Ears of Tin: The silly, if important, “Bain” controversy and why it matters
posted at 3:43 pm on January 10, 2012 by J.E. Dyer
[ Economics ]
What does it mean that almost everyone in the GOP race looks kind of icky in this Sudden Bain Eruption? Gingrich, Perry, and Huntsman have all piled on with demagoguery about Romney and Bain, depicting Bain Capital as a soulless corporate predator, like the fictional company whose owner Richard Gere portrayed in Pretty Woman. In one scene from that movie, Julia Roberts’ character, Vivian, asks Gere’s (Edward Lewis) about his business:
Vivian: So you don’t actually have a billion dollars, huh?
Edward: No, I get some of it from banks, investors…
Vivian: And you don’t make anything and you don’t build anything.
Edward: No. No.
Vivian: So what do you do with the companies once you buy them?
Edward: I sell them.
Vivian: … You sell them.
Edward: Well, l… don’t sell the whole company; I break it up into pieces… and then I sell that off; it’s worth more than the whole.
Vivian: So it’s sort of like, um, stealing cars and selling ‘em for the parts, right?
Edward: [ Exhales ] Yeah, sort of. But legal.
Edward Lewis could have added: “… and I love being able to FIRE PEOPLE!!” Or so the soundbite-driven understanding of all this would have it.
You’d think Romney’s opponents would know that much of the base they’re trying to appeal to hates demagoguery against business. When a business isn’t profitable, there are good reasons why it’s better to repackage and repurpose its assets for more profitable use. Unprofitable businesses aren’t made profitable by political bailouts; they are made dependent and unsustainable. Businesses like Bain Capital ensure that resources are being put to the most profitable, job-creating uses, given the environment of regulation and taxes that businesses have to operate in. There’s nothing wrong with the existence of such companies; indeed, they are a positive factor in a dynamic business climate.
But then, Romney is tin-eared himself on some significant things. He did, in fact, say that he likes to be able to fire people if they’re not performing. That is a stupid, politically insensitive way to word a valid requirement of a healthy economy. People sometimes have to be fired, but it’s suspicious for someone to “like” being able to do it. There is nothing more gratifying than an employee who does well, and in particular one who improves over time, while there is nothing that makes the average boss feel as terrible as having to fire one who simply can’t seem to measure up.
Why couldn’t Romney have said instead that businesses need to be able to fire non-performing employees, even though it’s never any fun to do that? Apparently because that’s not the way he sees it. His phrase about liking to be able to fire people is the one that came naturally to him. It doesn’t mean he’s a cold-hearted jerk who loves to give people bad news, but it is a personality problem for him in political leadership. ‘80s-era pop psychologists would have said that he is very “objective-oriented”: he resonates to the idea of the goal and the achievement, and gives short shrift to the people.
Republicans do want a better climate for business, but the more abstract, data-focused perspective of a Bain Capital graduate is not necessarily what they are looking for. I don’t actually want a president who imagines he can boost the bottom line of US companies. I want one who understands that government policies affect people, largely through the constraints they put on business. And I want him to respect the rights and dignity of individual people, neither trying to bribe them with goodies nor trying to herd them into programs that he sees as financially smart. I’m not looking for a president with an opinion on whether a whole bunch of things he isn’t in charge of can be profitable.
Bringing up Bain as an issue has also turned up the fact that Bain profited from a deal in the early 1990s involving a steel company that received a $44 million federal bailout for its pension plan. While it is demagoguery to equate this with Bain itself receiving a federal bailout, it is still a problem for Romney. Companies like Bain have been operating in the environment of government incentives, regulations, and bailouts for quite a while now, and Romney’s record is one of being comfortable with that. (He endorsed the TARP bailout in 2008.)
More and more of the people are not comfortable with it. It is well and good that Romney wants the government to get off business’s back, but it’s not OK to remove only some constraints while leaving others, and continuing to bail the whole mess out.
Sadly, Romney’s opponents have wasted a superb opportunity to talk about what they think is the proper relationship between business and government. They have simply jumped on the demagoguery bandwagon, which frankly is cheap and annoying. If I were crafting talking points, I would address the “liking to fire people” comment graciously – something along the lines of “I’m sure this is what Governor Romney meant to say” – and focus more on Romney’s comfort with the extent to which government regulates business, profits from regulating business, and bails business out so it can keep regulating and profiting.
One last thought. In contrast to the bloviation-fest precipitated by the Bain Eruption, consider the cool dispatch and intelligence with which the candidates knocked down the idiotic social-issue questions posed by Stephanopoulos and Sawyer in the debate on Saturday night. The candidates were ready to talk about those issues – irrelevant as they were – with principled specifics.
