Barry Bennett is the Leni Riefenstahl of the blistering attack documentary. The political operative’s half-hour anti–Bain Capital film, endorsed by the increasingly unhinged Newt Gingrich and aired by his super PAC, is anti-market agitprop worthy of Michael Moore. If the Academy gave an award for tendentiousness, Bennett would be a sure-fire nominee.
Yet his production is at times affecting and effective. Put aside its dishonesties and over-the-top insinuations about the Mitt Romney–run private-equity firm (it raised seed money from Latin America!). The film captures a conflict of visions. From below, from the workers at Bain-acquired firms that went bust, the vision is about family, community, and security. From above, it is about efficiency and profit.
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Defenders of Bain and Romney himself use the famous phrase of the great economist Joseph Schumpeter, “creative destruction,” to describe the firm’s work. The former employees interviewed by Bennett are a reminder that, for all the glories of the first half of that formulation, the second half can be hell. But what’s the alternative to this Schumpeterian churn?
One worker laments, “I just wish they’d left us alone.” In a free economy, though, no one leaves you alone. Competitors, domestic and foreign, are all around. The way things have always been done is a formula, sooner or later, for obsolescence.
The Wall Street Journal did an analysis of Bain’s record during Romney’s tenure from 1984 to 1999. It found that of 77 businesses Bain invested in, 22 percent eventually filed for bankruptcy reorganization or shut down. That seems high, except Bain’s investments “focused on smaller and sometimes troubled companies that Bain hoped to fix or build.” This wasn’t so much “vulture capitalism,” in the words of the always-subtle Rick Perry, as “turnaround capitalism.”
Gingrich, speaking with the purity of someone whose own business model depended on being a peculiarly well-compensated historian, has fastened on a Reuters article about Bain’s handling of a Kansas City, Mo., steel mill. According to Reuters, Bain took on the mill despite “obvious” risks, including out-of-date equipment and formidable competition.
After Bain’s $8 million takeover, the mill announced plans for a $98 million modernization. It merged with another operation “to form one of the largest mini-mill steel producers in the U.S.” Bain re-invested another $16.5 million. When an industry competitor tried to buy the new steel company, Bain declined. These weren’t the acts of a scavenger picking at a carcass.
Still, it didn’t end well, as Reuters relates. Management performed poorly. Cheap imports from Asia drove down prices. Energy costs rose. The financial crisis in Asia diminished demand. A unionized work force hampered its productivity. Are we to believe that if Mitt Romney had simply been a nicer guy, it would have worked out differently?
Bain made money on the deal anyway, since the doomed steel company took on debt to pay dividends. But Bain clearly didn’t want to bankrupt its own enterprise. It did want to get a return as soon as possible. Otherwise, why bother taking on such a tenuous proposition? This thinking certainly doesn’t shock the conscience of all the institutional investors in private equity — the public pension plans, the charities, the university endowments — who get on board expecting precisely such returns.
Firms like Bain revived an American business world that in the late 1970s and early 1980s had grown “sloppy,” “complacent,” and “lazy,” in the words of Bain executives who spoke to New York magazine. Their rise disrupted the old corporate culture and drove a productivity revolution. They serve the same purpose today. This doesn’t justify every sharp practice, or the motives involved. Through the wonders of the invisible hand, though, the restless quest for profit is the source of our wealth and dynamism.
That may not be a comfortable or simple case to make in a political campaign. Mitt Romney, portrayed as a cross between Gordon Gekko and Snidely Whiplash, now has no choice but to make it.
There's also something fundamentally dishonest about the statement "We just wish people had left us alone.", though I'd hate to say that to a guy who just lost his job. They don't want people to leave them alone; they want people to keep giving them money. Their problem was that people DID leave them all too alone, as they were obsolete and overpriced.
Perhaps he needs to start here:
"I mean, just look at the man. He seems like an alright guy just to look at him. People that didn't know him would think, 'Hey, this guy's ok'. But hey, let's look deeper. Let's look deeper in his life. I think he's a money man, and he's gonna look out for the money people. He didn't look for us little peons, anyway. He didn't look out for us. We're just a little group over there. So you put him in force up there over everything, and then what? What's going to happen then?"
'When Romney came to Town'
"Conservatives" like Rick Perry and Newt Gingrich using terms like "vulture capitalism" to describe free markets is depressing.
I expect that kind of foolishness out of the Left but when those who are theoretically in favor of limited government use such terms, what hope have we?
One of the great indictments of our educational system is the widespread ignorance of the benefits of free markets, especially when compared with government bureaucracy.
