Politics and Public Opinion

Why is Romney doing such a lousy job defending his record at Bain Capital?

One of Mitt Romney’s campaign slogans is “Obama isn’t working.” (It’s a play off the Tory “Labour isn’t working” ad from the 1979 U.K. elections that swept Margaret Thatcher into power.) And even if the national unemployment rate should drift down to 8 percent or so by Election Day, the president would still be forced to explain away an anemic job creation record.

But what about Romney’s job creation record? During his time as governor, Massachusetts had net job growth of 1.4 percent, as USA Today has noted. That was slower than the national average of 5.3 percent with only Louisiana, Michigan, and Ohio notching slower gains. That’s bad.

Yet the unemployment rate also fell sharply to 4.5 percent from 5.8 percent. That’s good.

“When Mitt came into office, the state was losing jobs every month. When he left office, the economy was generating new jobs by the thousands,” is how Romney’s website vaguely describes his jobs record as governor. But you can go to the U.S. Labor Department and see the data for yourself. From January 2003, when Romney took office, through December 2007, the Massachusetts economy added 61,042 jobs.

Then there’s Romney’s job creation record at Bain Capital. What was the net affect of his firm’s venture capital and private equity investments? Romney likes the nice, round number of “over 100,000″  jobs created. This is what he told Time magazine in December: “And so I’ll compare my experience in the private sector where, net-net, we created over 100,000 jobs. We created over 100,000 jobs.” And this is what Romney told Fox last month: “And I’m very happy in my former life; we helped create over 100,000 new jobs.”

Now recall how Republicans have mocked Obama for his methodologically suspect “jobs saved or created” metric. (In fact, the administration has even replaced “jobs” with “work opportunities.”) Surely Team Romney arrived at that “over 100,000″ number via some rigorous and methodologically sound calculation that takes into account Bain investments that panned out and those that didn’t. As Romney himself said when he announced his presidential candidacy, “Sometimes I was successful and helped create jobs, other times I was not.” And given Romney’s financial acumen and that of his brainiac policy team, that “over 100,000″ number should be bullet proof.

But it isn’t. Here’s what a Romney spokesman told The Washington Post:

Eric Fehrnstrom says the 100,000 figure stems from the growth in jobs from three companies that Romney helped to start or grow while at Bain Capital: Staples (a gain of 89,000 jobs), The Sports Authority (15,000 jobs), and Domino’s (7,900 jobs). This tally obviously does not include job losses from other companies with which Bain Capital was involved — and are based on current employment figures, not the period when Romney worked at Bain.

And here’s what the Romney campaign emailed me when I asked for some substantiation of the claim:

That’s not going to cut it. The media will continue to pound away at the validity of the 100,000 number, as the WaPo and USA Today have. So, too, the Obama campaign. There’s obviously a lot more to Romney’s Bain career than those few investments. Indeed, here is a bit from a 2000 Bain prospectus, dug up by the Los Angeles Times, for those who could invest a $1-million minimum in Bain Capital funds:

I will concede that coming up with a comprehensive number and then comparing it to Obama’s jobs record isn’t simple. Not with “over 10,000 transactions” and “over 750 investments.” For instance, what should be the cutoff date? When Romney left Bain, today, or some arbitrary time period like “jobs created within ten years of initial investment?” And I realize Bain’s goal was producing a fat return on investment, not jobs.

But Team Romney should try harder. First of all—just as a political matter—without a strong and factual counter-argument, the campaign is vulnerable to teary media stories focusing on Bain investments where jobs were lost—such as this one from Reuters about the firm’s investment in Worldwide Grinding Systems:

Soon after, in October 1993, Bain Capital, co-founded by Mitt Romney, became majority shareholder in a steel mill that had been operating since 1888. It was a gamble. The old mill, renamed GS Technologies, needed expensive updating, and demand for its products was susceptible to cycles in the mining industry and commodities markets. Less than a decade later, the mill was padlocked and some 750 people lost their jobs. Workers were denied the severance pay and health insurance they’d been promised, and their pension benefits were cut by as much as $400 a month. What’s more, a federal government insurance agency had to pony up $44 million to bail out the company’s underfunded pension plan. Nevertheless, Bain profited on the deal, receiving $12 million on its $8 million initial investment and at least $4.5 million in consulting fees.  … “I worked hard all my life and played by the rules, and they allowed this to happen,” [one worker said].

