The “Bain Way” Versus “The Way”

The “Bain Way” Versus “The Way” January 12, 2012

UPDATE: The fisking and fact-checking of the following video  has been so thorough and convincing that I have no choice but to withdraw my recommendation that anyone watch it, except perhaps as an example of how not to make a political documntary. Far from being merely inaccurate in some details, it appears that the producers, representing a Super PAC supporting Newt Gingrich, deliberately set out to misrepresent the facts and mislead viewers. The exposure of their mendacity is no doubt providing great comfort to those who think Romney’s brand of Darwinian finance capitalism is wonderful, regardless of the human cost. But that’s no reason not to admit that this particular piece of propaganda is beyond the pale. For a more truthful examination of Mitt Romney’s years at Bain, I recommend the following stories in these publications: The New York Post, The New York Times, Reuters, The Los Angeles Times, and The Boston Globe

In a recent post, Morning’s Minion referred to GOP frontrunner Mitt Romney as a “corporate ghoul.” Mirriam-Webster defines a ghoul as “a being that robs graves and feeds on corpses.” Considering Romney’s role as a corporate raider who filled the bottomless belly of his bank balance with the muscle and sinew of American companies, it was an apt metaphor, as the following video demonstrates. Titled “King of Bain: When Mitt Romney Came to Town,” the thirty-minute documentary was released three days ago by a PAC supporting Newt Gingrich for president. I know, I know. I’ll have a word about the source in a moment. But first, some thoughts on the video itself.

“When Mitt Romney Came to Town” examines the effects of Bain Capital’s takover of four heartland American companies, as told first-hand by former workers at those now-defunct firms. Through them we see the real effects of the “creative destruction” wrought by finance capitalism à la Romney: the loss of jobs, homes, hope, and dignity; the often insurmountable stress inflicted on families; and the sundering of community ties, all for the sake of rates of return that in context can only be described as indecent. The video also demonstrates the clinical detachment of Romney, corporate ghoul, as he explains that, yes, people get hurt, but that it’s a necessary, even a good thing.

As a piece of political agitprop, “When Mitt Romney Came to Town” is devastating, and some Adorers of the Precious Market (Discalced) are in high dudgeon at Gingrich and his allies for even releasing the film. They suggest it could ultimately help President Obama’s re-election campaign, and they may be right. There is no doubt that “When Mitt Romney Came to Town” is a cynical ploy by Gingrich to grasp the mantle of “friend of the working man,” and there is not a shred of evidence that a Gingrich Administration would do anything but enable and extend the practices that made Mitt Romney and his foreign investors wealthy. But even liars are capable of telling the truth when it suits them, and in “When Mitt Romney Came to Town” Newt Gingrich and company have told a truth about Bain and Romney.

As you watch this, think about the seven themes of Catholic Social Teaching: the life and dignity of the human person; the call to family, community and participation; rights and responsibilities; the option for the poor and vulnerable; the dignity of work and the rights of workers; solidarity; and the care of God’s creation. Ask yourself, does anything about “the Bain Way” align with the way marked out by the Church? Reflect on the words of Benedict XVI – “Man must be at the center of the economy, and the economy cannot be measured only by maximization of profit but rather according to the common good” – and wonder how it is that any Catholic can in good conscience vote for Mitt Romney, corporate ghoul.

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  • Great post!

  • Hm. Once again, I find it very hard to think “within the system” on these questions.

    In one sense, Mitt is not wrong. There is no reason that efficiency of production should be limited for the sake of labor. The role of production is to produce the most goods at the least cost, period. A free market achieves this there is no doubt. It is frankly robbing humanity as a whole to limit production or make it less efficient than possible merely for the sake of “employing” people.

    This is where I must agree with the fundamental critique of our current economic system (which is really a critique of the current monetary system more than the “economic” system) from the Social Credit perspective, namely: the bootstrapping of an income to “employment” due to credit being conceived of as a privately created (rather than a public or social) reality.

    Mitt’s “ruthless” efficiency wouldn’t be a bad thing at all (in fact, it would maximize production, total wealth, over all) if our system were not arranged to (ultimately arbitrarily) bootstrap distribution to participation in production.

    That the replacing of people with machines, for example (not in this specific case necessarily, I’m just using a more general example) can be seen as a “bad” thing under our current system because it “takes away a job”…shows the absurdity of our current system. Production would have met it’s end if it produced all the goods needed (or demanded) without “employing” a single person, without distributing a single cent.

