Battling Over Bain: Jobs, Free Enterprise, and Morality

In New Hampshire and South Carolina, we are now witnessing the economic equivalent of conservatives attacking a pro-life colleague using Planned Parenthood talking points. Let’s be clear about what’s happening here: Acting out of personal frustration and political desperation, three leading conservative politicians are faking outrage about Mitt Romney’s business practices and in so doing are actively selling poisonous moral and economic ideas to the American people.  The language of the Occupy movement is infecting Republican rhetoric.

My concern is not so much for the twists and turns of any given political week but instead the larger, emerging meta-narrative that these Republicans are now feeding.  The Occupy world sees a job as a right, not a privilege.  The Occupy world tells Americans that their hard work is futile, and they can never achieve their dreams so long as the malicious 1% grow wealthier.  The Occupy world sees ordinary Americans as victims.  This is a narrative that is not only false but eats away at the soul of the American people.

Rebutting this narrative may be one of the great moral tasks of our time, and in rebutting that narrative we will not only reverse American decline but we will rescue millions of Americans from lives dominated by purposelessness, defeat, and dependency.

Here is the core truth about jobs, corporations, and personal responsibility:  An employer does not exist to create jobs, rather a job exists to help an employer thrive.  In other words, rational companies hire workers not simply because they can (hey, the money’s there, why not?) but because that worker will materially contribute to the company’s success.  This arrangement provides a profound mutual benefit: the employer gets the fruit of the worker’s effort, and the worker not only gets a salary but also the great benefit of purposeful work.

Struggling companies and unions often lose sight of this social compact.  Unions (and non-union employees) often see the employer as simply a source of jobs, not an enterprise to be sustained and nurtured.  Employers will sometimes grow too attached to their employees and watch the enterprise flounder as too many people — or the wrong people — dominate the payroll.  Employers will also fail by not providing sufficient compensation and treatment for the efforts they demand, leading to high turnover and constant employee discontent.

What do we do when a company struggles?  What should be our priority?  The answer is simple: seek a turnaround.  Is it rational to look at falling sales, rising costs, and aging equipment and say, “No matter what, we will not cut jobs”?  Businesses cannot possibly make such a vow.  Even if it’s a goal, it can’t possibly be a promise.

What did Mitt Romney do?  He invested in startups and struggling companies (the riskiest and most dangerous investments one can make — but also among the most crucial for the health of a free enterprise system) not with the goal of “creating jobs” but with the goal of making money.  In other words, he had the same goal as virtually every rational business owner.  But in the miracle of the free enterprise system, if he succeeded in turning around a failing company or in creating a successful new corporation, people got jobs — real jobs, purposeful jobs.  Staples has gone from one store to more than 2,000 worldwide.  Do you think that created jobs?  Similar stories can be told of other Bain investments, like Domino’s Pizza or Sports Authority.

Of course not all investments worked.  Not all businesses can survive.  Then what do you do?  You take what value you can and then give it another try, with another business at another location.  The value you take becomes part of the investment in the next enterprise.  This process is at the core of the free enterprise system.

To be sure, it is not at all painless.  And in that pain comes political opportunity, as sometimes well-meaning and (more frequently) opportunistic politicians tell suffering people that they are experiencing an injustice, that they are helpless in their plight, and that only the intervention of the government can give them the security they crave.  The South, plagued for generations with poor education, systemic racism, and simmering class resentments, has historically been particularly fertile ground for “people versus powerful” populism, and it’s hardly a coincidence that the attacks on Mitt are reaching a crescendo as we head towards South Carolina.

Ironically, we are now facing a primary campaign that is a virtual dry run for the general election, with the Republican front-runner getting hammered from the left by hysterical populist rhetoric.  Perhaps this fight will serve to toughen Mitt Romney for the general election.

But there could be a more ominous outcome.  Perhaps the attacks will work, and the Republican party will have lost the free enterprise argument by arguing against itself, and we’ll be left with two candidates — one from each party — who seek to attain power by pandering to the feelings dependence, powerlessness, and hopelessness of an increasingly economically ignorant population.

  • Karrie

    Amen, Well said!!!!!

