Why Romney can’t defend capitalism

By Nicholas Wapshott
July 31, 2012

When Fox News worries out loud that Mitt Romney’s failure to account for his time at Bain and his personal tax affairs may represent his Swiftboat moment, it is plain the Republican presidential bid has careened offtrack. The Bain attacks are “part of a strategy by Team Obama to turn Romney’s biggest perceived strength – his business experience – into his biggest weakness,” writes Fox’s Juan Williams. “Romney needs to come clean or his hopes of being president will end long before Election Day.”

How has Romney come so close to bungling his big chance, even before he has been nominated by his party? He appeared to be in an ideal position to turn his experience as a businessman into a winning political narrative. During these jobless economic doldrums, Romney might have become a champion of capitalism, explaining how private enterprise works and how it creates jobs.

His problem is that his time at Bain is not a classic story of heroic capitalism at work. Instead of an old-school entrepreneur with a good idea who raises funds to employ Americans to make a product that sells successfully around the world, Romney took distraught companies, charged them hefty fees, fired workers, and set the stumbling enterprise off in a new direction, laden with debt. Some companies prospered, some failed. Some gave Americans new jobs, some sent jobs overseas.

Romney’s tax embarrassment follows a similar arc. No one likes paying taxes, but conservatives have made tax dodging a religion, so Romney was in prime position to explain how taxing people too much can drag an economy down and how the rich, if lightly taxed, spend freely and create jobs. But the intricacies of Romney’s vast wealth are far from simple and his personal tax avoidance measures beyond ingenious.

There may be good reasons to hold a bank account in a tax haven like the Caymans, but most Americans don’t have reason to resort to such ruses. They suspect that those who help avoid the payment of taxes due in America are unpatriotic, even un-American. So how does Romney set minds at rest on his tax record? He doesn’t; he insists he will only issue two tax returns.

Many have a visceral dislike of Romney and his kind of well-heeled Republican. He is too rich, too smooth, too handsome. His family is too large and their vacations too extravagant. His privilege since birth has set him apart from ordinary Americans. His business at Bain was largely slaughterman’s work, taking unsentimental decisions about shedding jobs, incurring debt and closing plants. His private fortune is so substantial he employs armies of accountants to pick holes in the tax laws. He is prepared to say and do anything to get elected. Except for one thing: He won’t – or can’t – explain why capitalism is good.

Preaching the virtues of capitalism red in tooth and claw (to paraphrase Tennyson) is a hard sell at any time. Right now, in the midst of the most prolonged recession since the Great Depression, capitalism is in the self-immolating period Joseph Schumpeter cheerily dubbed “creative destruction.” If you believe what’s on the label, stronger, leaner companies will emerge from the wreckage, better fitted to the new competitive marketplace.

A leap of imagination is needed to grasp an argument that is so faith-based and counterintuitive. Not even Ronald Reagan, with all his persuasive eloquence, was able to convince Americans it was true: Closing companies and firing people leads to new jobs; outsourcing jobs overseas helps Americans get a job; free trade makes the whole world better off; and so on.

Romney hasn’t been helped in his task by those he beat to the nomination. Rick Perry describes what Bain does as “vulture capitalism,” picking the flesh off the bones of corporate corpses, while New Gingrich’s dark charge was that Bain was no more than “rich people figuring out clever legal ways to loot a company.” It is only a small step from such ferocious friendly fire to hostile questions about exactly when Romney left Bain’s employ, which disastrous Bain deals he was involved in, and which of the Bain companies he presided over fired people and sent jobs overseas.

For now, while Romney gaffes his way around the world, questions about exactly what he did in his Bain years and what taxes he paid before last year will remain unanswered. But damage has been done: The impression is that Romney’s vampire capitalism and his reluctance to pay his dues are hard to explain, even indefensible. Unless he returns to America in a more transparent mood and is prepared to open a decade of tax returns to scrutiny, he will be dogged by questions all the way to Nov. 6.

