President Obama's attacks on Mitt Romney's character, experience, wealth, and unwillingness to release tax returns are all completely fair game. The attacks on Bain Capital, however, are both unfair and misplaced.
Bain Capital, like all private equity, exists to take advantage of an economy of our own creation. In this regard, it is just like Walmart, another unfairly, oft-criticized, and frequently misunderstood corporation that too has thrived in an economy created by the American public. Let me address the latter first.
Walmart is nothing more than the ultimate manifestation of our American (and, more frequently, global) insistence on paying slightly less for our consumables. Its intense pressure on its suppliers is not some insidious program to squeeze them dry, but rather the only way to meet the incessant consumer demand for ever-cheaper goods and products. In other words, Walmart is really just a super-efficient middle man, and should be commended for its ability to do the only thing we demand of it: keep prices low.
Of course, there are problems too with such a massive entity, particularly the degree to which its pressure on suppliers results in flimsier products, the outsourcing of jobs, and the increased need to cut regulatory and environmental corners. (For much greater detail, please see Charles Fishman's excellent The Wal-Mart Effect.) However, none of these problems are Walmart's fault. Rather, they are indirect consequences of our own desire to save money. Blaming Walmart is just easier than blaming ourselves.
Just as Walmart then should not be blamed for its mastery of the retail economy, neither too should firms like Bain Capital be blamed for having mastered the political economy. After all, just as the retail economy is engendered by where and how we spend our money, the political economy that Bain Capital and other firms have mastered exists as a result of our voting behavior.
In other words, we are just as responsible for the Bain Capitals of the world as we are for the Walmarts.
Private equity succeeds because its practitioners have learned how to take advantage of a political economy that is increasingly unfriendly towards organized labor and financial regulation, and increasingly amenable to leveraging, tax avoidance, and political lobbying. This is no moral judgment, but rather simple reality. Like any corporation, these firms exist to maximize investor value, and they have the right, like any corporation, to take full advantage of the playing field before them.
Moreover, we, the American public, further enable their success by providing much of their funding: Studies have shown that, in the face of unfavorable equities and bond markets, pension funds -- teams that manage the money of average, salaried Americans -- are the principal investors in private equity, sometime providing over half of their funding.
This combination of a favorable political economy and a readily available pool of pension money (much of it public) has created the perfect environment for private equity to flourish. And the relaxation of campaign finance restrictions and the use of beneficial tax treatments like the carried interest loophole have only further enabled and enriched the industry.
Yet like Walmart, Bain Capital is operating legally within the current political-economic climate. Morality aside, both firms are playing by the rules (even if those rules often make it easier for them to consolidate their power). And sure, it's easy to dislike Bain Capital's business model, just as it's easy and convenient to dislike Walmart's. But there is no denying that Bain Capital has had tremendous success by taking advantage of an economy the we, the American voters, have enabled.
Of course, the current economies that have been so favorable to Walmart and private equity exist in great part because of the state of American politics. We as a nation value the creative forces of capitalism, and choose to handsomely reward its best practitioners. Bain Capital was undoubtedly such an innovator.
Yet we still reap what we sow. However corrupt or incestuous our political system may appear, it is still undoubtedly free and democratic; and we, the American people, have the power to elect officials and set the conditions in which our businesses can operate. At this moment, we happen to have chosen financial and political economies that empower corporations like Walmart and Bain Capital, and thus must live with (or try to change) those decisions.
Instead of criticizing Bain Capital for playing by our rules, perhaps instead we should criticize ourselves.
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