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Saturday, May 26, 2012

What does "running government like a business" even MEAN?
Posted by Jill | 6:37 AM
We've heard a lot over the last decade about how the federal government should be "run like a business". It's that particular meme that now has 58% of "financially struggling whites" believing that Willard Rmoney (sic) will do more to advance the economic interests of their families than Barack Obama would. How much of this is because these people believe that if they Just Work Hard Enough™ they will be allowed into the Rich Guys Club, how much of it is a residual sense among some in this group that "Democrats give everything to the lazy ni---rs" (a sentiment held by Mr. Brilliant's own father until late in his life when his frequent hospitalizations and resulting care by black nurses made him change his tune somewhat), and how much of it is buy-into this notion of "He will run government like a business, I don't know. But the notion of "government-as-business" is as ridiculous as "the federal budget should be run the way you run your own budget."

So what are some of the things businesses do these days, anyway?

Well, for one thing, the raison d'être for a business is to generate profits to be distributed to shareholders. (Note: It is NOT to generate jobs.) These shareholders might be the owners, or a small group of executives, or stockholders of publicly-held companies. Of course these days, profits of even publicly-held companies are largely distributed to a small group of executives through stock-heavy compensation plans, but I digress.

When capacity is insufficient to meet demand, businesses expand by investing in plant and equipment. Somehow, when Republicans like Mitt Rmoney talk about running the government like a business, they leave out this investment part. If government were run like a business, it SHOULD invest in roads, railroads, bridges, education, nutrition programs for children, and other things that are the government equivalent of plant and equipment. But instead, they advocate running a kind of business where your employees are still developing new applications in COBOL on IBM mainframes running DOS-VSE because you're not yet "certain" that this desktop computing thing is going to take off.

When there aren't enough employees to meet demand, companies have a couple of options. You can either hire people, or work the ones you have even harder. When all of your fellow business owners are choosing the latter, your own employees will go along with it because they can't do better anyone else. Of course after about sixty hours a week the law of diminishing returns kicks in, but at least the cost part of your ledger doesn't increase (especially if you've given your employees titles which allow them to be paid a fixed salary as exempt employees). What DO "demand and supply" mean when you run government "like a business"?

Now what happens when business slows down and you don't need as many employees as you have? You COULD cut hours temporarily. You could say that you'll pay 80% of salary for a 32-hour week. But in the US, most companies just get rid of people through layoff. If government is run like a business, what does this "laying people off" look like? Is it ending all government programs to help them and their families? Or does it mean lining them up against the wall and shooting them? What does "downsizing" or "right-sizing" government look like where its "employees" (i.e. citizens) are deemed to be superfluous?

Somewhere along the line, the Republicans forgot just who is the employer and who is the employee in our system of government. If they're going to "run government like a business", they ought to remember that. The problem is that we have a media that is all too happy to regurgitate six-word sound bites like "run government like a business" over and over and over again without explaining what that looks like.

All those financially struggling white people who think government should be run like a business should take a good, close look at Willard Rmoney's "business" career. It's one in which good-paying jobs with pensions are replaced by minimum-wage jobs without benefits -- just before the companies go into bankruptcy, but not before Mitt Romney and his Bain Capital peers shovel a bunch of money in fees into their pockets.

Rmoney likes to trot out Staples as an example of his acumen in creating jobs, even though most of Staples' growth occurred after he resigned from the company's board to run for Massachusetts governor in 1994. Here are some better examples of Mitt Romney's business record, from a Vanity Fair excerpt from The Real Romney, by Michael Kranish and Scott Helman:
Romney had come to Drexel to obtain financing for the $300 million purchase of two Texas department-store chains, Bealls and Palais Royal, to form Specialty Retailers, Inc. On September 7, 1988, two months after Bain hired Drexel to issue junk bonds to finance the deal, the S.E.C. filed a complaint against Drexel and Milken for insider trading. Romney had to decide whether to close a deal with a company ensnared in a growing clash with regulators. The old Romney might well have backed off; the newly assertive, emboldened Mitt decided to press ahead.

