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Right Turn
Posted at 12:30 PM ET, 01/09/2012

Romney’s got the upper hand on the Bain story

The same critics who have been on the prowl for a not-Romney candidate since the start of the campaign were in full sneer yesterday when he said, “There were a couple of times I wondered if I was going to get a pink slip.” Hrrumph, they said. He’s always been a corporate tycoon. Well, that in turn sent me looking for some information on his early career.

What I found was an interesting 2005 piece from Atlantic. It is a must-read, surprisingly informative and balanced, no doubt because he was not yet enemy No. 1 of the hard right and hard left.

Romney had the benefit of a first-class education. But he didn’t go to work for his father or get a sweetheart deal as many children of famous pols do. The Atlantic piece explains that after business school:

Romney entered the burgeoning field of consulting, and in the late 1970s he landed at Bain & Company. Until then the business of consulting had been kind of hit-and-run: a firm would take on a client to help with a particular issue, provide some analysis, and then send the client on its way. Bain did things differently. Bainies, as they were known, became deeply involved with the companies they advised, learning everything about their businesses, the industries they worked in, and the competitors they were up against. When an analysis was finished, Bainies didn’t pack up and leave. They stayed with the company, making sure it continued to apply the lessons it had learned.
Romney distinguished himself at Bain, and in 1984 he was asked to lead a venture-capital spinoff. Starting out as a modest enterprise, with a handful of people from Bain & Company and roughly $30 million, Bain Capital was soon wildly successful. Among the first companies it invested in was Staples, an office-supply store conceived by one of Romney’s business-school contemporaries, which had been shunned by some venture capitalists; Romney and others saw the potential. In 1986 Staples, Incorporated had one store. Today it has nearly 1,700.
But while Bain Capital flourished, its progenitor, Bain & Company, struggled, and by 1990 it was on the verge of financial collapse. Romney was called back to the firm, where he restructured the debt, persuaded all but one of the partners to stay for at least a year, and installed a new leadership team. The company survived; and as a symbolic gesture, Romney drew a salary of only one dollar a year. (As governor of Massachusetts he draws no salary at all. A lesson he says his father taught him is that one shouldn’t get involved in public life until it is a question of service rather than employment.)

So let’s review. He entered the workforce in the dregs of the pre-Reagan recovery era. Unemployment wasn’t as high as it has been under the Obama years, but the economy was in poor shape. He was not guaranteed success and, indeed, both Bain itself and the companies in which it invested (and Bain executives like Romney helped run) were not insulated from failure. More on that in a moment.) One can understand the anti-capitalist left sneering that a guy who eventually did very well could never have experienced any job anxiety, but it’s distasteful coming from the right, which is supposed to eschew class antagonism.

The other point that is apparent in the Atlantic account is that Newt Gingrich’s “looting” vision of Bain is simply uninformed (or if you prefer, maliciously distorted). As Atlantic (hardly a bastion of free market robber-baronism pointed out) reports, Bain was in the business of fixing the companies, not “flipping” them as Gingrich claims. Does Gingrich even understand what these companies do?

Coincidentally, today’s Wall Street Journal has an interesting report on Bain. The Journal says the record was mixed, with some 30 percent of the companies in which Bain invested in eventually going into bankruptcy or closing eight years out (meaning 70 percent did not). Moreover, “If the Journal analysis were limited to bankruptcies and closures occurring by the end of the fifth year after Bain first invested, the rate would move down to 12%.” But the report also confirms:

The numbers, however, also reflect Bain’s investing style, which, particularly during the firm’s early years, was focused on smaller and sometimes troubled companies that Bain hoped to fix or build.
Bain was investing in “riskier deals,” said Steven N. Kaplan, a finance professor at the University of Chicago’s Booth School of Business. “For every one that went bankrupt, they had one that was a screaming success. The overall effect was terrific performance” for the firm’s investors.
The Journal analysis shows that in total, Bain produced about $2.5 billion in gains for its investors in the 77 deals, on about $1.1 billion invested. Overall, Bain recorded roughly 50% to 80% annual gains in this period, which experts said was among the best track records for buyout firms in that era.
Some of the companies that ran into trouble did so after Bain was no longer involved and new owners had taken charge.

What is more, Bain’s record could have been much stronger if it weren’t taking some risks. The report tells us: “Marc Wolpow, a former Bain Capital executive, said the frequency of trouble did indeed stem largely from the firm’s strategy early on of investing in smaller, troubled firms it hoped to turn around. ‘I don’t think you can hold Mitt out as a great investor per se,’ Mr. Wolpow said, ‘but he was an excellent CEO of an investment firm, and the results speak for themselves.’ ”

In sum, conservatives have plenty of reasons not to choose Romney as their nominee. Many voters consider RomneyCare a disqualifier. And other simply prefer other candidates. But the Gingrich-Obama line of attack is false, fundamentally false, as Gingrich likes to say. Romney’s account of his years at Bain is essentially accurate: He took risks, tried to build companies, and did extremely well compared with the competition. This is model of economic growth that conservative contrast with the government’s picking “winner and losers.” It is not “predatory” or morally objectionable.

We’ve come to expect the class-warfare attacks from the president. But the party of Reagan, Rep. Paul Ryan (R-Wis.), and Sen. Marco Rubio (R-Fla.) — who routinely chide Obama’s divide and demagogue routine — should not try to outbid the left in its attacks on the free market. First, it won’t work. And second, it’s antithetical to the core belief of modern capitalism, which stresses individual freedom and the entrepreneurial spirit.

By  |  12:30 PM ET, 01/09/2012

Categories:  2012 campaign, Economy

 
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