If you have been paying any attention to the jousting between the two presidential campaigns over Bain Capital, you may be wondering what all the fuss is about. Most recently, the takeover company once headed by the presumptive Republican nominee, Mitt Romney, has been the subject of some hard hitting ads by the Obama campaign. Those ads caused one of Obama’s surrogates, Cory Booker, the well-regarded mayor of Newark, New Jersey, to claim the attacks (by his candidate’s campaign) were “nauseating” to him.
Booker’s statement (he made his comments on NBC’s “Meet the Press”) gave Fox News, et al. a week’s worth of bullet points with which to hammer the Obama campaign. But apart from revealing that the good mayor is not ready for prime time, his statement did promote some intelligent discussion on the significance of Bain as an issue in the campaign.
Is Bain Capital a significant campaign issue? In a sense, yes it is. Might it also be insignificant? In another sense, the answer is also yes. Simply stated, Bain’s significance as a presidential campaign issue depends on how it is being used, a point Mayor Booker probably understands, now that he has been taken to the woodshed by the president’s campaign staffers.
So what is Bain Capital and why should we care and not care about it?
Bain Capital is a private equity company, one of the many that grew out of the Reagan-era’s “Greed-is-Good” mantra. Its purpose is to make money by buying struggling companies, eliminating the parts of them that are losing money, adding parts that make money, and then selling them for a tidy profit. That’s an overly simplified description of the essence of their existence, but it also isn’t an inaccurate depiction of what these companies do.
It also implies what they don’t do, which is to actually produce anything (other than the hoped-for profits for their owners/shareholders).
Now how did Bain become a campaign issue and should it be one?
Bain became a campaign issue because Mitt Romney claims his success as its CEO proves that he can be a good president, at least insofar as the president is responsible for the health of the nation’s economy.
Under Romney, Bain became remarkably successful. He made it highly profitable and, presumably amassed much of his personal fortune from its success. (He served as Bain’s CEO from January, 1991 to December, 1992, then took a leave of absence to run for the U.S. Senate, and then, upon losing that race, returned to serve again from November of 1994 to February of 1999.)
During Romney’s dual terms as CEO, Bain made some bad investments (about half of them, in fact). But the good ones it made were very profitable, allowing it to suffer the losses in the bad ones and expand its influence (and pay its top executives, Romney certainly included, handsomely).
Romney asserts that his successful tenure as Bain’s CEO is a solid credential for his presidential aspirations. In fact, he cites it far more frequently than the one term he served as governor of Massachusetts (from 2003 to 2007). That part of his record gets very little attention in his campaign (possibly because, other than enacting the state’s mandated health insurance law that became the model for Obama’s Affordable Care Act, it wasn’t all that noteworthy or successful).
But what does his success with running a successful private equity firm really say about his ability to be a successful president, even if the question is limited to his ability to manage the nation’s economy?
Truth be told, probably not all that much.
Running (or, more correctly, seeking to guide) the nation’s economy requires a good understanding of macro-economic theory, but does heading a successful private equity firm indicate a person has that understanding?
Not really. Being the CEO of a private equity firm like Bain requires an ability to read a corporate balance sheet, to get a sense of a corporation’s potential, and to amass the assets to acquire the company, manage it effectively and then sell it for a profit. But those skills are only a small part of what is involved in handling the nation’s economy.
That job requires a skill-set that might bear little resemblance to the skills required of a private equity CEO. It requires an understanding, among many other things, of the interplay between fiscal and monetary policy, of the correlation of unemployment rates and tax rates, and of how international trade might impact domestic productivity.
And those are just a few of the things a president (or the president’s economic staff to be more specific) must be on top of in attempting to manage the nation’s economy.
Seen in that light, being a former CEO of a private equity firm might be no more meaningful a credential to be president than being a former community organizer, or a former law professor, or a former actor, if you will.
In other words, to cut to the chase, Romney’s tenure as the CEO of Bain Capital is essentially irrelevant as a significant credential for his presidential aspirations. It is certainly to his credit that he was successful in that position, but probably no more so than it might be considered detrimental to his aspirations that he wasn’t the greatest governor Massachusetts ever had (unless, of course, he chooses to claim that he was, in which event he may well have a good case to make for his presidential aspirations).
And so, to answer the question I posed at the outset of this column, Bain Capital is significant as a presidential campaign issue because Mitt Romney is placing far more importance on his tenure as its CEO than is warranted. And it is insignificant as a campaign issue because very little of what Romney did as CEO of Bain can be indicative of how successful or unsuccessful he might be as the nation’s president.
And with all that is being made (by both sides) of the Bain Capital “issue,” perhaps it is understandable that the good mayor of Newark would find it all “nauseating.”