The Bain Train
It was inevitable that President Obama and Vice President Biden would begin attacking Mitt Romney’s former role as co-founder and head of the highly successful Bain Capital private equity firm. Voters got a preview of this sort of attack back during the primaries, when a pro-Newt Gingrich Super PAC released a laughably misinformed video slamming Romney for the failure of a few companies in which Bain had invested. Now, Obama and Biden are going after Bain Capital, not only by criticizing the firm’s actions but also by questioning the value of Romney’s experience there.
Bain Capital remains a power player in the private equity industry to this day. When Romney lead the company, Bain focused on investing in struggling companies it thought it could save or smaller companies it thought had great promise and then Bain would share in the success if the companies were able to turn a profit. Some of Bain’s most famous successes include Staples, Domino’s Pizza, and Sports Authority. Recent attacks against Romney’s tenure at Bain zeroed in on a few sad stories about how Bain-supported companies shuttered factories or cut jobs or ultimately went bankrupt, with Bain supposedly being indifferent to the sufferings of those hurt by said changes, such as laid-off employees. However, these criticisms show either an absurd misunderstanding of the free market or simply a desire to sling mud and paint Romney’s former work as “vulture” capitalism rather than venture capitalism.
In free market enterprise, there are always going to be some failures; there will always be established companies that become obsolete or irrelevant and there will always be startups that simply do not have an effective business model. Bain had to downsize some companies that had been spread too thin so they could avoid bankruptcy, and indeed downsizing often results in layoffs and closures. In such cases, the issue at hand for the companies was not about hurting employees in order to pad executives’ pockets, as critics of private equity would suggest, but rather it was about making tough and painful decisions that were necessary for the survival of the company. No business, including Bain, enjoys firing people, but the fact is that sometimes some employees must be let go so that the entire business (all of the employees) does not fail.
Vice President Biden recently made a particularly scathing criticism of Romney’s work at Bain by saying that his experience as a private equity executive makes him no more qualified to be president than a plumber. Besides being a slap in the face to plumbers, this criticism is guided by an inherently faulty logic. The attacks against Romney’s business experience are trying to make it seem like Romney’s argument for why he should be president is that he made a lot of money as a businessman. While he did become very wealthy, that is not what his argument actually is. Romney is arguing that, in addition to his demonstrated leadership as governor of Massachusetts, his business experience gives him a superior understanding of the economy, which he will be able to use as president to get the severely anemic economy back on strong footing again. Romney never claimed that he would try to run the country like a private business or that his corporate experience alone made him qualified to be president. Rather, Romney claims that his full résumé, including both governmental and corporate leadership, proves that he has the experience necessary to be a far better President than Barack Obama.