Holman Jenkins’ Support for Job Destruction at Bain Capital Doesn’t Hold Up

by Linda Beale

Holman Jenkins’ Support for Job Destruction at Bain Capital Doesn’t Hold Up

Holman Jenkins Jr. writes an op-ed for the Wall Street Journal: “The Truth about Bain and Jobs,” Jan. 14-15, 2012, Wall St. J. at A13.  His first paragraph makes his bias in favor of “private equity” clear.  He says any debate about private equity’s role in either job creation or job destruction is “fruitless” because neither voters no politicians believe that jobs should ever be destroyed.  (The implication–made clear later on in the editorial–is that Jenkins thinks job destruction is just fine and dandy in all cases.)

Note that one can be a progressive who believes that an important purpose of government is to ensure that the economy perks along and protects workers in the process of allowing innovation and entrepreneurialship.  That doesn’t mean no jobs can be destroyed, but that job destruction should occur when jobs become “obsolete” because of innovation–not when good jobs are destroyed in this country so that they can be handed to workers in other countries at much lower wages or destroyed in this country as union jobs so that they can be handed to nonunionized workers in this country at much lower wages.

The latter kind of job-destroying, union-busting activity is frequently undertaken by private equity funds–and that appears to be truly destructive of the economy, since the gainers are the well-to-do investors in private equity funds while the losers are ordinary working folks.  So when “free trade” and “free markets” are really stand-in phrases covering a fundamental facilitation of the unfettered ability of high-net-worth investors to cannibalize the livlihoods of ordinary Americans in order to reap an even greater share of GDP (and keep all the gains to themselves rather than sharing them with labor), that is a kind of destruction of jobs that is destructive to the economy as a whole.
Jenkins goes on to try to deal with the kind of situation that is frequent in private equity takeovers–they do not just takeover almost defunct companies and then almost miraculously turn them around into profit-making companies that can be sold for higher value, although there are occasions when they do achieve that.

Quite frequently, takeover targets are profitable, stable, operating companies that have managed to build a decent amount of working capital.   When private equity takes them over, they siphon off the cash and often add additional short-term profits by firing workers.  This can put the company into a downward spiral that it never would have suffered without the attention of the private equity vultures who have learned that they can decimate a company and sell the parts for more than the whole was worth.  That is a kind of destruction of jobs that is destructive to the economy as a whole.

In the case of Bain Capital, a company like that was Safeway–a profitable chain that was undone by the private equity markets.  Jenkins blames that on the idea that “the fat in the supermarket industry would soon be the target of WalMart Costco and other revolutionary discounters, so competitive change was coming in any case.”

What that excuse for the vulture behavior of private equity overlooks is the fact that the same policies that made private equity’s harsh treatment of jobholders possible also made possible the WalMart “revolution”.  That is, reaganomics adopted a pro-Business viewpoint, based on a distorted notion of what markets are and what ‘free markets’ means.  That viewpoint led to a downplaying of anti-trust law, a relaxation of labor laws and a general deregulatory approach to business .  The result was companies like Walmart that combined haphazard environmental compliance with fierce anti-union behavior that trampled on workers’ rights and an intentional pushing of what typically are employer responsibilities off onto the public safety net.

Low wages, lack of job security, inability to form a union (or even successfully communicate among workers about one) placed workers in a situation where they were barely making do on less, in real dollars, than workers made decades before.  That is, the “competitive change” was a kind of vulture economics in itself that was fostered by deregulatory and anti-union policies lobbied for by the wealthy investors in the first place.

Jenkins further argues that the “fundamental problem” with many companies today is that they have “a unionized workforce in an industry where competitors aren’t unionized.”  This reflects the right-wing bias of the Wall St. Journal against unions, seen as the enemy of Big Business.  But it glosses over two key concepts:  (1) the fact that competitors are not unionized is a direct result of the restrictive anti-union laws and the jaundiced attitude towards unions in Big Business today, that makes it as hard as possible to unionize and thus builds up pressure on the few companies that remain unionized to race to the deunionized bottom so that managers and owners can steal the productivity gains for themselves, showing bigger “returns”; and (2) the enormous benefit of unionization in ensuring that growth is broad-based and opportunity-creating for the vast majority of Americans and that unionization gives workers the ability to join together to have some clout in negotiations with otherwise all powerful employers who will, if there is no counterpressure, retain all productivity gains for themselves (for the elite managerial class and the owners).

