The creative destruction that keeps an economy fresh creates and destroys thousands of jobs every month. It’s a brutal fact of life. It doesn’t make for a very appealing presidential campaign slogan, but if Romney is going to be honest
Chicago Tribune | Editorial
Before he entered politics, Republican presidential candidate Mitt Romney made a fortune at Bain Capital, the private-equity firm he ran from 1984 to 1999.
Romney could have expected that Democrats would give him a hard time about his role buying, building, selling and sometimes closing businesses, which created — and eliminated — a lot of jobs. But he’s getting ripped by his Republican opponents, too.
“If you are a victim of Bain Capital’s downsizing, it is the ultimate insult for Mitt Romney to say he feels your pain when he caused it,” Texas Gov. Rick Perry said Monday. Newt Gingrich has echoed the sentiment that Romney profited handsomely while causing more pain than gain for workers.
For his part, Romney couldn’t have been more ham-handed on Monday when he said, “I like being able to fire people who provide services to me.” Perhaps not so bad in context: He was talking about having the ability to change health insurers if an insurer doesn’t provide good care. But as a sound bite, oh, he’s going to hear this one again and again and again. And again.
Romney, of course, would rather focus on the jobs that were created during his time at Bain. He pegs that at a net gain of 100,000 jobs, though he has not substantiated that claim.
So, how to look at this?
Private equity is not evil. It is a natural part of capitalism. In its simplest form, its practitioners put money to work on behalf of investors willing to take a chance on expanding young companies or fixing troubled ones. When it succeeds, the companies prosper. When it fails, the companies shrink, or disappear.
Private equity is not constructed to be some altruistic job engine, and Romney shouldn’t pretend that it is. Success in private equity requires unsentimental decision-making. The goal is to produce a return on investment.
Private equity companies, including Bain, are almost certain to have a mixed record. Bain funded the Staples office-supply chain under Romney’s watch. It also has closed companies that it could not fix in short order. On Monday, The Wall Street Journal reported on 77 businesses in which Bain Capital invested during Romney’s tenure. Bain produced “stellar returns,” largely coming from a small number of its investments, while 22 percent of its companies filed for bankruptcy or closed within eight years of Bain’s involvement, “sometimes with substantial job losses.”
Private equity generally operates on what many workers would consider a hurry-up timetable: Its investments might include a three- to five-year “exit strategy.” Companies that fail to make money as expected typically suffer the consequences of impatient investors.
At its best, private equity births and sustains companies that provide goods and services and put people to work. At its worst, well, in the junk-bond-fueled heyday of the 1980s, some corporate raiders were accused of buying companies with borrowed money strictly to sell off assets and pocket as much cash as possible — leaving behind bankrupt shells and ousted employees.
Romney’s decision-making at Bain will and should undergo much more scrutiny. Romney can neither shrink from his resume nor try to sugarcoat it. He was immensely successful for his investors. His experience at Bain in some ways prepares him well for the job he seeks: Presidents have to make tough decisions too. His experience gives Romney an edge in understanding the American economy, though not necessarily the American public. No doubt the candidate has polling data that show how Americans distrust financiers in the wake of an economic near-meltdown and unpopular bailout of the banking system. The real-estate bust wiped out trillions of dollars in wealth for middle-class Americans. The job market still suffers.
The creative destruction that keeps an economy fresh creates and destroys thousands of jobs every month. It’s a brutal fact of life. It doesn’t make for a very appealing presidential campaign slogan, but if Romney is going to be honest with the public, he’ll acknowledge this. And so will every other candidate for president.