Nicholas Wapshott’s Keynes Hayek: The Clash That Defined Modern Economics will be published in paperback in September by W.W. Norton. Read extracts here.

PHOTO: Republican presidential candidate Mitt Romney delivers foreign policy remarks at the University of Warsaw Library, July 31, 2012.  REUTERS/Kacper Pempel

36 comments

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The typical scenario for Bain Capital and the like is to take over a troubled company whose management has put-off the hard decisions—operations need to be shut down, workers need to be laid off, etc. The takeover companies are then the bad guys when they do what is required to save the patient. Do takeover companies always do the right thing? Of course not.

Although not popular now, I fundamentally believe Capitalism and Joe Schumpeter are the right path. I have seen it work. (go to http://unrepentantcapitalist.blogspot.co m/ and look for the Aug 21, 2010 posting. Article is called ‘the US is losing too many jobs’)

I wish Romney could use his time in the spotlight to articulate why Capitalism is the right way forward, but I fear he can’t or won’t.

320 million people and these are the two best we can come up with?

Posted by jambrytay | Report as abusive

jambrytay, the additional problem is a takeover company pocketing what ever money that’s left in the company coffers, putting it in an offshore bank account (so that it no longer exists on paper) and then defaulting on the employee pensions, vendor bills and creditors that were the obligations of the company they just took over. The new outfit files bankruptcy because…. “Look, we have no money.”

The reason this looks bad is because it is bad. It’s legal. And I don’t even fault Romney for doing it. If he can live with it, more power to him. But to then ask us to vote for him because of his ‘business experience?’ It’s like voting for the guy who sends you Nigerian wire fraud scams. Just because he makes himself some money and finds a loop-hole to do it does not mean he should be running the United States.

Posted by AlkalineState | Report as abusive

AlkalineState,

I don’t think the pillage and plunder scenario you describe is typical. Does it happen? Yes. Is it typical? No. I’ve seen a few of these private equity firm buy-outs up close, and I saw changes that needed to be made and everyone knew it. Painful? Yes. Necessary? Yes. Was the company left in better shape? Yes. Did the private equity guys make money? Yes.

Posted by jambrytay | Report as abusive

America had already tried Ayn Rand’s version of heartless capitalism even before she wrote about it in her books. It caused the Great Depression. Franklin Roosevelt had a better version of capitalism. Americans at the time must have liked it because he was elected to four terms as President. FDR said,
“The royalists of the economic order have conceded that political freedom was the business of the government, but they have maintained that economic slavery was nobody’s business. They granted that the government could protect the citizen in his right to vote, but they denied that the government could do anything to protect the citizen in his right to work and his right to live.

Today we stand committed to the proposition that freedom is no half-and-half affair. If the average citizen is guaranteed equal opportunity in the polling place, he must have equal opportunity in the market place.

These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power. In vain they seek to hide behind the flag and the Constitution. In their blindness they forget what the flag and the Constitution stand for. Now, as always, they stand for democracy, not tyranny; for freedom, not subjection; and against a dictatorship by mob rule and the over-privileged alike.

The brave and clear platform adopted by this convention, to which I heartily subscribe, sets forth that government in a modern civilization has certain inescapable obligations to its citizens, among which are protection of the family and the home, the establishment of a democracy of opportunity, and aid to those overtaken by disaster.

But the resolute enemy within our gates is ever ready to beat down our words unless in greater courage we will fight for them.

For more than three years we have fought for them. This convention, in every word and deed, has pledged that the fight will go on.

The defeats and victories of these years have given to us as a people a new understanding of our government and of ourselves. Never since the early days of the New England town meeting have the affairs of government been so widely discussed and so clearly appreciated. It has been brought home to us that the only effective guide for the safety of this most worldly of worlds, the greatest guide of all, is moral principle.

We do not see faith, hope, and charity as unattainable ideals, but we use them as stout supports of a nation fighting the fight for freedom in a modern civilization.

Faith – in the soundness of democracy in the midst of dictatorships.

Hope – renewed because we know so well the progress we have made.

