The real case against the Bain style of capitalism. If I’d had a bit more space, I would have gone into the ways the current tax code could be modified to discourage the short-term profit-taking that has characterized the financialization of the past 50 years. Obviously, the “carried interest” loophole that enables players like Romney to be taxed at capital gains rather than standard rates should be closed. But we also need to do more to discourage financial casino gambling. I’m in favor of a graduated transaction tax on financial derivatives; I’m also in favor of much lower tax rates for companies that produce actual goods and non-financial services. This is the Bain debate we need to have in this campaign–and, if the President chooses to make the high-road case, we may actually have it.
The Truth About Bain Capital
How Change Happens
By DAVID BROOKS NYT
Forty years ago, corporate America was bloated, sluggish and losing ground to competitors in Japan and beyond. But then something astonishing happened. Financiers, private equity firms and bare-knuckled corporate executives initiated a series of reforms and transformations. The process was brutal and involved streamlining and layoffs. But, at the end of it, American businesses emerged leaner, quicker and more efficient. Now we are apparently going to have a presidential election about whether this reform movement was a good thing.
Last week, the Obama administration unveiled an attack ad against Mitt Romney’s old private equity firm, Bain Capital, portraying it as a vampire that sucks the blood from American companies. Then Vice President Joseph Biden Jr. gave one of those cable-TV-type speeches, lambasting Wall Street and saying we had to be a country that makes things again. The Obama attack ad accused Bain Capital of looting a steel company called GST in the 1990s and then throwing its workers out on the street. The ad itself barely survived a minute of scrutiny. As Kimberly Strassel noted in The Wall Street Journal, the depiction is wildly misleading.
The company was in terminal decline before Bain entered the picture, seeing its work force fall from 4,500 to less than 1,000. It faced closure when Romney and Bain, for some reason, saw hope for it in 1993. Bain acquired it, induced banks to loan it money and poured $100 million into modernization, according to Strassel. Bain held onto the company for eight years, hardly the pattern of a looter. Finally, after all the effort, the company, like many other old-line steel companies, filed for bankruptcy protection in 2001, two years after Romney had left Bain. This is the story of a failed rescue, not vampire capitalism. But the larger argument is about private equity itself, and about the changes private equity firms and other financiers have instigated across society.
Over the past several decades, these firms have scoured America looking for underperforming companies. Then they acquire them and try to force them to get better. As Reihan Salam noted in a fair-minded review of the literature in National Review, in any industry there is an astonishing difference in the productivity levels of leading companies and the lagging companies. Private equity firms like Bain acquire bad companies and often replace management, compel executives to own more stock in their own company and reform company operations. Most of the time they succeed. Research from around the world clearly confirms that companies that have been acquired by private equity firms are more productive than comparable firms. This process involves a great deal of churn and creative destruction. It does not, on net, lead to fewer jobs.
A giant study by economists from the University of Chicago, Harvard, the University of Maryland and the Census Bureau found that when private equity firms acquire a company, jobs are lost in old operations. Jobs are created in new, promising operations. The overall effect on employment is modest. Nor is it true that private equity firms generally pile up companies with debt, loot them and then send them to the graveyard. This does happen occasionally (the tax code encourages debt), but banks would not be lending money to private equity-owned companies, decade after decade, if those companies weren’t generally prosperous and creditworthy. Private equity firms are not lovable, but they forced a renaissance that revived American capitalism. The large questions today are: Will the U.S. continue this process of rigorous creative destruction? More immediately, will the nation take the transformation of the private sector and extend it to the public sector?
While American companies operate in radically different ways than they did 40 years ago, the sheltered, government-dominated sectors of the economy — especially education, health care and the welfare state — operate in astonishingly similar ways. The implicit argument of the Republican campaign is that Mitt Romney has the experience to extend this transformation into government.
The Obama campaign seems to be drifting willy-nilly into the opposite camp, arguing that the pressures brought to bear by the capital markets over the past few decades were not a good thing, offering no comparably sized agenda to reform the public sector. In a country that desperately wants change, I have no idea why a party would not compete to be the party of change and transformation. For a candidate like Obama, who successfully ran an unconventional campaign that embodied and promised change, I have no idea why he would want to run a campaign this time that regurgitates the exact same ads and repeats the exact same arguments as so many Democratic campaigns from the ancient past.
Excellent article by Mr. Brooks. Though many conservatives are suspious of Brooks, he is actually one of my favorite pundits.