    Participation in production deserves renumeration, to be sure, either a salary for labor or dividends for those who own the capital. But there are vast social dividends to which we are all co-heirs, and since credit should be social rather than privately created (the real reason there is vastly unequal distribution; usury), everyone should get a share of the newly created credit each year (when it is distributed in the first place, mind you, NOT through “re”-distribution) and this would be enough, certainly, at this point in history especially, to sustain, and thus we wouldn’t need to sacrifice productive efficiency for the sake of being distributively humane.

    Mitt may be a monster in this regard if we assume you have to play within an intrinsically exploitationist system in the first place. But, really, I’d rather spend my time attacking the unjust system rather than attacking someone whose actions, in a just system, would be perfectly fine and even good (without denying that, WITHIN the current context, they’re ghoulish).

  • Ryan

    And lets not forget that it was Mr. Maverick himself (the one and only savior of America) the other day who defended Romney- You see no sane person could attack capitalism or the free market. You must be ignorant.

    Mr. Maverick’s strategy is interesting, His campaign practically busts a cap into the Gingrich campaign’s proverbial kneecap. He attacks Santorum, for daring to question individualism in his book but then goes on to defend the moderate frontrunner in the race. Does any still think Mr. Maverick is solution not part of the problem?

  • John Henry

    I guess it’s a matter of perspective. Markets, on the whole, have proven to be a vastly superior way of allocating goods and services, and society as a whole is wealthier and better off than it was several hundred years ago as a result. But the difficulty, as Matt Yglesias, observed the other day, is that:

    The message of creative destruction, when you understand it, is that the idea that “a rising tide lifts all boats” is a cruel lie. Growth is broadly beneficial over the long-term but individual human beings live out their lives on finite time scales and many individual people suffer from even generally positive economic trends.

    Many activities that are broadly beneficial to society – I would include private equity activity among them (full disclosure: I have worked as a lawyer to make private equity transactions happen, so this could be rationalization) – are not and cannot possibly be in the individual interests of all the parties involved. As a general matter, I think the best we can do is to provide social services and safety nets funded by the growth in GDP to smooth out the individual disruption that markets cause (whether through obsolescence of VHS manufacturers or through private equity). It does not seem as clear to me as it does to the author of the post, however, that because a transaction did not serve the individual interests of all parties, that the transaction was immoral or rendered the participants “corporate ghouls”.

    As to the charges about ‘corporate raiders’ and the rest, the way to make money in private equity is to buy an asset at one price, then sell the asset at a higher price. That only works if you have a buyer that believes the value of the asset has increased. Now there are ways to generate a higher sale price that add little value to the business. For instance, if the strategy is just to cash out existing investors by increasing leverage (thereby gaining more favorable tax treatment – one argument among many against double taxation on corporate earnings), then little value has been added. But there are also strategies that do generate value; I worked on several transactions where private ownership allowed management to make decisions that would have been difficult to make as a public company and that subsequently greatly increased the value of the businesses. But there’s always a fairly high risk level in private equity – high returns always come with additional risk – and sometimes things won’t work out. It’s not clear from the reports I’ve seen whether Bain’s strategy was more predatory in nature or not; what is clear to me is that accusations of corporate ghouldom are (thus far) unsubstantiated and more indicative of knee jerk election year partisanship than any legitimate or balanced examination of Romney’s record at Bain.

    • Mark Gordon

      Predictably, none of your observations were made through the lens of Catholic Social Teaching, which no doubt explains your conclusions.

      • John Henry

        Well, I suppose some readers may need a translation, but I thought it was clear enough that the principles of justice and the common good were the basis of the conversation.

      • John Henry

        Also, CNN considers most of the claims in the video to be factually incorrect – you may want to update the post, if intellectual honesty is what you’re going for here.

        There may good reasons to criticize Romney’s record at Bain; there may not. But name calling on trumped up charges doesn’t really help the conversation.

  • I think that what both John Henry and “Sinner” are missing out on is that Romney and his ilk are adamantly opposed to even an attempt to find alternative solutions to the crises that have recently bedeviled the “crony capitalist” system that we have going in America and Western Europe. He and his ilk among the economic royalists want to continue with failed policies, no matter how many lives of the working poor are devestated by them.

