“Offshored And Outsourced”: Mitt Romney’s Bain problem
While the Supreme Court’s upholding of the health-care law was last week’s most important event in historical terms, it will not be the decisive event of the 2012 election. In the long run, polling in swing states suggesting that Mitt Romney’s tenure at Bain Capital is hurting him could have larger implications for where this campaign will move.
It’s certainly true that had the court knocked down President Obama’s signature domestic achievement, the defeat would have been woven into a narrative of ineffectual leadership and mistaken priorities. Instead, the president found vindication not only from the court’s liberals but also from Chief Justice John Roberts.
But precisely because the decision saved the president from disaster on health care, it only reinforced the importance of the economic argument Obama and Romney have been having for months. And here is where Romney’s Bain problem kicks in.
As Democrats, mostly from Washington and New York, debated the efficacy of attacks on Romney’s role in Bain, an entirely different conversation was being driven in the swing states, courtesy of ads broadcast by the Obama campaign and especially by Priorities USA Action, the pro-Obama super PAC. The ads portray highly sympathetic workers who lost their jobs and companies that collapsed even as Bain’s principals made substantial profits.
An NBC News/Wall Street Journal poll last week provided surprisingly dramatic evidence of how much these commercials are wounding Romney.
In the country as a whole, 23 percent said they viewed Romney more positively because of his experience “managing a firm that specializes in buying, restructuring and selling companies,” while 28 percent said this made them view Romney more negatively. But in this year’s 12 battleground states, many of which have gotten a heavy run of the anti-Bain ads, only 18 percent viewed Romney’s business experience positively; 33 percent viewed it negatively. Obama led Romney by three points nationally but by eight in the battlegrounds.
This is disturbing news for Romney, who hoped his business experience would be an unalloyed asset. The numbers also underscore voter resistance to the core conservative claim that job creation is primarily about rewarding wealthy investors and companies through further tax cuts and less regulation. Americans are not anti-business, but they are skeptical that everything that is good for corporations is also good for their employees, and for job creation itself.
The Bain ads have done double-duty, specifically undermining Romney but also serving as a parable for how aspects of the current financial system hurt workers and local communities. Profits and productivity can rise even as real wages stagnate or fall, and jobs can be offshored and outsourced. The Romney campaign’s response to a recent Washington Post story describing Bain’s record on outsourcing — the campaign sought to “differentiate between domestic outsourcing versus offshoring” — sounded more like bureaucratic gobbledygook than an effective answer. Obama picked up on the story immediately, calling Romney an “outsourcing pioneer.”
But can the Obama campaign turn the argument over Romney and Bain into a broader challenge to the Republican claim that the only thing government can do to spur job creation is to get out of the way? “Jobs” will remain the Romney battle cry for the rest of the campaign, but the success of the anti-Bain offensive points to an opportunity for Obama to engage in a kind of political jujitsu. He can argue that Romney’s primary interest is not in job creation at all but in low-tax and deregulatory policies he would favor whether the economy was soaring or flat.
In a recent talk at the Center for American Progress, Stefan Löfven, the new leader of the Swedish Social Democratic Party, outlined a way to turn the debate around, arguing that job creation worldwide should be the focus of center-left parties. New policies on job creation should also be concerned with the quality and conditions of the jobs, how quickly the unemployed can be moved to new work and how the unemployed are treated and assisted toward new opportunities.
Here are the questions voters should be encouraged to ask in 2012: Should government focus directly on innovative approaches to creating good jobs in a new economy? Or should it be relegated to a position of powerlessness in which its only option is to concede ever more benefits to those — including the financial wizards at Bain — who are already doing very well indeed?
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, July 1, 2012
“Nice Work If You Can Get It”: Why Mitt Romney Likes Firing People
Mitt Romney would prefer for you to recall just one number regarding his record at Bain Capital. That would be 100,000 — the number of jobs that the Republican candidate claims he created during 15 years at the private equity firm.
But now there is a more interesting, plausible and relevant number: $20,000. That’s how much money Romney is estimated to have made from each worker laid off during Bain’s many corporate takeovers.
In fairness, Romney’s goal at Bain was never to create jobs but to reap the biggest returns for their valued investors. Judging by that metric, he did exceedingly well, as even Bill Clinton accidentally admitted when discussing Romney’s “sterling” business career. And of course, Romney’s fortune, estimated somewhere between $190 million and 250 million, attests to that assessment.
