Okay, work with me here. It’s January 2012, and we’re in the midst of the full presidential campaign following the self-inflicted, nearly unprecedented financial collapse of 2008. We’ve talked a little about what happened and how the government reacted, but the candidates have only just begun to talk about destructive business practices. Now, maybe I’m naïve, or confused, or just plain dumb, but I find it amazing is that the practices being discussed are not banking deregulation or collateralized debt swaps or any of the relatively newfangled investment tools. Instead, we’re discussing the leverage buyouts that Mitt Romney participated in as the chairman of Bain Capital. That’s right, leveraged buyouts, the preferred capitalist tool of the Reagan era.
LBOs were the golden chariots in which the Reagan Market Revolution conquered Washington and Wall Street, and with their more sinister-sounding stable-mates, Hostile Takeovers, they were the vehicles by which the doctrine of creative destruction carried the day. They were the operating arm of market efficiency, the principle that conquered all: it excused closing those factories, laying off workers, shipping machinery to sweatshops overseas, and above all, enriching the stockholders. They would be the winners because they deserved to be, because they took the responsibility and risk of allocating precious capital among winning industries. And the losers? You might think that the losers would be workers who lost their jobs, or who found their salaries or pensions or benefits adjusted, or who found their unions weakened, or who found themselves working for WalMart in jobs that carried no benefits. Not so: the losers would be those slowly failing companies who were trying to halt an immovable force; the losers would be those who failed to embrace the free market future.
Championed by Reagan and the Republicans, LBOs won the day without a serious political challenge. The Democrats in the 1980s, chastened by failure and dumbstruck by defeat, spent a decade wandering in the political wilderness, unconvincingly quoting old verities before reemerging with a set of ideas, many of which bought into the GOP’s pro-market ideology. Oddly, the more trenchant criticisms of LBOs came from law enforcement through the insider trading trials of Rudy Giuliani, and from the arts late in the decade and in the 90’s: plays like Serious Money and Other People’s Money and Rent, novels like The Bonfire of the Vanities, movies like Wall Street. But there was never a real political challenge to LBOs, to the idea that we should not be able to destroy without relieving or replacing that which was destroyed, to the thought that the market, as all-knowing and unknowable as God, would always set things straight.
At the start of the campaign, it would have seemed that to have been a Republican in 2012 and to doubt the legitimacy of LBOs would have been like being a Christian and doubting the miracle of the Eucharist. But now here comes Rick Perry, sounding a lot like the pro-Gore Democrat he was in the mid-eighties, says “”I happen to think that companies like Bain Capital could have come in and helped these companies if they truly were venture capitalists, but they’re not — they’re vulture capitalists.’’ Astonishingly , that attack is repeated in a video by Newt Gingrich’s Super Pac. “A story of greed,” the narrator says. “Playing the system for a quick buck. A group of corporate raiders, led by Mitt Romney. More ruthless than Wall Street. For tens of thousands of Americans, the suffering began when Mitt Romney came to town.” Nothing, not even his hypocrisy about his personal life, so clearly reveals Newt Gingrich’s fundamental cynicism. It turns out that the man who rode the pro-market rocket in the nineties now wants to separate good capitalists from bad—like we French or something!.
Perhaps this might be one of those cases where Americans find a stand-in issue for things they can’t otherwise discuss (you know—we can’t talk about race, but we’ll chew the OJ Simpson case to death.) In this case, this may be the beginning of a way to talk about capitalism, regulation, and the distribution of wealth without frightening the special interests who underwrite our campaigns. But beyond that—how does Bain-era capitalism look a quarter century gone?
In an excellent article in the Times yesterday, Ross Douthat praises Bain and other investment capital firms for helping America keep a competitive edge it had begun to lose in the sixties, and for helping sustain the country’s standard of living during the decades since. The formula that had profited America so sensationally in the first half of the 20th century would not have continued to work, Douthat says, and that change was necessary, even though results were mixed. “Our economy became more efficient, but also more ruthless and Darwinian. Our G.D.P. kept rising, but the new wealth was less evenly distributed. The revolution delivered growth, but at the expense of stability and certainty. And for many Americans, even the “modest net impact” of private equity buyouts cost them a solid, good-paying job.’’
Nicely said, but I’d go Douthat a step farther. The pro-market ideology gave a blessing to greed. In the decades following, useful regulations were overturned, sensible practices were ignored, sound practices were jettisoned, and every limit was pushed to its breaking point, and beyond. There were moral breakdown, far, far more damaging than anything that happened in the sixties.
Douthat says that these problems must be recognized. “Romney needs to prove to anxious voters that he and his party have more to offer them than just Bain capitalism alone. To win the White House, he’ll need to promise not only competition that leads to growth, but growth that leads to broadly shared prosperity. To defend his revolution, he’ll need to show that he’s reckoned with its costs.’’
I doubt very much whether Romney is capable of doing this. Last week Matt Lauer asked the candidate “Are there no “Are there no fair questions about the distribution of wealth without it being seen as envy?” Replied Romney, “ You know, I think it’s fine to talk about those things in quiet rooms, but the president has made this part of his campaign rally. Everywhere he goes we hear him talking about millionaires and billionaires and executives and Wall Street. It’s a very envy-oriented, attack-oriented approach.”
Talk about it in quiet rooms? My God, was this man awake in the 20th century? None of those LBOs tiptoed in.