Second, not only is Romney’s Bain record on trial here, so is the whole idea of Schumpeterian, entrepreneurial capitalism where “creative destruction” creates a massive net benefit for society. This is exactly the idea that the Obama reelection campaign is attacking as promoting unacceptable levels of inequality. (Apparently bad government investments—like in Solyndra—that lose jobs are OK.)

Romney likes to say, “I love data.” It’s time he does a better job showing it.

21 thoughts on “Why is Romney doing such a lousy job defending his record at Bain Capital?

  1. The line which most critics (myself included) will point to is this one:

    Bain profited on the deal, receiving $12 million on its $8 million initial investment and at least $4.5 million in consulting fees

    That happens to be “cash-out” of companies which obviously NEEDED the cash to invest for the future.

    Same game, different players: a Los Angeles LBO outfit recently acquired a large steel service-center (distributor) with significant Wisconsin operations. After the acquisition, almost every sales and engineering professional was dumped on the street. Reason? The Company (prior to the acquisition) had secured profitable long-term value-added contracts with a DoD prime contractor. The sales/engineering types had already done their jobs, and the cash-flow will be very, very nice, indeed, for the next 5-7 years.

    After that? “Screw ‘em.” The Company will close. Fees and Return-of-Capital will be substantial. R&D? New markets? Future investments?

    Pshaw.

  2. Capitalism is about making money, not saving companies or jobs. The automobile, light bulbs, electricity, and the Internet put thousands out of work. Should we be upset with that? Should we undo all that innovation?

    The Left has worked long and hard to make ‘profit’ a dirty word. Bain took a big risk going after GS Technologies. If they committed fraud or engaged in crony capitalism then they should be called on the carpet, but would it have been better if the place closed ten years earlier? What did those 750 employees do to save the company? The full story is more complex that what’s being reported and that’s James’ point.

    At medical review offices across the country doctors are called on the carpet due to high death rates, yet they carefully distinguish between those doctors who kill healthy patients with routine illnesses and those doctors who take on the hardest, most hopeless cases. We need to take that same approach to capitalism where high risk should equal high return.

    It is the crony capitalists with their hands in the public’s pocket that need to be frog marched to jail and have their profits clawed back. When MF Global’s Jon Corzine can steal as much as $1.2 billion in client funds without recourse then it isn’t capitalism that’s on trial, but government and its parasites.

  3. Romney has to know Obama is going to trot out Bain Capital sob stories from every direction.

    Romney needs to have scripted ads and responses ready to combat these attacks quickly.

    • that’s only if you also believe that the GOP elite should just hand-pick our candidates and get everyone to fall in line, proof being that they said he’s “electable”…..but since obama was elected too, wouldn’t that same logic apply to him and we all know what a disaster that thought process results in….apparently “electable” includes walking away with millions while the failed company relied on a taxpayer funded bailout

  4. If Obama and the libs want to attack on Romney for his time at Bain, then Romney and conservatives need to fire back on the health insurance companies that laid people off went they closed shop because of Obamacare. Maybe National Health Insurance of Texas or nHealth of Virginia will have former employees step up for commercials. Tit or tat!

  5. I agree with you- Romney needs to do a better job of defending himself. In key ways, his campaign is not following important leads- in your example here, his campaign had a chance to spend a couple hours of work and churn out to you a detailed document detailing his job creation record at Bain, and he didn’t. Myself, I’ve contacted him several times to talk about education policies (I believe that I can help him pitch his policies better), and haven’t even gotten a reply back. If he is going to leave votes on the table, he isn’t going to beat Obama.

