The Republican presidential primary season has taken on a peculiar wackiness, particularly when free market advocate Next Gingrich takes on front-runner Mitt Romney for his days as a private equity capitalist at Bain Capital.
The conservatives amongst us shudder at the very idea that something as precious as finance can be spotlighted (as they conveniently forget just how cravenly the finance industry nearly crashed our economy in 2008).
What raises my interest, however, is not that capitalism is inherently evil, but that there are different ways to go about it.
Harvard-trained Romney lead Bain Capital in the 1980s and 1990s and profited mightily. Bain was part of the leveraged buyout revolution of the 1980s in which financiers would target companies, amass takeover war chests, buy them and either sell them off or not. Proponents argue that this approach leads to greater efficiency and they cite the old Schumpeter saw that “creative destruction” is a necessary part of boosting free market capitalism by chipping off dead wood and letting new sprouts grow.
Sounds good, but the fact is that the LBO raiders of the 1980s were not out for the betterment of mankind. They were out to make zillions of bucks, regardless of whomever paid the real price in layoffs, shattered lives and the like. This is apparently what Romney was up to, despite his unprovable claims that he “created” 100,000 jobs. NPR has knocked that one down, noting that Bain never kept track of such things, so how would Romney know?
Another point comes up in a Sunday Washington Post article by William D. Cohan a former finance executive with Merrill Lynch and Lazard Freres who wrote “Money and Power: How Goldman Sachs Came to Rule the World.” He says that Bain and Romney not only played the LBO game, they did so ruthlessly, even by private equity rules. “In my experience,” he writes,”Bain Capital did all it could to game the system by consistently offering the highest prices during the early rounds of bidding — only to try to low ball the price after it had weeded out the competitors.” This practice led to an industry-wide mistrust of Bain — that it couldn’t be held to its word.
If so, that suggests some bad things about Romney, who is devoutly religious. But this is not to put down entrepreneurship among aspiring politicians.
For another style look at U.S. Sen. Mark Warner. Back 30 or so years, he parlayed his experience as a young Capitol Hill aide and knowledge of federal communications law to rationalize the rising cellular telephone business. One thing he did was organize auctions of bandwidth needed for the telephones. That way, a company with rights to bandwidth in Phoenix could add to its local area by swapping its bandwidth in a place such as Buffalo to a firm that wanted to expend there.
Besides sorting out bandwidth, Warner also helped create telecom giant Nextel which is now part of Sprint. He also formed Columbia Capital, which financed the high tech boom in Northern Virginia in the late 1990s. He ended up with at least $200 million in personal wealth. He’s also a Democrat.
So, who do you think has created more jobs? Mark Warner? Or Mitt Romney?