The debate over Mitt Romney’s tenure at Bain Capital has been a series of cul-de-sacs and rabbit-holes. When the Republican primary contest was roiled by an argument over how many jobs Bain’s companies had created or destroyed, factcheckers and other journalists dutifully debunked the risible claims made by Romney and his rivals before settling into a rough consensus that private equity was never about job creation in the first place—and that any full accounting of Bain’s impact on employment is necessarily imprecise, because many of the effects are indirect or even unknowable. (The leading academic study found net job losses of less than 1 percent at companies taken over by private equity firms.)
More recently, political media have been dominated by an argument over when Romney left Bain, and what responsibility he bears for actions, like offshoring jobs, taken by Bain’s companies after 1999. As an exercise in journalistic factchecking and scrutiny of what the campaigns are saying, this debate has been worth having—but it still feels vaguely spurious, because while both Romney and President Obama now pretend to believe that sending jobs overseas is a cardinal sin, based on their records there’s little reason to take them at their word.
If the abundant discussion about Romney and Bain has been often unsatisfying, however, there is an important angle that demands more attention, from both elite national media and local reporters out along the trail: How, exactly, would the lessons of Romney’s business career inform the policy course he charts in the White House?
Romney’s campaign rhetoric mostly consists of criticizing Obama. But to the extent that he offers a case for himself, it is rooted in his career at Bain. In the introduction to his economic plan, he writes, “I know what it means to meet a payroll. I know why businesses hire people, and why they become forced to lay them off.” In a recent interview with National Review, he said, “The 25 years I spent in business gave me an understanding of how business decisions are made, as well as an understanding of the actions that are destructive to job creation and the actions that encourage job creation.” And in his stump speech, he has said that this business career taught him “about the transforming power of our great free enterprise system”—and that this understanding is at the heart of his differences with Obama.
When it comes to how that transforming power actually works, though, Romney is characteristically vague. He frequently calls for leaner regulations and lower taxes. But that is boilerplate embraced by every Republican (and some Democrats)—one hardly needs to be an extremely successful private-sector innovator to see virtue in those things.
And there is no dispute that Romney was an extremely successful private-sector innovator, even if there is plenty of disagreement about just what distinguished the line of work that he pioneered at Bain Capital. Critics of the private-equity model see it as little but financial engineering—a strategy for exploiting the tax code’s encouragement of debt that “privatized the gains and socialized the losses,” as a recent Bloomberg View column put it.
But that’s not the only perspective on Bain’s work. Benjamin Wallace-Wells, in a New York magazine cover story from last October that should be required reading for anyone interested in Romney’s career, writes:
The leveraged-buyout industry in its early days functioned as a laboratory for reinventing business. Most of the promising firms were based in New York and specialized in financial innovation—reengineering a balance sheet or making use of new tools like junk bonds. Romney’s team in Boston looked down on them as “just deal guys,” and at financial engineering as a “commodity product.” Bain Capital focused instead on the way a business runs.
And to the Bain crew, focusing on the way their businesses ran meant squeezing out every marginal gain in productivity and efficiency they could find. Bain wasn’t big enough to devote that level of attention to every company in its portfolio, though. The solution was to create incentives for top managers to run the companies the same way Bain would. Hence, this example from Wallace-Wells’s article:
In 1986, Bain Capital bought a struggling division of Firestone that made truck wheels and rims and renamed it Accuride. Bain took a group of managers whose previous average income had been below $100,000 and gave them performance incentives. This type and degree of management compensation was also unusual, but here it led to startling results: According to an account written by a Bain & Company fellow, the managers quickly helped to reorganize two plants, consolidating operations—which meant, inevitably, the shedding of unproductive labor—and when the company grew in efficiency, these managers made $18 million in shared earnings. The equation was simple: The men who increased the worth of the corporation deserved a bigger and bigger percentage of its spoils. In less than two years, when Bain Capital sold the company, it had turned an initial $5 million investment into a $121 million return.
This could be seen as, in the words of a Berkeley professor quoted by Wallace-Wells, “a crueler capitalism.”
