Queries about Romney's jobs record miss bigger point

January 22, 2012|Jay Hancock

Did Mitt Romney destroy or create jobs while running Bain Capital?

It's a nonsense question. Romney wasn't paid to create jobs. He was paid to create value for investors. By all accounts he did it very well, attempting and often succeeding in increasing the ratio of revenue to expenses — and thus profits — in businesses ranging from credit reports to pizza to mattresses.

The better question is whether the kind of productivity and profit growth that Romney promoted and exemplifies have been good for ordinary Americans.

The past two decades have seen a labor productivity boom, thanks not only to buyout firms such as Bain but also to technology, globalization and efficiencies at virtually every company. Assisted by cell phones, robots and computers and prodded by profit-maximizing managers, the typical American worker produces 60 percent more goods and services than he or she did in 1990, according to the Labor Department. (This is after stripping out the effects of inflation.)

For the country as a whole, this is a very good thing. Productivity improvements are a key factor in economic growth, along with population expansion. Higher growth means more taxes collected to pay for government programs. Higher growth contributes to a healthy stock market, which undergirds pension funds, private nest eggs and nonprofit endowments.

Productivity growth should also benefit workers, say history and economic theory. When employees can deliver more products and services with each hour of work, in a free market they should be able to command higher compensation. And in the past they have.

When tractors and mechanical reapers created productivity gains a century ago, making farmworkers redundant, most people eventually benefited. The remaining agricultural workers shared in farmers' higher profits, earning raises for the extra crops they were able to produce. Meanwhile productivity-generated wealth fueled demand for goods and factories, which employed displaced farmhands.

So far this time, it hasn't worked out that way. A much larger-than-normal portion of the gain from productivity growth has gone to business owners and management. Since 1990 business productivity — output per hour of work — has increased at more than 2 percent per year while wages, salaries and benefits have risen at less than 1.5 percent per year, after adjustments for inflation, according to the Labor Department.

In 1990 business devoted about 63 percent of its output to paying workers' wages, salaries and benefits. Last year that figure was below 58 percent, the lowest level in decades, the government says. If labor's share of the pie hadn't shrunk, today's workers would be earning $500 billion a year more than they are, former Obama administration budget director Peter Orszag has calculated, writing for Bloomberg News.

Not surprisingly, corporate profits as a percentage of revenues are near all-time highs. The middle class is struggling. The top 1 percent of the income gradient has gotten very rich indeed. And many people want to occupy Wall Street.

As mentioned, Romney and Bain helped this process. They would typically buy an underperforming company with mostly borrowed money, raise profits through a combination of lower costs and higher revenues and sell it at a large gain. Sometimes they cut lots of jobs. Sometimes they employed more people in the long run.

But asking whether Romney on net was a job creator or job destroyer misses several bigger points. The answer has little to do with what kind of president he's likely to be, for one thing.

In any event it's an impossible figure to calculate. Bain's best claim for job creation during Romney's tenure comes from its investment in Staples, the office supply chain that grew from nothing and eventually employed tens of thousands. But it's probable that even Staples destroyed more jobs than it created by wiping out countless smaller office-supply businesses that couldn't compete with it and Office Max in efficiency and price.

That's the way of the U.S. economy — and not just for "private equity" firms such as Bain. Consolidation, efficiency, "right-sizing" and higher profits are business as usual for all business. Globalization that forces Americans to compete with lesser-paid workers overseas deprived them of the bargaining power to demand a bigger share of productivity gains. Technology that replaced humans in performing corporate tasks made the workers' challenge worse.

One reason hiring has lagged in this miserable recovery is that companies are spending hundreds of billions of dollars on software and equipment that replace a pair of hands, a head and a paycheck.

Bain isn't a proxy for just private equity. It symbolizes an economic mega-trend. The question for the U.S. electorate is what to do about it.

Optimists point out that historically, faster economic growth has led to higher pay for workers. Once the recovery truly takes off, the thinking goes, labor will be in a better position to ask for a raise. But it didn't work out that way in the post-2001 recovery, when productivity growth surged and pay lagged.

Don't be surprised if it doesn't happen this time, either. The forces suppressing worker pay have not abated. No matter what he did at Bain, Romney has exhibited zero ideas for bringing workers' stake in economic growth back toward the historical average. Then again, neither has President Barack Obama.


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