Charity – in the true spirit of that grand old word. For charity literally translated from the original means love, the love that understands, that does not merely share the wealth of the giver, but in true sympathy and wisdom helps men to help themselves.

We seek not merely to make government a mechanical implement, but to give it the vibrant personal character that is the very embodiment of human charity.

We are poor indeed if this nation cannot afford to lift from every recess of American life the dread fear of the unemployed that they are not needed in the world. We cannot afford to accumulate a deficit in the books of human fortitude.

In the place of the palace of privilege we seek to build a temple out of faith and hope and charity.”
http://www.austincc.edu/lpatrick/his2341  /fdr36acceptancespeech.htm

Posted by wrylyfox | Report as abusive

Capitalism or Socialism?

Can someone please tell me which Socialist country we are striving to emulate? and why?

I am voting for the capitalistic (success) Romney
and
Not the socialistic ( everyones the same – government knows best) Obama…

but, just so I can understand, which current socialist country is held up as our exemplary goal to strive for?

Posted by 100MPS | Report as abusive

What a load of tripe. Mitt Romney is NOT the problem. While Obama cannot be entirely blamed for the break-down (although he was a Senator, thus part of the problem), he and his ridiculous policies are to blame for the lack of a recovery. His attempts to replicate the failed European model of “social democracy” are meeting with predictable results, along with his pathetic foray into class warfare. I’m sorry, but there truly is no free lunch and Obama must stop pretending so. Stop trying to turn the safety net into a hammock and we shall all be better off.

Posted by Energyguy | Report as abusive

Well met, Wrylyfox. FDR 2012.

Posted by AlkalineState | Report as abusive

jambrytay, again. When Romney announces that he’s prepared to shut down Alabama and Kentucky for their chronic underperformance, get rid of the people there, and sell off the real estate and assets to an overseas hedge fund…. we’ll accept that his particular brand of ‘business’ experience is relevant to being President of the United States. I’m not holding my breath. Romney has been a little light on the specifics.

Posted by AlkalineState | Report as abusive

Loose labeling or false either-or choices don’t help. We’re not deciding between socialism and capitalism in this election, or likely ever in the U.S. We’re debating what kind of capitalism we have in our capitalist (not socialist) USA.

For 200+ years it’s been a regulated capitalism here, subject to taxation under federalist government.

While businesses chase growth overseas, they also bump into the major problems of countries that lack the institutions we have to regulate capitalism, to provide a level playing field, to discourage cheating, to protect property, etc. Some multi-billion dollar big businesses efforts failed, pulling out of Russia, China, and elsewhere after chasing ‘cowboy capitalism’ or ‘communist-state-capitalism’ growth appeal, before little or no ‘rule of law’ in the new markets washed away the best-laid plans.

The politicians claiming capitalism is under attack are the same ones who want to gut the rule of law that keeps the ‘invisible hand’ honest and above-board. We did fine for our decades of greatest 20th century success with higher upper tax bracket rates, stronger regulations and simpler financial accounting.

Now the thirty years of pressure to deregulate, to lower top taxes, and cut government have left the middle class (including most small business) and poor with income and wealth levels flat, while the 0.1% top cats who are preaching this trend of “less government = more capitalism” have seen wealth and executive pay balloon over the same 3 decades. Demand is down and recovery is delayed because of reduced opportunity and income for 99.9% including our middle class.

The number of financial scandals in recent headlines about new cheating or scams, coming to light just 4 years after the 2008 financial meltdown, also support the idea that we’re better off as a nation with a fair, regulated capitalism rather than trying to play the game without rules or referees.

Posted by Decatur | Report as abusive

Decatur – well said. However some additional caveats about American capitalism; the US economic model has never been one of ‘Free Markets’, or business competing and the ‘best’ surviving or a self-correcting marketplace, where consumers decide winner-loser businesses or any other like claptrap; trickle down or supply side economics. Graft and political cronyism walked side by side with the Industrial Revolution and rewarded politicians and Robber Barons alike; that alliance evolved into the interdependence of today, where government subsidizes multinational corporations by legislative intent and tax code giveaways. The same corporations bitterly complain of over taxation and excessive regulation while shifting environmental impact expense to the public sector and buying political favors to increase revenue.

