Mitt Romney’s bad bet on Bain
By Ezra Klein,
Mitt Romney did an excellent job running Bain Capital. His purpose was to create wealth for shareholders. He more than doubled their investment. But he’s doing an awful job selling Bain Capital.
Romney has taken to suggesting that what he did at Bain was “create jobs.” That’s not true. Worse, it’s an argument Romney can’t win. It’s impossible to net out the effect of the hundreds of investments Bain made into different companies. It’s impossible to say how many of the companies that Bain managed into bankruptcy would have gone bankrupt anyway. It’s impossible to calculate how much credit Bain deserves for growth that happened after it let go of a company. But it’s very, very, very possible for Romney’s Republicans challengers — and, eventually, the Obama campaign— to find people who were fired while Romney was in charge. And Romney’s fuzzy math is no match for their heartrending stories.
Second, he’s framed the success of his tenure at Bain around job creation rather than wealth creation -- and Bain, as many of its actions and former employees will testify, was not in the job creation business. As Kessler notes, the Bain prospectus says “The objective of the fund is to achieve an annual rate of return on invested capital in excess of the returns generated by conventional investments in the public equity market and the private equity market.” It never mentions “jobs,” “job,” or “employees.” Those simply aren’t the objective. Sometimes, in fact, they’re collateral damage.
Perhaps Romney had no choice. Perhaps he was always going to have to answer for Bain’s record on jobs rather than its record on wealth, and his best hope was to define the conversation first. But I doubt it. He could have pitched himself as the guy who understood the creative destruction inherent in capitalism and thus understood how the modern economy worked. Or he could have played down his work at Bain, as he did in past elections, and played up his work governing Massachusetts and saving the Olympics.
But he didn’t. Given the health-care plan that was the centerpiece of his time in Massachusetts, and mindful of the Republican Party’s preference for private-sector accomplishments, Romney pitched himself as a professional job creator, and now it turns out he exaggerated on his resume.
The irony of all this is that it scarcely matters how many jobs Romney created when he wasn’t trying to create jobs. President Romney’s economic plan is not to replicate his experience at Bain Capital: he will not try and turn the economy around by issuing public debt to purchase private companies and wring out their inefficiencies. Rather, he’ll propose tax cuts and nominate a new Federal Reserve chairman and try to cut the deficit.
As Paul Krugman writes, “running a business is nothing at all like making macro policy. . .A businessman can slash his workforce in half, produce about the same as before, and be considered a big success; an economy that does the same plunges into depression, and ends up not being able to sell its goods.”
Romney invited the electorate to judge his economic chops by judging his success at something he wasn’t trying to do and that isn’t relevant to the policies he would pass as president. The more energy he invests in this narrative, the larger his eventual losses will be.