Romney and the 1%. That's the title of a fascinating article in New York Magazine by Benjamin Wallace-Wells found here. It helps to explain why Romney seems to shift position with the winds. Wallace-Wells posits that Romney sees everything in terms of efficiency and tells of his history of using efficiency in the service of greed. It is a fascinating, if head-exploding, story of Romney's role in radically altering the structure of business from inefficient but somewhat caring for its workers to efficient and only in service of shareholders.
His latest gaffe about letting foreclosures run their course, then selling them off to investors who can then rent them out, makes total sense in light of this article. The article begins with the "Corporations are people, my friend" incident and recounts Romney's quest to acquire business acumen and use his acumen to not only change the way American business operates but exploit it as well.
He was, by any measure, an astonishingly successful businessman, one who spent his career explaining how business might operate better, and who leveraged his own mind into a personal fortune worth as much as $250 million. But much more significantly, Romney was also a business revolutionary. Our economy went through a remarkable shift during the eighties as Wall Street reclaimed control of American business and sought to remake it in its own image. Romney developed one of the tools that made this possible, pioneering the use of takeovers to change the way a business functioned, remaking it in the name of efficiency. “Whatever you think of his politics, you have to give him credit,” says Steven Kaplan, a professor of finance and entrepreneurship at the University of Chicago. “He came up with a model that was very successful and very innovative and that now everybody uses.”
The protests going on at Zuccotti Park now have raised the question of whether that transition was worth it. What emerged from that long decade of change was a system that is more productive, nimble, and efficient than the one it replaced; it is also less equal, less stable, and more brutal. These evolutions were not inevitable. They were the result, in part, of particular innovations developed by a few businessmen beginning a quarter century ago. Now one of them has a good chance of becoming president.
Although Wallace-Wells describes Romney as a "business revolutionary", it is not an all together flattering descriptor. The innovative business model pioneered by Romney and his six hand-picked Bain Capital founding members was formulated around making business more efficient by getting rid of excess labor (sometimes by closing union plants and opening non-union plants, thus lowering wages and benefits), rewarding managers with millions in shared earnings, driving up stock prices then selling their shares, which often led to companies crumbling into bankruptcy. The threat of private-equity buyouts forced businesses all over the U.S. to adopt the efficiency model that drove shareholder profits.
The efficiency model pioneered by Bain Capital didn't just steer money out of the hands of blue collar workers and into the hands of CEOs. It affected white collar workers as well.
Here, too, private equity seemed to provide an early warning of broader changes. In three years during the early nineties, the Princeton economist Henry Farber has found, roughly 10 percent of American white-collar male managers lost their jobs. For the first time, according to data collected through the General Social Survey, white-collar workers were nearly as worried about losing their jobs as blue-collar workers. Those white-collar workers who kept their jobs worked harder, and the compensation that had once been spread through the broader middle ranks of corporations now collected at the top. In 1980, a CEO had earned about 35 times the wages of an average worker; by 1990, it was about 80; and by 2000, it was about 300. The portion of America’s gross national product that ended up in the hands of workers declined by more than 10 percent between 1979 and 1996; the portion that went to investors rose by a similar amount. “What you end up with is a choice between a bigger cake less equally split and a smaller cake equally split,” says Bloom, the Stanford economist.
The article tells how Edward Kennedy's campaign used the destabilizing effects of Romney's business model to fend off Romney's challenge to his senate seat in 1994, and how the model's obsession with shareholder values, trading stability for growth, would ruin businesses such as KB Toys and Stage Stores.
The article also tells of how Romney came to adopt a universal health care model as Governor of Massachusetts:
But what separates Romney’s plan from Obama’s—and gives some clues about his potential presidency—is its almost-accidental origin. Romney did not begin with a philosophical quest to improve American health care. He began with the idea of himself as a problem solver and asked those around him for a problem that he might usefully solve. I remembered, when I was told this story, an anecdote I’d heard from a former political staffer of Romney’s. On even basic philosophical questions like abortion, the staffer said, Romney did not try to resolve the question in the abstract, as a matter of principle, and would consider instead various hypothetical cases—for instance, a late-term abortion—and build from them a politics. The line that Romney is a flip-flopper may vastly understate the depth of the condition.
This is a fascinating read, one well worth wading through all seven pages. It may even help you understand what makes Mitt Romney tick and scare the bejesus out of you when you think of a Mitt Romney presidency.
*Diarist Note: This is my first diary. Kindness rules :) Did I break any rules? There is a great picture in the article of Romney posing with his six Bain Capital co-founders but I didn't know how to include it here.