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Gingrich’s Anti-Bain Blather

Of all the warts Mitt Romney boasts on his big smelly toe (appealing image, no?), Newt Gingrich and others have decided to attack the one thing Romney has going for him: his business-leader experience in the private sector. Gingrich Romney Credit: Getty Images Bain Capital, a leveraged buyout firm co-founded and formerly led by Romney, invests in struggling companies with the hopes of making them profitable again. Or, as Gingrich recently described it: “rich people figuring out clever legal ways to loot a company.” Er, what? In a recent report, the Wall Street Journal examined 77 businesses that Bain invested in under Romney’s leadership, finding that “22% either filed for bankruptcy reorganization or closed their doors by the end of the eighth year after Bain first invested, sometimes with substantial job losses.” That, of course, would indicate that 78% of investments were successful. The implications? Again from the WSJ:
Some experts, while conceding that available studies don’t provide a direct comparison, said the rate at which the firms Bain invested in ran into trouble appears to be higher than experienced by some rival buyout firms during the era… …The numbers, however, also reflect Bain’s investing style, which, particularly during the firm’s early years, was focused on smaller and sometimes troubled companies that Bain hoped to fix or build. Bain was investing in “riskier deals,” said Steven N. Kaplan, a finance professor at the University of Chicago’s Booth School of Business. “For every one that went bankrupt, they had one that was a screaming success. The overall effect was terrific performance” for the firm’s investors.
Note to Newt: I know we’d all like a 100% success rate, but high-risk investment doesn’t always pay off, and when it doesn’t, bad things happen. Businesses close, people lose their jobs and human suffering abounds. Oh yeah, and another thing: it’s not great for investment firms either. When these companies failed under Romney’s watch, I doubt that Jolly Fat-Cat Mitt was grinning in his Doctor Claw Chair while stroking a snickering kitty. Anyone who understands anything about investment firms should understand that bad investments are, well, bad. There’s plenty of basic economic idiocy here, not to mention nostrils-full of that all-too-familiar “pre-conversion” Gingrich stench (does “moldy baloney” capture it?). But throughout all the confused prattle—e.g. Newt’s forthcoming wanna-be Michael Moore project—I find myself haunted by a single, disturbing reality. Some people actually swallow this stuff. Whether or not Romney wins the nomination, and I’m betting he does, Gingrich’s calculating move and the subsequent procession of Rick Perry and Jon Huntsman behind him indicate a degree of confidence that this confounding Obama-esque cluelessness actually sells. And alas, it does, whether due to envy, economic illiteracy (see Avik Roy’s response) or our basic human response to seeing lives shaken by economic change. Most of it, however, seems to involve an embrace of the artificial—a belief that prosperity can and should be manufactured from the top down and that successful entrepreneurship, innovation, and jobs(!!!!!!!—those are for you, Joe Biden) demand nothing more than Sugar Daddy U.S.A.’s material blessing. Implicit in such an orientation is a belief that risk can somehow be avoided or subverted—that turning companies around is always possible, that the solution (if there is one) is always accessible/know-able, and that investments will always produce a profit (when all else fails, there’s subsidies…duh!). All you need is a warm and toasty heart and a propensity to use other people’s stuff to keep other people happy. And vice versa. And then vice versa again. Or something like that. Sorry, Newt. This isn’t Freddie Mac. How, for example, could Bain’s steel-industry investments possibly compete with the entrance of low-priced steel from overseas? What could it have done to prop up inevitably failure-bound enterprises in the wake of a changing economy? The Gingrich (and Obama) answer appears to be, “Who cares?” If you are not propping up failing enterprises, you are the enemy. If you are not holding on to bad investments, you are “looting” people. If you are not hiring for the sake of hiring, you are firing for the sake of firing. If you are not allowing failing industries to keep failing, you are “greedy” and “exploitative.” This is utter, reality-defying nonsense, and as Obama’s anti-capitalism critique picks up where Gingrich’s leaves off, we will begin to see whether the country wants to continue living as though material wealth and prosperity come easily. We will begin to see whether Americans still believe that their inflated sense of need is justified and that their indulgent Western parade can be sustained, nay, expanded if the right historic personality institutes the appropriate central plan. Romney has loads of political baggage, and we should focus our attention precisely there. The fact that he has seen the value of creative destruction firsthand—a reality economist Joseph Schumpeter termed “the essential fact about capitalism”—is an asset. God knows our government could use some.