Chop-Shop Operators Not Job Creators

Isaiah J. Poole

Stunning but true: It’s “true Reagan conservative” Newt Gingrich who has asked what should be a fundamental question of the 2012 presidential race: “You have to ask the question, is capitalism really about the ability of a handful of rich people to manipulate the lives of thousands of people and then walk off with the money?”

Never mind that if the answer is “no,” Gingrich is incapable of supporting the kind of policies that would put a check on the rapacious Bain Capitals of the world, whose behavior even conservative defender Edward Morrissey likens to “essentially, gambling on businesses.” At least the question is on the table, and thus the door is opened to challenge the “job creator” rhetoric conservatives invoke to justify policies that do nothing more than “manipulate the lives of thousands of people” and enable “handful of rich people” to “walk off with the money.”

To quote one comment on the New Hampshire primary making the rounds today, “Mitt Romney didn’t create jobs; he ran a chop shop.”

That’s underscored by Terrance Heath’s article today on “Mitt Romney: Vulture Capitalist,” the first installment in our series on “Republicans Exposing Themselves.” He writes that Romney’s stewardship of Bain Capital “doesn’t jibe with the rhetoric about “job creators” on the right, or with Romney’s repeated claims that he was a “job creator” while at Bain Capital. By definition, the kind of “venture capitalism” Romney practiced at Bain involves lost jobs, because it’s all about keeping investors happy with high returns, not keeping people on the payroll.”

A couple of years ago I called attention to bankruptcy of the Simmons mattress company, which ended up in Chapter 11 not because Simmons makes a bad product that no one wanted or because its managers made a fatal business mistake, but because of “a succession of leveraged buyout deals in which the firms making the deals used the company’s assets to generate huge profits for themselves while loading the company with so much debt the company could not possibly pay it off.”

Simmons ended up in a shotgun merger with competitor Serta, which at one time was itself under the umbrella of—wait for it!—Bain Capital, from 1997 to 2004. Both brands now are owned by Ares Management and the Ontario Teachers’ Pension Plan.

The Service Employees International Union in 2007 released a report that singled out for criticism federal tax policies that essentially reward private equity companies for stripping their companies for maximum profit and then leaving them to die. Current corporate tax structure actually provides an incentive to load a company with debt, taxes “carried interest” earned from the debt on these deals at a lower rate than ordinary income, and allows a firm owned by a private equity firm that decides to go public to escape taxes that it would otherwise have to pay.

The point of that report was not to call for outlawing all leveraged buyouts, but to challenge the corporate sector to recognize “there is more than enough wealth in the private equity industry for the buyout firms to continue to prosper while also adapting their business model to expand opportunities to benefit workers, communities, and the nation”—and tax incentives need to be changed to encourage job-producing investment rather than corporate strip-mining.

It’s a call for a capitalism in which companies can produce products and services that people need and want, and workers are rewarded for what they do to provide those goods and services, not the capitalism of the 1 percent that would just as soon bankrupt a company and fire its workers if at the end of the day that would earn them a multimillion-dollar payday. Newt Gingrich has correctly called out that form of chop-shop capitalism. Now the public needs to see who can lead the economy toward the alternative.

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