  6. Romney has trouble defending his time at Bain because he doesn’t truly believe in free market capitalism. Sure, he believes in the wealth that has filled his accounts, but fundamentally feels guilty and conflicted about it too.

    He’s far too sympathetic to the arguments and attitudes of the left, and it shows.

    • I think that is about right. Just like GW Bush and his need for a “kinder, gentler” Republicanism. Both were as they say born with silver spoons and feel guilty about it. They most likely both feel that have to “give back” to society, as if their gains were “taken” from someone against their will. Neither can articulate all the good free markets and capitalism do on their own without any so called moral obligation to “give back”. This makes mitt a very bad leader of a free market society. We would no doubt get more but better managed and slightly slower growing “compasionate” government.

      On the other side though we very unfortunately have the likes of the supposed conservative New Gingrich sounding like he just graduated from the Saul Alinski school of agitators running ads making Romney out to be an exploiter of the poor and middle class.

      Paul, of course understands the arguments better but is also a poor presenter and easily marginalized by the left and moderate Republicans

      Perry at least, like the great Calvin Coolidge, at least understands the value of simply getting out of the way and giving room and credit to private individuals and business. Sure, he likes a little crony capitilism for his very best friends, but it is small potatoes compared to most other politicians.

      With saviors’s like these guys I think we are certainly doomed to likely total financial collapse or at best long time impoverishment and very slow recovery if ever. I thus think we should spend our time planning for the post crash resurrection. Will we get lucky and have a Pinochet or end up with a Peron?

  7. Wasn’t Mitt against the auto bailouts on Schumpeterian grounds? That would be a real attractor to a Romney skeptic like me but he seems to want it buried. Until the bailouts become unpopular, I guess.

  8. Like most of the 1% Republicans, greed is the highest calling, and therefore they should all praise Romney for successfully stealing the most amount of money from the poor, all the while attacking the poor for being poor. What is the big deal? It is the height of hypocrisy for the other candidates to criticize him for his cavorting with the forces of greed, doing their will, and screwing the poor who produce the nation’s wealth.

  9. I read how Bain looted KB Toys. Bain took over KB Toys for $15 million and forced KB Toys to take out $85 million in loans that was paid to Bain as a “dividend” and management fees. KB Toys had been operating for over 150 years and Bain caused it to go bankrupt in a couple of years under the staggering debts it saddled the company with. You can read about it on wikipedia.

  10. dad29:
    The LBO you speak of is, of course, one of the models of market capitalism which many follow: the Take-the-money-and-run School. Extreme advocates of efficient markets will argue that (a) if the company were worth any more alive than dead, someone would have come along with a better bid to keep the company going, and (b) that those among the laid-off sales and engineering types who are worth their salary will find better jobs elsewhere. While, as a long-time investor, I believe that markets are somewhat efficient, belief that what happened here (if it is as you say) both presumes omniscient, instantaneous markets, and that employees are assets in the same way that a new paper shredder is an asset: having a clear market value, fungible, and without any feelings or desires of its own. One has to distinguish between “value created” and “value extracted from others.” One also has to put in separate factors for externalized human costs. Short-termism as you describe it is exactly the ideal recipe for a reaction against free markets. The antidote is long-term sustainable growth, and that is what is required to save the system.

    What Romney would have to demonstrate is that he and his partners (1) created significantly more long-term value than they destroyed, (2) considered externalized costs, including human costs, in their calculation, and (3) because there will always be the hard stories, demonstrate that economic actions such as those done by the Bains of this world created more good, and less misery, than the bureaucratic, governmental solutions supported by the other side. Not easy tasks, but you’re right, he had better address them, because the other side certainly will try to tear his record down, and won’t draw the line at only those arguments which are intellectually fair.

    • Well, yes. If he can demonstrate that, he’ll be back at ‘neutral’.

      But in the economy we’ve seen for the last 3 years, any “job-cutting” activity looks like Hell, almost no matter the reasons.

      This goes to the “electability” issue, not (really) to whether the decisions were optimum or not. Those who proclaim that Romney is the “most electable” candidate are walking the (R) Party into a trap.