    • Well, of course, but critique Romney for his complicitness in the usurious debt-money system, then, NOT for his efforts to make the production more efficient (which is in itself a good thing; the upheaval of the structural transition [which is constant] for some lives wouldn’t be a problem if we did have social credit to see them through).

    • John Henry

      Please understand digby, that I said nothing whatsoever about whether Romney, much less ‘his ilk’, and alternative solutions to crony capitalism. If anything, I suggested that we should have a generous safety net and less corporatism; I happen to think both would benefit the working poor.

  • we should have a generous safety net and less corporatism

    And I agree completely, but I don’t see how we can have either if the Anglo-Saxon model of capitalism remains in place. You know–no regulation of financial institutions; a tax system that expropriates from the lower middle class to give breaks to the rich; corporations being adjudged to be “persons”; massive government subsidies of corporate interests; and, finally, an electoral process thoroughly corrupted by money.

  • And Obama is just as dreadful a choice as Romney–except that I no longer believe it can be said that he’s any more sincere than Romney. He’s just more clever in his duplicitness.

  • John Henry

    You have to love the Gingrich campaign. Here’s the Washington Post, after giving the add four pinocchios, talking with some of the poeple in the video:

    In fact, Mike Baxley, who was interviewed for the film, said that he and his partner had “absolutely no idea” that the interviews were for a film about Romney and Bain. He said they thought they were being interviewed for a documentary about the factory closing.
    “They said they wanted to know what it was like when the factory closed down,” he said, and he, his partner and his partner’s wife agreed to interviews after “they flashed a little money at us.” (Baxley, a Republican who said he had not yet thought much about the nomination contest, declined to reveal the amount.)

    After watching “King of Bain” at The Fact Checker’s request, he said: “We were pretty shocked. Our quotes were seriously taken out of context. There is a real lack of facts.”

    The post carries the air of “I’ve made up my mind, don’t bother me with the facts,” but, still, the level of dishonesty in the ad requires an update of some sort.

    • Mark Gordon

      John Henry,

      Don’t impugn my motives for posting this. You have no basis to do so. As a matter of fact, I’ve spent the past two days actually running a company (one that from time to time uses private equity, by the way) and couldn’t get back here to continue this “dialogue.”

      The Gingrich documentary may contain inaccuracies and even misrepresentations, but I didn’t make a 100% guarantee of its veracity. In fact, I called it “agitprop.” But no one is denying that it transmits an important truth about Mitt Romney’s Bain Capital and that company’s way of doing business. The fact is that among other things Bain was in the bust-out business: acquiring companies, cutting payrolls and taking orders they knew they would never fill in order to artificially boost paper value, loading those freshly “healthy” balance sheets with debt, siphoning that cash into Bain, then kicking the legs out from under those now-hollowed out companies and dropping the losses on creditors. Now you may think that such practices are a legitimate expression of the Darwinian nature of the free market system, but your family or community has apparently never been on the ass-end of a deal like that.

      I wrote about “the loss of jobs, homes, hope, and dignity; the often insurmountable stress inflicted on families; and the sundering of community ties …” You abstract that suffering as “individual interests,” but even Yglesias acknowledges it as suffering. Of course, he also justifies it, writing:

      It’s not the job of a businessman to feel sad about the consequences of cutbacks for your marriage, your employees, your grandma, or your community. But it should be the president’s job. The inherently destructive nature of a dynamic market economy means that lots of people are suffering on any given day thanks to forces beyond their control. Romney’s strength is that he understands those forces better than anyone in the race, but his weakness is that he doesn’t understand the suffering.

      I’ve been in business for 25 years. No one ever told me that it wasn’t my job to consider the consequences for employees, their families, creditors, my community, etc. As a Catholic, I consider all of these – in addition to my financial backers and my own bottom line – to be stakeholders in any enterprise I’m running because business is at the service of people, not the other way around. Mitt Romney doesn’t get that, even though he is now frantically trying to convince everyone that he does.

  • John Henry

    Mitt Romney doesn’t get that, even though he is now frantically trying to convince everyone that he does.

    And your evidence for this is…what exactly? I mean, you may be right. I just haven’t seen you produce any evidence of it apart from a ridiculous video that no credible publication takes seriously.

