What Romney should have learned at Bain
Poor Cory Booker. It turns out that it’s easier to rescue old ladies from burning buildings than to step into the 2012 election without, well, stepping in it.
Booker, the Democratic mayor of Newark, N.J., appeared on Sunday’s “Meet the Press” on NBC to act as a surrogate for President Obama’s reelection campaign. And he did a perfectly serviceable job. Asked about the allegations that Obama is anti-business, he said that “over 90% of Americans have seen tax cuts under this president,” which is absolutely true. Asked about the auto bailout, he said that Mitt Romney “would have let the auto industry fail,” which is mostly true. And asked about tax reform, he said “the president’s put forth a bipartisan plan,” which is not, as far as I know, actually true, but certainly makes Obama sound good.
But then he got asked about Obama’s attacks on Romney’s record at Bain Capital. And Booker made the mistake of being honest. “I have to just say from a very personal level I’m not about to sit here and indict private equity,” he said. A few moments later, he said that “this kind of stuff is nauseating to me on both sides.”
Republicans were delighted. “Thank you Mayor Cory Booker for the straight talk this morning,” tweeted Sen. John McCain (R-Ariz.). Booker, who had spent most of the program criticizing Romney, seemed unprepared for the firestorm over his few remarks distancing himself from the Democratic attacks on Bain. Within hours, he had released a YouTube video partially walking back his comments. “Mitt Romney has made his business record a centerpiece of his campaign,” he protested. “He has talked about himself as a job creator. Therefore, it is reasonable for the Obama campaign to examine that record and discuss it.”
Politics ain’t beanbag, as the saying goes. Romney spends much of his time on the campaign trail lying about and misrepresenting Obama’s record. He says Obama “went around the world and apologized for America,” which isn’t true. He says Obama is “ending Medicare as we know it,” which is laughable. He says “we’re inches away from no longer having a free economy,” which is risible. So it’s hard for me to get particularly exercised over the Obama campaign running heartwrenching ads over people who lost their jobs because of decisions the company Mitt Romney actually ran actually made. But here’s the ad. Judge for yourself:
Either way, it shouldn’t be a capital crime to wish, as Booker did, that we were having a slightly more sophisticated conversation. The fact of the matter is both sides are misrepresenting Romney’s record at Bain. Romney says he was in the “job creation” business. He wasn’t. He was in the wealth creation business, and when that meant firing people, that’s what he did — , and he profited handsomely from it.
On the other hand, many of the companies that Romney closed needed to be closed. It was better for them to die quickly, and for the money to go to productive uses in the economy, than for them to decline slowly. The Obama administration has presided over layoffs in the federal government, not to mention the auto industry, and it would surely argue some of them were necessary.
At its best, private equity acts as an accelerant of needed creative destruction. At its worst, it’s a particularly heartless form of vulture capitalism that kills companies that don’t need to be killed in order to enrich investors who are already very rich. The truth often lies somewhere in the middle.
But the real problem with Romney isn’t what he did at Bain. It’s what he didn’t seem to learn from it.
“I know how business works,” Romney likes to say. “I know why jobs come and why they go.” That’s overstating the case. But while Romney’s perspective at Bain was biased toward creating short-term profits rather than creating value or employment, it was a look at the ferocity of modern, global, financialized capitalism, and Romney surely recognizes its realities in a way many of us don’t.
The evidence on private equity firms is clear. They increase wealth for investors and jobs for investment bankers. But they also reduce jobs at the firms they take over — usually by about 2 percent in the first two years. Summarizing the latest research, Business Week’s Peter Coy wrote that “having your company acquired by a private equity firm is like living through a national recession.” Romney got a ground-level view of those mini-recessions.
What he could have learned from that experience is that, just as creative destruction is important for moving an economy forward, a safety net is important for catching those who are left behind. As head of Bain, Romney fired a lot of workers who were perfectly good at their jobs, who were committed to their companies, who had families they needed to support. That was his job as head of a private-equity giant. But his job as president of the United States would also be to look out for those workers.
There’s no inherent contradiction between appreciating change and being sensitive to its costs. In Northern Europe, countries like Switzerland, Denmark and the Netherlands have married dynamic economies to expansive social safety nets, and seen remarkable, durable growth as a result. The United States would do well to follow their example on both sides: We could be more open to disruptive change in the economy, and better at helping those who are left behind rebuild their careers.
In Massachusetts, Romney seemed to take that to heart. His signature achievement was the first statewide universal health care system in the country. It was designed such that even if you lost your job, you’d be able to afford health insurance, because the state would help you pay for it, insurers wouldn’t be able to discriminate against you, and the individual mandate would make sure there were enough healthy people in the system that the premiums remained affordable.
Romney’s national platform, however, calls for doing less for the victims of the global economy. He wants to repeal the Affordable Care Act, which would guarantee that workers would get health insurance even if they lost their jobs in, say, a private-equity led restructuring. He wants to pay for large tax cuts and more defense spending by cutting funds for Medicaid, for food stamps, for worker retraining, and for housing subsidies. He wants to cut Social Security benefits. He has no detailed plans to improve the continuing education system, or worker retraining programs, such that displaced machinists have a better chance to find a new job.
That’s why the ads in which laid-off steelworkers say Romney just doesn’t care about people like them are so effective. As head of Bain, it was Romney’s job not to care about them. But as a presidential candidate, it’s his job to show that he does care about them. So far, he hasn’t.