Businesses have to strike a careful balance at all times between profits, customer satisfaction, and employee satisfaction. That balance has created enormous prosperity as goods and services are constantly getting better, faster and cheaper.
The government, on the other hand, could care less about efficiently delivering any service whatsoever. Moreover, whether the service creates a public good is also neither here nor there.
Consider medicine. Imagine 20 years after good old Al Gore discovered the Internet that you can't do something simple like email your doctor questions, get council over the phone, log into a website to view your medical test, or any of a number of logical extensions of service that many other industries have embraced.
Is that because doctors are idiots? No, it's because the government has inserted itself into the market so that the patient, who should be the buyer, has very little ability to influence the service delivery model.
In a free market, doctors that offered web and phone based delivery of medical services would get more customers and other doctors would either have to follow suit or go out of business. But in the government manipulated healthcare market, that doesn't happen.
There are many such examples of government driven inefficiency. While better, faster, and cheaper define free markets, more and more markets are less and less free.
For example, the government regulates not just healthcare but the building industry. Plan review departments at the local level and licensing and regulatory agencies a the state and federal levels have needlessly driven up the cost of housing and commercial real estate, with no or little benefit.
Similar government interference effects the automotive industry, air travel, banking, insurance, and on and on.
The government has so much money to throw around that more and more interest groups invest more and more money to get in bed with federal, state and local governments. Labor unions, legal professionals, manufacturers, banks, insurance companies, medical professionals, and numerous other groups are all lobbying and bribing government officials and politicians to get in on the feeding frenzy at the government trough.
Just consider SEIU, General Motors, Bank of America, or GE.
And the problem is that government involvement is growing so rapidly we're now on a downward trajectory that will make the standard of living for the average American much, much worse over the coming decades if we don't radically reverse course.
In the 1920s, federal, state, and local government spending accounted for just 10 percent of GDP. Today it's over 40 percent and growing. And spending only tells part of the story. Inflation and the shadow bureaucracy in free markets are taking an additional toll on our resources, one that is very hard to see.
Until recently, the enormous prosperity created by free markets out-grew government incompetence. Unfortunately, so many Americans are now so thoroughly ignorant of economics and the principles of limited government that most of the "conservatives" have sipped so much cool-aid they are now hallucinating.
What companies like Bain do, is buy up other companies, mostly with borrowed money, force them to take out loans to pay dividends and "management fees", and generally suck the assets out of the company until it collapses, leaving creditors holding the bag. That's not capitalism, it's (unfortunately legal) fraud.
The answer is for banks to just say no to companies where the company or it's officers have a record of takeovers leading to bankruptcy.
If Bain's record stinks so bad that pro-business Republicans are concerned that it makes a candidate look bad, the general election campaign against Obama will be a disaster.
Actually , for months on the stump, Mitt Romney has been robustly defending free enterprise, a deeply held tenet in the founding of this country and beloved by the Republican Party.
If Romney loses in South Carolina, Gingrich, Perry and Palin (for her endorsing Perry’s lefty language) they'll have succeeded in changing the GOP forever and not in a good way.
If voters accept the Michael Moore, Saul Alinski attacks on a good and ethical organization like Bain Capital just to get at Mitt Romney the OWS ethos will have been tattooed on the party. I don’t want the putrid OWS attached to the Republican Party.
And all because Gingrich’s ego can’t withstand having to eat his own “I will be the nominee” words and his inability to grip the idea that he isn’t fit to be POTUS.
Perry, who I don’t think is spending any money on these smears, just thinks he’s found a clever turn of a phrase using the letter “V” to recite over and over (this is your basic “chimp throwing feces” tactic) hoping to get out of single digits in at least one state before he finally loses.
Sarah Palin’s cheerleading Perry on Hannity has hurt her brand. Going forward, her saying “pioneering spirit” or “free enterprise” will ring shallow and ignorant.
I have faith in the good people in South Carolina not to accept these people’s class warfare resentment.
24 SC business leaders announced their support for Mitt today. A Perry backer defected to Romney in protest as well.
I hope more leaders from all sectors of business stand up with Mitt to help defend the pursuit of happiness embodied in free enterprise.
Re: "Bain made money on the deal anyway, since the doomed steel company took on debt to pay dividends. But Bain clearly didn’t want to bankrupt its own enterprise. It did want to get a return as soon as possible. Otherwise, why bother taking on such a tenuous proposition? This thinking certainly doesn’t shock the conscience of all the institutional investors in private equity"
That's the biggest, oiliest nut. Bain's investment risk was already adjusted by the low price it paid for the company. Floating those bonds to pay itself a huge dividend merely inflated the risk to the company by increasing its debt load and diverting badly needed investment capital that should have been plowed into the plant and its equipment.
