"Like those old German barons who, from their eyries along the Rhine, swooped down upon the commerce of the noble river, and wrung tribute from every passenger that floated by, Mr. Cornelius Vanderbilt, with all the steamers of the Accessory Transit, held in his leash, has insisted that the Pacific Company should pay him toll, taken of all America that had business with California and the Southern Sea...."
Henry J. Raymond, Your Money or Your Line,The New York Times, 1859
During last night's Democratic convention, listening to my friend Dave Foster describe how Bain Capital, the eyrie from which Mitt Romney amassed his fortune, bought and then sucked the life blood out of GST Steel in Kansas City, and the workers Dave and the United Steel Workers represented, I found myself remembering the tactics used by steel tycoon Henry Clay Frick in assembling US Steel and exploiting the communities and workers who fell into his hands.
Bain bought GST, loaded it up with debt, took out $12 million in profits, running the company into bankruptcy and destroying the jobs of 750 employees, along with their vacation and sick pay, health care and pensions. (It didn't shoot them down - some things have improved since the Homestead Strike in 1892.)
The aftermath would still have amazed Frick, once labeled "the most hated man in America" or "the worst CEO ever." Because Romney gets to run for President. Even at their gaudy best, Jay Gould, Cornelius Vanderbilt, John D. Rockefeller and Charlie Crocker never dared run one of their own for the White House.
A number of writers, most notably EJ Dionne, have commented on the resonances between the present moment in the political economy of the United States and in the "Gilded Age" from 1870-1900, which featured the rise and eventual curbing of the Robber Barons.
The connection runs deep. The term "Robber Barons" harked back to German feudal lords who monopolized transportation on the Rhine to extract tolls or fees from the real "job creators" of medieval Europe - farmers and merchants. In the Gilded Age, a Robber Baron was a financial manipulator or monopolist - first in rail (Crocker) and steamships (Vanderbilt) - then, using predatory financial techniques, in commodities -- oil (Rockefeller) or steel (Frick), sugar and tobacco.
They were not the entrepreneurs or job creators of the industrial age of America. They didn't invent the blast furnace or the oil refinery, the telephone, the light-bulb or the reaper. No one vilified Edison or Bessemer, Bell or McCormack. The Robber Baron's role was to consolidate capital, not to create innovations, centralize the economy, not generate jobs, minimize competition, and not grow communities -- while extracting fees and profits along the way. On balance, while doing so, Robber Barons destroyed firms and jobs, just like Bain Capital does - not as their purpose but as a necessary price of maximizing what economists call "rent" -- unearned profits.Nor do private equity firms like Bain Capital create jobs today. (Stephen Rattner, a private equity player and advocate, explained this on Fareed Zakaria's program a few weeks ago: "What
At the end of the Gilded Age a Republican President - Teddy Roosevelt, and his Republican successor - William Howard Taft -- set limits on predatory Trusts and monopolies, their generation's version of Bain Capital. (They didn't set limits on banks and investment houses, which is why the next economic crisis was, triggered on Wall Street, not in the mean streets of coal, steel or copper towns.)
It's worth remembering, as we head up to this November, that not all economic crises bite equally deep. Entrepreneurs and job creators - think Bill Gates, think David Packard - can fuel a bubble, as California found to its sorrow in 1995. But when Petfood.com went away, we still had the internet and smart phones.
When Bain Capital and Mitt Romney bought and stripped GST steel, America got Mitt Romney's hundred million dollar IRA.
If Bain were an anomaly, we shouldn't worry about it. But Koch Industries, the predatory Robber Baron thanks to whom Romney is competitive, is the 21st century version of a trust. It's widely perceived as an oil and gas company - but its own web-link is more honest, stating boldly in the first words, "active in trading...."
Koch doesn't make its money by inventing new processes, or building new factories, or hiring new workers. It makes money trading, as it did when it pioneered raising the price of oil by investing in derivatives,or bottom-feeding as it did when it bought DuPont's outmoded commodity nylon business in 1994, only to turn and sue DuPont for three-quarters of a billion dollars for the fact that DuPont's factories were, in fact, outmoded
Koch argued in court that it has lost $359 million to date - but of that $68.5 million were lawyer's fees suing DuPont. (This from a company that unctuously invests heavily in lobbying campaigns to deny ordinary folks access to court to sue the big guys.) And Koch and its allies own the Romney campaign - they've paid for it, fair and square.
There in a second important economic battle going on in the US that's not about the 1% vs. the 99%. An old, centralized, outmoded, monopoly economy - think Exxon, coal and Koch, American Electric Power and too-big-to-fail banks - is trying to strangle a new, distributed innovation economy - think Apple, Tesla, roof-top solar and Bloom Power fuel cells. The old economy can only win if it seizes the government as its ally. If it succeeds, the fate of the workers at GST steel will simply be a harbinger of the American future.
Mitt Romney would argue that the jobs and communities to be destroyed by his announced economic policies are unintended consequences of how his version of capitalism works - his "market." I don't think he wanted GST steel to go bankrupt - it's simply that Bain's fees were a higher priority. And if he is elected, Koch's profits, not America's welfare, will lead the White House must do list.
GST should be warning enough.
A veteran leader in the environmental movement, Carl Pope is the former executive director and chairman of the Sierra Club. Mr. Pope is co-author -- along with Paul Rauber -- of Strategic Ignorance: Why the Bush Administration Is Recklessly Destroying a Century of Environmental Progress, which the New York Review of Books called "a splendidly fierce book."