On the matter of business and government, however, it’s been all big-government complacency on one side, and all mindless demagoguery on the other. Not a hint of a principled argument about the free market and the appropriate role of government, from the perspective of either a man-and-the-state theory, or a regulation-vs.-the-market theory.
Nothing has made clear like the last 40 months that there is no longer an American consensus on these matters. The Obama camp knows exactly where it stands. But the GOP candidates aren’t internally motivated and prepared to make specific cases about it, as they are about social issues. Yet that’s what the voters are waiting to hear.
J.E. Dyer’s articles have appeared at The Green Room, Commentary’s “contentions,” Patheos, The Weekly Standard online, and her own blog, The Optimistic Conservative.
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Romney’s response was poorly worded. But the reality is the media and the left have always portrayed all Republicans as greedy middle-aged white men who are only interested in money for themselves. What’s most disappointing to me is other Republican candidates joining in that kind of attack on a fellow Republican.
dentarthurdent on January 10, 2012 at 4:23 PM
Edward: [ Sighes heavily ] No, you stupid twit. It’s like buying cars and selling them for parts.
squint on January 10, 2012 at 4:55 PM
The underlying problem involved is that both Mittens and the ‘Rats are pushing forward the concept that the economy is a machine — when actually (as Hayek demonstrated) it’s an ecosystem.
In a machine, everything must be aligned to spec. In an ecosystem, dynamic stability is maintained by “creative destruction” — while not particularly appealing, the vultures and worms must break down those less fortunate so that the trees and grasses can take the nutrients up again and start the cycle anew.
Bain made money by selecting companies with a chance of success and insisting that they either succeed or let go of resources. Sometimes it broke up parts of companies — you can have two horses pull a cart, or two donkeys pull a cart — but if you’ve got a cart hitched to one horse and one donkey, you’ll never find much success. Sometimes it chucked the anvils off the back of the wagon. These are all valid actions to the greater good, regardless of the individual dislocation.
cthulhu on January 10, 2012 at 4:57 PM
VERY good point. Bain never stole any companies – they bought them. When you BUY a company, or anything else for that matter, it’s then totally up to you as to what you do with it.
dentarthurdent on January 10, 2012 at 5:02 PM
Exactly! Some might even call it…wait for it…Capitalism!
squint on January 10, 2012 at 5:08 PM
Consider this:
http://www.nationalreview.com/corner/280816/obama-beats-romney-bain-donation-totals-brian-bolduc
Why would it be that Obama has gotten more campaign money from Bain than Romney? Perhaps because Bain buys companies that are in trouble and turns them around, or splits them up, or reorganizes them for a profit. Even though Romney co-founded the company, who would be better for future business for a company that does what they do? Further hint – which candidate is more likely to cause companies to fail – and therefore be good targets for Bain?
dentarthurdent on January 10, 2012 at 5:19 PM
Just curious as to your take on hostile acquisitions. Is a 51% majority stake enough to “do what you want with it”, sans any fiduciary responsibility to keep the enterprise a going concern?
Make no mistake, I’m a full-blooded capitalist. I just have some trouble with the notion that all capitalism is moral, and any capital move that is legal is justified.
MTLassen on January 10, 2012 at 5:24 PM
I don’t follow your logic. A 51% stake in the company means you have invested enough to make you the majority owner, and that gives you fiduciary responsibility for the company.
dentarthurdent on January 10, 2012 at 5:30 PM
Further – in order to get that 51% ownership, other people or the company itself would have to sell you their stock. They would only do that if 1) they are making a profit OR 2) they want to unload the stock because they no longer see it as a good investment.
dentarthurdent on January 10, 2012 at 5:33 PM
i don’t even like romney but i disagree. there is nothing wrong with liking to fire someone who provides you with a bad quality service. if you pay someone to give you a bad service in return, that’s wasting money. once they’re fired and replaced with someone good, your money isn’t wasted. of course you would LIKE when your money isn’t wasted.
Sachiko on January 10, 2012 at 5:41 PM
I run into confusion over this philosophical distinction quite often. The issue arises when an asset sale can collect a certain value versus future earnings, if the enterprise is allowed to continue. Fiduciary responsibility for an acquired going concern, in my view, means continuing to feed the business. An outside hostile acquisition specialist doesn’t necessarily give a crap about the business model, or future earnings for the going concern. Scorched-earth raiders are real and their responsibility is to their investors, not to the firms they take over.
It pisses me off to see venture capitalist firms buy-in to small and mid-sized firms, convincing those shareholders they are about to get a cash injection to grow their businesses, and then gutting them in asset fire sales instead.