But over the course of the Romney’s years at Bain Capital, at least five of the companies he took over eventually went bankrupt, while still rewarding Bain investors handsomely:
• American Pad & Paper: Bain invested $5 million in the Ohio paper company in 1992, and reportedly collected $100 million in dividends on that investment. But AMPAD went bankrupt in 2000, resulting in 385 employees losing their jobs.
• Dade Behring: Bain invested $415 million in a leveraged buyout in 1994, borrowed an additional $421 million, and ultimately walked away with $1.78 billion. Dade filed for bankruptcy in 2002, and laid off 2,000 employees.
• DDI Corporation: Bain reportedly invested $46.3 million in the electronic parts manufacturer 1997, earning $85.5 million in profits plus $10 million more in management fees. When the company went bankrupt several years later, 2,100 workers were laid off.
• GS Industries: In 1993, Bain invested $60 million in the Kansas City steel maker, borrowed a lot of money, and then took $65 million in dividends. But GS eventually went bankrupt in 2002, and 750 workers lost their jobs and pensions.
• Stage Stores: Bain invested $5 million to purchase the Houston-based retailer and took it public in the mid-’90s, reaping $100 million from stock offerings. In 200o, following Romney’s departure from Bain, Stage filed for bankruptcy and 5,795 workers were reportedly dismissed.
While it is true that some of those companies went under after Romney had left Bain, the job growth for which he now seeks credit also occurred after his departure in 1999. But the bankruptcies — and the bust-out scenario that helped Bain to profit anyway — are not news. What AOL’s Daily Finance has contributed to the Bain debate is a simple calculation: Bain Capital booked $1.995 billion in profits from the layoffs of 11,030 workers at various firms. And by that scoring, Romney earned roughly $20,000 himself for each of those fired employees. Nice work if you can get it (or take it away from someone else).
By: Axel Tonconogy, The National Memo, June 15, 2012
“America’s Real Welfare Queen”: Romney Critical Of Government Aid That Helped Bain Capital Profit
Mitt Romney likes to say that “government does not create prosperity.”
His record in the private equity industry shows otherwise.
During Romney’s years as chief executive of Bain Capital LLC, companies owned by the firm received millions of dollars in benefits from a variety of state and local government economic development programs.
In California, taxpayer money built one Bain company a conveyor bridge between two of its buildings. New York City gave another Bain company tax breaks and lower energy bills to discourage it from moving to New Jersey. And in Indiana, a county government issued bonds to help buy new equipment for a Bain-owned steel plant — a business success featured in a Romney campaign ad touting his private sector prowess.
“From a national perspective, this makes no economic sense to allow cities and states to do this,” said Arthur Rolnick, former director of research for the Federal Reserve Bank of Minneapolis. “In general, you want the market to be making these decisions — not the political system.”
The public-private agreements, which began in the first decade of Romney’s tenure as CEO, show that government played a supporting role in establishing Bain as among the nation’s most successful private equity firms and enabling him to accumulate a fortune his campaign says could reach $250 million.
Criticizing Government Involvement
On the campaign trail, the presumptive Republican nominee has hammered at President Barack Obama for favoring an unhealthy government role in the economy.
“When government, rather than the market, routinely selects winners or losers, or puts its hands on the scales of justice then enterprises and entrepreneurs can’t predict their prospects,” Romney said in a March 19 speech at the University of Chicago.
Asked about the disconnect between Romney’s free market rhetoric and Bain’s track record, Amanda Henneberg, a campaign spokeswoman, said: “It’s not at all uncommon for state and local governments to use competitive incentives and programs to create a favorable business climate.”
Yet in his Chicago speech, the former Massachusetts governor decried the “endless subsidies and credits intended to shape behavior in our economic society,” and assailed government “intrusion in the workings of the free marketplace itself.”
Exhibit A in Romney’s attack is the Obama administration’s investment in the failed solar power company Solyndra, which could cost taxpayers more than $500 million.
Massachusetts Investment Bankruptcy
Romney’s effort to capitalize on the administration’s stumbles was complicated this week by the June 1 failure of a Massachusetts clean energy company that received state financing while he was governor.
As a private equity investor, Romney showed no reluctance to accept help from government coffers — on one occasion even becoming partners with taxpayers.
In October 1994, a Connecticut state fund made a $500,000 equity investment in Environmental Data Resources of Milford, Connecticut, which Bain had helped start. The state’s Connecticut Innovations agency the previous year also had given the firm a separate $500,000 to be paid back with royalties from its software products.
The company used the money to hire several technologists and digitize old maps of industrial sites, according to Rob Barber, the company’s chief executive.