What has become increasingly obvious is that Capitalism, if unregulated and unrestricted by laws and vigorous oversight can and will undermine and subvert the governing structure and processes that allowed their formation. The very essence of the American Dream is social and cultural equality; a society where wealth and power is held by 1 percent of the population and the remainder are bound by economic chains, politically manipulated and legally disadvantaged is doomed to fail; it’s just a matter of time.

Posted by JBltn | Report as abusive

I would respectfully suggest that the contributors to this article have not addressed the core issues and are not properly comparing apples with applies in their discussion.
[1] As a general statement a company is a separate legal personality and is an entity in its own right separate from its shareholders.

[2] The obligations of directors and a CEO of a properly structured company have a legal and primary responsibility to the company first and shareholders and employees second.

[3] That responsibility requires the financial protection of the company over and above obligations to any other stake holder.

The legal requirements of the empowered CEO and MD have therefore a conflict of interest in providing protection and job creation for employees where the life or existence of the company is exposed.

As I understand Romney did not fail in his obligations to his company. While it may be totally unsatisfactory and financially devastating to the US employee that jobs were lost and jobs exported the complaint has to be with the company structures and the law around the operation of those structures.

Until the world creates or develops a new company structure that gives legal force to the employment and creations of jobs of similar or equal value to the company responsibilities as an individual entity then any criticism of a CEO {Romney} is probably less than fair.

In New Zealand we have the same problems and to date have not sought to create a legal entity that seeks to protect and enhance employment and social responsibility. US companies operating in NZ place the health of their NZ registered company over and above the responsibilities to the employees.

I would urge you to address the issue of company structure and not the results of company operations.

Posted by Zykon | Report as abusive

As you may not trust less regulated businesses; I do not trust a less regulated government.

State Capitalism is the new term for Communist China and others;

Regardless of the terms and labels used what is Obama’s end game.
When all the change is done and we are looking at the final product…what will it look like? where exactly are we going, toward a specific already proven model or toward a purely theoretical construct that may or mnay not work as planned in real life.

Posted by 100MPS | Report as abusive

Posted by Global55
“Beautifully written, crisp and pithy – although it does serve to indict Romney, even skewer him.”

if the large Media switched to a more conservative presentation of the news / opiniions / and so forth. (or non partisan) And skewered Obama instead…maybe pieces such as this would not be considered so beautifully written after all.

In the world of capitalism’s evils; there is silence from the ‘Main-Stream” media about Obama’s mis-steps or their own.

The most un-regulated of all capitalistic ventures is the media, as they (like Obama) remain unchallengable even though they are also in the top 1% as well.

I don’t automatically beleive any capitalist media (or other corporations) just because they tell me what I want to hear, or persuade me that their opinions are facts.

Posted by 100MPS | Report as abusive

Very well written and objective article. If you are going to talk the talk… you better have walked the walk!

Posted by abkisa | Report as abusive

It is interested that you find it necessary for Romney to have to defend capitalism. Defend capitalism.

Only in the half twisted sideways world of the liberal press does anyone have to defend capitalism.

How about we accept capitalism as the tried and true form of opportunity for humans?

How about somebody on the left require some defense of socialism? Based on the obvious failure of the socialist agenda, the millions starved to death, the millions who disappeared, the tens of millions killed in and by socialist governments as the population soured on the experiment, and the unquestioned damage to a human’s dignity and self worth living in a collective form of economy.

Posted by styrophome | Report as abusive

Romney cannot defend it because he really knows America does not use capitalism anymore…we operate with a highly managed and manipulated form of reverse fascist, psuedo-capitalism. He and those that are paid to make money for him, use the system to manage and manipulate exotic financial instruments for personal gain at the expense of “the people”.

Posted by mojobeefbone | Report as abusive