But sometimes, a private-equity firm may shutter a factory or cut a workforce to reduce costs.
And even when the bet goes bad and the company closes, the private-equity firm can often walk away unencumbered. Sometimes, it even walks away with more money than it started with.
Under Romney’s leadership, Bain bought steelmaker GS Industries in 1993 and loaded it with debt while paying millions to Bain investors. It declined and in 2001, after Romney was no longer managing Bain, the company filed for bankruptcy, and more than 700 workers lost their jobs. Obama’s campaign has highlighted this company in an ad where one ex-worker says, “It was like a vampire came in and sucked the life out of us.”
Howard Anderson, a lecturer at the Massachusetts Institute of Technology’s Sloan School of Management, said that Romney’s allies often say he “created jobs” while at Bain. “No, you guys build wealth,” he said.
“Sometimes you build jobs. Sometimes you eliminate jobs,” Anderson said Tuesday. “What private equity is — and what Bain and the other guys do — it’s the best of capitalism, and it’s the worst of capitalism. . . . Capitalism doesn’t try and do the right thing. Capitalism can be very destructive.”
The two sides of the private-equity business — its booming successes and its deep, devastating failures — make it hard to caricature it as all good or all bad.
The industry has been worried about this moment for a long time. Anticipating Romney’s candidacy, an industry group began to prepare a stepped-up lobbying and public education campaign last summer. It titled the campaign “Private Equity at Work” and targeted political “opinion leaders,” including lawmakers.
“The industry is not widely understood by the general public and even by some on Capitol Hill,” said Steve Judge, president and chief executive of the Private Equity Growth Capital Council, which lobbies for leading private-equity firms.
For both parties, the struggle to frame a moral argument about private equity could affect the vote in November. In a new Washington Post-ABC News poll, 21 percent of voters said that Romney’s work with Bain was a reason to support him. The same share said it was a reason to oppose him.
And 54 percent — the targets of all this messaging — said it wasn’t a major factor.
This argument also could affect campaign fundraising: Although politicians often seem to have just discovered private equity, their campaign treasurers clearly found it long ago. In 2008, the industry supported Obama over Sen. John McCain (R-Ariz.) and gave more to Democrats overall than Republicans.
But this year, the private-equity industry has contributed $23 million — with more than 75 percent of that going to Republicans.