Wednesday, January 11, 2012

Award for Best Defenses of Bain Capital Goes To John McCain and Steve Forbes

If Mitt Romney is the Republican nominee, he will somehow have to explain to American voters what private equity  is and its positive contribution to growth and prosperity. Because private equity and venture capital are complicated businesses, this task is not easy. I credit John McCain and Steve Forbes for coming up with the easiest-to-understand explanations.

Number 1: John McCain

Blitzer (Situation Room): How do you rebut that (claims that Bain cost jobs) in the general election?

McCain:  Well I’d compare that with the half billion we put into Solyndra with the 5 million they put into Staples which hires, I don’t know, ten thousands people or more. Unfortunately in the free enterprise system, there are winners and losers, and there is competition in the free enterprise system. When you total up what Bain capital did, the successes far outweigh the failures. And if you are not willing to allow, as tragic as it is, for some enterprises to fail, well obviously that is the essence of socialism.  Source

Number 2: Steve Forbes

In terms of Bain itself, I've not looked at the particulars but that whole nature of that business -- most businesses eventually succumb and if you can save it, that's great.
If you can start one that succeeds, that's great. But it's like baseball. Seven times out of ten you're not going to get that hit. The same is true with what he did in terms of equity capital. But the key thing is -- did he create jobs overall, because a lot of those companies that are going to portray him as killing jobs and that kind of thing would have gone under if they didn't have someone to save it. Sometimes you have to tighten the belt to save the company. Source  

1 comment:

  1. Ummm. I guess Forbes is not bad.

    The foundational issue is that adding jobs is not a goal; it is an incidental benefit of adding value. Is it still OK to say that in public?

    Much of the private equity work in the '70s was unwinding '60s bureaucracies which felt vertical integration was going to be efficient. It turns out central planning does not even work well in large companies, much less large governments.

    So companies like Bain may well have negative job numbers; at least part of what they were doing is unpacking value of the statist bureaucracies of decades past.

    Now, you can argue they gave themselves a lot of money for doing that. But it was their money they put up in the first place. You might as well argue that the neighbor shouldn't be buying such a flashy car.