Bain or Bane: What does Mitt Romney’s Bain Capital record really mean?

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?

Mitt Romney (center) and the Bain Capital team celebrating their success

Or bad?

Tom Hardy as the villain Bane from the upcoming movie "The Dark Knight Rises"

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.

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9 Responses to “Bain or Bane: What does Mitt Romney’s Bain Capital record really mean?”

  1. QUERY : Why is there so much focus on Romney’s time at Bain … didn’t he leave Bain in 1999 … did a stint with the US Olympic Committee and then a term as Governor which ended after the 2006 elections. What did he do since then ?

    I would feel more responsive to him, if he had a track record of leading a number of companies … but it just seems that he made his money and has been living off his “golden parachute” retirement plan and tax preferenced capital gains.

    Another question that I wish someone would ask is : Of the companies that Bain invested in, were any ones that did business with Iran, Iraq, North Korea, etc. The US has laws against doing business with various companies (such as the Iran Sanctions Act which was devised to punish companies that invest more than $20 million in a given year to develop Iran’s oil and gas fields.) Halliburton got some bad press because of its involvement … and you have to wonder if some of the Bain foreign investments involved companies that would put them in violation of the law ….

    Also, the comment that Romney would cut spending should acknowledge that Romney advocates increased military spending … so if he has any hopes of balancing the budget, the domestic cuts will be more severe.

  2. The bottom line is that Mitt has been very successful. Yes, while at Bain, many jobs were created by the investments made. Companies that were bought, and sold with efficiency changes applied, probably saved many more jobs. Companies don’t downsize because it’s fun. They do this because its efficient. Every now and then, and company will typically go through a process where they re-evalute all of there departments, and trim the fat where necessary. Where you don’t see this is in government. Government needs to do this from time to time, and realize some efficiencies. And if Mitt can put anything that into motion, he’s got my vote.

    • John writes : Where you don’t see this is in government. Government needs to do this from time to time, and realize some efficiencies. And if Mitt can put anything that into motion, he’s got my vote.

      Good point, except getting this Do-Nothing Congress to put aside the turf battles has proven challenging.

      As you may have heard, on Friday, President Obama has Congress that within the next 90 days, he be given the authority to consolidate the Commerce Department … it is forgotten that Obama asked for consolidation for the Department of Education, but so far Chairman John Kline (R-MN-02) has failed to request a vote … the reality is that the GOP does not want to do anything that could be seen as Obama governing successfully. I have written about this on MN Political Roundtable (link )

      Potential President Romney would have the same problem with Congress.

      BTW … did you read the Romney plan :
      As president, Mitt Romney will not only halt this growth, but work to cut the
      current size of the federal workforce by 10 percent through attrition. This could
      be achieved by hiring only one new employee for every two who leave federal
      service in a Romney administration.

      OK … so Romney is not talking about REFORMING based on efficiency but instead based on attrition. Now, do you believe that 10% attrition is possible … look at the House of Representatives where each Member can have a full time staff of 18 … yet, you hear all the time about “staff leaving” (Michele Bachmann (R-MN-06) has had high turnover) but do you see them using that as a opportunity to attrite personnel … heck John Kline has moved District staff to Committee staff and then backfilled.) Have you ever looked at how Congressional Staff salaries compare to the general public (Why has Kline’s staff salaries increased by over $200000 over six years ?) and the bonuses they have gotten in the past ( link.)

      The problem starts and ends with Congress … protecting their turf.

      Better to acknowledge that Congress will continue to be a thorn in the side of any President, and recognize that Foreign Affairs is what the President can do.

      And the big issue today is Iran.

      IMO, the sanctions are having a big effect … Japan has announced that they will cut the imports of Iranian oil … the US has just added three more companies to the list of foreign companies (in China, Singapore, and UAR) that face sanctions if they continue to support Iran’s oil production. UK credit and financial institutions are now required to cease business relationships and transactions with all Iranian banks, including the Central Bank of Iran … Canada has done the same thing. France has called for its international partners to impose a freeze of Iran’s central banks assets and an oil embargo.

      The Obama administration has taken more actions on Iran sanctions than the George W. Bush administration ever did.
      Of course, if you listen to the Republican debates, you would never know that …
      ROMNEY : We have a nation, which is intent on becoming nuclear. Iran has pursued their — their ambition without having crippling sanctions against them. The president was silent when over a million voices took to the streets in Iran. Voices he should have stood up for and said, we’re supporting you. And he’s — and he’s failed to put together a plan to show Iran that we have the capacity to remove them militarily from their plans to have nuclear weaponry.

      FactCheck and other sources have already refuted Romney’s assertion that President Obama was silent (yep, Romney’s wrong), but more focus should be given to Romney’s comment regarding sanctions as well as the failure to put up a plan.

      Well … so what’s Romney’s plan ? (right from his website)

      Implement a Fifth Round of Tougher Sanctions:

      Sanctions are not ends in themselves. They are intended to persuade Iran to change course and abandon its nuclear program. President Obama deserves credit for pushing for a fourth round of international sanctions on Iran early in his term, just as before him President Bush deserved credit for the three previous rounds. But time has shown that existing sanctions have not led the ayatollahs to abandon their nuclear aspirations. We therefore need to ratchet up our pressure on Iran with a fifth round of sanctions targeted at the financial resources that underpin the Iranian regime and its Revolutionary Guard Corps, focusing on restrictions on the Central Bank of Iran, as well as other financial institutions. We should place sanctions on all business activities of the Islamic Revolutionary Guard Corps, which include much of Iran’s petroleum industry. To stanch the flow of the petroleum commerce that supports the Iranian regime, we should pursue sanctions on firms that transport such products to and from Iran.

