PLANK JULY 16, 2012
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What did Mitt Romney know about Bain Capital operations and when, precisely, did he stop knowing it? I don’t have the answer and, to be honest, I’m not sure how much I should care.
The controversy right now is over whether Romney had significant responsibilities at Bain after February, 1999, when he took charge of the Salt Lake City Olympics. The timing matters politically because, after that date, Bain invested in a number of firms that outsourced jobs in politically embarrassing ways. Romney has said he had no active role in decision-making after leaving for Utah. But media outlets, particularly the Boston Globe, have produced evidence that Romney continued to attend meetings and, of course, remained on the firm’s corporate filings as its chief executive. The Globe also reported today that Romney’s story about Bain “evolved” in 2002, when he was running for governor and his Democratic opponent attacked him for Bain’s recent investments. It was then he adopted his current position—that his work for Bain ended when the Olympics began. Previously, he had described his role after 1999 as a “part-timer.”
The shift certainly has the whiff of deception about it. Even more damning information may yet come to light, reflecting more poorly on Romney's character. But, substantively speaking, this controversy is largely telling us something we already knew: That Romney helped develop and then employed business practices that generated large profits for investors, made companies more efficient, and frequently led to layoffs. (The seminal text on this issue remains the Romney profile Ben Wallace-Wells wrote for New York magazine last fall.)
By itself, this shouldn’t disqualify Romney from being president. As writers like Matt Yglesias have pointed out, outsourcing is an almost inevitable by-product of capitalism and not necessarily a bad thing. When firms can produce the same goods for less money, they can then sell those goods at lower prices, enabling many more people to buy them. Firms also can make bigger profits, attracting more investment for growth, creating new jobs even as they shed old ones. In theory, an economy in which companies are frequently outsourcing can still be an economy that grows quickly and spreads prosperity broadly.
But the key phrase there is “in theory.” And that gets to the real problem with Romney, one that the Obama campaign’s new, devastating advertisement (see below) captures perfectly.
The question isn’t is whether outsourcing can be a sound, legitimate business practice. The question is how we, as a society, react to it, given that outsourcing inevitably causes a lot of very real, very serious human pain. One response is to minimize outsourcing, by, for example, creating financial incentives that discourage it. An example would be industrial policy that subsidizes domestic manufacturing. Another response it to let the economy operate as freely as possible, with minimal interference, but then intervene after-the-fact to help those who lose their jobs—by redistributing income through the tax code or by creating universal programs that provide economic security and opportunities for new work. (The Scandinavian countries do this exceptionally well, with good results.)
Liberals have argued amongst themselves over which combination of these strategies makes the most sense. But the conservative answer to outsourcing—the answer Romney has long espoused—is essentially to do nothing. Remember, Romney’s economic policy is to weaken the safety net, to reduce regulations on what corporations can do, and to give the wealthiest Americans huge tax breaks. The theory behind this is that, by eliminating government meddling in the market and letting the rich keep more of their money, the economy as a whole will grow faster. But experience, here and abroad, suggests otherwise.
In the end, the issue with Romney isn’t his business practices. It’s his governing strategy, which fails to blunt the harsh impact those business practices have on ordinary Americans. Like the Obama campaign ad says, Romney isn’t the solution. He’s the problem.
Update: My colleague Alec MacGillis, who was writing about this last week, has more details on the pre-1999 history of Bain and why it tells us everything we need to know about Romney's business practices.
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6 comments
Good summary. Outsourcing is a currently undesireable consequence of a world economy that dates back to the advent of shipping and was good when England had colonies. Romney's pure capitalism solution for everything offers nothing, unless his plan is to drop the standard of living in the United States so we can compete. His work at Bain underscores that.
