Mitt Romney and the Raiders

The Republican Party is in a tizzy over the criticisms some of Mitt Romney's opponents are hurling at him. They say he's a corporate raider, while his defenders say he's the perfect example of capitalism at its finest.

But as in all things, there are good capitalists and there are bad capitalists. Just because this is a free country doesn't mean everything you can legally do is moral and ethical, or good for the United States in the long run.

So let's look at a few different kinds of capitalists and see where Mitt fits.

The prototypical American capitalist is one or two entrepreneurs with an idea who start a company their own money or raise money for the venture by selling shares of stock to investors. As the company makes a profit the owners and investors recoup their investment by receiving dividends, or by selling shares of the stock when the company goes public. People like Henry Ford, Bill Gates, and Steve Jobs are generally thought of as the heroes of capitalism for creating new wealth in exactly this fashion.

Over time, the cost of starting many businesses has become a significant hurdle, so a more recent business development model is the venture capitalist. Using their own money, or pooling the money of investors, venture capitalists search for small businesses with great ideas that are going nowhere because they don't have the resources or business acumen. A lot of high-tech startups have been formed this way over the last 20 years. Venture capitalists often help the solitary inventor who lacks management skills hook up with professionals who can make the company grow and create new wealth.

As companies compete in the marketplace based on the strengths of their products and services, there will be winners and losers. If one company stumbles by making bad or over-priced products, or becomes bloated and inefficient, the poorly-run company may go out of business, or it may be taken over by a better-run competitor. That's just how capitalism works.


But it shows one of the weaknesses of capitalism. Over time these good capitalists can turn into bad capitalists if they are a bit too successful and develop a monopoly position, either by a single company or multiple companies making deals to split up the market. Monopolies rest on their laurels, become arrogant and lose their entrepreneurial spark. Their customers suffer from bad products and poor service. The companies maintain their monopoly by buying up potential competitors or litigating them out of existence. In short, large companies need to be watched, and that's what Teddy Roosevelt's trust-busting was all about.

Besides entrepreneurs and venture capitalists, there's another type of capitalist: the corporate takeover artist, personified by Gordon Gekko in the movie Wall Street. You know, the "greed is good" guy.

These raiders borrow money from investors and banks, promising large returns. They look for companies that are having trouble and snap them up at bargain prices. Sometimes they break the company up and sell the business units for more than they paid, or they dissolve the company to acquire real estate holdings or pension funds and cash them out. Sometimes they restructure the company, firing excess employees, or getting rid of the unprofitable parts and refocusing the business, over time making the company more profitable. Some of this is good, some of it is bad.

But since it's easier to take over a company that's in trouble, raiders often take over the poor performers. Using that acquisition as leverage to get more loans, the raider can then take over the better performers in an industry, turning the whole idea of capitalism upside down. Then the raiders pull the money out of the merged company to make their profit, often leaving the company with huge debt. After the raider is gone, the company quickly goes bankrupt. Everyone loses: employees lose their jobs, customers lose the service or product support, distributors lose a product line, retail outlets lose things to sell, suppliers aren't paid for their goods. Everyone, that is, except the corporate raiders.

The difference between corporate raiders and real capitalists is that raiders don't create new ideas or new wealth. This perversion of capitalism is not good for the economy or the United States, and it's what Mitt Romney practiced at Bain. Romney's brand of capitalism concentrates more money in the hands of fewer people, while contributing nothing new. Guys like Romney think of the economy as a zero-sum game and work to take a bigger piece of the pie, while real capitalists create new business and new money to make the pie bigger.

Our intellectual property and incorporation laws were created to reward people for developing new ideas. The "financialization" of the US economy has destroyed that idea, and instead now rewards raiders, bean-counting bankers, stock brokers, wheeler-dealers and hedge fund managers who get rich by betting that companies will fail, rather than working hard to create new products and services.

Romney's brand of capitalism also puts the United States at risk for takeovers by foreign interests, especially if Republicans make good on their promise to eliminate corporate regulations. What if, instead of investing in US Treasury bills, the Chinese decide to go after American corporations through a series of shell corporations? The only thing preventing this are those "job-killing" regulations that Republicans have pledged to repeal. We know we don't want the Red Army owning Boeing, General Dynamics and Lockheed. But do we really want Beijing calling the shots in the boardrooms at Walmart, IBM, Apple, GM, American Airlines, and John Deere?


What if those companies were secretly controlled by foreign interests, and they secretly contributed to Super PACs that spent hundreds of millions of dollars trying to influence American elections?


It makes you ask: who's really buying Mitt Romney's election?