In the Arena

Mitt’s Having a Tough Day

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Manchester, New Hampshire

Lots of people are already having fun with this Mitt Romney quote:

“I want individuals to have their own insurance. That means the insurance company will have an incentive to keep you healthy,” Romney said. “It also means that if you don’t like what they do, you could fire them. I like being able to fire people who provide services to me. You know, if someone isn’t giving the good service, I want to say, ‘I’m going to go get someone else to provide this service.’”

O.K., O.K.–in context, Romney was merely singing the praises of capitalism, a system that gives you a choice of service-providers. But when you take it out of context, as everyone will, and put it together with another famous Romney awkwardity, “Corporations are people, too,” an existential question arises: Does Mitt Romney also like to fire corporations? Turns out, he did. 

According to the Wall Street Journal today, 22% of companies Bain Capital took over went bust within 8 years. The destruction was may have been a bit too creative, according to experts summoned by the Journal, or maybe not: Bain was more likely to invest in struggling companies than other private equity firms.

The real question here, as posed by Newt Gingrich this morning, is whether Bain would invest, say $30 million in a company, pull $180 million and allow it to collapse. Gingrich didn’t give any examples, but if one or more such emerge then Romney’s certainly going to have some explaining to do. We should know the full story within the next week, I suspect.

Romney’s all-purpose response is going to be: you’re arguing against capitalism! It’s a pretty good response, especially in a Republican primary. There is no question that progress creates winners and losers. Indeed, my problem with Romney’s brand of capitalism wasn’t that he liked to “fire people,” but the unintended consequences caused by the private equity model.

The private equity model goosed executive pay as an incentive to slim down flabby companies. That may have been a good idea at the turn of the 1980s, when a good many American companies were suffering from debilitating flab, but it soon became something of an obsecenity, especially on Wall Street, where executives would be rewarded for churning deals, but not punished when those deals went south.

A second unintended consequence was that the profits produced by the sort of capitalism Romney practiced were so huge that a disproportionate number of smart young people began migrating into the financial sector–and away from creating, producing and marketing actual products. I’d be interested in hearing how Romney would respond to these two consequences, but that’s not the debate we’re about to have. It will be all about the jobs lost. Romney will argue the creative side of creative destruction, and insist that an undue emphasis on the destructive side is crypto-socialism. I’m not sure that’s a winner in a country that has suffered a devastating loss of jobs in recent years, and of manufacturing jobs in recent decades. And if it turns out that Gingrich is right and there was actual looting going on, Romney could be in some real trouble down in South Carolina–which has had plenty of experience losing textile jobs.