The Bane of Capital

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Mitt Romney has been the presumptive front-runner since the candidates first declared themselves for the Republican presidential nomination. But he has been the front-runner in name only. In actual fact, someone else has usually been at the top of the polls, and this person came under immediate and intense scrutiny that caused his campaign to fold, which is why we had a different someone else at the top of the polls every month.

But now Romney is the certified front-runner, and oddly, it seems that it is only now--helped along by bitter and desperate attacks mounted by former front-runners like Newt Gingrich--that Romney is coming under the kind of intense scrutiny the other candidates suffered.

Most of that scrutiny is focused, not on his squeaky clean personal life, but on his time at the head of Bain Capital, a "private equity" firm that bought out failing companies in the hope of making them profitable. In fourteen years at Bain, before leaving to turn around the failing 2002 Olympics, Romney produced astonishing returns for his investors and made a fortune for himself.

But a political group associated with Gingrich has put together a documentary riddled with errors and distortions that portrays Romney as an unscrupulous "corporate raider" who ran companies into the ground. Rick Perry, picking up the same theme for the same reason, described Romney as a "vulture capitalist."

After coming under fire for attacking Romney in terms seemingly borrowed from the Occupy Wall Street movement, Gingrich has tried to make the distinction that he is not attacking capitalism itself, just this particular bad version of capitalism.

Which indicates that Gingrich has no understanding of capitalism, because the whole idea that politicians are going to go around deciding what are the "good" versions of capitalism they like versus the "bad" capitalism they dislike--isn't this the essence of statism and of the very cronyism the right has been denouncing?

A lot of these criticisms take the form of second-guessing Bain's record, which includes a small number of phenomenal successes and a large number of failures. But that is typical of firms that specialize in venture capital or turnarounds. They are making high-risk investments, and they hope that huge returns from a few successes will cover the risks from all of the failures. And before the cultural elites start feeling superior, I should mention that this is also typical of fields like publishing and filmmaking. A few bestsellers pay the freight for all of the obscure mid-list authors, and a few blockbusters make the profits to pay for the flops.

Criticism of this kind of entrepreneurial risk-taking is annoying when it comes from commentators in the press, who on average have never run any enterprise beyond the scale of a pushcart. It is galling when it comes from politicians like Gingrich, whose motive in criticizing Bain is obvious. He's trying to divert attention from the question of what he did to earn millions in consulting fees in exchange for rather vague services to Freddie Mac, the government-sponsored mortgage lender that helped drive the entire economy into the ground. Talk about "vultures" who "take all the profit and leaving people unemployed behind."

This is a long-notorious form of inside-the-beltway corruption. Fannie Mae was infamous as a place for politically connected Democrats to cash in with astonishingly lucrative jobs in between stints in government. The idea is that they would go back and talk to their friends in positions of power about what great organizations Fannie and Freddie were and what good work they were doing. Gingrich's work for Freddie Mac seems to have been an attempt to extend that influence-peddling racket to the Republican Party. After all, when you're in the business of deciding who the "good" capitalists are, you tend to pick your friends and supporters, don't you?

Economic populism is the last refuge of scoundrels, but in this case, it is a little too obvious. Gingrich gave the game away when he told a reporter, "I don't think I'm using the language of the left. I'm using the language of classic American populism. Main Street has always been suspicious of Wall Street. Small businesses have always worried about big businesses." A classic American populist does not talk about "using the language of classic American populism." Only a history professor masquerading as a populist would say that. And since when do leaders on the right appeal to muddle-headed false alternatives like "Main Street versus Wall Street"?

Fannie Mae and Freddie Mac are perfect examples of this "good capitalism versus bad capitalism" attitude. The government-sponsored mortgage lenders enjoyed decades of implicit government support and lenient regulation because they were portrayed as a benevolent version of capitalism which helped struggling folks climb up the first rung of the ladder into the prosperous middle class. In the long run, after so many people have been knocked right back off the lower rungs of that ladder, it turns out that a bit more of a stingy, greedy, vulture-ish attitude--the kind that says, "No, you can't afford this mortgage"--might have been in order.

The same goes for all of the Solyndras of the world, and there are more of them coming. They are the "good capitalists" who get lots of government subsidies because they're going to turn a profit while saving the planet, or some other supposedly worthwhile goal, until they go broke because nobody considered it polite to check whether their product makes any economic sense.

A free economy is a lot like freedom of speech and of religion. All of these institutions are based on the idea that only individuals, not government, can properly judge what is true and good. And in all of these realms, what we should expect from our political leaders is a fair bit of tolerance toward diverging views. In fact, even greater tolerance is called for in economics. Consider the choice between a Mac and a PC, which (despite how some people regard it) is not a moral issue. It's just a trade-off, with legitimate disagreements over which is the better side of the trade. A vibrant economy is full of disagreements like that.

I am not saying that you must automatically admire someone's business success. All kinds of people have found a way to get rich. Some of them have made money more by being glad-handing, self-promoting deal-makers than by being visionary geniuses. Think Donald Trump. More than a few think that because they've been hugely successful at business, they must be super-geniuses who can immediately solve all of our political problems. Think Michael Bloomberg. And some make money by seeking out government subsidies and gaming the regulatory system. Think of GE's Jeff Immelt, who has turned his company into a "green energy" gravy train.

Thus, the one criticism I've seen of Bain that actually sticks is from a former auctioneer of failing companies who complains that Bain was deceptive in the bidding process, telling people whatever they wanted to hear in order to get ahead. That sounds a lot like the political criticisms that have been leveled against Romney. On the other hand, he undermines his case when he concludes that "This win-at-any-cost approach makes me wonder how a President Romney would negotiate with Congress, or with China, or with anyone else." If Romney's guys were such sharks as negotiators, that's precisely the sort of person we want going up against the Iranians and the Chinese. After all, what exactly does President Obama have to show as the result of his negotiating skills? I don't think anyone would describe it by using the phrase "win at any cost."

My point is that it's amazingly hard to know what businesses will be the most productive over the long run. Guys who do this professionally in the financial markets only get it right part of the time. So it is presumptuous for politicians to tell us that they are going to stand in judgment over who is a "good capitalist" and who is a "bad capitalist." And after all, the free market always offers us one real answer. If you think there is a better way to turn around failing companies, if you think more profitable long-term results could be gained by taking a different approach than Romney or Bain or all of those supposedly short-sighted "vulture capitalists"--well, go ahead and prove it.

When your financial and managerial genius has earned you more money than Mitt Romney, then maybe you can run for president and do a better job of that, too.

 

Robert Tracinski is senior writer for The Federalist and editor of The Tracinski Letter.

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