My pal Bill Kristol contends “there’s a lot of silliness on all sides of the Bain Capital debate.” Now, I agree with Bill that the attacks on Romney by his fellow GOP candidates are “unfair … and over-the-top.” And I agree that you don’t need to have private sector experience to be an effective American president.
But then there’s this:
And the unqualified defense of the virtues of Bain Capital by some on the right is also silly. Criticism of any behavior by a private firm? Outrage! An Assault on Capitalism! Haven’t they read Schumpeter? Don’t they know the glories of Creative Destruction? And, of course, all such destruction must be assumed to be creative!
Yikes. If this is where some in the conservative movement and the Republican party are inclined to go—four cheers for finance capitalism!—good luck. … Post 2008, capitalism needs its strong defenders—but its defenders need also to be its constructive critics. The Tea Party was right. What’s needed is a critique of Big Government above all, but also of Big Business and Big Finance and Big Labor (and Big Education and Big Media and all the rest)—and especially a critique of all those occasions when one or more of these institutions conspire against the common good. What’s needed is a willingness to put Main Street (at least slightly) ahead of Wall Street, and a reform agenda for capitalism that strengthens it, alongside an even more dramatic reform agenda for government that limits it.
Bain Capital shouldn’t be demonized. It may not even deserve to be criticized. But in laying out a way forward, conservatives might remember that Bain Capital isn’t capitalism, that capitalism by itself isn’t freedom, and that there are more things in heaven and earth than are dreamt of in the Gospel of Wealth.
Sure, conservatives have been nowhere to be found, for the most part, on a needed reform agenda for the financial industry. But both private equity and venture capital have been critical in creating a leaner, more efficient, more productive, more competitive Corporate America over the past generation. They are part of the Big Business reform agenda, not an obstacle to it. Heck, I know they must be doing something right since the Obamacrats keep trying to devise new ways of taxing them.
To grow at even its historical rate, the U.S. economy will need to become even more innovative in the future. And countries unwilling to reward entrepreneurs or penalize/restrict/hamper the, yes, creative destruction that accompanies their innovation have found themselves facing slow growth and stagnation. Big Business loves the status quo and loves using Big Government to preserve the status quo, while marketing it as a form of (false) economic security for workers. Firms like Bain disrupt the status quo for the betterment of most though not all:
A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever. At the same time, attempts to soften the harsher aspects of creative destruction by trying to preserve jobs or protect industries will lead to stagnation and decline, short-circuiting the march of progress. Schumpeter’s enduring term reminds us that capitalism’s pain and gain are inextricably linked. The process of creating new industries does not go forward without sweeping away the preexisting order.
Not to say that highlighting the “harsher aspects” doesn’t make for an effective campaign ad.
But this is precisely the problem. Sure, there are many venture capital firms that find longshot smaller entities, give them some amphetamines and watch them blossom into a major productive firm. There are others that come in, take over the firm to extract its value, selling off its assets without rebuilding the business and leave the destroyed shell to rot away. I know that this can finance the more worthwhile ventures, but you cannot say that all venture capitalists are Schumpeterian magic helper elves.
While agreeing with the main argument of the posting, I feel compelled to raise two objections to some of the minor points rather cavalierly thrown in. First, I don’t get the constant drumbeat about big is bad. We live in a very big country, and its bigness has generally been very good for America and the world. Good thing that we have been big enough to face the Soviet Union and Nazi Germany. Big countries of necessity will have big businesses, big banks, and so forth. The question is not bigness, the question is whether there are unfair advantages accorded by government that protect the bigness from competition. Remove the protections and let the billions of decisions made each day in the market decide what is the right size for this or that business. I think you will see that there is a need for big, small, and every size in between.
The other objection is to the comment that conservatives have been absent from financial reform. That is about as wrong as can be. The author need only read numerous proposals and ideas from fellow AEI colleagues Peter Wallison, Alex Pollock, and Ed Pinto do discover how gross his error is. I could name many others to the list who have debated financial reform and offered very compelling proposals that are far more likely to lead to success than what has been promulgated by executive and legislative branches in recent years.