Warren Buffet has been doing that for 35 years.
MTLassen on January 10, 2012 at 5:41 PM
If a capital move is legal, I figure it’s justified. If you believe it’s not, then make it illegal. If you wish a moral line to be drawn, then draw it.
squint on January 10, 2012 at 5:50 PM
I understand what you’re saying there, but as you said (my highlight) the raider’s responsibility is to THEIR investors – who by virtue of buying a majority of stock are now investors in the company at stake. That’s not much different from talking about Microsoft (and companies like them) and their cutthroat business practices against competitors. In that situation as well, you are doing your best to make a profit for your investors even if it means putting someone else out of business. The simple fact is, companies that are doing well, in good financial shape, and growing are generally not good targets for corporate raiders. In those cases, the company is NOT worth more broken up and sold off. And for what it’s worth – from what I’ve seen about Bain, they did not always go in raider style and break up and sell off the company in parts.
dentarthurdent on January 10, 2012 at 5:55 PM
BTW – in my career I have now been in 3 companies that were bought by someone else while I was there. Even though none were by “corporate raiders”, the first 2 were quite painful for a lot of people (Kaman Sciences bought by ITT, and Titan bought by L-3 Comm). There is always consolidation and potential downsizing of duplicate functions, possible trimming of benefits and salaries, and many other activities to re-align disparate companies together.
dentarthurdent on January 10, 2012 at 6:02 PM
I’ll be sure to never buy anything “as is” from you then.
Caveat Emptor
MTLassen on January 10, 2012 at 6:38 PM
Wholeheartedly agree. My only heartburn is with the idea that all capital movement is as pure as the wind driven snow. Capitalists screw people all the time. Whether intentionally, or via incompetence, it’s not okay to slash and burn simply because you can get away with it in my book. Which is precisely why I never sell anything “as is”, with no guarantee of satisfaction, or rob someone else because they don’t know the value of what they are trying to sell.
Cheers
MTLassen on January 10, 2012 at 6:45 PM
Also, I’m not a fan of regulation. I’d rather we interacted with trust in business. Of course, alot of people think the notion of trust and mutual respect is a joke these days and would gladly rob my business if it weren’t illegal. Perhaps I’m a touch naive…./sarc
MTLassen on January 10, 2012 at 6:50 PM
It would be prudent if these GOP candidates got back on track, and worked on collectively firing the current resident in the White House. I’d like to think that’s what the electorate is waiting for.
Rovin on January 10, 2012 at 7:02 PM
Apologies if I was a bit terse in my reply. I am merely frustrated how our own side uses liberal cudgels for political expediency without thinking how it strengthens the arguments of those they will have to defend themselves against.
squint on January 10, 2012 at 7:24 PM
No worries. I appreciate an exchange that’s meaningful for a change. My attitude about the campaign slash is, “What doesn’t kill you makes you stronger.”
Cheers.
MTLassen on January 10, 2012 at 9:07 PM
Anyone who thinks ALL capitalists are good and pure is definitely naive – as is anyone who thinks all capitalists are pure evil. Everyone out there is not a Bernie Madoff, nor is everyone Mother Teresa. Let’s face it, there are good and bad in business as with everything else. Capitalism, as with life itself can be brutal. I have worked for or with companies that I would never work with again because of their lousy business ethics or incompetence. All you can do is avoid them to the best of your ability – which is the fundamental basis of free market capitalism – the ability to discriminate against businesses you don’t like and choose someone else.
dentarthurdent on January 10, 2012 at 10:36 PM
Yep. I’ve been there and continue to be there myself. Business is war, in many ways, and I have no problem with that fact, per se. As long as we on the right don’t pretend capitalism is inherently pristine, or allow those among us to sell the idea that all capital movement beyond ethics, we’re all better off.
Make money. All you can. Just don’t screw people doing it.
+10
MTLassen on January 10, 2012 at 11:13 PM
I’m with you on that. As a defense contractor, I’ve always tried to ensure our military people got the services/products they need at the best price possible – despite some management who just wanted to make more profit. Profit is good, as long as it’s not gouging. A lower, but acceptable profit margin keeps customers happy and coming back for more – better long-term business instead of short-term profit.
I once was selling my sister-in-law’s car for her. A young Army soldier came to look at it and did the typical “kick the tires” routine. I had advertised for $500 expecting to only get maybe $300 tops since it needed work. This kid offered $450, at which time I knew he didn’t know what he was doing, so I “haggled” further down to $400. He was thrilled to death – but I felt guilty about taking that much. My sis-in-law couldn’t believe I got that much (beat up 76 Vega).
dentarthurdent on January 11, 2012 at 12:12 PM