      We can argue whether Santorum’s populism-cum-Big Gummint may overplay Big Gummint (I tend to think that it does.) But Ohio, Michigan, Illinois, Wisconsin, Iowa, and other Midwestern manufacturing-dependent populations are VERY antipathetic to the Big Finance/Big Bank combine. Perry also presents a contrast to Romney which is worth serious consideration: the 10th Amendment issues (although I have reservations about him, too.)

      Remember that Romney is a castrati on the ObamaCare issue, my friend. What’s left for him to talk about? Regulation? Taxes? And he’s from MASSACHUSETTS?

      The very last thing that the (R) Party needs is a “Big Capitalist” image for 2012.

      That is my concern.

  11. First, we need to distinguish between different types of capitalism. All capitalists are not created equal, and not all capitalists are good for the economy. There are idea capitalists, who create new products and market them in creative ways. Steve Jobs and Henry Ford are good examples of this category. There are venture capitalists, who help would-be idea capitalists get the funding they need to make their ideas real products. There are opportunity capitalists, who recognize a need and grab the opportunity with both hands. Levi Strauss (California gold miners needed sturdy work pants) and Bill Gates (IBM needed an OS for its new PCs) are good examples of this category. Then there are vulture capitalists. They buy a company that is in difficulty, suck the assets out of it, then take it into bankruptcy, leaving its workers, creditors, and other stockholders holding the bag. Bain Capital was a poster child for this kind of “capitalism”. Romney can’t defend Bain, because it is indefensible.

  12. What seems to be missing in the “screw the evil robber barons” rhetoric here is a basic idea. If KB toys and these steel mills were in such great shape with money set aside for “investing in the future” How was Bain able to get them? If they were so successful, how could they be acquired for a sum that would still allow for Bain to take them apart and make money? Sounds to me like badly managed companies or companies in dying industries that people dont want to say good bye to. for example, KB was killed by Walmart and ToyRus, not Bain capital. The US steel indudstry is being killed by Japan and China. Sad? Yes. But brawling at the wake doesnt help anyone. Much better to hand a half billion to Solyndra? Or wind farms in texas?

    • “….how was Bain able to get them?”

      1) Maybe the company was owned by Charlie Brown, who died. The inheritance-taxes ate up all the cash of Charlie’s children, so they were not able to purchase the Company. (Happens all the time with large farms.)

      2) Maybe it was publicly-held (or there was a very small group of shareholders) and the Board saw Bain’s offer as the highest one. The Board must act F/B/O the shareholders, even if it’s an ‘unfriendly’ offer–or even if they know that it might be the End of the Company.

      3) Maybe KB was having troubles. Their Bank put them together w/Bain, who took %50++% and did what they did.

  13. Two of the three major “successes” listed had nothing to do with creative destruction, they were startups

    Romney extracted and squeezed out every dime before flushing. This had nothing to do with value creation. It had to do with predatory capitalism.

  14. The best defense of this type of capitalism is Danny Devitos speech in the movie Other Peoples Money. http://www.youtube.com/watch?v=MfL7STmWZ1c.
    Unlike the Gordon Ghecko speech, which just glorifies greed and underhanded dealings and reinforces the evil capitalist leftist narative, this speech makes a real case why closing down unprofitable companies actually IS good, not just for investors, but for all of us, because it allows the capital to then be invested where it can really do some good, instead of being slowly dribbled away supporting failing enterprises. And the Danny Devito character in Other Peoples even hated lawyers, and refused to make money in underhanded ways that screwed the shareholders, like greenmail. Romney should look at that speech when he prepares his defense. It explaines the essence of capitalism in a way that leftist dems will never understand, but fair minded people will, and it presents an interesting character that in the beginning appears to be a heartless and dishonest Gordon Ghecko type, but in the end is revealed as being just as honerable as the people he is trying to take over, and more honerable than some of them.