EDR Expansion
Beginning in 1991, Bain had invested $2.3 million in the company, which produced software for environmental site assessments, ultimately recording a 35.7 percent return, according to a Deutsche Bank prospectus that detailed the performance of Bain’s funds through 1999. Starting with just three employees, EDR grew to about 50 workers by the middle of the decade, Peter Cashman, the company’s founder, said in an interview.
Victor Budnick, who was then Connecticut Innovations’ director of investments, says the company obtained better terms for the public funds than it likely could have received from private investors. Private money would have been “disadvantageous from the perspective of ownership,” Budnick said.
The deal ultimately profited both the government and EDR. The state got back $3.8 million in return for its $500,000 equity stake plus an additional $1 million from its royalty- linked investment, according to Pamela Hartley, a spokeswoman for Connecticut Innovations.
Management-led Negotiations
There is no indication that Romney, who became CEO of Bain Capital in 1984, was directly involved in any of the individual companies’ negotiations with government officials. Such operational issues were typically left to the management of companies Bain acquired.
“I never heard of Bain Capital,” says Walter Sprouse, who was president of the Randolph County Economic Development Corporation in North Carolina when it ponied up $375,000 to help lure Sealy Inc.’s corporate headquarters.
Even so, Romney benefitted from the incentives, along with other Bain investors. When the Internet advertising company Double Click Inc. considered moving its Manhattan-based corporate headquarters, New York City’s Economic Development Corporation in 1999 provided a $4 million package of sales and energy tax breaks tied to the company’s payroll.
The company reported a loss of $56 million that year and was acquired by Google Inc. in 2008. Bain realized $88.6 million on its initial $8.5 million Double Click investment, made in 1997, according to the Deutsche Bank prospectus.
Bain Portfolio Returns
Bain’s investments in the companies that benefited from government actions were part of a portfolio that earned an 88 percent average annual return through the end of 1999, the prospectus said.
The two-time presidential candidate says his business experience qualifies him to turn around the troubled national economy. He accuses government of “standing in the way” of recovery.
Yet, government officials employed a variety of techniques to help Bain-owned companies. In Kansas City, city officials issued industrial revenue bonds as part of a financing arrangement that saved a Bain-owned steel company about $3 million in property taxes over five years, according to the Kansas City Business Journal.
Decaying Steel Plant
The GS Technologies facility, dating to the late 19th century, had employed around 4,500 workers at its peak. By the mid-1990s, the plant, which produced wire rods for the auto and furniture industries, cried out for modernization.
“Really, it was in bad, bad shape. It looked like something out of a Dickens novel,” said Mario Concha, who headed the company’s international division at the time.
To help fund a $70 million updating, the city in October 1993 authorized a $45 million industrial revenue bond, which GS Technologies was to purchase. Kansas City issued the first $5 million the following year and used the proceeds to buy steel- making equipment and lease it back to the company. That arrangement was designed so that the city could cut the mill’s property tax bill by 50 percent, according to the Kansas City Business Journal.
New equipment didn’t solve all the company’s problems. Foreign competition and a two-month strike in 1997 fueled a downward spiral, which led to bankruptcy in 2001. The Obama campaign has featured GS Technologies in a political ad that includes one former mill worker accusing Bain of “vampire” capitalism.
Industrial Revenue Bonds
Industrial revenue bonds, typically repaid with money generated from the project they fund, act as a subsidy for private business, reducing either their financing costs or their tax bill, said Timothy Bartik, senior economist of the W.E. Upjohn Institute in Kalamazoo, Michigan.
One of Bain’s companies drew government benefits on two coasts. In 1993, when Leiner Health Products of Torrance, California, was looking for a new home, officials in nearby Carson, California, agreed to construct a $500,000 conveyor bridge linking two buildings the maker of vitamins and nutritional supplements was eyeing.
“Our construction guys were in awe of how fast the turnaround time was for permits,” Giffen Ott, the former Bain executive who was the company’s vice president of manufacturing, told The Los Angeles Times.
Ott didn’t respond to e-mail and telephone requests for comment.
Upgrading Public Roads
Five years later, Leiner decided to move a portion of its manufacturing operation from Ohio to a new site in York County, South Carolina. State and local officials provided a package of benefits that included worker training, upgrades to public roads, water and sewer facilities, and tax breaks. Officials with the state’s Employment Security Commission even handled inquiries from would-be job applicants, according to a July 21, 1998 article in The Herald of Rock Hill, South Carolina.
The county cut Leiner’s property tax assessment by 43 percent, saving the company “millions of dollars,” according to Mark Farris, York County economic development director.
