Thursday, January 12, 2012

Why Questioning "Creative Destruction" Is Fair Game

First, lets understand that we are in the middle of a Republican Primary to nominate the GOP challenger to fire Obama.  That being said, one's record is fair game so long as it ties to how one might govern.

Second, just because the Beltway and media elite have anointed their nominee does not meet the gloves have to be off for the duration of the nomination process.  Records matter and are fair game.  Remember, the voters have not spoken.

The backlash by the Washington and media elite towards Newt Gingrich and Rick Perry over their questioning the 'creative destruction' tactics used by Bain Capital under Romney's tenure does the nomination process a huge disservice.  That is why we have primaries - to vet the candidates out to determine who is the most qualified and best positioned to win the election.

Read this commentary by Governor Mike Huckabee over this issue:

Bain Capital

Romney has come under a lot of fire for Bain Capital's investments in some companies that were then scaled down with layoffs to become profitable. That's been demonized thoroughly by the media as corporate raiding, But it's surprising to see so many Republicans embrace that leftwing argument against capitalism. It's terrible for the workers who lose their jobs, and nobody likes to see viable companies looted and destroyed. But if downsizing can turn around a failing company, then at least it prevents all the jobs from being lost, and it sets up a stronger company that can grow and start rehiring. The term for this among people who aren't hostile to capitalism is “creative destruction.” Bad companies have to die to make way for stronger companies, in the same way that old trees fall over to make way for new trees. The other alternative, the Obama way, is to use vast amounts of taxpayer money to prop up companies that are failing in the marketplace. Sometimes, with a big enough cash transfusion, they survive, like GM. Other times, all the money in the world can't stop them from going belly-up and losing all their jobs, like Solyndra. But at least when a company that's bought out by investors goes bankrupt, the money that's lost was voluntarily invested, not taken from taxpayers at gunpoint.
Be sure to tune in Saturday to my Fox News show for a candidate forum from South Carolina and the GOP candidates facing questions from undecided voters in South Carolina.
Sincerely, signature

In pure business terms, Bain Capital is perfectly within the reigns of a capitalist model to acquire funds to fund start-ups (such as Staples and Sports Authority), launch IPOs (such as Blackstone Group) or even finance creative destruction projects such as they did with KB Toys and American Pad & Paper.   Bain Capital and other venture capital firms are also perfectly within the boundaries of venture capitalism to make money on all three of these activities.

So why is this even an issue?

'Creative Destruction' if done by Company A who acquired Company B via a takeover or merger for the sole basis of acquiring accounts or assets  is perfectly within the boundaries of capitalism.  That is survival of the fittest and every free-market capitalist understands that.

When Bain Capital who pools in Wall Street and fat cat money via wealth financiers does creative destruction, they are doing solely for profit and on the backs of everyone involved.  The entire basis of the transaction exists with the intention of gutting the firm firing everyone.  There is no emotion involved in this transaction, and the human capital is discarded.

You see, it will take years of integration and consolidation for Company B to be a shell of what it once was.  Company B most likely could not stand on its own but for the interest of the customers and employees, the firm was acquired.  The most likely gradual layoffs would not be based on others making a profit on the demise of the firm.  The demise of Company B was due to its inability to stand on its own two feet.  The decreased expenditure and most likely higher net income are natural when a company reduces staff to lower human capital expenses.

That is natural.  Profiting from a financial transaction conducted to raid a corporation is not capitalism.  It is profiting on the misery of others!

To further exacerbate the issue of creative destruction, Bain Capital profited from a federal bailout of a Kentucky steel mill during Romney's tenure.  Worldwide Grinding Systems, later renamed GS Technologies after it was acquired by Bain Capital closed its doors ten years after Bain acquired it.  When it did fail, Bain Capital profited from a federal bailout to the tune of $44 million due to the underfunded employee pension system.  The profit Bain netted was $12  million on its initial investment of $8 million and over $4 million in consulting fees. Source here.

Adding insult to injury the bailout came after Bain Capital denied severance and health care benefits that they initial promised when Bain acquired the steel mill in 1993.

Tying it All Together

Those bashing Gingrich and Perry as being unfriendly to capitalism are missing the underlying point of why this issue came up.  How can a Christian, much less compassionate Christian seeking the highest office in the land even advocate such heartless business practices?

 More importantly how can Mitt Romney who as of this writing is leading in national polls and could very well be the Republican nominee challenge President Obama on job creation, when his firm that co-founded adopted 'destructive capitalism' for pure profit as a product?

It's bad enough we have the current President who hates capitalism, we do not need the GOP nominee who profited on the misery of others after they were laid off.

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