Romney's Vision of Capitalism

Little Risk When the System Is Rigged in Bain's Favor

Willard’s World: Mitt Romney’s Bain Capital claims to be the epitome of risk-taking capitalism. In reality, Bain was playing by the rules: heads we win, tails you lose.
getty images
Willard’s World: Mitt Romney’s Bain Capital claims to be the epitome of risk-taking capitalism. In reality, Bain was playing by the rules: heads we win, tails you lose.

By Gal Beckerman

Published July 03, 2012, issue of July 06, 2012.
  • Print
  • Share Share

Capitalism in its purest form is gambling. Ask any entrepreneur. You have an idea for a product or a service; you bet on your premonition that there is a market for it, and you roll the dice. Then you either win or lose. That’s a simplistic rendering, but it is the basic gist of our economic system.

This is pretty much the sentiment captured in the company statement of Bain Capital, the private equity firm that is the jewel in the crown of Mitt Romney’s business career. It explains that Bain’s objective is to buy up struggling companies, offer a new infusion of cash, then restructure those companies and hopefully turn them around.

It’s based on this intimate knowledge of the ups and downs of capitalism that Romney has made the claim that he’s better equipped to handle the economic crisis — better, that is, than the current occupant of the White House. He understands, he says, the “real economy.” And whenever his time at Bain has come under attack, Romney answers that an attack on Bain is an attack not on the business practices of private equity, but on the very nature of free enterprise itself.

“There’s no question he’s attacking capitalism,” Romney said about the president at an event in Philadelphia on May 24. “In part I think because he doesn’t understand how the free economy works…. Frankly, the American people understand that the free economy and free enterprise is tough; it’s hard work.”

But was Bain engaging in capitalism as I just sketched it out above — a game of risk with potentially high rewards or dismal loses? If Romney wants to point to Bain as his idea of “how the free economy works,” we should take him at his word and follow him there. What we’ll find, I’m afraid, is not exactly Adam Smith. Instead, it’s a vision of capitalism in which that game of risk is almost completely rigged.

Capitalism as a pure concept does not exist, not even in laissez-faire America. Government offers tax breaks and subsidies to encourage businesses it deems important, and a social safety net is in place to catch those people who end up inadvertently suffering from the volatility of market forces. All these factors mitigate what otherwise would be the harshness of the invisible hand. So the particular version of capitalism that a candidate pushes forward — which of these mitigating factors he prioritizes — says a lot about his moral vision. If we understand that the barest form of capitalism is inhumane, then a choice exists about who should suffer the risks of the system.

This brings us back to Bain, held up by Romney as an exemplar of capitalism at work.

Let’s look at what happened when things didn’t work out for Bain. It’s easy enough to point to the successes, but as Romney said, sometimes the going gets tough. Specifically, seven companies acquired by Bain eventually went belly-up. Did the private equity firm learn the downside of capitalism? Not really, according to a June 24 article in The New York Times.

The Times examined those seven cases and found that to a very large extent, the managers at Bain didn’t really suffer any economic repercussions as the bankrupt companies lost everything and had to lay off hundreds of employees. As the Times put it, “Bain structured deals so that it was difficult for the firm and its executives to ever really lose, even if practically everyone else involved with the company that Bain owned did, including its employees, creditors and even, at times, investors in Bain’s funds.”

The key was that Bain knew how to hedge its bets against any real loss, mostly by charging the acquired companies exorbitant fees whether or not they could afford to pay them. In some cases, these companies sank deeper into debt just so they could replenish Bain’s coffers.

The article covers all seven cases of bankruptcy, but one will suffice to give an idea of how this worked. In 1993, Bain acquired a struggling Midwest steel manufacturer, GS Industries, for $8.3 million with the plan of modernizing it. A year later the steel company, still in bad shape, had to issue $125 million in debt, some of which was used to pay a $33.9 million dividend to Bain, money owed on its initial investment. Bain put in an additional $16.2 million before the company eventually filed for bankruptcy in 2001. You would think this sad history would have put Bain’s investors in the red. But no, they still made a total of $9 million on the deal, not to mention that Bain’s managers got additional millions in fees from the ailing steel factory as it died a slow death.

