a constitutional right to ban contraceptives. If they had gotten that, they could have moved on and said, "but doesn't that mean you accept the idea that there is a constitutional right to privacy?" (which was the basis for the Griswold decision overturning a Connecticut law banning the sale of contraceptives). And, then it's just a short walk to asking on what grounds could you possibly disagree with the right to privacy protecting abortion? Believe me, I was on the edge of my seat during that exchange, waiting for Mitt to fall into the trap, but he managed to avoid it. I shudder to think what would have happened to Rick Perry. 

Rick Santorum, by contrast, gave an excellent response to the "condom question;" Santorum addressing the legal and constitutional issues head on. (and Newt Gingrich gave a similarly excellent response to the gay marriage question, another where Romney had looked uncomfortable and flummoxed). Romney can buy and sell Santorum and Gingrich twenty times over, but these two (shudder) professional politicians have been marinating in these issues, and others, for a long time. They not only know the subtleties involved, they also know the code words and the concepts in a way you cannot learn simply by reading a briefing book. 

That's a much bigger danger for Mitt Romney than his record at Bain Capital. 

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