As for Bain, it does what all companies are designed to do, that is to make money. It is not the business of companies to hire people. Employment is a by-product.
That is why both sides are full of malarky. Republicans have chided the president because of the high employment rate. However, it is not the job of the government to get companies to hire people. Companies are not there to hire people, but to make money. People are not out of work because of "excessive" regulation, but because it was easier for companies to innovate with fewer employees or to ship jobs overseas.
What Romney did at Bain was fine. However, none of that makes him especially qualified (or unqualified) to be president. Romney took advantage of the current tax code to make a quick buck. Good for him. However, those ideas are not what the country needs. The country needs long term solutions, not a quick fix. Equity companies trade equity for debt. We, as a country have been doing that for years, and it has lead to our current problems.
What we need to do is innovate. Obama has the right idea, but he is not using the proper tools. It is not the government's job to dictate innovation, but it is the government's job to encourage innovation over making the quick buck. We have a problem when our engineering graduates go to Wall Street to crunch numbers instead of building things. We need to change the tax code to encourage industry instead of awarding quick buck financial institutions.
Will Mitt Romney do what is needed to fix the tax code or will he continue business as usual. Obama has recognized the problem, he has just applied the wrong solution. My question is whether Mitt Romney has recognized the problem. I haven't seen anything yet to indicate he has, but you can correct me if I am wrong.
Hey, Mr. Cut and Paste - the problem for you is that no one cares what Brooks writes. Along with Halperin, he's one of the laughing stocks of the MSM pundit class.
Mitt Romney Rally
I attended a Mitt Romney Rally in Bowling Green Ohio yesterday afternoon.
The crowd was enormous.
What an impressive individual Mitt Romney is in Person.
He is definitely one of the most qualified individuals to ever run for President.
He is a man:
· Who attended both Harvard Law and Harvard Business Schools concurrently earning advanced degree in both Law and Business Management and graduating with honors MCL [3.8-3.9 GPA].
· He has been a very successful Chief Executive of several companies and organizations both private and public.
· He served as President of the Salt Lake City Olympics for 3 years and turned a probable failure into a very successful Olympics.
· He served as an Intern in Michigan Governor's office for 8 years gaining a good deal of experience in government operations.
· He served as Governor of Massachusetts for 4 years.
· As an Entrepreneur he started his own company Bain Capital and built it into one of the most successful Venture-Capitalist Investment firms in the USA.
As I was leaving Bowling Green and heading home I passed a very large relatively new Staples Office Supply Store. Staples was Romney's first major business deal. It involved investing in a start-up office supply company with one store located in Massachusetts. That Company today has over 2,000 stores and employs over 90,000 people.
There were of course many other companies that Bain invested in while Romney was CEO. According to the Wall Street Journal 78% of the companies that Bain invested in became successful. That’s a very high batting average for any investment company.
As I said before Romney is one of the most highly qualified individuals to ever run for President of the United States.
The election in 2012 is a real Paradox.
We have, Mitt Romney, one of the most highly qualified individuals to ever run for President running against Barack Obama, probably the least qualified individual to ever run for President in American history.
Hahaha, except "the least qualified individual" has three and a half years in the most powerful elected office in the world, and is due to have four more. Your guy won't make it there, but nice try. Americans (for better or worse, e.g. Reagan), generally elect people that they like on a personal level, and Willard, outside of his immediate family (who are robots like him), isn't liked by anyone.
" This is the Bain debate we need to have in this campaign–and, if the
President chooses to make the high-road case, we may actually have it."
Isn't that a wee bit Quixotic/naive? Post Citizens United, what are the chances that such a high minded debate would lead to actual results? Obama realizes that to influence the voter the Bain and related issues need to be presented as starkly as possible. That is not the low way - it is the only way that leads somewhere.
" This is the Bain debate we need to have in this campaign–and, if the
President chooses to make the high-road case, we may actually have it."Isn't that a wee bit Quixotic/naive? Post Citizens United, what are the chances that such a high minded debate is going to lead to actual results? I think Obama realizes that to appeal to the voter the Bain and related issues need to be presented as starkly and in as clear-cut a fashion as possible. That is not the low road, that is the only road that leads anywhere.
It's obvious you don't understand taxes, derivatives, or what Bain capital did. Stick to political gossip, which is your area of expertise.
So it's the PRESIDENT'S job to make the case for financial reform but NOT the challenger's who benefited from those rules??
More Pro Bono work for JK as part of the Obama campaign.
