December 21, 2011
Romney's Problem with Main StreetBy Rosslyn Smith
Some political analysts see the fadeout of Occupy Wall Street (OWS) as a sign that Mitt Romney won't be in for a bumpy ride over his wealth should he become the Republican nominee. I disagree. I also think that pundits who are embracing Romney because of his business background could be misreading the voters' mood. There is a bipartisan feeling that what's wrong with America is that we no longer value people who actually make things for a living, that the big rewards in terms of status and income now flow to those who merely rearrange, deconstruct, and skim from what others have made. What Romney did to earn his fortune is very hard to explain in ten words or fewer.
In this article l will discuss what I see as voters' attitudes toward wealth as it affects Romney, and the attacks that might be levied at a politician associated with the world of leveraged buyouts and venture capital.
I was surprised when a couple of apolitical friends initially supported OWS. I knew that OWS was classic political Astroturf, but my friends liked the initial message. They saw it as a well-deserved attack on the unpunished excesses of crony capitalism. They changed their minds when they saw the "student" defecating on a cop car, stories about those who borrowed to earn degrees in such useless fields as puppetry only to now demand their own bailout, and the bye many in OWS gave to Obama's deep Wall Street money ties.
There remains a lingering resentment that those who gambled with Main Street's wealth risked nothing of their own -- that when their advice went terribly wrong, the only thing the Wall Street crowd lost was the opportunity to hold an even more lucrative position in the future. During the Great Depression, those who lost millions jumped off ledges. Now, because the firms are either publicly traded corporations or limited liability, the decision-makers themselves keep the mega-salaries and bonuses they received before their house of cards collapsed. It may be legal, but it is not fair, and a messenger with a better-honed sense of justice than those of OWS could still ignite a populist firestorm.
Mitt Romney can't seem to break over the mid-20s level in any national polls. Part of it has to do with Romney's flip-flops in various campaigns, but I think voter uncertainty runs deeper than that. Some of his supporters tell us that since Romney is a successful businessman, he is the candidate with the widest appeal in a poor economy. They claim that he knows how to create jobs. I think that given the recent history of financial bubbles and crony capitalist scams, more people are asking whether Romney really made anything of value -- or did he skim off what others have made? Is he the answer for a more prosperous future, or does his business career embody how America slid off the economic tracks?
Let me start with how we perceive the sources of wealth. In C.J. Box's recent novel Cold Wind, about a murder on a massive government-subsidized Wyoming wind farm, the colorful defense attorney Marcus Hand becomes philosophical about rich men he has known. According to the fictional Hand (based loosely on real-life Wyoming lawyer Gerry Spence), the rich fall into only three groups: those who had it handed to them, those who created it, and those who skimmed it from others. Hand's assessment of these three types impressed me as being right on the money.
According to Hand, those who had their wealth given to them often feel a sense of entitlement. He meets the ones where that attitude led them to think that they could get away with breaking the law. He wryly notes that even when he successfully defends this type, they often meet a bad end: "Many of them have such self-loathing that it's contagious." While most Americans don't think that inherited wealth is bad, they have scant sympathy for those who act as if winning the sperm lottery allows them to break the rules. Support for OWS rapidly faded when it became known that many of the protesters were of affluent backgrounds and had both an outsized sense of entitlement and a propensity for uncouth if not outright illegal behavior.
Entrepreneurs and risk-takers form Hand's second group. In Hand's words, "These are the truly creative mad geniuses. They are quintessentially American. They produce real things -- widgets, ideas, devices, inventions, you name it." These people are often self-made, starting near the bottom of their line of work, and they rise by recognizing unmet needs. Hand states that he earns large fees from this type because they would rather fight to prove their innocence than plea bargain or pay a civil fine. Then, because they do want to keep what they earned, they dispute his bill.
People tend to respect the quintessentially American entrepreneur's accomplishments, even when they disagree with other things about him. Not even the unwitting Marxists at OWS seemed to begrudge the late Steve Jobs his billions. Love or hate Rush Limbaugh, but it is recognized that he took talk radio from the province of housewives exchanging recipes to a genre that keeps many AM radio stations afloat. When it comes to his early political career, Newt Gingrich is quintessentially self-made. He saw a political hunger outside the Beltway and wrested control of the congressional party away from complacent defeatists who said that a majority would never happen. It's interesting that while Jobs and Rush both valued learning, neither earned a degree, and Newt's background is not Ivy-League.
Hand sees his third type, the skimmers, as now dominating Wall Street and Big Business. Skimmers are mostly from well-to-do backgrounds and the best schools. That's how they connect. The murder victim in Cold Wind is a skimmer. In Hand's words, "early on he learned to work the system and take a cut. He produced nothing of record and made nothing of note. But he worked the politics and figured out how to be there when the money flowed. He didn't care if the gusher of cash made sense or if it was moral or ethical. He just concentrated on the gusher itself." George Soros's attitude towards his participation in the Nazi looting of Jewish property encapsulates the skimmer's code.
The entrepreneur knows his own business inside and out, but skimmers often glide from ill-conceived incentive to shady deal and back again, always on other people's money. They can be very clever with their schemes, but they don't create wealth so much as they redistribute it into their own pockets. Many aren't greedy so much as it becomes a game.