Jenkins asks readers to consider whether they’d be willing to pay extra so that local manufacturers could “pay workers comp costs way out of line [with] the industry’s?”  Again, the reason that one company’s costs may be “out of line” may well be that it pays its workers a decent living wage.  If the rest are taking advantage of workers by paying less than that (probably because those workers haven’t been able to benefit from unionization) the answer is to facilitate unions, not to facilitate the continual downgrading of American jobs to poverty level wages.  The neat “trick” of that is that higher wages across the board makes it possible for workers to buy more of the products being offered, thus making that slightly higher price that supports those industry wide higher wages well worth it.  That was the kind of wisdom that Henry Ford saw, when he paid his workers decent wages so that they could all afford a Ford.

Jenkins thus thinks that the job destruction that goes on in today’s vulture capital world is perfectly okay.  But he still doesn’t think Romney ought to bring attention to it in the campaign.  He thinks there is a “perfectly defensible story to tell” however, based on money and work.

  • Money is not a problem, according to Jenkins.  Romney expected to be paid well but got much much more than expected because of serendipitous timing. 
Now, it is likely obvious even to someone like Jenkins that the kind of rapacious profits that private equity fund managers make look, well, rapacious.  If you fire 10,000 people, run a company into bankruptcy, and yet make off with millions yourself from the experience, you may not only look like someone with no heart but actually be a pretty good model of a greedy Gordon Gecko.  Jenkins thinks Americans are ready to recognize that this is just a serendipitous result for Romney–he was just lucky to to finish his education right when a “great economic liftoff” was taking place.  A less sanguine view would say that he had the wealth-seeking ambition to capitalize on an elite education (provided by an elite family) and family connections to industry just at the time when the great ripoff was underway–the Reagan revolution that was starting to move assets out of the middle class and into the hands of the superrich.
  • Work is the other half of the “defensible story” according to Jenkins.  Romney need not shy away from the fact that he earned great wealth at Bain Capital, Jenkins is saying, because he really EARNED it.  “He put his talent for calm, careful analysis to work helping American businesses adapt to the onrushing challenges of globalization and technological change.”
This is the line that the rich merit their wealth because they’ve worked hard to get it.  Makes you wonder, of course, how they think the poor merit their poverty, since they work hard (much harder in fact, and often at grueling physical labor) and still end up there anyway. 
What the “work/merit” story shows it that wealth as a merited reward for hard work has very little to do with it.  CEOs don’t add value to their corporations equal to 400-500 times what their average workers do, but they are paid as though they did.  The reason isn’t because of hard work and merit, even for those CEOs that do work hard and merit decent compensation for what they do.  The reason they get paid outsized pay packages is because they are mostly in control of their own pay and the pay of their ordinary workers.  They take from the one and give to themselves, with the rubber stamp of a board made up of compatriots who are doing the same at their own companies.  They use the “benchmark” process (our goal is to be in the top third on the pay scale) and the “competition” justification (if we don’t pay X this much, he’ll leave and get a job at Y where they will, and how will we replace him), even though these benchmark and competititon justifications are self-serving and unreasonable on their face. 

Jenkins concludes with the statement that “it may even be true that [Romney’s] ratio of jobs created to jobs destroyed was better than the economy’s as a whole.”  Even if this were true (which I found doubtful but cannot substantiate for Bain Capital in particular), the question is whether it would justify the practices of private equity in taking over stable, profit-making businesses and using globalization as a way to shovel workers out the door and more profits into the hands of managers, owners and private equity ‘venturers’.   Jenkins is essentially giving private equity a bye–whether or not it is good for ordinary workers, Jenkins thinks it is a per se good if it assists in the globalization process.

This is where the debate needs to center in the campaign.  Just what is the good and the bad about globalization?  There is a good deal of bad, and it suggests that we should temper the way globalization works rather than continuing to mouth the right’s slogans about competition, globalization and free trade as an unmixed blessing.  How do  our domestic policies  grease the wheels for corporations to benefit from globalization at the expense of the vast majority of American workers?
To the extent that our policies are providing a path through which corporations can socialize losses (firing workers who end up on unemployment compensation and without health care or unable to afford college, etc.) while privatizing gains (income saved from foregoing promised payments to pension plans that are then disavowed as workers are fired and unions broken), we need to change the policies.  Companies should be forced to make full payments to benefit plans as promised. The many corporate and individual tax loopholes favoring highly compensated managers should be eliminated.  How about no deduction for any pay that is more than some reasonable ratio times the average non-executive worker salary, no matter whether it fits the contrived definition of “performance-related pay” or not, for example.

originally published at ataxingmatter