There are two things we know about the upcoming presidential election: (1) Obama will not talk much about real economic problems and (2) class warfare will be central to his reelection rhetoric. Nothing illustrates this reality like Bain Capital.
From a political perspective, Bain is both Romney’s greatest strength and his greatest weakness. The Democrats charge that Bain represents everything that’s wrong with conservative/libertarian economics. The opposite is true, however. Anyone who understands how a free economy works appreciates the Bain Capitals of the world and their role in the economy.
Firms like Bain deal with distressed entities. By definition, they make high risk-high return investments, so downsizing is often part of the required restructuring effort. In the end, some recover, but others fail anyway. Private equity firms like Bain are a last resort. The fact that jobs are “lost” in a turnaround effort is not attributable to Bain any more than a death after an auto accident is the fault of an emergency room physician. Moreover, companies fail when customers decide to spend elsewhere; failure is a part of a regeneration process that advances the economy and our standard of living. This is a clear logical flaw inherent in the anti-Bain attack, one that is being swept under the rug of emotionalism and class warfare. The rug must be lifted.
Contrary to popular opinion, firms do not exist to create jobs anyway; they exist to generate a profit for their owners. Of course, profits are only possible if customers are willing and able to purchase their products and services. Unfortunately the government often intervenes in these exchanges through punitive regulations, crony capitalism, bailouts, and the like. When government stays on the sideline, however, companies only profit when they make their customers better off along the way. This is the beauty of capitalism.
Here’s where job creation comes in. Firms are formed to serve customers, not employees. This truth must hold because customers must provide the revenue necessary for the firm to survive. In other words, employees exist because the firm has customers to serve. Employment is an indirect or secondary benefit of free enterprise. If you want jobs, then leave all of the players in the economy alone, including entrepreneurs, family businesses, large companies, and the private equity firms.
A larger point here is that a government can’t create any jobs, unless you count getting out of the way as job creation. Even when governments hire workers, they must pay their wages by taxing present or future generations. The confiscated wealth to support government employment could have been spent to create jobs in the private sector, so it’s a wash at best, and usually worse.
Back to Bain…The Obama attacks that blame Romney and Bain for lost jobs are both illogical and misdirected. They are designed to pit evil rich capitalists like Romney against the desperate and unemployed masses who–without government intervention–are helpless. The Republicans can respond in one of two ways. First, they can apologize for Bain’s restructuring efforts as a necessary evil of capitalism’s imperfection. Doing so opens the door to a litany of socialist claims, however. If capitalism is the problem, then the debate shifts to how government can best control it. If Romney chooses this route, he resembles Obama, has little to offer, and either loses in November or is unable to institute serious free market reforms if he wins.
The second option is a proud defense of free enterprise and Bain. The solution to our ailing economy is more capitalism, not socialism or the elusive middle ground. There is no governmental shortcut to prosperity. This debate requires a strong educational effort but it can be won. The Democrats are forcing Romney to make a choice. We must pressure him to make the right one.