Perhaps the primary argument that former Massachusetts Governor Mitt Romney is relying on in his run for President is that his strong private-sector leadership at Bain Capital qualifies him better than President Barack Obama or any of the other Republican challengers.
Ironically enough, however, some of Romney’s rivals for the GOP nomination and Democrats point to Romney’s background at Bain and say that it’s precisely why he shouldn’t be President. So what should we make of Romney’s record at Bain? Good?
The truth, of course, lies somewhere in-between. First, let’s look at the positive aspects of Romney’s record at Bain. There is no doubt that Bain, under Romney’s leadership, was incredibly successful. As the leader of Bain Capital, Mitt Romney was responsible for growing the wealth of those who chose to invest with them. Mission accomplished: Romney more than doubled their money. How did he do this? Well, there’s two primary sorts of investments that Bain made. The first was venture capital — investments in start-up businesses. Notably during Romney’s tenure at Bain, they invested in retailers Staples and The Sports Authority and helped them get off the ground. These are the investments that Romney likes to emphasize, although they have proportionally represented a smaller and smaller portion of Bain’s portfolio over time.
The second type of investment was a private equity transaction where Bain would go in and buy a struggling company, make changes (often involving downsizing) to stabilize the firm, and then sell it for a profit.
These are the transactions that Romney’s opponents and President Obama will want you to focus on. And it’s true that these sorts of transactions — not the venture capital investments — that made Romney and Bain’s reputation during his time there. The Wall Street Journal reports that 70% of the wealth created at Bain during Romney’s time came from these sorts of transactions.
Let’s be perfectly frank about what happened in these private-equity transactions. Bain’s role in these transactions was not to “create jobs”, as Romney has been saying on the campaign trail. Bain’s role in these transactions was to create wealth for their investors. Frankly, Romney has probably made a poor decision by choosing to play up the “job creator” angle, given that he can’t really give a good number of jobs that were created on his watch.
It is true that there is a role for firms like Bain and for private-equity transactions. It is true that firms like Bain can make markets work more efficiently by making the companies they acquire work more efficient and freeing up capital that can be used for more productive and profitable uses. It’s also true that these types of investments, including ones made by Bain, don’t always work as expected and even if they do, the somewhat ruthless nature of them can have very real human costs. You’ll be hearing a lot about that between now and November.
In the end, though, I’m not sure how much you can take out of Romney’s experience at Bain and apply it to being President. Being President isn’t at all like running an investment firm. As CEO of Bain Capital, Romney had executive power he wouldn’t have as President of the United States. And the model just isn’t the same, as Ezra Klein points out:
Romney’s economic plan is not to replicate his experience at Bain Capital: he will not try and turn the economy around by issuing public debt to purchase private companies and wring out their inefficiencies. Rather, he’ll propose tax cuts and nominate a new Federal Reserve chairman and try to cut the deficit.
Romney has laid out a clear vision: cut taxes (and give a bigger cut to the wealthy), cut spending, repeal the Affordable Care Act, and fundamentally change the nature of Medicare by making it a defined-contribution program. You want to focus on his suitability to be President? I would suggest focusing on these ideas (and comparing his vision to that of President Obama) instead of nit-picking what happened at Company X or Company Y while Bain was invested in them.