Bain Capital: A problem for both the Left and the Right

Bain Capital has been a hot topic for pundits on both the Right and the Left for months now, as Mitt Romney has pointed to his experience running the firm as evidence of his qualification to run the largest economy in the world. But the rhetoric stemming from both the Right and the Left about Bain seems to miss the point.

On one hand, Democrats say that Bain – a traditional private equity or buyout firm – bought and sold companies at wild profits but jobs were lost in the process. In that regard, they are absolutely right. However, their conclusion that Bain epitomizes the dark-side of capitalism is far from fair.

On the other hand, the rhetoric coming from Romney and the Right – that Bain is a poster-child for successful capitalism and entrepreneurial ingenuity – is also true. But, they too miss the mark by claiming that the success of Bain Capital means that Romney is qualified to run the American economy or that the American economy would be running at full speed if only it operated like Bain.

As has become all-too familiar in campaign politics, both sides have demonstrated a willingness to politicize the facts well past the point of truth. Aren’t campaigns fun?

So what is the truth? Well, Bain was incredibly successful because it did exactly what it was supposed to do. It attempted (and mostly succeeded) in buying troubled or bloated businesses, pressed them to find efficiencies – including, hold your breath, by adding leverage and cutting jobs – and return the businesses to profitability or expanded profitability.

Sometimes this worked spectacularly well. When it did, American efficiency benefited, stockholders benefited and Bain investors benefited, and yes, jobs were often lost. And sometimes this didn’t work and stockholders lost their investments, Bain investors lost value, and jobs were lost.

But Bain’s job was not and is not to create jobs, nor is it their intent to create new businesses. Bain’s job was and is to create value for their investors. That’s it. That’s what they know and that’s what they do well. And that’s ok because by and large, this kind of activity creates efficiencies in business. (The Democrats are also right that sometimes, an excess of leverage allowed investors to benefit at the cost of a company’s sound financial footing often resulting in the company’s failure and the loss of jobs if the investment model turned out to be overly optimistic.) But generally, this activity exemplifies the virtues of capitalism by allowing capital to flow to the best place in the economy. And when investors make money, they hopefully reinvest in American businesses and spend their profits in the consumer economy, and other jobs are created. It’s all part of the business cycle.

The fallacy of Romney’s argument is that this experience somehow qualifies him to run the largest economy in the world. He may have been a success at Bain Capital, and he may be a great investor but that experience didn’t supply him with a model or an understanding of how to find work for those who lost their jobs thanks to Bain’s quest for corporate efficiency or Bain’s failures. Bain didn’t stimulate the economy or provide infrastructure to a country or provide social services or a safety net to those who needed them.

At the same time, the Left would do well to remember that Bain is not evil simply because of their focus is investment rather than job-creation.

Bain made Romney a rich(er) man – a rich man able, apparently, to buy his wife a couple of Cadillacs, which, in turn, means someone has a job on a manufacturing line in Detroit. Hopefully Romney will take that success and invest in other American businesses. He’ll be a great consumer in an economy, 70% of which is comprised of consumer spending, and assuming he pays his fair share of taxes – admittedly a very big assumption – Romney and those like him will contribute to society by allowing society to do those things that Bain was never designed to do.

Rather than arguing that Bain is bad, the Left should be arguing that Bain is good – or is at least a completely acceptable part of a capitalistic, free-market economy. It’s good for its investors and hopefully as part of the overall business landscape, it’s good for America. But America needs more than Bain. The American economy – and by extension, Bain – also needs to provide jobs for those who lost theirs through the Bain-like drives for efficiency or company failures. The American economy needs incentives to help small business succeed. And the American economy needs the infrastructure that facilitates the very economy and market conditions that lets Bain and its investors succeed – things like a vibrant and successful public education system, the national highway system (notably, an Eisenhower Republican initiative that would cost trillions of dollars to replicate today), the air traffic system, a national power grid (greatly in need of upgrading but which would not exist if not for the regulatory environment that encouraged it), and even reasonable environmental regulation – all things that Bain Capital does not and cannot provide but without which Bain could not succeed.

And perhaps most importantly, Americans need help when their jobs are cut or their industries are sent offshore. Capitalism is good and has built the strongest country and economy the world has ever known. But “pure” or “ruthless” capitalism needs a balance – call it compassionate capitalism if you will. In our 200+ year history, capitalism was never pure and the free-market was never truly free. And so we have a legitimate debate about the role of government and the taxes we pay for the society, freedoms and opportunities that we enjoy.

Our nation’s values, and those of the majority of people around the world, do not lead us to watching our people die in the street without food, shelter or healthcare. Nor do we value penalizing those who achieve tremendous success. Our values lead us to balance and, as usual, the answer lies somewhere in the middle.

It’s called “compromise” – something our political system used to run on but which seems to be in very short supply lately, thus allowing both the Right and the Left to come to the distorted view that the story and future of our country can somehow be extrapolated from a relatively small private equity firm in Boston called Bain Capital.

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