Mitt Romney points to his business experience as his primary qualification to become our next President. Attacks on that experience show a lack of understanding of the free market.
The expectation is that Mitt Romney as President of the United States will be able to replicate the success he experienced in creating jobs as the head of Bain Capital. The Mitt Romney success is easy to put into words. He was responsible for creating 100,000 jobs. The number is a little at variance with the 10,000 jobs he spoke about while campaigning in 1994 against Edward Kennedy for Kennedy's Senate seat. But that is explainable.
Those speaking for Governor Romney point to his 80% success rate at Bain Capital in financing businesses. The phrase that bears repeating, and is repeated, is that you can't succeed in business without creating jobs. 80% success in creating wealth means 80% success in creating jobs. Ed Gillespie, a Romney aide, was on Face the Nation this week. He was quite explicit about it. "The fact is 80 percent of the companies he invested in grew. And that means that jobs were created." The 80% success "means that jobs were created."
Not everyone accepts that formulation uncritically. Any innate skepticism would cause a reasonable observer to examine the evidence.
What if I buy a company that produces a cure for acne, and I run that company, and I make a lot of money. Should I claim to have created the jobs that result? Most of us would say yes to that. What if I simply buy a bottle of acne medicine, and it cures my cousin's acne? Should I still boast that I am responsible for jobs produced by the company? Most of us would agree that the answer is no. If I own a share of stock in that company, should I claim credit for it's success? Well, no.
So, somewhere between buying a bottle of very good medication for my cousin or a share of stock, and purchasing the company and running it, there is a point of balance. On one side, I can make extraordinary claims with a great deal of justification. On the other side I would be dishonest and a little silly. The biggest source of the Romney job creation claim was Staples. Details are still murky, but the investment, larger than anything you or I will likely earn, was still small compared to that of others: nearer to 5% than to 50%. So, on which side of the balance does Governor Romney fall?
If I am employed by a company, then I quit, can I claim credit for that company's later success? I might, I suppose, if I am prepared to explain in some detail. My claim certainly should not be accepted at face value without that explanation. Staples experienced the greatest part of its success years after Mitt Romney had sold off his investment and left the scene.
If I take over a company, fire five hundred people, then hire a thousand, can I claim credit for the thousand? Or should I also take into account the five hundred I fired? What if the numbers are reversed? If I hire five hundred and fire a thousand, can I claim to have created jobs at all? Or should I have only the net number as my record? What if I hire 1000 people, and fire a lot of people but keep that number secret? How credible should a reasonable person regard my claim?
One problem with Bain Capital is the number of jobs created and lost is obscure. The company keeps the numbers secret, and Mitt Romney has refused to document the details of the job losses. He seems to be inflating the number of jobs on the plus side, counting what happened years later, while keeping the number of fired employees a well guarded secret.
If I make a lot more money than I would have because of a very large tax loophole, can I claim to have created jobs because I made money? Or do I have to acknowledge that ordinary people have to pay a higher share because of the tax avoidance portion of my business success? The US tax code allows certain types of income to be taxed at just 15%. A secretary, or bus driver, or teacher, or police officer will pay a higher rate. Mitt Romney paid 13.9 percent in 2010. His rates in previous years are secret. The tax advantages he obtained during his stay at Bain were a large part of his investment strategy.
The Romney claim of an 80% percent success rate in business does bump into the same problem as the net jobs figure and the previous tax rate. Bain Capital keeps the numbers a secret. One independent analysis put the success figure at about break even.
Of 77 investments:
10 made money.
17 went out of business and closed shop.
On 6 deals, Bain lost all its investment.
But those 10 pluses were big. They accounted for almost three fourths of Bain's profits.
A Wall Street Journal investigation was more detailed. They found that 22 percent of Bain companies went into bankruptcy. So the 80% success figure means something different than Governor Romney projects.
He was a very successful business executive. He made a lot of money. That was the purpose of Bain Capital. To make a lot of money. Not to create jobs.
Still, the Romney claims and the actual percentages combine in an almost Herman Cain-esque formula. Think of all the women who did not make accusations against Herman Cain, as he once defended himself.
Imagine Mitt Romney boasting of his business skills in a more honest way:
Almost 80% of the companies I helped out survived my participation!
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