George Wallace, when he made a third-party run for the presidency in 1968, acidly observed that there wasn't a dime's worth of difference between the Republican and Democratic parties. And as everyone can tell you, a dime ain't what it used to be. The way Mitt Romney's Republican rivals savaged him last week proves that the difference is something under two cents.
Newt Gingrich, Rick Perry and Jon Huntsman all joined hands in ripping Romney for his work at the private-equity company Bain Capital during the mid-1990s. They said Romney "made millions buying companies and laying off workers" (Perry) and should "give back all the money he's earned from bankrupting companies and laying off employees over his years at Bain" (Gingrich). Added Huntsman: "Governor Romney enjoys firing people. I enjoy creating jobs." (On Monday, Huntsman worked on creating a job for himself in the next White House, withdrawing from the presidential race and endorsing Romney in a truly epic display of suck-upmanship.)
Private-equity companies like Bain buy troubled businesses and try to turn them around. Often that involves closing down unprofitable divisions or cutting payrolls. People get fired. The process is ugly, and worst of all, sometimes it doesn't work. A Wall Street Journal study of 77 Bain investments from 1984 to 1999 -- roughly the period that Romney ran the company -- showed that 22 percent of the businesses filed for bankruptcy reorganization or shut down altogether within eight years.
In terms of measuring Bain's failure rate, there are some good reasons to regard that 22 percent as an exaggerated figure. Some of the businesses ran into problems only after Bain had already sold them. And bankruptcy reorganization is often the first step to rebuilding a healthy company. At one point in 2005, four of the seven largest U.S. airlines were operating under bankruptcy protection.
But let's accept the 22 percent figure anyway. That means that four-fifths of the time, Bain kept struggling companies alive for at least eight years. There are plenty of cancer doctors who would be very happy if their patients had a survival rate that high. Without Bain's intervention, that 22 percent failure rate would probably have been close to 100 percent.
It is, of course, possible that other private-equity companies were even more successful; it's not easy to assemble an industry report card when financial data is so tightly held. And in any event, private-equity companies evaluate themselves not in terms of jobs saved but in the money they made for their investors. Given that they've forked over about $38 billion to Bain, I'm guessing the investors are pretty happy with the way things are going.
The point, however, is not whether Bain is the best outfit to call if the Chinese are undercutting prices at your steel foundry. It's that Gingrich, Perry and Huntsman apparently regard a job in the same way that Barack Obama and Nancy Pelosi do: not as an economic compact between worker and company that dissolves when it ceases to be mutually beneficial, but as an eternal social-welfare covenant.
Businesses do not exist to provide jobs. They exist to serve consumer needs. This, in turn, generates jobs. When consumer needs change -- because of new technology, altered economic conditions, or just plain customer whimsy -- businesses have to change, too. One of the Bain-owned companies that laid off workers was DDi Corp., a circuit-board maker, where about 600 workers lost jobs in the wake of the dot-com bust. What sense would it have made for DDi to keep all those workers on the assembly line, putting together computer motherboards that nobody was going to buy?
"If the point of the economy was just to preserve jobs at all costs, we'd still have all kinds of jobs making buggy whips and repairing wooden carriage wheels," says Benjamin Powell, an economist and senior fellow at the Independent Institute think tank. "We only want to preserve jobs that provide services that people want."
There are a lot of good reasons to resist the candidacy of Mitt Romney: his constant flip-floppery, his drug-war hawkishness, his profound conviction that all bigger government needs is better technocrats. But his work restructuring foundering businesses is not one of them. Of Republican candidates, only Ron Paul -- who resolutely refused to join the Romney-bashing last week -- understands that. "Restructuring in the free market is a good idea," he declared. If only Gingrich and Perry believed in the free market.
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