      Ideally, these sanctions would be implemented through the U.N. Security Council, but persuading Russia and China to go along might prove impossible. In the absence of a U.N. imprimatur, the United States should be ready to take action in conjunction with as many willing governments as possible. And if necessary, we should be prepared to act on our own. To that end, Mitt Romney will step up enforcement of existing U.S. laws that bar commerce with Iran, such as the exportation of refined petroleum products to Iran.

      This is from the Romney website with bolding added by me. So if I read this right, Romney praises Obama and then acknowledges that sanctions might be impossible to result in change. Yet, Obama just added a Chinese company to the sanctions list, so the message is being sent … China get on board.

      Romney is so grossly unqualified to be Commander-in-Chief … and what should be even scarier is who will he select as his VP (and if elected for DoD and State)

  3. Oops … the hyperlink to the Kline’s bonuses did not work.
    The address is ( link.) or type this into your browser ( link.)

  4. Romney is so grossly unqualified to be Commander-in-Chief. That’s funny. Compared to the current bufoon.

    I didn’t say he had my vote, yet. WHile his reduction of the federal workforce might be a great start, if there isn’t fundamental budget reform, the various departments will just continue to spend as they always have. Reduction in employees without budget reform will only add to unemployment, rather than increase efficiency. If reducing workers means reduction in budgets, I’m in. If it’s just window dressing to make it look like we’ve done something, I’m not.

    • First, please educate me about the current “buffoon” that concerns you regarding his foreign policy or experience.

      I am an independent voter … and my vote for President has always been based on foreign policy … I voted for Bush before I voted against Bush because of foreign policy actions or inactions.
      Candidate Obama came out of the Senate Foreign Relations Committee and I viewed his performance in sessions before he announced his candidacy. You could see the interactions with Chairman Dick Lugar (R-IN) that they shared similar views on a number of issues. The same could be said about Senator Obama with Senators Hagel (R-NE) and Voinovich (R-OH) … my gut tells me that if looked at the Committee votes that Senator Obama voted with the Republican majority on plenty of issues. IMO, candidate Obama had the exposure to foreign affairs that candidate Romney has not demonstrated.

      President Obama’s foreign policy is being implemented by Secretary of State Hillary Clinton and she seems to be getting good marks for her efforts (heck, Republican Majority Leader Mitch McConnell has followed Secretary of State Clinton lead and visited Myanmar and Dick Cheney has even said a few nice words). If Clinton gets praised, then the President deserves the same … she’s implimenting his strategies.

      President Obama’s mutual interest-driven US-China engagement has merits while maintaining our friendships with other countries (Japan, Australia, South Korea).

      Iraq is asserting its own ownership (complete with its own domestic turmoil) but as Gil Gutknecht (then R-MN-01) asserted in 2006 upon finding the situation in Iraq bleak yet said “I think it’s time to take off the training wheels of their bicycle” … it had to happen sometime). Libya was victory for the international community using the Arab League and NATO so that America was not viewed as leading the mission. Israel/Palestine as well as Jordan, Egypt, Yemen, Saudi Arabia, Pakistan all present their own set of problems … and IMO, I don’t think that there is a “miracle worker” that can resolve these problems.

      The realty is that, the outcome of foreign policy decisions, and actions, are not known for generations … heck Truman is praised for his stance on Israel yet there are some that would question that.

      President Obama seems to refocusing the military … using more drones than the Bush Administration still Obama’s budget request for defense spending will be larger than it was toward the end of the Bush administration — even while targeting cuts. Obama’s biggest problem is the House Republicans (such as John Kline R-MN-02) that “earmark” spending for defense contractors renaming them as “programmatic requests” and creating the Mission Force Enhancement Transfer Fund (read more here.) The House-GOP is still following the old mantra of Big footprint, Army-heavy, Clunky, Globally sprawling military machine with the notable exception of Ron Paul and possibly Walter Jones … 9/11 saved them … otherwise Rumsfeld would have ushered in era of a modernized Pentagon that the House-GOP and their military-industrial benefactors would not have liked.

      Romney is a blank slate … please educate me.

      Let me iterate again, the size and operation of government is “managed” by Congress.
      Romney’s goal is unrealistic even if he is elected. Read my piece asking the question : Will Congress embrace Romney’s 10% challenge ? Look at the numbers and the functions that are performed (remember he wants to increase the military and the VA is a major employer, so you be the judge as to how much this is a campaign promise to garner votes). As mentioned in the commentary, although some Republicans have campaigned on shutting down the Department of Education, the reality is that there are not all that many employees (4,000) and the Senate Education Committee had a vote last year that would have altered the Department significantly, and that vote failed as only a handful of Republicans supported it. Heck, remember after the 2010 elections, John Kline said some campaign goals set to eliminate the Dept of Education would not happen.

      Candidate Romney is a slick operator with a lot of money that will package an image that will appeal to a lot of voters … some voters will vote for anybody just to get rid of Obama, but what will they get with Romney ? ? ?
      The PROBLEM is Congress … which is why their approval ratings are so low … now if Romney selects someone like Jim Jordan (R-OH) as VP then you know he is serious about governing with reduced spending if he selects someone to balance his ticket (woman/minority/military/Electoral College state/region) then his creditability is lost.

    • The problem with most government reform proposals is that they aren’t backed by any sound analysis. Romney’s 10% number (and Downey’s 15% number at the state level) are meaningless, because you can’t pick your employment levels without defining the services that need to be provided first. Step 1 needs to be rationalizing the services that need to be provided by government, and Step 2 is figuring out how many people you need to do them. You can’t start at the end and work backwards if you expect the process to produce the right results.

  5. The following article might have given me the iimpression that Obama has failed on foreign policy:

    http://www.washingtonpost.com/opinions/obamas-foreign-initiatives-have-faltered/2012/01/05/gIQAeCqAkP_story.html

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