Mitt Romney's got some 'splainin' to do.
Through the early part of the Republican presidential campaign, Romney touted his experience as a businessman as one of his chief qualifications. But now that he's the GOP front-runner—and most likely challenger to Barack Obama in the general election—his critics have been digging up troubling details from Romney's days as a private-equity dealmaker. While Romney obviously did well for himself, amassing a personal fortune of $200 million or more, many of the employees at Romney-run companies ended up out of work—something Romney never mentioned when filling out his application for president.
The controversy arises from Romney's career at Bain Capital, the private-equity firm he ran from 1984 to 1999. Like many such firms, Bain made a lot of money for its wealthy clients, while producing mixed results for the companies it invested in. Romney has cited Staples, Sports Authority, Pizza Hut and Domino's Pizza as examples of companies that grew and thrived after Bain invested in them. But other Bain targets struggled, and some failed completely, with thousands of workers losing their jobs.
Some of those displaced workers are now finding a ready audience eager to hear a narrative of rapacious financiers like Romney fleecing ordinary folks. "It hurt so bad to leave my home, because of one man that's got 15 homes," one woman says in an anti-Romney documentary funded by supporters of Newt Gingrich. [Note: Romney is believed to have only three homes, not 15.] "That is the man who destroyed us," says another distraught woman in the film.
Romney counters by pointing out that Bain invested in some troubled companies, hoping to turn them around and make everybody better off, but it wasn't able to pull every company out of a nosedive. Besides, he argues, that sort of failure is a seminal aspect of free enterprise. And on net, Romney claims, Bain helped create 100,000 jobs while he was at the helm.
That may all be true. Yet caricatures of Romney as a heartless corporate raider seem to be sticking, a problem that's likely to intensify as the parade of people claiming to be Bain victims gets longer. Here are five ways Romney could effectively defend his record on jobs:
Blame it on globalization. Beneath the controversy over Bain and its deals lies a deeper problem: Many U.S. companies have been struggling for years against the twin challenges of cheaper foreign competition and a technology revolution that rapidly makes old business models obsolete. The premise behind much of the Bain-bashing is that some of the companies acquired by Bain that later struggled, such as Ampad, DDi, and GS Technologies, would have been just fine if Bain had stayed away. That's doubtful. The purpose of Bain's private-equity deals was to find companies that were underpriced, usually because they were struggling. What Bain hoped to do was turn them around, add value, and then sell for a profit. In some cases, they couldn't. But if many of those firms had remained independent, they might have failed even faster, a fate that even huge companies like General Motors, Lehman Brothers, Circuit City and the majority of U.S. airlines have faced. Romney could plausibly argue that most of the companies Bain went after were already in trouble, with Bain offering a better lifeline than they may have found anyplace else.
Stop saying "creative destruction." Economists and business executives know what this means, but many ordinary Americans only see the destructive part, while wondering why the job creation never seems to materialize. "Creative destruction" is a concept developed by Austrian economist Joseph Schumpeter to describe the continual process of new technology and better business ideas displacing older ways of doing things. It's a pleasing theory supported by many real-world examples, such as the personal computer displacing the typewriter. But with 13 million Americans unemployed and many more suffering some form of financial duress, it also sounds like a callous way of excusing moves that destroy jobs while creating bigger profits for corporations.
Romney has invoked creative destruction to explain why some of the firms Bain took over didn't make it. He's probably right, but the problem is that the people who suffer from the destructive part usually don't benefit from the creative part. So this explanation makes Romney sound as if he's justifying some people's pain as long as somebody else benefits. A more heartfelt explanation might serve him better.
Explain that times were different then. Since Romney's tenure at Bain was in the '80s and '90s, the deals he structured occurred at a time when the U.S. economy, for the most part, was much healthier than it is now. Some of the Bain companies that struggled didn't hit the skids until after Romney left, but still, it was easier to justify plant closings and lost jobs before the 2007 – 2009 recession than it is today. For one thing, more jobs were available elsewhere for laid-off workers. Union benefits were richer. Families in general had more to fall back on.
Those safety nets have all thinned over the last few years, making layoffs seem crueler than before. If Romney were to say that the Bain takeover model is less appropriate today, on account of recent changes in the economy, he'd be right. He could even use that as a way of pivoting toward a new model for creating jobs and strengthening companies, which many analysts feel the U.S. economy desperately needs.
Stop acting like an Everyman. Romney has provoked guffaws recently by claiming that he started at the bottom and that he knows what it's like to worry about getting laid off. Most Americans, however, don't think you start at the bottom when you join an investing firm with a joint degree from Harvard Law and Harvard Business School, and enjoy the backing of a well-connected father who's a former governor and Fortune 100 CEO. Romney could take a cue from Obama and simply acknowledge that he's part of the 1 percent. There's no need to apologize for that. Despite the hype about "class warfare," many Americans still empathize with the wealthy for one basic reason—they hope to become one of them some day. Being phony is a far worse sin than being rich.
Show how his knowledge can help the little guy. Like fire and water, the kind of financial engineering practiced at Bain can be used for destructive purposes or for good. Romney needs to show how his thorough knowledge of business and finance will help ordinary people. Up until now, Romney's economic plan has come straight from the Republican playbook: Cut corporate taxes, slash regulation and watch prosperity magically blossom for everybody. A lot of voters are understandably skeptical. They just endured bank bailouts and a lot of other largesse toward corporations that was also supposed to help the middle class, with dubious results.
Romney could enhance his job-creator cred by offering some specific and convincing ideas for strengthening old businesses and building new ones. Suggest 10 fields that are ripe for entrepreneurs, for example. Explain what he would do if he were to graduate from college today, without the privileges he enjoyed in his own youth. How would he fix Kodak, American Airlines, Bank of America and other struggling companies that are laying off workers and cutting pay? Most of all, Mitt Romney could show Americans how they, too, can achieve the kind of success that he has attained. Now that's a speech voters would tune into.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success , to be published in May. Follow him on Twitter: @rickjnewman