Turning Around the U.S. Could Be Romney's Greatest Undertaking

COMMENTARY | A recent Wall Street Journal article attempts to answer the question: Are private equity firms like Bain Capital examples of "vulture capitalism" whose modus operandi is to destroy private businesses for profit or are they a necessary part of economic growth?

The answer seems to be the latter, something that will impinge on Mitt Romney's hopes for achieving the presidency. If Romney is a "vulture capitalist" as his rivals Newt Gingrich and Rick Perry accuse him of, his chances become more problematic. But if Romney, as CEO of Bain Capital, served a valuable function in turning around ailing companies, thus saving and creating jobs, then the argument for his becoming president becomes more credible.

Private equity firms make their money by buying distressed companies and then turning them around, making them profitable again, and then selling them at a profit. Sometimes this will involve cutting fat, which means laying off workers, and dealing with expensive union contracts that affect the company's bottom line. The alternative, however, is often seeing the company go bankrupt, with every job being lost.

In effect, therefore, private equity firms are the efficiency experts of the free market. They save inefficient companies where possible or else liquidate them in an orderly manner.

The sad truth is that jobs are being destroyed all the time, 15 percent a year according to a study cited in the article. Companies go out of business as a matter of course. The advance of technology makes some jobs obsolete. The trick is to create more jobs than are being destroyed. That is often the difference between prosperity and economic decline.

The implication that Romney's experience at Bain Capital makes him uniquely qualified to be president in the wake of the economic malaise the United States finds itself in. Think of the United States government as one of those ailing companies that was flirting with bankruptcy before Bain Capital go control of it. The theory is that the United States would be Romney's greatest turn around operation. He would transform the United States government from a bloated, inefficient, hostile to business bureaucracy to a slimmed down, efficient, business friendly institution.

He would have a lot more challenges in such an endeavor as president than he ever did as CEO, and not just because of the scale of the problem. He will have to get cooperation of Congress, many members of which will be hostile to his task, and a bureaucracy which will fight him every step of the way to ensure its own survival. The task will be daunting. The question is, would Romney be up to it?

Source: The Truth About Bain and Jobs, Holman W. Jenkins, Wall Street Journal, Jan 13, 2011

Romney's Vulture Capitalist Problem, John McQuaid, Forbes, Jan 12, 2011