So where does Romney fall? Is he a creative genius or a skimmer? Some cite Bain Capital and say Romney is a business genius. Others aren't sure because they think that real capitalism as opposed to the crony kind involves making products and services people want to buy, not merely rearranging businesses created by others. They admire true creators but loathe speculators and the crony capitalist skimmers. Part of this is a communication issue. Even if a voter had never heard of Herman Cain, he instantly understood how Cain built his business reputation as the CEO of Godfather Pizza. Romney's experience in the private equity business is more abstract, his narrative complicated, his management activities steps removed from daily operations of the businesses he's given credit for building. That complication makes it hard to assess exactly how Romney added the value that would justify his acquisition of great wealth.
This assessment is further complicated by the issue of the company Romney has kept. The Harvard MBA, Wall Street Finance type proved to be the enemy of Main Street in the 2008 meltdown, but the problem goes beyond that. In the last two decades there have been too many examples of purported creative skimmers operating in the areas of real estate sales, mortgage lending, alternative energy, and Wall Street finance. At the same time, our schools and much of the entertainment media have dismissed the value of those who perform physical labor and make objects while celebrating those who manipulate abstractions such as words, images, and numbers. A credentialed but not necessarily educated elite claimed that this new creative class would be the source of a great economic boom.
In 2008, we rather abruptly learned that the financial geniuses who had been hawking supposedly risk-reducing derivatives destroyed much of Main Street's real estate wealth for the foreseeable future. In 2010 and 2011, we learned that the green business model favored by these elites to ease global warming and provide more secure energy had not produced a significant number of American jobs, and what's more, it turned out to be a financial scam to enrich political cronies based upon scientific fraud. In 2011, we also learned that our children left college under a huge debt burden but with minds full of completely useless mush and attitudes ill-suited to the labor force.
Mitt Romney is not responsible for any of this, but he does have many of the same credentials and connections as those who very much are to blame. He also shares their predilection for embracing theoretical solutions that don't pan out very well in practice -- e.g., RomneyCare. All this creates doubt as to whether Romney would work towards the fundamental change needed in government and the financial markets or merely tinker to make big-government programs like ObamaCare work more efficiently.
When one traces through the operation of Bain Capital, the evidence does tend to support that Romney is a creative businessman. Unfortunately, the bias against Harvard MBAs is particularly intense in flyover country right now. It is going to take an exceptional communications effort on Romney's behalf to convince skeptical primary voters queasy with worries that he may be just another well-connected crony capitalist skimmer that he did create jobs for others while enhancing his own wealth.
Gingrich crossed the line when he attacked Romney's wealth, but I think it is entirely fair to worry about potential skeletons in the Bain Capital private equity closet. Class warfare may still be a net loser because so many American would like to be rich someday, but a targeted attack ad campaign featuring people who believe they were shafted in some way by Bain Capital does have potential to do serious damage to the entire Republican ticket in 2012.
Bain Capital engaged in leveraged buyouts and venture capital. The theory behind many leveraged buyouts is known as creative destruction. By selling off underperforming assets, closing inefficient operations, laying workers off, and trimming cost, what is left is supposed to be a business that can prosper and even expand. That some people lose their jobs, or perhaps retirees their benefits, is the cost of the greater good -- a much healthier business going forward. That's the theory. Detractors say leveraged buyouts attract the most toxic -- even psychopathic -- personalities in the business world, who grasp onto the claimed efficiencies to rationalize the business equivalent of looting, rape, and pillage. One pop culture face of such a personality type is the lawyer Phillip Stuckey in Pretty Woman: when thwarted from raping the targeted business, he attempted to rape Julia Roberts's character.
Bain appears to have as good a reputation as a firm engaged in such work is likely to have. That does not mean that every business restructuring that Bain Capital was involved with is not being investigated for tales of woe. David Axelrod is probably in ecstasy at the prospect of shots of blue-collar workers who lost their jobs intercut with the "Money Shot" picture of the Bain Capital suits.
Unlike leveraged buyouts, the term "venture capital" conjures up pleasant images of nurturing the next Steve Jobs. Unfortunately, that isn't the whole story. During the dot-com boom, ridiculous amounts of venture capital were wasted on very silly ideas. Some venture capitalists also engage in vicious skimming behavior, demanding oversized rewards or even preying on those who have creative ideas but are unsophisticated in law and finance. The start-up owner who finds himself out of money while four and a half feet out on a five-foot plank that's on fire, with sustainable cash flow now only inches from his fingertips, is not in a strong bargaining position to reject any offer. The complete squeeze-out of the quintessential genius who founded the business is also known to happen. Those engaged in the buying, selling, and restructuring of American businesses could give lessons to Stalin's Politburo when it comes to turning the founder of a business into a non-person.
Because 20-20 hindsight is such a marvelous thing, a good storyteller can make a venture capitalist look both ridiculously wasteful and like the first cousin to a loan shark, if not an outright pirate. Over the years I've talked to people who were pretty bitter about their treatment from venture capital firms. It is a field where one such tale well-told could make a fortune based upon a much larger body of admirable work appear to be illegitimate. There is no evidence that Bain ever engaged in any of the sharper practices in the venture capital field, but that doesn't mean that there might not be people with an axe to grind. Even when a founder is well-paid to exit the scene, that was their child that was taken away.
These opinions do not make me either a socialist or a proponent of class warfare. Mitt Romney made a substantial fortune while associated with a branch of the business world that has a noxious reputation. OWS may have fizzled, but it is stupid to discount the potency of the residual anti-Wall Street sentiment that still smolders across a wide cross-section of American voters. If Romney is the nominee, all of the sins of the leveraged buyout world will be thrown at him. We had all better be prepared to make sure they can't stick.
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