With the brewing Republican civil war taking place over—of all things—the private equity business, and the supposed outrage over Mitt Romney’s career in it, you might think the GOP frontrunner was the only politician who’d ever stepped foot inside a firm that makes investments in troubled companies.
But he’s hardly alone. Forbes’ Nathan Vardi reminded us Thursday that the door between politics and private equity swings fairly often. Bill Clinton worked with Ron Burkle’s Yucaipa Companies. Dan Quayle is chairman for global investments at Cerberus Capital Management. Rudy Guiliani was associated with what is now called Leeds Equity Partners. George H.W. Bush worked for the Carlyle Group. The list goes on.
As Vardi points out, the difference in Romney’s case is that he was in private equity first and then went into politics; the others started out in politics and then went to private equity. But the path between them is clearly a well-traveled one. The fact is, there are few roads to riches more expedient than the one that passes through the private equity business, and politicians looking beyond Washington know that.
Even if they haven’t worked in private equity, other political leaders seem to be, ahem, flip flopping on the flip flopper. To help Romney fend off attacks from the likes of Newt Gingrich (whose associated super PAC is running ads about workers hurt by Bain Capital) or Rick Perry (who has called private equity “vulture capitalists”), Romney surrogate John McCain has come out in his defense, calling the attacks “anathema to everything we believe in.” The problem? He too criticized Romney’s private equity background in 2008—albeit with less punch than Romney’s opponents this year. “As head of his investment company he presided over the acquisition of companies that laid off thousands of workers,” McCain told Florida primary voters in 2008.
The fact is that private equity firms do lay off thousands of workers. They can hurt companies as much as they help them, and that’s especially the case when they deploy insupportable amounts of debt to make their investments. Mitt Romney’s claim that he’s created 100,000 jobs is also more than a little hard to swallow.
But the fact also remains that some private equity firms can and do improve the management and leadership of companies that are not performing as well as they could be. Like most things, it depends. I think a blanket statement that all private equity is bad is mistaken, just as I think the idea that all forms of capitalism are good is wrong, too.
Romney’s opponents appear to be dialing back some of the attacks, but the riff is not one that’s likely to disappear anytime soon. Even if it recedes in the primary, it’s almost sure to catch fire in the general election if Romney indeed becomes the nominee. But before too many more of our political leaders decide to come out swinging against the controversial industry, they should pause and think about how many of their political compatriots have taken jobs in the business themselves. Or whether they, too, might end up there after the next election.
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