Mitt Romney, America’s CEO?
Mitt Romney has repeatedly insisted that his business experience qualifies him to be president; that he possesses a firm grasp of the economy and how it works that Obama lacks. Romney’s claim that a businessman would have a better grasp of job creation and economic growth than a bureaucrat seems at first to make intuitive sense, but quickly breaks down.
This is because, as Paul Krugman pointed out on Friday, America is “not, in fact, a corporation”:
Making good economic policy isn’t at all like maximizing corporate profits. And businessmen — even great businessmen — do not, in general, have any special insights into what it takes to achieve economic recovery.
Krugman goes on to describe a few specific differences between running a nation and running a corporation: the national economy is “vastly more complex” than a corporation and, moreover, corporations produce goods for other people whereas nations produce goods primarily for themselves.
Krugman could take the argument a step further. A private equity firm does not have to take into account competing goods; it simply maximizes profits by whatever means necessary. In Bain’s case, the profits were quite handsome: according to the New York Post, the firm made $578 million between 1987-1995 by investing 22 percent of its money in five companies. As it turns out, tens of thousands of middle class workers were laid off due to restructuring and all five companies eventually filed for bankruptcy, but this was all irrelevant to Romney the businessman. To Romney the politician, however, layoffs and bankruptcies are a serious liability; that’s the rub. The trouble with Romney’s rhetoric is not just that governing a country and running a private equity firm are two separate activities; it’s that each requires an entirely different outlook from the other. Broadly speaking, a businessman is sanctioned to pursue self-interest at whatever cost to others, whereas a politician is supposed to at least pretend to care about the general welfare. Arguing that experience at a private equity firm qualifies a person to president is a bit like arguing that experience as a drug dealer qualifies a person to be chief of police.
Now to be fair, Romney is a proponent of the “invisible hand” theory of capitalism whereby selfishness and greed in the marketplace mysteriously translate into public virtue. In defending Romney’s record, Reihan Salam makes an appeal to this theory:
Private equity accelerates “creative destruction,” moving firms out of obsolescence and into the cutting edge. Jobs are destroyed in the process. But jobs are also created. When target firms can’t increase operational efficiency, well, everything that can be sold off is and the money flows to some other business idea that will yield higher returns. That is one reason why, as the economists Nicholas Bloom and John Van Reenen recently observed, some countries are much more productive than others: they’re good at getting efficient firms to grow larger (and, as a corollary, letting less efficient firms die off). Creative destruction can be extremely hard on workers and families. Yet crippling this process leaves an economy riddled with weak, inefficient companies that sure as heck won’t create new jobs.
Perhaps it is true that Bain and private equity firms like it are guided by Invisible Hand. Perhaps, but that is not to Romney’s credit. (I leave aside Romney’s wildly misleading claim to have created 100,000 jobs while at Bain.) The most Romney can claim is that his time at Bain demonstrates his uncanny ability to generate wealth for corporate investors — which somehow I don’t think will go over well in the general election. If I were Romney, I would change the subject to the Olympics.