Mitt Romney’s strength as a Presidential candidate, at least to hear his supporters tell it, is his business acumen. Romney made much of his fortune as co-founder of Bain Capital, a private equity firm. The job of a private equity firm is to buy companies who aren’t making money for their shareholders and turn them into companies who are making money for their shareholders, which sounds great until you realize that profitability is typically reached at the expense of workers and at the expense of American taxpayers.
Economist Robert Reich does a brilliant job of telling us exactly what a private equity firm in this two-minute 50 second video:
1. Get other people’s money – private equity firms never use their own money. They bring in other investors.
2. Buy a company
3. Cut costs – usually workers and benefits
4. Borrow money from banks based on company equity, deduct the interest, showing bigger profits
5. Issue a special dividend to pay back the original investors
6. Sell the company at a profit
7. The private equity firm takes 20% of the profit, after no financial investment of its own
8. Since the 20% profit (for which there was no initial investment) is treated as capital gains, the tax rate is only 15%
Reuters went even further and put actual faces to the casualties of Bain Capital. They profiled a struggling steel mill in Kansas City called Worldwide Grinding Systems, later renamed GS Technologies. In 1993, Bain Capital, a company with no steel mill expertise became the majority shareholder.
Within a decade, Bain Capital padlocked the mill and put 750 people out of work and forced taxpayers to pick up the bill for unemployment benefits and worse, for $44 million in pensions which had been earned, but Bain Capital refused to pay. Bain Capital made out well, though, with a profit of $12 million and $4.5 million in consulting fees. In 2001, the steel company declared bankruptcy.
Granted, modern times are not good for the steel industry. Many steel companies have been burdened with competing against cheap imports, but Bain Capital didn’t help either. They saddled the company with inexperienced people and cut back on safety, often resulting in higher instead of lower costs.
As GS Industries sought to cut costs, it hired line managers with no experience in the steel industry, workers said. One had worked at Walmart; many others came straight out of the military.
“He would come up with some of the stupidest damn ideas that you ever seen,” the former steelworker Linson said of one supervisor, a retired Air Force colonel.
Paperwork proliferated. Cost-cutting efforts backfired. Managers skimped on purchases of everything from earplugs to spare motors and scaled back routine maintenance. Machines began to break down more often, and with parts no longer in stock a replacement could take days to arrive.
Daily life at the plant was also growing more dangerous. Veteran crane operator Ed Mossman says he was ordered to pick up a load of steel that was 50 percent above the recommended weight limit – a prospect that could have toppled the crane and sent Mossman plunging to his death. When he refused, he says, he was fired after putting in 29 years at the mill.
What about the successes that Romney claims? His campaign often touts that Bain Capital created over 100,000 jobs with just three companies; Domino’s Pizza, Staples office supplies and Sports Authority. Are these claims true? The answer is maybe and maybe not. Bain Capital has had winners and losers. Net job wins are tough to measure, but it’s doubtful that they are even close to 100,000.
Perhaps that number doesn’t even matter. Romney and Bain Capital specializes in low-wage jobs. The jobs at his three “success stories” are causing many to be among the working poor, earning just $9.00 per hour, a pay rate that would qualify many for government assistance. Even worse, many people are hired as part-time employees with inconsistent schedules, leaving them unable to find additional work.
While these retailers provide salaried positions, including store manager, that offer a path to the middle class, the majority are hourly jobs that don’t. Sales associates at the two chains make less than $9 an hour on average, according to survey data from Glassdoor.com. At that rate, which is common in the industry, someone working 40 hours a week would earn below the poverty line of $19,090 for a family of three.
All three companies offer benefits, but it’s unclear at what level of employment. Staples claims to offer them at just 20 hours a week.
Half of public assistance (paid by taxpayers) goes to the working poor. It’s simple economics; everyone requires a minimum standard of housing. Everyone requires food. Everyone requires transportation to and from work. Working parents require day care. Everyone requires health care at some point in their lives. If these needs aren’t met through work, they need to be met somewhere else, usually at the expense of the taxpayers. Even Romney, as recently as January, proposed that single mothers should be forced to work, putting the burden of childcare on the taxpayers.
Here’s the video:
Romney and Bain Capital are emblematic of the growing “welfare state.” The fact is that one of the few things standing between American workers and poverty are unions, something that Romney and Republicans are vehemently against. Their true agenda is to make the rich richer and the working class poorer, even further burdening the taxpayers, while ensuring that the upper echelon of taxpayers won’t have to pick up the tab.