Let Us Now Praise Private Equity

Every presidential candidate has to defend himself against accusations of wrongdoing — an affair, abuse of office, campaign-finance impropriety, and so forth. Mitt Romney finds himself in a predictable defensive crouch, too, but the allegation against him is extraordinary: He stands accused of doing his job too well.

As the founder and CEO of the private-equity firm Bain Capital, Romney was a turnaround artist. In that role, the GOP frontrunner says, he restored failing firms to health, usually with great success. He claims to have helped create thousands of new jobs and billions of dollars in new wealth.

Some of Romney’s Republican rivals, particularly Newt Gingrich, haven’t framed Romney’s record in such generous terms. They say Romney was a “vulture capitalist” who used financial chicanery to enrich himself and his cronies at the expense of helpless workers. President Obama and his allies will surely make the same case in the months to come. Indeed, a recent memo from Stephanie Cutter, the president’s deputy campaign manager, accuses Romney of having sought “profit at any cost,” and of believing in “an economy where the wealthy and powerful can rig the game at the expense of working Americans.” Romney’s verbal gaffes, including an ill-considered soundbite professing his love of “being able to fire people,” have made him vulnerable to more demonization still.

After his victory in New Hampshire’s primary, Romney fought back with unusually strong words. “President Obama wants to put free enterprise on trial,” he said, adding that “we have seen some desperate Republicans join forces with him.” But Romney was only partly right. The plaintiffs against free enterprise are not just a handful of politicians, but a growing number of American voters who think corporate elites have jeopardized a social contract that once guaranteed, as Bill Clinton put it, that “if you work hard and play by the rules, you ought to have a decent life and a chance for your children to have a better one.”

There is some reason to believe that in the 21st century, that contract has expired. Over the last decade, job destruction has outpaced job creation in the private sector. Great American brands like GM and Chrysler went on life support, and others like Kodak died altogether. Today’s corporate success stories, meanwhile, are nimble, brainy start-ups rather than the glorious industrial giants of yesteryear. Consider Instagram, a cellphone-photo-sharing service with 10 million users and, as of late last year, six employees. Even a Silicon Valley behemoth like Facebook, currently valued at over $82 billion, has just 3,000 employees. Kodak had 19,000.

Companies like Instagram and Facebook will hire more — but they probably won’t hire those veterans of Kodak or GM, and they won’t flock to Rochester, N.Y., or Detroit, Mich., to chase after the Next Big Thing. We can blame economic abstractions, such as globalization or skill-biased technical change, for this upheaval of the American economy. Or we can blame those who have profited most conspicuously — the highest-earning 1 percent, and the man who now serves as their political stand-in: Mitt Romney.

Anxious American workers are right to worry about their futures. After the financial collapse, U.S. jobs were destroyed in a labor-market bonfire of a size not seen since the Great Depression. Hiring, job creation, and investment since then have been anemic. Though hiring seems to have picked up slightly, there are still between three and five out-of-work, job-seeking Americans for every opening. This ratio never went above three-to-one from 1951 to 2007, and it only rarely surpassed two-to-one.

The United States now has dangerously low employment, and as workers remain idle, they lose skills and become unhireable by those smaller, more technologically advanced corporations. So the backlash against job destruction, particularly as manifested in the cost-cutting efforts of Bain Capital, is predictable. This backlash, alas, will almost certainly not facilitate job creation. Indeed, if the government tries to make layoffs more difficult, large work forces will cost more to maintain, and the job shortage will stay dire.

The difficult truth that virtually no politician is prepared to acknowledge is that the road to job creation runs through job destruction. Yet it is a truth that workers and voters must understand — and Mitt Romney carries the almost impossible burden of explaining it. The controversy over Bain Capital won’t blow over. The only way forward is to show how his work at Bain contributed to growth, and how the excessive regulation and crony capitalism his fiercest critics advocate is a recipe for stagnation.

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