  • Larry

    David, I take it then that you are a disciple of Ayn Rand’s Objectivism. As a businessman and as a minister I find your essay desperately lacking a rationale which reflects either concern for one’s fellowman or a rational, sustainable business model. In fact, it seems to reflect nothing more than a desperate need to deflect some well deserved criticism (once again) from Mitt the Honorable.

    I recall only to well the ignominy of corporate raiders. They bought companies, stripped them of assets (often including pensions) and shuttered them. With no concern for the destruction (not creative destruction mind you … just empty, ruinous destruction) left in their wake.

    Their defense was as shallow as their ethics. The idea that because a few profited while many suffered staggering loss is indefensible and is only lauded among those “men without chests” who found Rand so positively inspiring. They rather remind me a man who forces himself upon an unsuspecting women … “Her?, nah … she didn’t want it … but I’m satisfied”, f*** her … hey, guess I just did! Har, har”

    Caveat emptor is doubtless the credo of more than a few businessmen. Though, their philosophy often costs them sustainability … oh, it also takes a toll on their reputation, and that of business in general. Business which enjoy long term prospects and profitability view the customer experience as a key to their success.

    They exchange value (goods and/or services) for value (money). The customer wins. The business wins. Should the value of goods or services diminish, the business will eventually fail. Why? The exchange value for the goods/service fell below acceptable levels. Unable to continue attracting return or eventually even new customers cash flow falls to inadequate levels.

    In this model, the company’s demands for profit are offset by the customer’s demands for value. If both don’t win consistently the exchange of value ceases.

    No such mechanism exists in corporate raids. A group of investors seeks a likely target. Next they acquire controlling interest. Next, they strip the company of assets (raid it), acquire its value and … and … and … that’s all.

    No exchange. The employees are merely abstractions. Non entities. Screw em.

    The people who invested themselves in the company’s success (and pension funds) were left out in the cold. That’s not capitalism … that’s unbridled greed (think Gordon Gekko … “greed is good”). It unsustainable too. Mitt won … big time. His investors won … big time. Everyone else … nothing.

    Mitt the Honorable insists he’s for the “middle class”. Really? Like then? More and more Mitt appears to view people as a means to his end. I don’t want such a man serving in the Oval Office.

  • Larry

    BTW, William F. Buckley famously wrote of Ayn Rand

    “her desiccated philosophy’s conclusive incompatibility with the conservative’s emphasis on transcendence, intellectual and moral,” as well as “the incongruity of tone, that hard, schematic, implacable, unyielding, dogmatism that is in itself intrinsically objectionable, whether it comes from the mouth of Ehrenburg, Savonarola–or Ayn Rand.”

    I’m fairly certain that Buckley was a Capitalist and a Conservative, yes?

  • PaulH

    This is a well-written article. Larry, you are absolutely wrong.

    Bain Capital invested money in companies that were struggling. Each of these was typically a huge risk. Bain Capital did NOT make money on every company they took control of. About 7% of the time they actually lost all of their initial investment, and at least 25% of the time did not make any money. The only way they could make money was if a company’s stock values went up. Larry, contrary to what you are suggesting, you cannot make money if you destroy the company, rather you lose all the money you put in. Now, suppose they take a company that’s losing money with 1000 employees that is about to go under from debt, they restructure it so that it becomes profitable again, but in the process it goes from 1000 jobs to 750 jobs. I would NOT say it’s a loss of jobs. 750 jobs were SAVED, because all 1000 jobs were in jeopardy before Bain Capital stepped in. You might argue that they were not justified in making any money by doing that. But there has to be an incentive for someone to step in because the risks are huge.

    If details come out about exactly what Romney did at Bain, and if people objectively examine those details, I’m confident that Romney will win the election.

    • Larry

      Paul, you’re offering a highly sanitized, highly selective … high gloss version of events. All well and good … unless you’re actually interested in whole story … and its lessons.

      Mitt’s boosters are now offering a Bain mythology as a companion to the Governor Romney series of myths. Its rather odd that his “achievements”, demand so many apologists and so much explanation. His “successes” seem to require a great deal of stagecraft to appear as successes. Left alone, well, they’re a dismal lot. Seems a lot like a teenager explaining why that “D” is actually an “A” … when you look at just right.

      • Terry

        (quoting Larry): “Its rather odd that his “achievements”, demand so many apologists and so much explanation.”

