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Romney’s Profitable Past

Mitt Romney and Newt Gingrich have words during the NBC News/Facebook debate on Jan. 9, 2012.

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Newt Gingrich, Rick Perry, and Jon Huntsman seem to be engaged in a perverse contest to be the Republican presidential candidate to say the most asinine thing about Mitt Romney’s tenure at Bain Capital, the private-equity firm at which he served as chief executive, helped turn around a number of failing businesses, and, in the process, produced magnificent profits for his investors and for himself. Mitt Romney ran a firm that invested in struggling businesses, made money, and never asked for a bailout — and Romney’s rivals apparently expect Republican voters to regard that as a liability.

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We are largely immune to the charms of the CEO who promises to sweep into Washington and run the government like a business, mainly because the government is not a business. At the same time, private-sector expertise and experience is an invaluable thing in a chief executive, and Romney has nothing to regret on that front. Would that we could say the same thing of his tin-eared declaration that he, too, once feared getting the dread pink slip. Suffice it to say that the multimillionaire/CEO/governor son of a multimillionaire/CEO/governor does not fear losing his job in quite the same way as the typical American worker does.

Newt Gingrich’s risible super-PAC factotum has gone to the length of producing a feverish little film about Romney’s tenure as a “corporate raider” at Bain. Governor Perry, for his part, told a Republican audience: “If you are the victim of Bain Capital’s downsizing, it is the ultimate insult for Mitt Romney to come to South Carolina and tell you he feels your pain — he caused it.” To appropriate Governor Perry’s favorite adjective, that is the ultimate in populist pandering, or something close to it.

Huntsman’s private-sector experience consists of having served as an executive at the firm owned by his billionaire father. Gingrich and Perry have between them about eleven minutes’ worth of relevant private-sector experience — Perry being subsidized by the federal government to farm cotton, Gingrich subsidizing himself by farming his political connections — and therefore may not know (or care) what a private-equity firm such as Bain does. (Gingrich might consider asking his friends at leveraged-buyout firm Forstmann Little, where he was on the board.) Bain is involved in, among other things, leveraged buyouts, meaning that the firm and its investors borrow money from banks to acquire companies, usually firms that are in trouble but believed to be salvageable. These firms generally are bought on the theory that they represent fundamentally sound underlying business enterprises that are for one reason or another performing deficiently, usually because of incompetent management. Strong, thriving companies rarely are targets for leveraged-buyout acquisitions — if things are going well, there is no incentive to sell the company. If the firms are publicly traded, they often are taken private, their stocks delisted from the exchanges, and then reorganized. Once the company has been returned to profitability, it is taken public again or sold to a private buyer, in the hopes of turning a profit on the deal.

As you can imagine, companies that are buyout targets often are in very poor shape, and reviving them is no small thing. Many of them go into bankruptcy. Product lines are discontinued, retail locations are closed, assets are sold off, and, almost inevitably, jobs are lost. Some never recover. When the restructuring is successful, reinvigorated firms expand, add locations, develop new products, and create jobs. That is the creative destruction of capitalism. Staples has 2,000 stores instead of one store because of a Bain investment. And, as Herman Cain is well-positioned to appreciate, Burger King was severely underperforming when Bain and a group of franchise owners acquired it from corporate parent Diageo in 2002. The restructured burger chain, which went public a few years back, is now valued at more than $3 billion. Household names from Dunkin’ Donuts to Guitar Center have been among Bain’s projects.

Bain’s business is high-risk and high-reward. Romney made a pot of money — by investing in real businesses, which, it bears noting, employ many thousands of real Americans. Governor Perry likes to brag about the jobs created in Texas during his tenure: Perhaps he should subtract from that admirable sum those positions at companies in which Bain invested, for the sake of his intellectual integrity.

Romney also is being roasted for saying that one of the things he prefers about the private sector is that when it comes to the incompetent or the unsatisfactory, “if you don’t like what they do, you can fire them. I like being able to fire people who provide services to me.” Choice — including the choice to fire a non-performing employee, or to fire your bank if you prefer another one — is the essence of the free market. In education, health care, and any number of other spheres of American life, more choice desperately is needed. An education system in which incompetent teachers could be routinely fired would be a real improvement over the current regime of tenure and “rubber rooms” — and Romney has nothing for which to apologize in connection with that remark, nor for taking on the thankless task of explaining the goodness of profits to an Occupy Wall Street heckler. Huntsman mocked Romney for the remark — but whoever the next president of the United States is, he should be provided with a very long list of people in the federal bureaucracies who need firing. If Huntsman does not have one, he has not thought hard enough about the issue.

Wall Street has its share of miscreants, and they should be recognized as such when appropriate. But to abominate Mitt Romney for having been a success at the business of investing in struggling American companies, connecting entrepreneurs with capital and producers with markets, is foolish and destructive. Republicans ought to know better, and the fact that Gingrich et al. apparently do not is the most disturbing commentary on the state of the primary field so far.



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