"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Tuesday, January 10, 2012

Romney and Bain Capital

The Regular Guy was out of town on Sunday and Monday traveling for work, so I missed the brouhaha that apparently arose when some Republican Presidential candidates attacked the frontrunner, Mitt Romney, for having had the audacity to start and run a private equity fund that -- I'm shocked, shocked -- bought companies and then restructured them to make them more efficient, sometimes by laying people off.   Here's Newt Gingrich making the point:

Gingrich accused Romney of building the fortune that has underwritten his political career through a “flawed system” – better known as private equity – in which “a handful of rich people [can] manipulate the lives of thousands of other people and walk off with the money” by “looting a company and leaving behind broken families and broken neighborhoods."

And here's Rick Perry making somewhat the same point:

"Mitt Romney's going to have a hard time coming into South Carolina and making the people here think that he's anything other than just a rich Wall Streeter who took advantage of their businesses.

People lost their jobs, they lost their pensions, they lost a lot.

.... shutting down these businesses -- with the only real reason that most people can see -- was so that Bain Capital could profit and he could get richer.

This is a remarkably stupid point.   Gingrich and Perry sound like the Occupy Wall Street crowd, decrying evil capitalists.   Look, the point is simple.   Time has shown and economics has proven from Adam Smith through von Mises that the greatest good for the greatest number of people in society comes from individuals seeking to maximize their own interests, because in doing so they maximize the efficient allocation of resources to the production of goods and the providing of services that human beings actually want and need.   If a company is more valuable being broken up into parts and sold off, then that use of resources is more efficient, and the resulting capital can be allocated to more productive uses.   If a company is more valuable by downsizing its workforce through laying off inefficient or unproductive or redundant personnel, then the resulting human capital can be "allocated" to more productive uses too.   No one is served, not the corporation, not the individual worker, and not society as a whole, if there are unproductive and inefficient corporations.  

Besides this macroeconomic point, there is also a moral and legal point.   The owners of a corporation are its shareholders.   The duty of a manager of a corporation is to maximize value for the shareholders, period.   The notion that a corporation has a moral duty to employees or to "neighborhoods" or "communities" is socialism, pure and simple, and to the extent that its infected our discourse or law, we've been misled.   What Gingrich is saying, essentially, is that there ought to be some mechanism (law?  legislation?   federal bureaucrats?) whereby an investor such as Bain Capital would be forced to transfer wealth from its investors to its employees, no matter how unproductive they are.   That's bad economics, it's bad public policy, it's bad morally.   That supposed conservatives in a Republican primary are lurching into this argument simply to score points against the frontrunner is sad.

Notably, Rick Santorum hasn't fallen for this line of "reasoning":

Santorum also declined to take a shot at Romney over a remark earlier from the front-runner that he “likes to fire” workers who are not doing a good job.

“We try to hire good people, we try to keep them employed. If someone if obviously not performing their duty and their mission, obviously a business has a responsibility for the greater good of the business and the other employees to make sure that everybody there is pulling their weight,” Santorum said.

Asked whether Romney’s corporate takeover experience at Bain Capital would be a liability, Santorum said: “I’m not making it a liability. I believe in the private sector.”


P.S.  Santorum is both right on the merits here and also right politically.   As of today, with the likelihood of a New Hampshire double-digit win and a win (because of better organization) in South Carolina next week, Romney has the wind at his back.   Santorum may very well be playing for the VP spot.   He makes some sense for Romney.   First, he has much deeper experience on the national level than people like Chris Christie, Marco Rubio, or Susanna Martinez (governor of New Mexico).   Second, he would bring along the Christian right, who will like his strong family values, pro-Life positions.   Third, he helps Romney in Pennsylvania, the most likely big blue state that Republicans might be able to turn red in 2012.   I still think Rubio is the likeliest VP candidate, but Santorum has been vetted through these campaigns, he'd be a good debater (against Biden), and he's credible on foreign policy.

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