Posted by: mutantpoodle | February 1, 2012

And another one misses the point

Today’s “wait – that wasn’t the target?” talking writing head is Reihan Salam at National Review Online.

Salan wants us to know that Private Equity is really great, because it replaces inefficient companies with efficient ones, and the job losses that come with that are inevitable, and, in some cases, not permanent.

But then he does a dumb thing, which is use Steve Jobs as an example.

Just months before Romney’s career at Bain Capital became controversial, Americans mourned the death of Apple CEO Steve Jobs. And yet when Jobs returned to Apple in 1997, he returned as an angel of destruction. He fired over 3,000 employees, a move that helped swing Apple from a $1.05 billion annual loss to a $309 million profit. He shut down Apple’s manufacturing facilities and outsourced almost every aspect of production. He swung the axe pitilessly, since he was convinced that survival requires leanness. And in the 14 years after Jobs returned, employment levels at Apple soared. Apple’s manufacturing work force was eventually replaced by engineers, support staff, and — in a move that would have surprised many in 1997 — a vast army of retail employees. The destruction was a prerequisite for the creation, and for the transformation of a wounded technology firm into one of the world’s most valuable public companies.

Which is true, but it doesn’t have a damned thing to do with private equity, or why people are making an issue of Mitt Romney’s time at Bain Capital.

First, when Steve Jobs returned to Apple, the company was a mess.  And he did lay off thousands, which was, sadly, necessary because previous management had screwed the company up so badly.


When Steve Jobs did all this, he wasn’t getting paid.*

Let me repeat that, in case you missed it: he wasn’t getting paid (assuming you don’t count $1 a year as salary, and I don’t).  Nor was he getting stock grants or options.

Furthermore, Jobs didn’t just lay off people. He refocused Apple on four products: Professional desktop, professional laptop, consumer desktop, and consumer laptop.

in other words, he made management decisions to increase the company’s probability of success.

After Jobs turned Apple around, he did ask for a very big payday, but had Apple failed, Jobs would have wound up with nothing.  In short, his fortune was tied to Apple’s.

The reason people are harping on Romney’s private equity experience is that he made sure that his money wasn’t at risk (often by borrowing money on behalf of a company to pay Bain Capital’s fees) in a way that risked – and often cost – jobs. Romney’s fortunes weren’t tied to the companies Bain Capital invested it. They weren’t even necessarily dependent on the companies’ success or failure.

In the worst instances, the method by which Bain Capital insured its returns increased the likelihood that the targeted company would fail in the long run.  

You can venerate capitalists all you want, and the ones who really create jobs (and sometimes, in fairness, Mitt was one of those) deserve the rewards they get from success, but the guy who makes sure he’s taken care of at the expense of everyone else is not a hero.  He’s the guy who pushes women out of a lifeboat on the Titanic, or cuts in front of a guy in a wheelchair in line at a bank.  He is a coward.

Because Bain Capital’s model of private equity, all too often, wasn’t about risking capital to earn a potential return. It was about using an existing company to ensure that their capital wasn’t at risk, no matter the cost to everyone else involved.

I’ve talked about this before, and it looks like it will keep coming up as long as people willfully obfuscate the central issue around Bain Capital and Mitt Romney.

It isn’t that Bain and Mitt made money.

It isn’t that Bain and Mitt laid off people.

It isn’t even that Bain and Mitt made money when they laid off people (although the optics on that, to be sure, aren’t the best).

It’s that Bain and Mitt made sure they made money, even if doing so wasn’t in the long-term interest of the company they were running and, by extension, the employees who worked there.

It is a fiction to say that Mitt was interested in increasing competitiveness and efficiency. They were, as I said before, agnostic on that front.

Mitt was interested in (1) making money and (2) see (1). Job creation or subtraction, internal efficiencies, and the long term fiscal health didn’t matter, except as they related to point (1) above.

That’s not illegal, but it’s not the best slogan for a guy who wants to be President when people are focused on jobs and getting more and more interested in this concept of economic fairness.

* I highly recommend the Walter Isaacson biography of Steve Jobs, which goes into far more detail on the Jobs-Apple turnaround, and is just plain fascinating..

UPDATED: Fixed typo for clarity.

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