        Have you ever stopped to consider that lies sometimes take a lot of time and effort to combat, and even then they are never totally wiped out? Or that silence on the part of Mitt supporters would lead to the assumption on the part of others that those lies were actually true?

        Of course you never considered that. And I’ll tell you why.

        Me thinks that you, in the case of Mitt Romney, are unwilling to face the reality of who he was as a businessman. I’ve worked for quite a few companies in my lifetime–including some who went belly-up. That’s free enterprise. Contrary to your “not so” protestations in past posts, I really think that Mitt’s religion is having an effect on your judgment. I have, in all my years of dialogging with anti-Mormons (and even some anti-Mormon types) on almost a daily basis, yet to meet just one who didn’t claim that all Mormons are liars. Sounds crazy, but it’s absolutely true. As for Mitt, you have alluded the same thing about him in several past posts. Sorry to be so blunt—and I say this in all kindness—but the high-minded tone of your writing makes you sound just like the anti-Mormon types I dialogue with every day. “Mitt’s a Mormon? Well, we know how much truth we’re going to get out of him.”

        Mitt Romney is a man of honor. I know, because I’m familiar with his background in ways you have no understanding of. The Bain Capitol controversy is a duck that should be dead on arrival at the doorsteps of any of those who try to use it against him—if they are honest, that is. Mitt is not the type to offer help to a company, then after getting in, loot the coffers, fire the employees, and leave town on the midnight train. It just was not in his strategy or character to do so. If it were, then he would have done the same with all the companies he had a hand in helping. As with the Bain Capitol thing, I’d be willing to bet that if Mitt was not of the religious persuasion he is, far fewer people would swallow the Bain Capitol bologna than who are going to swallow it.

        As governor of Massachusetts, Mitt did the best he could in the circumstances he had to work under. The attack ads aren’t going to paint it that way, however. For example, the charge that he appointed a pro-abortion Judge is true, but the attack ads are not going do a Paul Harvey and tell you the rest of the story. They are not going to tell you that said judge’s appointment put him a situation where he would never be ruling on any case having to do with abortion. No…the ads are going to conveniently leave that part out.

        More and more every day, Romney appears to be tightening the lock on the GOP nomination. I for one, welcome it.

        • Larry

          Terry, your certainty regarding my prejudice is approaching obsessive. Mitt’s Mormonism is not a factor. Period.

          When this cycle began last year I felt certain that my support would be fully behind Mitt. I voted for Mitt during the 2008 primaries. I knew then, what I know now regarding Mormonism.

          I believe it false and dangerous now, I believed it false and dangerous then. Never the less, I supported Mitt. I found McCain far less than conservative. Huckabee was, in my estimation buffoonish and untrustworthy. He said what he felt his audience wished to hear … but his record (and his other speeches) suggested something else.

          This time around, however, I examined Mitt’s record with far greater scrutiny than I permitted last time. I was at first concerned, then shocked and finally appalled.

          Mitt’s qualifications vanished. I found him duplicitous and without conviction. His actual record shocked me. The deeper I dug the more I began to view Mitt with suspicion and dislike.

          From his speeches, to his record, to his actions I’ve come to regard Mitt as a huckster. A man guided by ambition rather than principle. In that regard, a man very much like our current President.

          Hypocrisy, deception, expedience and ambition … the traits I’ve often associated with many on the Left … I find in Mitt.

          Perhaps Terry it is your Mormonism which prevents you from seeing more clearly … fuels your bigotry.

          You clearly have found comfort and encouragement in the myths offered by Team Romney. I challenge you to conduct your own due diligence. We are, after all, electing the next President of the United States.

  • Rex

    David, I agree with all you said. My view is that Romney needs to do some educating of the voters as to how this job creating thing works. Since most do not have his MBA, or work experience, it’s a challenge to find sound bites that put the concepts in similar terms. Contrast helps. For example, Solyndra is the symbol of the Obama way — an economic idiot picks winners/losers based upon green politics and then throws $500 million at it, gets photo ops a trumpets it as his kind of company, then the sh– hits the fan and few sales result, all $500 million is lost, and all jobs are lost. Obama did Romney a favor by gushing over Solyndra and its prospects. As to sound bites, I hope Romney uses the word “sustainability” and teaches the voters that this means “profits.” I used to teach a college accounting class for entrepeneurs. In the first 2 minutes of the first class, I wrote a simple formula on the chalkboard: Assets – Liabilities = Equity.