- Nusholtz
July 16, 2012 at 11:50am
Mitt Romney is being hoisted by his own petard, the way his doppleganger John Kerry was hoisted by his own petard when he claimed that being a decorated Vietnam War veteran was sufficient qualification to run the Iraq War better than George W. Bush. This is what happens when a politician centers his campaign on a facile argument -- your opponent will pick it apart sooner than later, with the help of the media (especially if your opponent happens to be more likeable than you) or without it. Thus, Kerry's facile argument that he is a better economic steward than Obama because he run a successful private equity business would boomerang sooner or later when the spotlight shines on the politically unhelpful aspects of private equity. And it only adds fuel to the fire when Romney disingenuously attempts to separate his tenure at Bain to only good stuff, while the bad stuff happened when he was no longer actively affiliated with the business. Again, that argument will hold up for about 15 seconds before it is shot full of holes. In my view, Romney ought to be a man about it and stand up for private equity, regardless of whether or not he was actively involved in the business. They close businesses, they lay people off, they engage in outsourcing -- tough luck, that's the way American business operates, you win some and lose some but your goal is to come out ahead. Level with the American people and tell them that full employment is a chimera, that all the Democratic talk of good jobs for all is just a bunch of pablum and that Romney knows how to leverage American economic policy toward higher growth and a stronger outcome for all. No apology, no excuse for the collateral damage of capitalism. Unfortunately, even Romney knows that this sort of campaign is going to make him lose everywhere outside the Republican base so he has tried to tip-toe around the issue of his career in capitalism. The results have been predictable now that the press and public has started to pay attention, which they would as the general election draws near. Yet another reason why none of the men elected President since 1932 had his primary background in private industry.
- wildboy
July 16, 2012 at 12:21pm
Oops, in the second sentence it should say, "Thus, Romeny's facile argument that he is a better economic steward than Obama because he run a successful private equity business ..." FYI, I do think Kerry was better qualified than GW Bush to run the Iraq War, and just about everything else. It's just that he didn't really bother to make this argument, and instead just flashed his Vietnam War medals in front of the electorate as shorthand for laying out a cogent argument for his election. Predictably, it didn't work.
- wildboy
July 16, 2012 at 12:23pm
In a shrinking world, comparative advantage is a short term advantage, as one country's advantage today is another country's advantage tomorrow (India today, Uganda tomorrow), which results in economic instability everywhere. And, as history teaches, economic instability results in political instability. I can think of only three answers to this dilemma: (1) trade barriers, (2) income redistribution (to the displaced), and (3) the free migration of people across borders. The first yields a much poorer world (and, possibly, trade wars that often lead to real ones). The second is unpopular and, perhaps, politically unfeasible. The third yields ethnic strife (as in many European countries that opened their borders to cheap labor, not to mention all those unpopular Mexicans in America). While it's true that free trade (outsourcing) generates much greater global wealth and a much higher global standard of living, the benefits and costs are not shared equally. So maybe we face a future of economic and political instability everywhere and on a scale never experienced. As Cohn points out, Romney offers no solution to the dilemma; and in the absence of a solution, Romney presents Americans with a much more dangerous world.
- rayward
July 16, 2012 at 12:29pm
Really liked the article, as well as the typically insightful comments from the commentators, nush & wildboy. I find it delicious that a Republican candidate is finally on the receiving end of a sharp, pointed, effective offense. (And a fair offense also, I might add, not an essentially dishonest one, such as Repubs tend to indulge in.) And am equally pleased that BHO shows no signs of backing down from his aggressive stance, viz, no "apology" as demanded by Mitt. (BTW, shouldn't BHO be demanding an apology from Mitt concerning Mitt's repeated lie that BHO "apologizes for America"?)
- Haole45
July 16, 2012 at 12:42pm
As to Romney's governing strategy: perhaps he thinks the US is a corporation and we the people are his employees. Well maybe it's time he figured out that we the people are employing HIM. Or, hopefully not! Anyway, this whole argument also focuses on the labor/management polarity, reflected in the Bush tax cuts - the idea that labor exists to serve management rather than working in synergy with it has generally led to the abuse of workers and the outright theft of our labor, which management then declares = "good business."
- Sophia
July 16, 2012 at 2:25pm