Free Enterprise & the Politics of Bain Capital

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There are two things we know about the upcoming presidential election: (1) Obama will not talk much about real economic problems and (2) class warfare will be central to his reelection rhetoric. Nothing illustrates this reality like Bain Capital.

From a political perspective, Bain is both Romney’s greatest strength and his greatest weakness.  The Democrats charge that Bain represents everything that’s wrong with conservative/libertarian economics. The opposite is true, however. Anyone who understands how a free economy works appreciates the Bain Capitals of the world and their role in the economy.

Firms like Bain deal with distressed entities.  By definition, they make high risk-high return investments, so downsizing is often part of the required restructuring effort. In the end, some recover, but others fail anyway. Private equity firms like Bain are a last resort. The fact that jobs are “lost” in a turnaround effort is not attributable to Bain any more than a death after an auto accident is the fault of an emergency room physician. Moreover, companies fail when customers decide to spend elsewhere; failure is a part of a regeneration process that advances the economy and our standard of living. This is a clear logical flaw inherent in the anti-Bain attack, one that is being swept under the rug of emotionalism and class warfare. The rug must be lifted.

Contrary to popular opinion, firms do not exist to create jobs anyway; they exist to generate a profit for their owners. Of course, profits are only possible if customers are willing and able to purchase their products and services. Unfortunately the government often intervenes in these exchanges through punitive regulations, crony capitalism, bailouts, and the like. When government stays on the sideline, however, companies only profit when they make their customers better off along the way. This is the beauty of capitalism.

Here’s where job creation comes in. Firms are formed to serve customers, not employees. This truth must hold because customers must provide the revenue necessary for the firm to survive. In other words, employees exist because the firm has customers to serve. Employment is an indirect or secondary benefit of free enterprise. If you want jobs, then leave all of the players in the economy alone, including entrepreneurs, family businesses, large companies, and the private equity firms.

A larger point here is that a government can’t create any jobs, unless you count getting out of the way as job creation. Even when governments hire workers, they must pay their wages by taxing present or future generations. The confiscated wealth to support government employment could have been spent to create jobs in the private sector, so it’s a wash at best, and usually worse.

Back to Bain…The Obama attacks that blame Romney and Bain for lost jobs are both illogical and misdirected. They are designed to pit evil rich capitalists like Romney against the desperate and unemployed masses who–without government intervention–are helpless. The Republicans can respond in one of two ways. First, they can apologize for Bain’s restructuring efforts as a necessary evil of capitalism’s imperfection. Doing so opens the door to a litany of socialist claims, however. If capitalism is the problem, then the debate shifts to how government can best control it. If Romney chooses this route, he resembles Obama, has little to offer, and either loses in November or is unable to institute serious free market reforms if he wins.

The second option is a proud defense of free enterprise and Bain. The solution to our ailing economy is more capitalism, not socialism or the elusive middle ground. There is no governmental shortcut to prosperity. This debate requires a strong educational effort but it can be won. The Democrats are forcing Romney to make a choice. We must pressure him to make the right one.

5 Comments

5 Comments

  1. Larry  •  May 29, 2012 @9:34 AM

    So far the Republicans are apologizing. Obama knows Romney wants to ride the fence so he’s forcing him to either apologize or defend capitalism. It’s time Romney gets serious. This is why he had so much trouble in the primary.

  2. Arthur W.  •  May 29, 2012 @5:06 PM

    Extremely well put. Capitalism is not about creating jobs and never has been. Ironically, free market capitalism is the best system yet for creating jobs for the reasons you cited. It is the linchpin of this country and it is being threatened openly and without shame. Romney had a line in a speech, “It’s the economy and we’re not stupid.” Sounds great, but unfortunately it’s not true. We are stupid when it comes to how capitalism works to fuel the economy and how that results in jobs and why it takes people willing to risk capital. Most voters think businesses exist to provide jobs for the economy and benefits for their employees. Romney is in a tough spot. If he mounts an eloquent defense of capitalism, the Dems will have him for lunch, playing on the ignorance of the masses. If he promises to create jobs, they will attack his record at Bain and as governor. What’s left is to focus on Obama as the government’s way of doing things: failure of the stimulus, picking winners and losers, govenment for sale, etc. He will not run out of material here. Meanwhile, emphasize his own leadership experience and the need to stop the regulatory, confiscatory trainwreck or suffer the same fate as our friends in Europe with their managed democracies.

  3. Aliza  •  May 29, 2012 @6:40 PM

    The truth is that Obama and Romney do resemble. In the major issues they are not very far apart. Obamacare is an extension of Romneycare to the national level. They are both Harvard lawyers and millionaires (even though Romeny has more). It will be tough in November.

  4. Arthur W.  •  May 30, 2012 @4:36 PM

    I can think of a few differences between Obama and Romney. Romney loves capitalism. He represents the best in American business and what used to be the American dream: work hard and attain success in business. Obama hates capitalism, the wealthy, successful people, business types. Unless, of course, they support him and contribute to his cause. He despises Republicans who remind him of the wealthy and American business that he hates. He refused to work with them even after he lost 63 seats in the House in 2010. He hates any kind of authority that doesn’t come from his office, including the Supreme Court. He represents the new American dream: get a government loan for college and then a goverment job for life. Or join the Occupiers until one comes along.
    Sadly, he will probably get reelected. And we will have a front row seat to watch the collapse of the greatest economy the world has ever known. But nothing is forever.

  5. Aliza  •  May 30, 2012 @7:49 PM

    Isn’t he ( Romney) too liberal for you guys?