  • John Henry, if Romney actually felt compassion for the people he “down-sized,” then he should have been able to express it in a speech, and he should have been able to suggest to them solutions for the plight that his decisions put them in. I have not once heard any expression of regret, any wish that things could have been different, any creativity in devising even palliatives for the dislocations caused by business re-structuring. When the man fails to respond in these videos, when he attempts callous self-justifications, he damns himself as a leader. You don’t have to believe that the videos are objective or wholly honest: the man’s body English and the expressions on his face tell it all.

  • Mark Gordon

    JH, here’s what he said on Thursday: “I think anytime a job is lost, it’s a tragedy, For the family, for the individual that loses the job, it’s just devastating. And every time we invested in a business, it was to try to encourage that business to have ongoing life. The idea of making a short-term profit doesn’t really exist in business.”

    A lie in every sentence. A tragedy? Devastating? It was his business model. Investment=encouragement? And what’s this notion that “short-term profit doesn’t really exist in business?” Does he think we’re all morons? Here are five stories from “credible” publications. Each of them demonstrates Bain’s pursuit of short-term profits at the expense of companies and the people they employed.

    The New York Post

    The New York Times


    The Los Angeles Times

    The Boston Globe

    • Does he think we’re all morons?

      Yes, and so does Obama, so does Gingrich, so do they all–except, perhaps, in his better moments, Ron Paul.

    • John Henry

      Well, I applaud you for trying to find legitimate sources this time; that is some indication of good faith rather than the normal partisan hackery. But, I have to ask, did you read the articles? Take the NYT profile of Dade, which is the most commonly cited example in the articles, and whose authors actually bother to research the history of the acquisition:

      “Bain impressed Baxter’s management with its vision for how to fix the ailing business. Mr. Romney, who began Bain Capital in 1983, prided himself on turning around companies like Dade — not just polishing them for sale, as their quick-buck Wall Street colleagues did.

      It was the Bain Way, reflecting the firm’s roots as a spinoff of the venerable consulting firm where Mr. Romney had been a star performer, Bain & Company. At age 36, Mr. Romney was asked by the founder, William W. Bain Jr., to jump into the relatively new, risky and extraordinarily profitable business of private equity.

      By marrying traditional financial engineering with management consulting, Bain Capital produced much higher returns than its rivals.

      “They were unusual in doing that in the ’80s,” said Steven N. Kaplan, a professor of finance at the University of Chicago, who has studied the private equity business. “Romney figured it out, and everyone else copied it.”

      Bain Capital was a partnership, but there was no question who was in charge: as the owner of all the voting stock, Mr. Romney controlled the profits and the power.

      He did not act like a big shot — he bypassed his secretary to make photocopies himself and left the building to buy himself lunch. But his values prevailed: he insisted on cheap, spartan office decorations (the original desks contained no wood) and introduced fines for executives who arrived late to meetings (when he once had to pay a $20 penalty, he looked physically pained, a co-worker recalled).

      Colleagues remember him as a heavily perspiring, deeply anxious presence for much of the first year, constantly worried that he might tarnish the good name of Bain & Company by fumbling at Bain Capital.”

      This is the evil corporate ghoul? Sweating his way through turn-arounds and known for developing a strategy that was not out for a quick buck but for long term value?
      Then Bain made some risky leveraging decisions after Romney had left, that led to a reorganization and subsequent thriving business. That’s pretty weak sauce. It seems to me that you have to look at all of this with one eye shut and a squint to conclude that Romney was some sort of monster.

      • Mark Gordon

        After spending the weekend reading several stories about the video, I’m convinced that it is indeed a deliberately deceptive and misleading piece of propaganda. I’ve updated this post to reflect that conclusion.

  • John Henry

    Mark – Thanks for the update. Your conclusions about Romney may be correct, even if this particular bit of evidence was not. Personally, even after the articles, it’s not clear to me that Romney’s record constitutes “Darwinian finance capitalism…regardless of the human cost.” The NYT and the Reuters article both indicate his strategy was more focused on creating long term value; notice the layoffs described take place several years after the takeovers and generally after the original plan did not work well or after a subsequent failed merger. No one can guarantee success. At the same time, to the extent that Romney’s record does represent Darwinian capitalism, that should be explored thoroughly and deplored as appropriate.

    Cheers (and apologies for the deficiencies in my tone above),