    Then, in the next minutes, the next formula: Revenue – Expenses = Profit.

    Romney needs a similar formula which frontally attacks the “Gordon Gekko” crap that will come his way that “greed is good,” to turn it around to explain:

    Profit = Jobs. Profit = Sustainability. Sustainable Jobs = Good.

    Since Obama and the Democratic Senate seem to lack this basic Accounting 101 training, Romney could do a pre-emptive strike on this Gordon Gekko attack and help the public understand that the liberals PRETEND to like job creation, but they refuse to recognize that in a non-socialist company that PROFITS = SUSTAINABLE JOBS and therefore PROFITS ARE GOOD.

    Lesson #2 could be HIGHER TAXES REDUCE PROFITS, and then its corollary HIGHER TAXES REDUCE JOBS.

    It ain’t rocket science. But it seems too much for the leftist ideologues to swallow.

    What will be the Dems argument, if he lets the air out of their “capitalism is bad” argument before they can make it? I’d love to see Romney do a 10 or 15 minute documentary on the career of Steve Jobs and track his profits, year by year, to show why free enterprise is great. Even liberals love Steve Jobs. Even Steve Jobs, a Obama supporters, was complaining to Obama about his anti-business programs not too long ago. Romney ought to ride the lessons we can learn from one of the great creative minds in electronics, and how he needed capital from whichever firm to get him rolling.

    Rex McBride

    • Larry

      Rex, Romney’s actual political record as a “job creator” is pretty dismal. Actually, its a disaster. As to your formulaic approach to profits … tell me, is there a moral dimension to your equation? If so, what are its demands? If not, why? If not, what mechanism secures the interests of those affected?

      Finally, how are are you of Bain’s history and Mitt’s actions while leading it?

    • David French

      Good points, and I also like the Wall Street Journal’s take today. Here are the core paragraphs:

      “We have our policy differences with Mr. Romney, but by any reasonable measure Bain Capital has been a net job and wealth creator. Founded in 1984 as an offshoot of the Bain consulting company, Bain Capital’s business is a combination of private equity and venture capital. The latter means taking a flyer on start-ups that may or may not pan out, something that neither Mr. Gingrich nor Mr. Obama seem to find offensive when those investments are made by Silicon Valley firms in “clean energy.”

      “One Bain investment during Mr. Romney’s tenure was to back an entrepreneur named Tom Stemberg, who was convinced he could provide savings for small-business owners if they were willing to shop at a store instead of taking deliveries. Today, the Staples chain of business-supply stores employs 90,000 people.

      “Bain also backed a start-up called Bright Horizons that now manages child-care centers for more than 700 corporate clients around the world. Many other venture bets failed, but that’s capitalism, which is supposed to be a profit and loss system.

      “The loss part is what seems to trouble the Gingrich-Perry-Obama critics, especially in Bain’s private-equity business. Like some 2,300 other such U.S. equity firms, Bain looks to buy companies that are underperforming or undervalued and turn them around.

      “Far from “looting,” this is a vital contribution to capitalism and corporate governance. One of the persistent gripes of the left is that too many CEOs make too much money even as their companies flounder. Private-equity firms target such companies or subsidiaries, replace their management, and try to unlock the underlying value in the enterprise.

      “Private equity helps to promote dynamic capitalism that creates wealth, rather than dinosaur capitalism of the kind that prevails in Europe and futilely tries to prevent failure. Sometimes this means closing parts of the company and laying off employees, but the overriding goal is to create value, not destroy it.”

      • Larry

        David, I agree in large. But the article ignores, badly, other unflattering and questionable calls by Bain … while Mitt served as CEO.

        Calls which enriched Bain (and Mitt) but Left companies underfunded (remember, Bain pulled out dividends funded with debt) and vulnerable. These companies later folded. Capital is the life blood of any company … especially struggling ones.

        Siphoning it off to garner profits … especially capital acquired through debt hardly qualifies as prudent. Indeed, its the stuff that call in to question ethics.

        Bankruptcy leaves creditors, investors and employees with little to nothing … yet Mitt and Bain always … ALWAYS made millions.

        At the end of the day, spin may satisfy those fearful of the conclusions truth may yield … but it hardly satisfies the demands of honesty and objectivity.