    I expect the company that Bain captal closed was probably a mismanaged dog in a dying market, just like the one in Other Peoples Money, and the best thing for all concerned was to close it promptly, so the remaining cash could be invested in expanding companies, like Staples. Investing in dogs, like Solyndra, does not preserve jobs, and closing dogs may lose jobs in the dog (jobs which would eventually be lost anyway when the company finally goes broke), but reinvestment of the capital will create more and better jobs elsewhere. Its called creative destruction and is the essence of capitalism. You will not get enough capital for the venture capitalists that create firms like Apple and Staples, unless you free it up by letting mismanaged dying companies die.

    I do not hate capitalists like these. The only ones I really hate are the crony capitalists that depend on bailouts, gov favors, or lawyers to make their money, the very ones that Obama seems to love most.

  15. Capitalism is about making money, not saving companies or jobs. The automobile, light bulbs, electricity, and the Internet put thousands out of work. Should we be upset with that? Should we undo all that innovation?

    You are conflating innovation with financial tricks. Innovation benefits all of us. The activities of Bain benefit … Bain.

  16. Tell Mitt that in regards to Newt we do not need another Silver Tongue Politician in Office we have one now and look where we are.Yes Newt is a good man and has good intentions but he is a Politician first and foremost and can appeal to the audience he is addressing. He has the ability to side step the issue and make you feel like you are wrong to be concerned about who he is and is character. Its like a man walking into the bedroom and finding Newt with his wife and Newt turns and chides him for not having the decency to knock first and respect the privacy of others. Rick is a very good man but he is like a nippy dog that is always biting your ankles and really does not have the grit to stand up against Obama. He cannot answer a question directly without involving any issue he feels will cast a shadow on his opponents. He too is a Politician! Bless them all but if you were to look into the heart and soul of each the light that shines from Mitt is obvious. Tell him to say he loves these two guys even though he knows they feel they are the better choice and knows they have to attack him to create doubt amongst the voters but the fact remains that he is what is needed to bring us back to a position of strength economically and militarily to restore us to the shining light on the hill.

    He should say on stage that these are two fine people and he respects them but if we want to win and remove Obama we need to realize that what they fear most is Mitt by saying he is the weakest. You have to look deeper than the rhetoric and the attacks that are used to jockey for position and see the real character and strength of the individual. Strong steel has been tested and Mitt is now being tested by his opponents and he has been tested in the economy as a business man and in a democratic state as its governor. He has to convey that he has learned and sees what needs to be accomplished and he has the conviction and tools to to see it through. Be passionate and the message will come through!

    Remember a Flip-Flop is one that can not make up their mind or keeps changing back and forth on the same principal. Change is when someone grows and learns and then moves forward with conviction. Mitt has changes and is moving forward which if you are a man of principal you will do.

  17. Romney’s economic freedom speach is terrific; and today’s Congress does believe in spoons; it’s all they’ve given President Obama to work with.

    Perhaps that is why America’s economy is still in the doldrums; he could use a “shovel”, or the remnants of what is left of America as the capitalist machine it used to be – so America can rebuild her canals [and her bridges].

    China and India have enough spoons. It’s now America who needs them. In gifting America’s spoons to those nations through NAFTA and CAFTA, which Romney has most certainly contributed to, it’s obvious that in his view, economic freedom is for companies, not people. Perhaps that is the source of confusion about companies are people to. In such fuzzy identity profiles, it’s easy to believe that the Constitution was about economic freedom, not personal freedom, and that loyalty and allegiance has nothing to do with the Constitution. There were no companies back in the days when it was formed, and freedom was solely applicable to citizens, not companies. Corporate encroachment upon the liberty of America’s Constitution by usurping its authority, and defending its status is no different than foreign encroachment upon the economic liberty of America. Without recognizing that, Romney can preach economic freedom all he wants, but it will not put a chicken is every American pot, nor a job in every household. In the notable idiomatics of Maine, “you simply can’t get there from here.” There is no road to American freedom while a prison plant format prevails. But, it is Americans, not companies who need American freedom.

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