Leiner has since been acquired by NBTY Inc., which itself was acquired by the Carlyle Group in 2010. Michael Collins, NBTY’s chief financial officer, didn’t respond to e-mail and telephone requests for comment.
Free market purists object to such government aid to business, saying profitable companies don’t need it and unprofitable ones should be allowed to fail.
A Corporate Gift
“It is a gift to the corporation,” says James Bennett, eminent scholar at George Mason University in Fairfax, Virginia. “The American welfare queen is the American corporation. All they’re doing is grabbing for taxpayer benefits and taxpayer dollars.”
The attractiveness of such deals can be glimpsed in cases where the marriage of public and private resources pays off for both sides. In 1998, state and local officials in Indiana assembled a package of incentives to convince Steel Dynamics Inc. (STLD) to locate a $341 million steel plant in Whitley County, in the state’s northeast corner.
Whitley County issued a $13 million taxable industrial revenue bond to buy the giant caster at the heart of the steel- making operation along with a separate $10 million bond for sewer and water improvements. State officials kicked in workforce training aid.
Company Expansion
In the intervening years, the company has expanded its Whitley County facility twice and now employs 596 workers. Last year, it produced 876,000 tons of structural steel beams for the construction industry and rails for the nation’s railroads, according to the company’s filings with Securities and Exchange Commission.
“It was a fabulous opportunity. Jobs have developed beyond our expectations,” said Jeff Gage, who was the county attorney at the time.
In an ad entitled “American Dream,” the Romney campaign boasts of the role his “private sector leadership team” played in Steel Dynamics’ success.
Some of his allies acknowledge that a savvy public sector deserves some of the credit.
“The government was trying to help out,” real estate developer Donald Trump, a Romney supporter, said during a May 14 appearance on Fox News, “and sometimes, that’s not the worst thing in the world.”
By: David J. Lynch, Bloomberg, June 5, 2012
“Mitt Romney Enjoys Your Pain”: Normal People Don’t Smile About Unemployment
GOP presidential candidate Mitt Romney’s reaction to high unemployment is creepy.
During an interview with CBS reporter Jan Crawford last week, Romney smirked as he mentioned that unemployment has remained above 8 percent for 39 months. Then, as the interview ended, he smirked again after saying President Obama had hoped the Recovery Act would reduce joblessness to 6 percent by now.
Romney is loving high unemployment. Just like the Republican majority in the U.S. House of Representatives that has repeatedly blocked President Obama’s proposals to increase hiring, Romney believes high joblessness is good for the GOP. It’s one thing for a politician to know in his heart of hearts that a calamity for the country may help him achieve his ambitions. It’s another to be so callous as to beam about it on TV.
The nation’s sustained high unemployment disheartens any normal human being. Friday’s report that only 69,000 jobs were created in May was troubling — that is, to anyone who has ever been laid off or had a friend or relative or neighbor who lost a job. They know the feelings of fear, depression and guilt that accompany job loss. They’ve experienced the suffering as job applications are rejected, bills pile up and foreclosure is threatened. Normal people don’t smile about high unemployment; they cringe.
Romney contends he’s the fella to fix those unemployment numbers. But his record as CEO of Bain Capital and governor of Massachusetts provides little evidence of that. The focus of Bain was never job creation. It was money making. And if making money meant destroying jobs, that’s what Bain did.
An analysis by the Wall Street Journal of the companies Bain bought in the 15 years Romney ran it found that 22 percent went bankrupt or closed within eight years. That’s untold thousands of workers who lost their jobs and untold thousands of Bain creditors who endured losses because of bad Bain business practices.
Romney has frequently contended Bain created 100,000 jobs while he led it. The Washington Post fact checker awarded that claim three Pinocchios. After Republican rivals Newt Gingrich and Rick Perry chanted, “show us the jobs,” Romney lowered the number. Kinda significantly. Down to tens of thousands of jobs. Finally, Romney cut the figure even further, releasing a campaign video saying he’d created “thousands of jobs.”
If “thousands” is true, that’s good. But, frankly, “thousands” over 15 years is hardly a bragging point for a candidate who contends his private sector experience will enable him to create the millions of jobs the nation needs.
Romney’s job generation as governor of Massachusetts doesn’t instill much confidence in his ability to perform on the national level either. Massachusetts added 45,800 jobs in the four years he was governor. While that’s positive, it occurred during a time of economic expansion nationally, not during the grave recession President Obama inherited.
In addition, Massachusetts’ net jobs growth declined to 1.4 percent during Romney’s governorship, significantly lower than the 5.8 percent growth in the rest of the nation. In fact, Massachusetts dropped to 47th for job growth during Romney’s reign, far lower than during his predecessor’s time.