But when Reihan Salam offered an identical description of Bain’s approach in the February 6 issue of National Review, he meant it as praise. (The title of Salam’s essay is “Let Us Now Praise Private Equity.”) What Romney discovered early in his career, Salam writes, “was that American corporations sometimes had to be dragged, wailing and whining, into a state of efficiency.” Bain did the dragging—sometimes directly, sometimes by example, sometimes by implied threat—and, according to Salam, America is better off for it. That’s because the focus on efficiency directs resources to more productive uses, and when businesses are more productive, the economy grows more quickly. Some people lose their jobs in the process, but others climb the ladder, and the growing economy creates new opportunities for everybody. This is creative destruction at work, and private equity spurs it along.
Plenty of people—not all of them National Review contributors—share Salam’s enthusiasm for this dynamic. Plenty of others, of course, do not. (Wallace-Wells, measured throughout, describes America’s post-Bain economy as “more productive, nimble, and efficient” but “also less equal, less stable, and more brutal.”) The point is that this is the narrative that supporters of private equity offer—and so to the extent Romney is offering an approach to governance that’s rooted in his private-sector experience, we should be able to connect it to this account.
What might such an approach look like? Wallace-Wells, at the end of his piece, suggests that Romney’s great achievement as governor of Massachusetts—the establishment of universal healthcare in the state—in some ways stemmed from his business career. Romney the businessman was a technocratic problem-solver, after all, and universal coverage eliminated a great inefficiency in healthcare delivery—the funneling of uninsured people to the ER, with the system absorbing huge costs for “free” care. (If this sounds far-fetched, note that it’s pretty similar to the explanation offered by The Boston Globe’s long retrospective on the roots of Romneycare.)
Of course, Romney has now all but repudiated his signature accomplishment in politics, and the Republican Party he now represents would never accept an argument like this. So how else to make the case? As Bloomberg’s Josh Barro notes, Romney could argue that because he knows how to be the hatchet man, he knows to make government run more efficiently. And indeed, Romney has promised to reduce waste and fraud, reduce the wages of federal employees, and reduce the federal workforce by 10 percent.
The problem with this, as Barro has noted elsewhere, is that overhauling the way the government works doesn’t get you very far even in narrow budgetary terms. That’s because at the federal level, government employees account for only a small share of the budget. (Most of what the federal government does is move money around, and it’s already extremely efficient at that.) Meanwhile, Romney has promised to insulate one of the largest and most expensive sectors of government operations—the military—from his push for efficiency.
But there is another argument that Romney might make, and Salam makes it. It goes like this: The revolution in corporate management wrought by private equity was far-reaching, but some sectors—particularly sectors that are highly regulated, or where the government itself provides services, education and healthcare foremost among them—resisted it. As a result, innovation languishes, and the entire economy suffers. Writes Salam: “What these sectors need, Romney should argue, is the same data-driven transformation that saved America’s industrial economy.” And crucially, according to this argument, there’s only one path to achieve this transformation, and only one candidate who understands that. Obama may know that the “eds and meds” sector needs higher productivity and greater innovation—but only Romney grasps that the way to get there is through creative destruction.
This argument, of course, is open to challenge. And if Romney were to make it, he would no doubt be challenged: about whether the productivity-boosting account of private equity is really the most accurate one; about whether the “bigger cake less equally split,” as one of Wallace-Wells’s sources describes a Bain-style economy, represents progress; and most of all, about whether there are other, more appealing paths to growth. Those could be real, substantive debates—maybe even one of the fabled “national conversations” about our economic values, priorities, and realities.
So far, though, Romney hasn’t consistently made this case, or any case that’s coherently connected to his tenure at Bain. He probably does come closest in his positions on education and health care, which emphasize competition and innovation, and move in the direction of disrupting existing systems. But even here, Romney doesn’t approach the point that is at the core of Salam’s essay: “the road to job creation runs through job destruction.”
Nor is creative destruction at the center of Romney’s stump speeches or his messaging machine. He assails regulations that affect existing businesses—not the ones that might restrict entrepreneurship. He attacks Obama with appeals to the sympathies and resentments of incumbent business owners—the very people, his defenders tell us, whom Romney spent years making life difficult for. He offers a message and an agenda that valorizes business as a class, not one that’s rooted in the purported virtues of his own career. That may prove to be enough to win, but it’s not enough to lead a debate about what the Romney economy might really look like.
So what can the media do? Begin by noticing this disconnect, and explaining it to readers and viewers—and getting the Bain debate out of the dead ends it’s been stuck in so far.
And then, ask at every opportunity: “Governor, help me understand: What, exactly, what about your business career has prepared you to be president?” Admittedly, there aren’t many chances to do this. But Romney will be in California today. It’s not too soon to start.