The Benefits of Bain Capitalism
THE debate over Mitt Romney’s career at Bain Capital, in which several of his Republican rivals sound as if they’re auditioning for a production of “Les Misérables,” is at heart a debate about the last 30 years of American capitalism.
In the decades after World War II, the United States economy was highly regulated, highly taxed and highly successful. War, tyranny and ideological mania had devastated our competitors, and while Asia stagnated and Europe struggled to rebuild, America grew and grew and grew. It was a golden age for the liberal model of political economy, with a powerful regulatory state presiding over labor-management cooperation and a steadily expanding middle class.
But like all golden ages it passed. First in Europe and then in Asia, competitors emerged to challenge the United States’ economic dominance. In this new landscape, the pillars of the postwar economic order began to look like liabilities. Our heavily unionized industries seemed sclerotic, our regulatory system stifling, our tax rates punitive. And so American policy makers, C.E.O.’s and investors responded by changing their priorities — privileging growth over security, efficiency over equality, and embracing creative destruction on a scale that would have been unthinkable in the America of 1955.
In the private sector, this revolution was driven by men like Mitt Romney. As Ben Wallace-Wells put it in a New York magazine profile last October, Romney has spent his entire career seeking to “perfect” the American corporation, stripping “its inefficiencies until it might function as a perfectly frictionless economic unit.”
This process didn’t just involve pillaging companies and throwing their employees out onto the street, as Romney’s more overheated critics charge. While Bain’s record is hard to assess from the outside, one comprehensive study cited by Reihan Salam in The Daily suggests that private equity buyouts in general tend to have “only a modest net impact on employment” in the companies involved.
But neither was Romney the Henry Ford-esque job creator he’s tried to play on the campaign trail. He served his investors, not his employees, and his goal was always to make an uncompetitive company competitive, even if that required cutting paychecks and shuttering plants along the way. What’s more, Bain usually found a way to reap profits even when the overhaul failed and the company went belly-up.
In the broadest sense, though, the competitiveness revolution was good for the United States. In the 1970s, there were sound economic reasons to expect that other developed nations would gradually catch up to American living standards and per capita G.D.P. Instead, our rivals got rich, but we stayed richer. As Adam Davidson noted in last weekend’s Times Magazine, “even Europe’s best-performing large country, Germany, is about 20 percent poorer than the U.S. on a per-person basis.”
But keeping America’s edge came at a cost. Our economy became more efficient, but also more ruthless and Darwinian. Our G.D.P. kept rising, but the new wealth was less evenly distributed. The revolution delivered growth, but at the expense of stability and certainty. And for many Americans, even the “modest net impact” of private equity buyouts cost them a solid, good-paying job.
On the left, and now apparently in Newt Gingrich’s campaign shop, there’s a persistent suggestion that it could have been entirely otherwise — that the midcentury model could have somehow been sustained, that the private equity “vultures” could have been held at bay, and that what worked for the United States when Europe was in ruins and half the world was Marxist-Leninist could have worked in the age of globalization as well.
This is a fantasy, unfortunately — one that belongs to the world of Hollywood endings, where Gordon Gekko is defeated, Blue Star Airlines stays in business and Bud Fox’s dad gets to retire with a solid pension. Indeed, it’s such a fantasy that even Oliver Stone didn’t quite believe in it: In “Wall Street,” Blue Star was saved from Gekko’s clutches — and presumably, from the real-life fate of an Eastern Airlines or a Pan Am — not by a government subsidy or a benevolent Daddy Warbucks, but by a rival buyout specialist.
Still, just because the private equity revolution was necessary doesn’t mean that it was an unmitigated good. And for Mitt Romney to frame criticisms of Bain as just “the bitter politics of envy,” as he did last week, displays a tone-deafness that could cost him the presidency. No one — and certainly no politician — who has profited so immensely from an age of insecurity should ever appear to be lecturing the people who’ve lost out.
Instead, Romney needs to prove to anxious voters that he and his party have more to offer them than just Bain capitalism alone. To win the White House, he’ll need to promise not only competition that leads to growth, but growth that leads to broadly shared prosperity. To defend his revolution, he’ll need to show that he’s reckoned with its costs.