Romney claimed at one point during the campaign that he was unemployed, and laughed about it. But this quarter billionaire doesn’t have a clue what it’s like to really be jobless or desperate. This is the silver-spoon son of a car company executive, a man who attended exclusive private schools, a man who handed his own son $10 million to help start his business, a man who has a car elevator in his $9 million California beach house.
This is a candidate who mocked NASCAR fans for wearing cheap rain slickers while his wife wears $1,000 silk t-shirts. This is an owner of three homes valued at a total of $20 million who opposed helping underwater homeowners, saying the foreclosure crisis should “run its course and hit bottom.”
This is a man who actually said he likes to fire people. Not hire people. Fire people. Here’s what he said:
“I like being able to fire people who provide services to me.”
The slow jobs growth in May is not surprising, frankly, considering the economic contraction occurring in Europe and even in China. In the 17-nation Eurozone, unemployment now has risen to a record 11 percent, far higher than in the United States where Obama’s Recovery Act prevented the country from falling off the cliff into another Great Depression.
Unlike the United States and China, both of which invested in stimulus, Europe chose austerity. Greece, Spain, Italy, Ireland and Great Britain now are suffering economic contraction and distress caused by austerity.
That’s what Romney and the Republicans propose for America. Austerity. Job contraction. Recession. Suffering.
It’s not true what Romney says about Americans. They aren’t jealous of his wealth. They don’t care that he and his wife ride $100,000 horses. They just want to be able to afford a rocking horse for their kid. They don’t care about the Romneys’ vacations in France. They just want to be able to save enough to get the kids a season pass to the municipal pool.
They don’t, however, want their country run by a guy who can’t conceive what it’s like to be unemployed and has made no effort to find out. They don’t want to be led by a guy who likes firing people. They don’t want a president who finds enjoyment in high unemployment.
BY: Leo W. Gerard, The Huffington Post, June 4, 2012
“We’ve Heard it All Before”: Hey Mitt, You Can’t Cry For Teacher When You Started The Fight
The latest attack from the Obama campaign takes aim on Romney’s rhetoric and record in Massachusetts.
The latest Obama campaign ad—which will air mainly in swing states—continues the attack on Mitt Romney’s record in Massachusetts: http://youtu.be/oWdZEJW1vWY
This attack goes directly to the heart of Romney’s presidential campaign. The Republican nominee has based his entire on argument on the claim that—by dint of his business experience—he is uniquely qualified to lead the country into a more robust recovery. Indeed, private sector experience has totemic properties in Romney’s narrative; Obama is a failure because he’s “never met a payroll” and “doesn’t understand the economy,” while Romney sees business as the most important qualification a president can have.
But, with a quote from Romney’s gubernatorial campaign—“I know how jobs are created”—the Obama campaign raises a basic question: When Romney ran for governor of Massachusetts he used his business experience as proof he could create jobs for Massachusetts, instead, he led the state to the bottom of the pack for job creation. Now, running for president, he’s using the same arguments. Why should we expect different results this time? This is a play on the familiar trope of the businessperson who talks more than they deliver, and it could be an effective assault on Romney’s perceived competence, especially if paired with continued attacks on Bain Capital.
The Romney campaign has had an interesting and familiar response to this attack. As Pema Levy points out at Talking Points Memo, the Romney team correctly hits Obama for neglecting the extent to which the former governor inherited a bad situation. Here’s Ed Gillespie, a surrogate for the Romney campaign:
“This is what they’re doing, Chris,” Gillespie said. “You take the first year, which is a low base year when the governor came in and took office, because it was 50th in job creation out of all of the states, dead last … and they’re averaging out over the four years. So, they are bringing down the gains of his fourth year in office, which shows the real impact of his policies and diluting it with the first year in office.”
This is exactly what the Romney campaign is doing with regards to Obama’s economic record. By blaming Obama for job losses that occurred before his policies passed or took effect, the Romney team is able to say that the United States lost jobs under his tenure. But if you count from when Obama’s policies took effect, then you end up with more than two years of private sector job growth.
This situation is similar to the one that developed last year, when the Romney team hammered Obama with a deeply misleading ad that took the president’s words out of context. When Democrats responded with their own set of context-free attacks, the Romney campaign cried foul. In other words, if the Romney campaign insists on using misleading attacks, then it has to expect that the same treatment in response. You can’t cry for teacher when you’re the one who started the fight.
By: Jamelle Bouie, The American Prospect, June 4, 2012
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