The Bain Capital Attack Ads

It’s depressingly predictable that Obama TV ads slash Romney as some corporate vampire ravaging victim companies and their workers. Romney’s Bain Capital firm invested in hundreds of companies, so it’s easy to find a few that failed, with workers losing jobs, who will whine on camera. It’s a cheap shot. It’s disgusting.

Worse, the one story picked out for Obama’s ad is told with cynical dishonesty. GST, a steel firm, was not healthy, but already sinking, having lost 80% of employees, when Bain bought it, hoping to turn it around. Bain arranged fresh bank loans and poured $100 million into modernization. But after eight years (and after Romney left Bain), GST nevertheless went belly-up, like many other old-line steel firms. (Click here for details. Meantime, another firm Bain backed was Steel Dynamics, which used Bain money to build a new plant now employing 6,000 people.)

Private equity firms like Bain are not in the business of making investments that fail. Their profit model is to find underperforming companies that can be made more successful. Not all businesses are equally well run; there are huge disparities between the gazelles and the donkeys. Private equity seeks to turn donkeys into gazelles. And, over recent decades, they’ve made an awful lot of donkeys into gazelles, with great benefit to the overall economy. This has revitalized American business, making it much better able to compete against foreign rivals.

 Often this does involve closing excess facilities, and layoffs. Now here’s a shocker: firing workers can be good for employment. Because a bloated inefficient firm that is uncompetitive will fail, so all its employees lose their jobs. Whereas if the company is streamlined and made more efficient, with fewer employees, it can regain competitiveness, and survive, and thrive, and even expand, to ultimately provide even more jobs.

The same applies among companies themselves. Capitalism’s “creative destruction” means that businesses are in a Darwinian struggle with each other, with the less productive weeded out while the most productive survive and grow. That too is good for the whole economy, and ultimately for jobs.

This is what liberals never seem to grasp: for high employment, you need businesses that are competitive in the global market. Preserving jobs at all cost in weak businesses (by protectionism, for example) is precisely the wrong thing to do and ultimately means fewer jobs.

Critics say private equity firms load up victim companies with debt while looting them. That makes no sense if you think a moment. Debt means borrowing from somebody. Who would lend to a company being looted? No – a business can borrow only if its prospects for success are good, so it can repay the loans. So again, the private equity model is not looting or blood-sucking, but making businesses more productive and successful. Of course there are exceptions, even horror stories. But overall, private equity does far more good than harm.

Bain Capital has also made many investments in start-ups. One was the Staples chain of business-supply stores that now employs 90,000 people. Others include the Sports Authority chain, and Bright Horizons that now manages child-care centers for more than 700 other companies around the world. Of course, not every investment pans out. It’s easy for critics to single out the failures. But without willingness to take risks, no investments would ever be made, and our economy would be dead in the water.

Private equity firms like Romney’s Bain Capital have thusly been major catalysts in the process of improving the quality of our businesses, to make them more competitive in the global economy. Unquestionably, this means more and better jobs.

Obama’s lying attack ads about Bain are the kind of thing that corrodes American public life. How sad that a President of the United States would stoop this low.

4 Responses to “The Bain Capital Attack Ads”

  1. Lee Says:

    Excellent. Next is your piece on how Obama is not a socialist who, through malice and/or incompetence, is out to destroy our country??

    By my eye these two candidates are quite similar on many things; and they are both reaching in an effort to differentiate themselves.

    [FSR comment: No, Obama is not “out” to destroy our country. Nor is Assad “out” to destroy Syria. I am not suggesting precise equivalence.
    How do you define “socialist”?]

  2. Lee Says:

    Socialism: some businesses are obvious “natural” monopolies that furthermore should be paid for (or in a few cases, actually run) by government. These are making roads, police, etc. In my mind socialism transfers control to government beyond these natural monopolies.

    [FSR: In that case the US has been pretty socialistic for quite some time, as government controls around 40% of the economy directly (and heavily regulates a lot of the rest).]

    Assad: He is out to destroy his country — unless it is democracy a government represents destruction of its country. (And the other side is close to true, too; if it is a democracy then it is almost always not destruction.)

    [FSR: Assad is out to milk his country. But what often happens in such cases is that the rulers become so removed from reality that they can’t draw a line between milking and destroying. Assad’s Barbara Walters interview showed he inhabits a parallel universe.]

    On a surprisingly related note: The NYT has an op-ed that claims that many business interests in Syria support Assad, because they fear that the rebels will not be as business oriented. I don’t know how accurate or significant this is.

    [FSR: A regime like Assad’s often creates a web of vested interests, “rent-seeking” businesses that thrive by dint of government favor & collusion. Any business that succeeds in Syria must do so by playing the regime’s game. Of course those businesses support the regime and fear its fall!]

  3. Lee Says:

    Where does your 40% number come from? I’d take government expenditures divided by GDP to find out how much government is the payer for. But most of that is not the government actually running or planning a business, which is what I would call the meat of socialism.

    [FSR: The 40% is indeed roughly the ratio of government expenditure to GDP. True, commercial enterprises as such are not a big part; but that government does account for such a large part of the economy signifies that government today subsumes a lot of functions that used to be in the private sphere — when government was typically more like 4% of GDP.]

  4. Says:

    Eye opening posting, it is a breath of fresh air to find readable information amongst the dross, I am pleasently grateful to discover a blog that is not full of the everyday trash, bless you.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s