A few thoughts on Bain Capital

I don’t have a problem with Bain Capital. Like other private equity and venture capital firms, Bain is in business to provide returns for their investors – they invest in companies for financial gain: to improve an existing company’s performance, increase its value, and sell it at a profit, or shut it down as efficiently as possible if it is not viable. The company also invests in startups, and private investor funding of startup enterprises, many introducing new technologies and other innovations, is a major advantage of American capitalism.

Clearly, Bain’s investors have the most to gain if the investments are successful. As Bain’s website states on its home page, “Our principals are the largest single investor in each of Bain Capital’s funds, which aligns the interests of the firm with our investors and the long-term objectives of the management teams.” One can assume that principals like Mitt Romney, as an investor in companies under Bain’s umbrella, made much more from these investments than any salary he may have drawn as a Bain employee. Bain’s employees, not the investors, earn their salaries regardless, but the big money is in the investments. Still, this is all normal operation, nothing out of the ordinary.

The real negative about the whole Bain Capital issue is that the operation of a private equity or venture capital firm is not a parallel to running the country, nor does the experience qualify one to know how to “fix” the economy. In fact, such experience may lead one to be overconfident in the ability of the financial sector to function as a “self-righting ship” and to solve all of the problems that we face.

Running the country does not afford one the life or death economic decision-making latitude expected by private enterprise. Government is responsible not only to the “investor class,” but to all citizens. When Henry Ford was asked why he paid his workers so much, he responded that he wanted them to be able buy his products, and that would cause his business to grow. When citizens cannot buy products and services, enterprises lay off workers, government is downsized, and the downward spiral begins. As we have seen, the entire economy is affected, and recovery takes far longer than the crash. “Job creators” create jobs only when there is demand for products and services – not just because they have money in their pockets.

Government cannot be a proxy for private enterprise, but should encourage it by policy. Regulations are necessary. To say that regulations are universally bad is a simplistic – and dangerous – attitude. The danger comes when the regulations do not match the conditions – regulations from an earlier time are no longer appropriate, or there has been a failure to anticipate new regulations for new financial behaviors.

Clearly, given the national debt and the overall economic climate, hard choices must be made to get the country on a sustainable track, but a much more modulated and compassionate view must prevail.