Mitt Romney as Governor of Massachusetts
It is both ironic and perplexing to see some South Carolina primary candidates criticizing Mitt Romney's record at Bain Capital, a private equity firm he headed during the 1980s. If you haven't heard, that record was a spectacular 88% return on investment (ROI) for a small group of high net worth investors. Under Romney's leadership, Bain provided equity finance to some business start-ups, acquired new revenues (including government bailouts) for some companies, and did a number of business turn-arounds.
The reason their criticism is perplexing is because Bain did exactly what private equity firms do--and it did it very well. These entirely legal and necessary businesses always focus on maximizing investor returns. If that involves shutting down under-performing units, locating off-shore-labor, selling off assets, seeking government subsidies, and laying off workers, it is only doing what both economists and equity fund managers call creative destruction. It is the free-market in action.
The irony is that Newt Gingrich and Rick Perry, self-styled "consistent conservatives," have argued against that free-market activity, against liberating inefficient capital for more efficient use and frankly, against a deeply held organizing and philosophic principle of their own party. The upshot is that Gingrich and Perry have succeeded in doing for Mitt Romney what Romney has been unable to do for himself: secure conservative support.
It is also ironic that Romney invited the whole Bain Capital contretemps by claiming that he created 100,000 jobs through his work there. It is certainly true that "many" jobs were created by the Staples Office Supply start-up, for example. But how many of those jobs were off-set by firings, lay-offs, and plant closures of other businesses? Romney doesn't won't and can't say--and neither can anyone else. In the values neutral world of private equity the only number with any meaning is investor profit. All we know for sure is that Mitt made a lot of money--and God bless him for it. Sincerely.
What confuses most people--maybe--is that the words "job creator" means that someone starts a business and the business makes something, like Steve Jobs at Apple or Bill Gates at Microsoft. The fact is that Bain Capital doesn't and didn't make anything except money. It found hidden value in existing companies and took advantage of it on behalf of investors. If you believe that the market is always right--that they are self-correcting--then Romney may in fact be a job creator and not the corporate raider that Gingrich, Perry and soon enough, Obama, say and will say that he is.
What South Carolina primary voters will have to decide is whether Mitt Romney is Wall Street--or Main Street. His rhetoric is certainly Main Street, and Restore Our Future, a Romney supporting SuperPAC, has spent (as of January 6th) $4.5 million dollars to make sure we hear all about it. We'll know what their ROI is pretty soon.