Once Bain got the dividend, avoiding bankruptcy became only a "nice to have".
The whole episode stinks of a set-up. I.e., did Bain and the other investors get seats on the BOD as a condition of the sale? And if so, did that stacked BOD OK the bond issue? And if it did OK the bond issue, did the stacked BOD then OK the dividend pay out?
There's nothing oily about taking a dividend in this instance at all. The value of the steel company obviously appreciated considerably during Bain's ownership. If it hadn't, the Company never would have been able to borrow the money to pay the dividend. Obviously Bain and the lenders exercised poor judgment in how much debt was put on by the Company as the financial performance of the Company was poor after the recapitalization. However, the lender and Bain had earned the right to make that judgment, good or bad. The lenders earned it because it was their money at risk, and Bain earned it because they are the ones that bought an under performing company and increased its value.
As for your comment about the Board of Directors, I don't think you understand what a Board of Directors is. The Board serves as the shareholders' (i.e., the owners) representatives to the company and their job is represent the best interests of the shareholders. With that in mind, of course the Board of Directors would be "stacked" by Bain. Bain was the only (or at the very least majority) shareholder of a private company, who else would pick the Board of Directors in this instance if not Bain? If you bought a business would you give authority to anyone but yourself to make decisions about how the business is run? The notion that there is something unseemly about that is just silliness.
Re: "There's nothing oily about taking a dividend in this instance at all."
The oily part was no doubt camouflaging in the bond prospectus what management intended to do with the bond money. Which no doubt impacted how the bond was rated and how it would have been viewed by the marketplace. Imagine this honest prospectus language:
"A large percentage of the proceeds from this bond will be used to shovel a huge dividend to the primary investors."
Did it actually say something like that in conventional business-speak? Of course not. The underwriter and buyers of the bond were no doubt led to believe that the money would be used to strengthen an enterprise in distress, not line the pockets of the investors.
The bond deal was no doubt the plan going in on the buy in the first place. Get in and immediately write a shaded bond prospectus to accumulate more debt. Use that cash to pay themselves a big dividend. Then whatever else happened - happened.
The planned use of funds is ALWAYS explicitly laid out in the prospectus. I was management for a PE-owned company that went public. The proceeds of the IPO went to the PE firm. This was clearly disclosed, and discussed in meetings with large investors.
Thank Goodness - finally! I have been waiting so long for someone to point this out. Even if Bain was the worst of all possible vultures, "looting" every company they came across - so what? The company was their property. Shareholders own a company - it is no less their personal property than your home is yours. Are conservatives now in the business of complaining that people are allowed to do what they want with their own property? Suppose you own a piece of real estate that could be farmed but instead you prefer to preserve it wild (or even worse, suppose you own a farm and decide to cease farming it, putting your employees out of work) - just because you want commune with nature. Are you as evil as Bain, because your actions are "costing people's jobs"?
The company is the shareholders property, and legally they can do what they like with it, but do we have to approve of everything they do? WFB objected to CEOs who laid off thousands of workers and then rewarded themselves with multi-million dollar bonuses.
There are certainly situations where the best thing to do with a business is to wind it down. The shareholder doesn't have to consider the fate of the people laid off, but surely it is better that he does. If the free market doesn't police itself, it is inviting the government to do it.
What Romney needs to do is to specifically address the blue-collar, working class people who this "King Bain" stuff is pointed toward and present the other half of "creative destruction". He needs to say, "Yes your job is gone because your employer failed. I am sorry and know how difficult that is for a family and I feel (important word) for mothers and fathers and families that have to go through that disappointment and difficulty. But losing your job is only a problem if you can't get another job - a similar job at a similar or greater rate of pay. The problem is the lack of opportunites for you to get that job.
What I do, have done at Bain, and will do as President is create new jobs. This is something the current President hasn't done, has proven he can't and won't do because of his ideology and his ineptness.
Creating these jobs is like the old saw about making sausage - it is a messy process that nobody wants to see, but they do still want the sausage. I have been deep into that sausage making process that capitalism is, and I am not going to apologize for making great sausage!"
Or something to that effect. I say this because the problem is the perception they are trying to create in the middle class is that those who own companies and create jobs just care about the money - not about building or creating anything. I would remind you that people loved Richard Gere's character in "Pretty Woman" - and he was worse than Gordon Gekko in the way he chopped up businesses. It was not because he gave up on capitalism and business and went lefty - it was because the character in the movie demonstrated that he wanted to build more than he wanted to destroy. That is what Romeny needs to illustrate, IMHO, to get past this issue and connect emotionally.
