Obama campaign's Bain attacks are best ignored

By Dan Turner

May 22, 2012 12 AM PT

Mitt Romney: Corporate raider who maximizes his own profits at the expense of middle-class workers and is a bigger job-killer than job-creator. That’s the image President Obama’s reelection campaign is seeking to portray in a series of ads and videos that focus on Romney’s record -- not as governor of Massachusetts, which would be a lot more relevant when it comes to assessing his qualifications to be president, but as chief executive of private-equity firm Bain Capital. The Obama camp released its first slug at Bain last week with a two-minute ad exploring the shuttering of Bain-owned GS Technologies in Kansas City, and the follow-up punch landed Monday with a five-minute Web video about a separate failed Bain-held company in Marion, Ind., called SCM.

Over the course of the presidential campaign, we’ll look at ads from both sides to assess their relevancy and truthfulness. The Obama effort so far rates a two on our five-point scale: It’s of minor consequence.

President Obama isn’t the first to try to capitalize on Bain Capital’s failures. Sen. Edward Kennedy pummeled Romney in a 1994 Senate race using the same strategy, and Romney’s Republican opponents were bemoaning the job losses at steel company GST long before Obama started hammering the issue, with Texas Gov. Rick Perry using the term “vulture capitalist” to describe Romney’s former career. But the attack fizzled during the GOP primary campaign, because Republicans just aren’t down with people who disrespect free-market capitalism. Obama is hoping Democrats and independents will send a little of their rage at Wall Street in Romney’s direction, even though the Bush-era economic meltdown had very little to do with the activities of private-equity firms like Bain.

COMMENTARY AND ANALYSIS: Presidential Election 2012

Romney is trying to portray himself as a job-creator, and the Obama campaign points out that his true record at Bain, which includes hundreds of lost jobs, is fair game for political ads. True enough, but Obama’s approach is sort of like implying a poker champion is actually a bad player by making an ad about every game he ever lost. Bain is in the business of making bets on corporations, buying up start-ups or other companies considered undervalued, taking over their management, restructuring them (often resulting in layoffs) and then, hopefully, selling them at a profit. No one in this business wins every pot, but Bain under Romney was unusually successful. You wouldn’t get that impression from Obama’s ads.

Both campaign videos are tales of woe told by people who lost their jobs at companies Bain couldn’t save. The workers’ stories are heartfelt, and it’s impossible to be unsympathetic to their plight. But they worked at troubled manufacturing companies that may have gone under even earlier than they did without Bain’s help. The main culprit in their demise -- global competition, particularly from China, which has devastated the U.S. manufacturing sector -- wasn’t Bain.

Bain bought Kansas City’s GST in 1993 and pumped $100 million into modernizing a company that, like other U.S. steel manufacturers, had been shedding jobs for years because of robust global competition. What happened next is open to debate: The Wall Street Journal’s Kimberly A. Strassel argues that GST’s unionized workers helped destroy the company by refusing to make concessions in the face of rising operational costs and declining profits, while GST workers say they were done in by Bain’s management mistakes and by a political failure to impose big tariffs on Chinese steel imports. What’s undeniable is that GST couldn’t compete with its Chinese counterparts and closed its doors in 2001, leaving 750 workers jobless. Unmentioned in Obama’s ad is that this happened two years after Romney had left Bain.

Monday’s video focuses on SCM, and it’s a more credible challenge to Romney’s record than the first ad. The company was a victim of a play by Bain to consolidate the office paper-products industry. In 1992, Bain bought a notepad manufacturer called American Pad & Paper, or Ampad, and followed up by combining it with SCM, which as a maker of hanging file folders seemed like a natural fit. To cut costs at SCM, all its union workers were initially fired, then invited to reapply for their jobs at lower salaries and benefits. That does say something about Romney’s approach to union workers, though it could be argued that SCM couldn’t have survived without cutting costs. In any case, by 2000 the company was history -- done in, like GST, by competition from China.

There are two legitimate questions about Bain, but neither these ads nor the Obama campaign has asked or answered them. The first is whether failures such as GST and CSM were the result of bad management from Bain (and thus Romney), or a consequence of market forces. The second is whether private-equity companies such as Bain perform services that are a net positive for the economy, or are simply vampires that drain companies of value and discard their desiccated corpses. The lack of engagement with these questions may be because there’s little evidence of Romney’s culpability, or Bain’s.

Most Americans would probably have trouble buying the notion that investing in start-ups and improving corporate efficiency to maximize profits are bad things. By the standards of its peers, Bain Capital, which Romney founded with two partners in 1984 and has grown to be one of the nation’s biggest private-equity firms, is a remarkable success story. I don’t expect the Obama campaign to tell that story, but its focus on Bain’s relatively rare failures is every bit as disingenuous as the Republican attacks on the administration over Solyndra, a Bay Area maker of industrial solar panels that filed for bankruptcy last fall after receiving $535 million in loan guarantees under the federal stimulus program -- and was, like GST and CSM, a victim of competition from China. (It is just as unrealistic to expect the government to have a flawless record in picking successful companies as it is to expect the same of venture capitalists, and if loan guarantees can be granted to nuclear power plants there’s no reason they shouldn’t be given to renewable-power start-ups).

Romney’s union-busting behavior at SCM is worthy of note, but most of the Obama campaign’s criticism of Romney’s Bain record to date has been misleading and inconsequential.