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.