Watch any given night of coverage leading up to the Iowa Caucus, and you wish for those halcyon days of the Romney/Ryan tickets: two clearly smart people with quite different, yet relevant, skill sets, running as the GOP ticket. While one day Mitt’s dangerous streak was on full display – he could get pinpoint his message with full detail without seeming pedantic or professorial, like Obama – the next day, he seemed to have all the grace of a three year old petting a puppy.
Alas, this isn’t an analysis of if or why Romney was a flawed candidate. Of no fault of his own, however, the dagger in Romney’s candidacy was being painted as a heartless private equity baron. The attacks came from both the left and the right. It started with Newt Gingrich in the Primary process, and ended on the debate stage with Obama. And that was it – the vulture capitalist goes back to La Jolla.
At the time, Romney’s time at Bain was described as taking jobs out from under the feet of hard working Americans and sending them to China. As International Brotherhood of Teamsters leader Jimmy Hoffa said in 2012, “He represents everything that is wrong with our financial system. He made his money as CEO of Bain Capital by destroying U.S. businesses, sending good-paying American jobs overseas and filling his pockets with millions while putting workers out on the street.”
“And we have to bring Apple — and other companies like Apple — back to the United States. We have to do it. And that’s one of my real dreams for the country, to get … them back. We have a great capacity in this country.”
This was Donald Trump, urging the world’s largest company, who has built a globalized supply chain to deliver products around the world. Nevermind that, according to Recode in 2014, the cost of labor for an iPhone 6 Plus is $4 per unit, and the cost of parts is around $200. That means with an unsubsidized sale price of $949, the share of revenue to design (in Cupertino) is $745.
No matter, Trump is taking the same stance that was used by Democrats in 2012 on Romney – the heartless capitalist shifting jobs overseas in the pursuit of profits. No surprise then that American unions are dipping their toe in the pond of the Donald, what with Trump’s stoking of fears of a great conspiracy to shift jobs to China.
But just like the disingenuousness saying that we’re going to bring back the manufacturing of iPhones to the United States (and oh yeah, you can’t tell Apple what to do), the attacks on Romney were also clearly disingenuousness.
First, let’s consider what exactly private equity companies like Bain do. Bain’s bread-and-butter is in distressed debt, which is investing in companies facing bankruptcy. For these companies, they really face two choices. One, they can go bankrupt, which wipes out equity holders and puts all other assets through the Chapter 7 bankruptcy process so debtholders can recoup losses. Two, the company can set up a prepackaged bankruptcy, where equity holders are still wiped out, but a company like Bain shows up with cash, and more importantly, knowledge. Managing the turnaround process requires the company to earn enough cash flow to pay the debt incurred to make the deal happen, which requires huge operational changes.
But that’s the point. Sure, it’s “vulture capital” insofar as a company like Bain jumps in and does a huge restructuring, which invariably leads to job losses. But what’s the alternative? No jobs?
Second, let’s consider what has actually happened with manufacturing in the past few decades. As Erik Brynjolfsson and Andrew McAfee describe in their book The Second Machine Age, manufacturing jobs have fallen in the U.S. – but they’ve fallen by roughly the same rate in China. Stoking resentment toward China is completely allocating fear to the wrong direction (nevermind the geopolitical instability created by stoking these fears). As Tim Harford wrote in the FT, “We tend to imagine that manufacturing jobs have disappeared to China; in fact, manufacturing employment in China has been falling. Even the Chinese must fear the robots.”
So let’s all take a take a breath and consider what’s actually going on here. Romney wasn’t shipping jobs overseas, as much as he was actually keeping jobs here. And while we may be losing some jobs to China, that’s an inevitability of a globalized marketplace. If anything, technology is the bigger worry – so we need to figure out a way to train Americans more effectively to have 21st century jobs, not implement tariffs or create implicit subsidies to keep jobs here.
Capital out to be deployed to its best and highest value use. Any good capitalist like Donald Trump should know that.