Joe you are so dishonest that you might as well work full tme for the Obama campaign until the election is over. Than you can climb back in you hole/bubble with the rest of the JournOlist fools and contemplate why the American people rejected both you and Obama.
Good luck changing this part of our tax code. You think you saw a fight when you watched the one taking place over healthcare. Just wait.
This is the Bain debate we need to have in this campaign–and, if the President chooses to make the high-road case, we may actually have it.
The *President* chooses?
Joe, Joe, Joe...
The President can make his case from the top of Mt Everest, but any criticism of the Sacred Cow of Free Enterprise Vulture Capitalism has and will be met with "Marxist, socialist, anti-colonialism" name calling and mud slinging from the right.
See, for example, John "I wish this President would learn how to be an American" Sununu - - - earlier this week!
Heck, just yesterday you asked Who built I-80 while the right was screaming that Obama "doesn't understand business".
Joe, please tell us that the recent spate of centrist columns you've written will be your last and embrace the wisdom of your serious colleagues: It's Even Worse Than it Looks
Sigh. If only there were one.
In the olden days we had occasional guest bloggers, like D!ck Armey, Mudcat Saunders, and others I have blocked from my memory. We kept saying how about someone like Digby or Glenn Greenwald (before he went with Salon), but we never got a real liberal. Finally stopped that - Mudcat got savaged because he said such outrageous non-fact based things, even though he is a pretend Democrat.
Actually the president did make his case on the "casiono gambling" Joe mentions above. It was called Dodd-Frank, and read the below to find out what happened to the legislation, and weep:
Romney's life has been motivated by love of money (amassing huge piles of it). Obama's life has been motivated by love of country (helping everyone have a piece of the American dream). If you know your Bible, you know which motivation is the root of all evil.
I think Obama has a little bit of self-love thrown in there too (who doesn't?), but I think Barack cares more about the rest of us than Mitt does.
In the end, that will be what turns this election - who understands my problems and cares more about the rest of us. Willard can't put a dent in that theme because it's humanly not possible for him. When you are an android the only card you can play is that I'm rich and I'm white.
Have you seen recent clips of Willard's campaign stops? They can't even find one Rent-A-Negro to put in the middle of the crowd.
BO didn't have to "rent" [insert race here] at his speech!
Even at the NAACP event, Romney had to bus in about 200 people so he could be sure some would cheer him.
Exactly. Willard's crowds look like a crowd you would have seen at one of Beaver Cleaver's school plays in 1958. The GOP knows that the country's changing demographics are against them. Hence, the systematic voter suppression we are seeing around the country. It's a rear guard action that is going against the tide.
filmnoia, what strikes me about the crowds that you see for Obama is that they look the way America really is. It's diverse. It's not a white crowd. It's not a black crowd. It's not a Hispanic crowd. It's just a crowd.
Too much of Romney's support is anti-Obama rather than pro-Romney. He doesn't stir the passion and has the likeability factor of ants at a picnic.
You're right about Romney's campaign events. It looks like varying shades of white with no color thrown in for flavor. He's not going to win with white people alone but any appeals to blacks or hispanics is going to give pause to the extreme right wing that is wary (at best) of him.
It isn't going to happen Joe. You, and I do not have the power to make it happen.
You for one work for an organization that happens to agree with the current tax code that benefits the wealthy and screws the rest of us. It seems that there are not enough reporters who will go against their boss, but then again there are a apparently many reporters who are in bed with those they report on.
There are too many of the public who are certain that they will get some kind of special dispensation from the wealthy if they support them, and have created, in them, some kind of god. Take a look at Romney and the support he has; this guy would run you over with a truck if you got in his way monetarily. All I can say to those who think Romney will look at them is do not turn your back.
Early Wynn pitched for the White Sox and Indians in the fifties and won 300 games. He cultivated the image of a mean SOB, and it was said that he would throw at the head of his own mother if she was batting against him. One day a particularly courageous reporter asked Wynn if the comment about brushing back his mother was true. Wynn's answer: Only if she's crowding the plate.
Would Mitt Romney take advantage of his own mother in a business deal? Only if she threatened to cut into his profits.
We'll see how this plays out.
Stay tuned for next week when Joe rebuts the rebuttals:
"Charles Krauthammer, whom I dearly love and truly respect, was slightly off the mark on Sunday when characterized my column as an anti-American, neo-communist, dystopian wet dream. To be fair, many financial regulations are unnecessary..."