The Bain of Capitalism
11 January 12
t's one thing to criticize Mitt Romney for being a businessman with the wrong values. It's quite another to accuse him and his former company, Bain Capital, of doing bad things. If what Bain Capital did under Romney was bad for society, the burden shifts to Romney's critics to propose laws that would prevent Bain and other companies from doing such bad things in the future.
Don't hold your breath.
Newt Gingrich says Bain under Romney carried out "clever legal ways to loot a company." Gingrich calls it the "Wall Street model" where "you can basically take out all the money, leaving behind the workers," and charges that "if someone comes in, takes all the money out of your company and then leaves you bankrupt while they go off with millions, that's not traditional capitalism."
Where has Newt been for the last thirty years? Leveraged buyouts became part of traditional capitalism in the 1980s when enterprising financiers began borrowing piles of money, often at high interest rates, to buy up the stock of ongoing companies they believe undervalued. They'd back the loans with the company assets, then typically sell off divisions and slim payrolls, and resell the company to the public at a higher share price - pocketing the gains.
It's a good deal for the financiers (the $25 billion buyout of RJR-Nabisco in 1988 netted the partners of Kohlberg, Kravis, and Roberts around $70 million each - and most of Mitt Romney's estimated $200 million fortune comes from the same maneuvers), but not always for the company or its workers.
Some workers lose their jobs when the company downsizes. Others, when the company, now laden with debt, can't meet its payments to creditors and has to go into bankruptcy. According to the Wall Street Journal, of 77 companies Bain invested in during Romney's tenure there, 22 percent either filed for bankruptcy or closed their doors by end of eighth year after Bain's investment.
But, hey, this is American capitalism - at least as it's been practiced for the past three decades. Is Newt proposing to ban leveraged buyouts? Or limit the amount of debt a company can take on? Or prevent financiers - or even CEOs and management teams - from taking a public company private and then reselling it to the public at a higher price?
None of the above.
Rick Perry criticizes Romney and Bain pushing the quest for profits too far. "There is nothing wrong with being successful and making money," says Perry. "But getting rich off failure and sticking someone else with the bill is indefensible."
Yet getting rich off failure and sticking someone else with the bill is what Wall Street financiers try to do every day. It's called speculation - and at least since the demise of the Glass-Steagall Act, investment bankers have been allowed to gamble with commercial bank deposits, other people's money.
So is Perry proposing to resurrect Glass-Steagall? Not a chance.
Gingrich, Perry, and others are putting particular focus on the people who lost their jobs as a result of Romney's Bain Capital. Gingrich's Super PAC will be running $3.5 million of ads featuring emotional interviews with some of them.
But what, exactly, are Romney's opponents proposing to do about layoffs that harm so many people? Millions of Americans have lost their jobs over the last four years - and as a result have often lost their health insurance, their homes, and their savings.
Are Gingrich, Perry, and others proposing to expand health insurance coverage for jobless Americans and their families? All I hear from the Republicans is their determination to repeal the law that President Obama championed - which still leaves millions of Americans uninsured. Do Romney's opponents have plans to keep people in their homes even when they've lost their jobs and can't pay their mortgages? No. Do they propose expanding unemployment insurance? If memory serves, most of them were opposed to the last extension.
I'm all in favor of reforming capitalism, but you'll permit me some skepticism when it comes to criticisms of Bain Capital coming from Romney's Republican opponents. None of these Republican candidates has exactly distinguished himself with new ideas for giving Americans more economic security. To the contrary - until the assault on Romney and Bain Capital - every one of them has been a cheerleader for financial capitalism of the most brutal sort.
The party that has repeatedly saved capitalism from its own excesses and thereby preserved capitalism is the Democratic Party. So the only serious question here is what kind of serious reforms Obama will propose when, assuming Romney becomes the Republican nominee, Obama also criticizes Bain Capitalism.
Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including "The Work of Nations," "Locked in the Cabinet," "Supercapitalism" and his latest book, "AFTERSHOCK: The Next Economy and America's Future." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.
There is a full-blown debate going on in, of all places, the Republican Party about the failings of the governing, corporate-sponsored kleptocracy. Not so on the Democratic side. Spared a primary battle, the incumbent president need not defend his economic record, which is basically a redo of the save-Wall-Street-first stance initiated by his Republican predecessor.
That bipartisan establishment consensus, in which the enormous power of the Treasury and the Federal Reserve was harnessed to bail out the financial industry swindlers while ignoring the plight of their victims, has been challenged only on the Republican side, where the libertarian Ron Paul has tapped into the enormous populist rage among voters.
There is no comparable dissent among leading Democrats, who have been loath to take on Barack Obama's embrace of crony capitalism—that fatal melding of Wall Street wealth with Washington political power—the way Paul and even Newt Gingrich have powerfully challenged Mitt Romney, the GOP's Obama doppelgänger.
Yes, doppelgänger, and please don't try to scare me with those hoary tales of how Romney is the second coming of the far right on social issues, when his entire tenure as Massachusetts governor proved quite the opposite. The issue in this campaign is the economy, and on that, by the time of the general election, there will be no serious substantive difference between the two major parties' candidates. Both will squarely be on the side of the financiers who created this crisis.
The attacks on Romney's association with the rapacious Bain Capital could apply with equal force to the Clinton administration veterans whom Obama has entrusted with managing the nation's economy. The list begins with Lawrence Summers, who pocketed more than $8 million in Wall Street loot during the period when he was a top economic adviser to the Obama 2008 presidential campaign. Summers received $5.2 million from the D.E. Shaw private equity fund, which was up to the same sort of shenanigans as Romney's Bain Capital.
What has changed in American politics is that the growing army of disenfranchised stakeholders now fit as comfortably within what has been thought of as the plutocratic Republican Party as within its faux-populist rival. In an attempt to exploit the palpable populist anger in the Republican base, Romney's opponents, as The Wall Street Journal reported, opened a "Pandora's box of bitter attacks" claiming "in his business career he was a corporate predator, a heartless shredder of companies and jobs and the personification of all that is wrong with capitalism. ..."
It is a line of attack that has worked because, as the Journal's Gerald F. Seib points out, "Today's Republican Party has become steadily more blue-collar, more populist and more influenced by voters who act as much like independents as Republicans. All of that makes the idea of attacks on capitalist behavior arising from the traditional party of capitalists a little less bizarre."
The stats to back up that assertion are compelling; according to exit polls, 75 percent of Republican primary voters in New Hampshire had family incomes of below $100,000, and almost half did not have a college degree. It was from their ranks and among the nearly half of voters who identified as independents that Paul and third-place finisher Jon Huntsman pulled much of their support.
National polls support the notion of a more populist Republican base, and as the combined results of WSJ/NBC News polls over the last year show, blue-collar voters were slightly more likely to identify as Republicans than Democrats. Most startling was the finding from those same national polls when respondents were asked which party was responsible for the economic crisis: "Republicans were precisely as likely as Democrats to blame 'Wall Street bankers.' "
But as the presidential election is now shaping up, voters will not be given a choice to rebuke Wall Street by either major party. Expect razor-thin differences between Romney and Obama on the key issues at the heart of our economic crisis—the ravages of predatory multinational corporate capitalism that turns the nation state into a vehicle for ill-gotten gain, mocking both Adam Smith's claims for the invisible hand in a truly free market and the assumptions of Jeffersonian democracy in which governance is in the hands of the common folk who are also stakeholders.
No comments:
Post a Comment