In other cases the returns were even greater, with investors making more than $100 million in profit from companies that went bankrupt and with the fees extracted by Bain rising to the tens of millions.

To be fair to Romney, as the Times put it, this is merely the way private equity functions, “offering its practitioners myriad ways to extract income and limit their risk.”

Jews have historically opted and even fought for a form of capitalism that protects the most vulnerable from the vicissitudes of a market economy. For the system to work as marvelously as it does, someone has to take on the risk. Over the past century, countless union organizers and progressive activists have argued that it should be borne by the investors who decide to gamble. Instead, Bain’s capitalism looks more like a form of exploitation, producing more money for those who already have money without jeopardizing anything. Meanwhile, the burden of the risk falls on those least capable of bearing it.

Nobody in mainstream American political life is attacking capitalism. But what should be under attack is the kind of capitalism that Romney is apparently holding up as an ideal, one that not only further entrenches the growing inequality between the 1% and everyone else, but even takes risk out of the equation so that the rich get richer no matter how the dice fall.

Contact Gal Beckerman at or on Twitter @galbeckerman

The Jewish Daily Forward welcomes reader comments in order to promote thoughtful discussion on issues of importance to the Jewish community. In the interest of maintaining a civil forum, The Jewish Daily Forwardrequires that all commenters be appropriately respectful toward our writers, other commenters and the subjects of the articles. Vigorous debate and reasoned critique are welcome; name-calling and personal invective are not. While we generally do not seek to edit or actively moderate comments, our spam filter prevents most links and certain key words from being posted and The Jewish Daily Forward reserves the right to remove comments for any reason.

Find us on Facebook!
  • "I’ve never bought illegal drugs, but I imagine a small-time drug deal to feel a bit like buying hummus underground in Brooklyn."
  • We try to show things that get less exposed to the public here. We don’t look to document things that are nice or that people would like. We don’t try to show this place as a beautiful place.”
  • A new Gallup poll shows that only 25% of Americans under 35 support the war in #Gaza. Does this statistic worry you?
  • “You will stomp us into the dirt,” is how her mother responded to Anya Ulinich’s new tragicomic graphic novel. Paul Berger has a more open view of ‘Lena Finkle’s Magic Barrel." What do you think?
  • PHOTOS: Hundreds of protesters marched through lower Manhattan yesterday demanding an end to American support for Israel’s operation in #Gaza.
  • Does #Hamas have to lose for there to be peace? Read the latest analysis by J.J. Goldberg.
  • This is what the rockets over Israel and Gaza look like from space:
  • "Israel should not let captives languish or corpses rot. It should do everything in its power to recover people and bodies. Jewish law places a premium on pidyon shvuyim, “the redemption of captives,” and proper burial. But not when the price will lead to more death and more kidnappings." Do you agree?
  •'s Allison Benedikt wrote that Taglit-Birthright Israel is partly to blame for the death of American IDF volunteer Max Steinberg. This is why she's wrong:
  • Israeli soldiers want you to buy them socks. And snacks. And backpacks. And underwear. And pizza. So claim dozens of fundraising campaigns launched by American Jewish and Israeli charities since the start of the current wave of crisis and conflict in Israel and Gaza.
  • The sign reads: “Dogs are allowed in this establishment but Zionists are not under any circumstances.”
  • Is Twitter Israel's new worst enemy?
  • More than 50 former Israeli soldiers have refused to serve in the current ground operation in #Gaza.
  • "My wife and I are both half-Jewish. Both of us very much felt and feel American first and Jewish second. We are currently debating whether we should send our daughter to a Jewish pre-K and kindergarten program or to a public one. Pros? Give her a Jewish community and identity that she could build on throughout her life. Cons? Costs a lot of money; She will enter school with the idea that being Jewish makes her different somehow instead of something that you do after or in addition to regular school. Maybe a Shabbat sing-along would be enough?"
  • Undeterred by the conflict, 24 Jews participated in the first ever Jewish National Fund— JDate singles trip to Israel. Translation: Jews age 30 to 45 travelled to Israel to get it on in the sun, with a side of hummus.
  • from-cache

Would you like to receive updates about new stories?

We will not share your e-mail address or other personal information.

Already subscribed? Manage your subscription.