Democracy in America – Politics and private equity: Bringing the Bain

Published on The Economist, May 22, 2012.

ON “MEET THE PRESS” this past Sunday, Cory Booker, the superhero mayor of Newark, compared Barack Obama’s ads criticising the behaviour of Bain Capital under Mitt Romney to a Republican plan for new ads attacking Mr Obama for his association with Reverend Jeremiah Wright. “This kind of stuff is nauseating to me on both sides”, Mr Booker said. “It’s nauseating to the American public.”  

Later in the day, back at his Newark office, a chastened Mr Booker sang a hymn to Mr Obama’s leadership, kinda-sorta backtracked by saying he suspects that Mr Romney has not been entirely forthcoming about his business record, all while re-emphasising his “frustration” with negative campaigning. This guy has a future in politics. Naturally, the Romney campaign has already made a spot starring Mr Booker and his nausea.

Yesterday in Chicago, Mr Obama tried to turn this teacup tempest to his advantage by hitting Mr Romney again. It will be useful to read Mr Obama’s remarks closely, as this line of attack promises to be a leading theme of his campaign:

My view of private equity is that it is, it is set up to maximize profits and that is a healthy part of the free market, of course. That’s part of the role of a lot of business people. That is not unique to private equity. My representatives have said repeatedly and I will say today, I think there are folks who do good work in that area and there are times where they identify the capacity for the economy to create new jobs or new industries. But understand their priority is to maximize profits, and that is not always going to be good for communities or businesses or workers … //

… Indeed, the president is in the business of protecting people against profit-maximisers, such as Mr Romney, whose single-minded pursuit of efficiency so often hurts communities, businesses, and workers. If Bain is metonymous for the downside risk of capitalism, Mr Obama offers himself as universal Bain-relief:

It doesn’t mean you weren’t good at private equity, but that’s not what my job is as president. My job is to take into account everybody, not just some. My job is to make sure the country is growing not just now, but ten years from now, 20 years from now. And so, to repeat, this is not a distraction. This is what this campaign is going to be about: What is a strategy for us to move this country forward in a way where everybody can succeed? And that means I have to think about those workers in that video just as much as I’m thinking about folks who have been much more successful.

This line of argument, as far as I can tell, is going to be the centerpiece of Mr Obama’s case against Mr Romney. According to John Cassidy of the New Yorker,

The President and his strategists have fixed upon a populist campaign strategy that emphasizes inequality and unfairness, and which attempts to turn Romney, with his record as a “vulture capitalist” and his fourteen per cent tax rate, into the personification of these things. When Obama said “this is what this campaign is going to be about,” he wasn’t joking

Is this going to work? I don’t know! But as Mr Booker’s comments highlight, this does seem an extraordinarily negative approach, at least when compared to Mr Obama’s 2008 message of hope and unification. Mr Cassidy goes on to observe that “Obama is clearly trying to convert the election from a referendum on his own record to a personality contest between him and Romney”. That is to say, Mr Obama is not comfortable running on his record, and would rather run on Mr Romney’s inferior likeability.

How will Mr Romney reply? I think he’ll argue something like the following. First, he’ll ask how well Mr Obama is doing by his own criteria, and make a case that he’s doing terribly. That Mr Obama has botched the recovery is already a pillar of Mr Romney’s campaign, and so we can expect they’ll want to shift the focus back on Mr Obama’s record. Second, Mr Romney will argue that he can do rather better than Mr Obama has done because his private-sector experience is not at all irrelevant. On the contrary, it’s generally useful and obviously applicable to government, as Mr Romney’s successful tenure as governor of Massachusetts shows. Outstanding business management is about a great deal more than maximising profits. It’s about setting goals and then providing the leadership organisations needed to achieve them. If the goal is profit, an outstanding manager will be effective in achieving a profit. But if the goal is, say, ensuring that everyone in Massachusetts has access to affordable health insurance, an outstanding manager will be effective in achieving that goal, too.

If he’s smart, Mr Romney will argue that Mr Obama’s apparent inability to see the relevance of business experience to government just goes to show why he can’t be trusted to achieve either the goal of sustained economic growth or the goal of leaving no one to suffer in the rubble of creative destruction. Efficiency matters, a lot, in business and government. If a business is inefficient, it is eventually either turned around or it is shuttered. If government is inefficient, it doesn’t shut down. Rather, it makes promises it can’t keep. When government makes promises it can’t keep, people suffer; everyone does not get a fair shot. So, who is better prepared to identify and implement the reforms required to make sure government can keep its promises? That’s the question. Mr Obama is desperate to convince voters that a record of success in making organisations more efficient is either irrelevant or nothing but a record of callous inhumanity to man, because it will otherwise become all too clear which candidate has the experience America needs to get back on track.

I certainly see the appeal of characterising Mr Romney as a sadistic “vulture capitalist” who takes pleasure in the suffering of those he gladly fires. But Mr Obama may be playing with fire. He has been careful not to impugn all profit-seeking, or even all private equity, yet it’s hard to see how it’s possible to attack Mr Romney for the alleged depredations of Bain Capital without implicitly attacking other profit-seekers responsible for similar labour-market churn. If Mr Romney’s Bain was guilty of something other private-equity firms are not, it’s not clear what it is. Meanwhile, Mr Obama’s Bain offensive seem likely to help the market-loving right continue to belatedly warm to Mr Romney, who now has an excellent opportunity to soberly explain to America the righteousness and relevance of his business experience. Moreover, he can appear the bigger man by insisting on a clear-eyed comparison of his and Mr Obama’s qualifications. I’m not at all sure, however, that Mr Romney has what it takes to make the most of this chance. Indeed, Mr Obama’s challenge seems a perfect test of Mr Romney’s political mettle. If Mr Romney can’t defend against Mr Obama’s attempt to turn his experience at Bain into a liability, he doesn’t deserve to win. (full text).


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