So Bain buys struggling businesses and restructures them, necessitating lay-offs. And the alternative would be...? Oh yeah, EVERYBODY losing their job instead of just some. That makes much more sense.
And even if you take the worst possible view of the steel-mill deal, Bain using it and then throwing it away like so much refuse, there is still the net positive to consider. Bain uses the money to pursue other profitable ventures, of which the by-product is jobs.
".........EVERYBODY losing their job instead of just some. That makes much more sense."
Romney could argue like Obama does - to paraphrase, "A job saved is a job created", as Obama conveniently reminded us many times was the result of his first stimulus package.
The fact is had Bain not come along and compelled inefficient businesses to trim the work force the inevitable obsolescence would have lead to bankruptcy. All the employees not just an unfortunate few would have been let go. What this reveals is the lack of understanding of our free economy to be expected from lifelong government/academia employees like Newt.
Old photographs come back to bite politicians in the rear end don't they? An older Romney now probably regrets this picture but it is there. Anyway, other politicians have done far worse things that were not recorded on film (or paper). However, of all the candidates, he is still the most acceptable. The others are close to being pathalogical liars.
Newt, and I believe most of Perry's argument, is not attacking capitalism, but attacking this form of capitalism being used by Mitt as the sole facts for his being able to run for President. The entire GOP media, OH!, and the GOP establishment sadly enough, quickly jumped to Mitt's defense and re-stated the incorrect accusation. They are, well newt is, and I am a die-hard conservative that supports Newt, have the complete right to attack Mitt's record - and his record is Bain. He has stated the 100, 00 jobs created so many FREAKING times. So do you just believe him at his word? I don't know this, but it has been thrown around, and the Romney camp won't deny, what if even some of those 100,000 jobs were outsourced? What if a nice or large % of them were outsourced? Would that change your mind about his ability to create jobs? Is this the form, if true at all, of capitalism that we want flourishing in our country? Don't we, as conservatives, want to stop the business of outsourcing and create jobs here in the US. Oh, wait! That would not have not have been as profitable for the Bain boys. What if Bain, and Romney, received any type of bailouts or subsidies in these dealings from the state and or Fed? Aren't these tenets of what we are supposed to believe in and support and defend? I am not saying, even if Mitt did all of these things to the max that he did something wrong, but if true, we need to make sure we change the environment so this does not happen any further. When people or companies are making huge profits percentages, I do not think they should be receiving govenrment bailout money or be sending jobs overseas and getting high returns for it. That is not the conservatism I signed up for, and if it is happening it want to change it.
Lastly, why is Mitt not out there really explaining this part of his platform? Other than the tired old some companies failed and some succeeded and some lost jobs but many other jobs were created. I bet because he knows he needs to be careful in how he says what he did, because if he somehow gets caught he is DONE. Along the same line, where are his tax returns? Hmmmm, very interesting he has not disclosed them like every other candidate including our current loser secretive president. AS far as the GOP establishment saying all of a sudden that now we need to tone down the negative ads is horse doo-doo! Now that their guy is being attacked we need a cease fire. I am so disappointed with how the right has handled this issue that I am no longer a Republican. Can't be with such rank hypocrisy. I didn't like the Newt ads smaearing him for the Freddie mac thing, and I don't particularly like the Freddie mac angle either, but I do think that that deal is also capitalism. Capitalism is free right, or is it only capitailsim if it fits your own model?
Sorry, but show me any other Republican candidate in 2012 that has released their tax returns... oh that's right none of them have, including the Sainted Gingrich. Nor should they at this point. You sir are not a conservative nor a free market guy, you are a populist which is fine as long as you own up to it. Conservatives didn't abandon you, you abandoned conservative thinking.
Maybe I'm wrong, but your last sentence seems to contradict your whole argument. You spend all that time arguing against what Mitt did in the free market and then ask "Capitalism is free right, or is it only capitailism (sp) if it fits your own model?" Turn that question on yourself...and you spoke of hypocrisy. Perhaps I am missing your intention. Working in the free market to turn businesses around and make profits for investors (such as California employee pension funds, school endowments etc) is much different than using your status as former Speaker to make over a million dollars as a "historian" from a quasi-government agency that was at the center of the financial meltdown. Would Burger King, Staples, Experian, Sports Authority, etc etc etc be where they are today without Mitt's involvement? If he is a "vulture" capitalist he sure is a bad one as he did not pick those carcasses clean.
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