Romney’s deal with Drexel turned out well for both him and Bain Capital, which put $10 million into the retailer and financed most of the rest of the $300 million deal with junk bonds. The newly constituted company, later known as Stage Stores, refocused in 1989 on its small-town, small-department-store roots. Seven years later, in October 1996, the company successfully sold shares to the public at $16 a share. By the following year, the stock had climbed to a high of nearly $53, and Bain Capital and a number of its officers and directors sold a large part of their holdings. Bain made a $175 million gain by 1997. It was one of the most profitable leveraged buyouts of the era.

Romney sold at just the right time. Shares plunged in value the next year amid declining sales at the stores. The department-store company filed for Chapter 11 bankruptcy protection in 2000, struggling with $600 million in debt, and a reorganized company emerged the following year. So ended the story of a deal that Romney would not be likely to cite on the campaign trail: the highly leveraged purchase, financed with junk bonds from a firm that became infamous for its financial practices, of a department-store company that had subsequently gone into bankruptcy. But on the Bain balance sheet, and on Romney’s, it was a huge win.

Not every deal worked out so well for Romney and his investors. Bain invested $4 million in a company called Handbag Holdings, which sold pocketbooks and other accessories. When a major customer stopped buying, the company failed and 200 jobs were lost. Bain invested $2.1 million in a bathroom-fixtures company called PPM and lost nearly all of it. An investment in a company called Mothercare Stores also didn’t pan out; the firm had eliminated a hundred jobs by the time Bain dumped it. Fellow Bain partner Robert White said Bain lost its $1 million and blamed “a difficult retail environment.”

In some cases, Bain Capital’s alternative strategy of buying into companies also ended in trouble. In 1993, Bain bought GST Steel, a maker of steel-wire rods, and later more than doubled its $24 million investment. The company borrowed heavily to modernize plants in Kansas City and North Carolina—and to pay out dividends to Bain. But foreign competition increased and steel prices fell. GST Steel filed for bankruptcy and shut down its money-losing Kansas City plant, throwing some 750 employees out of work. Union workers there blamed Bain, then and now, for ruining the company, upending their lives, and devastating the community.

Then, in 1994, Bain invested $27 million as part of a deal with other firms to acquire Dade International, a medical-diagnostics-equipment firm, from its parent company, Baxter International. Bain ultimately made nearly 10 times its money, getting back $230 million. But Dade wound up laying off more than 1,600 people and filed for bankruptcy protection in 2002, amid crushing debt and rising interest rates. The company, with Bain in charge, had borrowed heavily to do acquisitions, accumulating $1.6 billion in debt by 2000. The company cut benefits for some workers at the acquired firms and laid off others. When it merged with Behring Diagnostics, a German company, Dade shut down three U.S. plants. At the same time, Dade paid out $421 million to Bain Capital’s investors and investing partners.

The amount of money now being earned at Bain Capital was skyrocketing, and much of it came from a handful of giant deals. During Romney’s 15 years there, the firm invested about $260 million in its 10 top deals and reaped a nearly $3 billion return. That was about three-quarters of its overall profit on roughly 100 transactions during Romney’s tenure. In one of his most specific explanations of how he made his fortune, in his autobiography, Turnaround, Romney wrote that most of the companies he invested in were ones that “no one has heard of—TRW’s credit services, the Yellow Pages of Italy.” Those weren’t just any two deals. They were two of the most lucrative of Romney’s career, and luck played a big part in both. A mere seven weeks after buying TRW, Romney and his partners flipped the company. Bain’s $100 million investment returned at least $300 million. The second deal cited by Romney took longer but involved even more good timing and luck. It began with a renowned Italian investor named Phil Cuneo, who had the idea of buying the Italian version of the Yellow Pages. It seemed a solid investment in a firm with a staid and stable business model. But mere months after closing the deal, Cuneo and his Bain associates realized that they had acquired a company that might benefit from the surging interest in dot-com businesses; the Yellow Pages company owned a Web-based directory that had the potential to be the Italian version of America Online or Yahoo. In just under three years, in September 2000, the partners sold the investment, earning a windfall that far exceeded anyone’s initial expectations. Bain’s $51.3 million investment in the Italian Yellow Pages returned at least $1.17 billion, according to a Romney associate familiar with the deal. There is no public documentation of how the profits were distributed, but at that time at least 20 percent of the return would have gone to Bain Capital. Of that, Romney’s typical payout was then 5 to 10 percent. That means this one obscure deal would have given him a profit of $11 million to $22 million. If Romney made a side investment in the deal, as was standard among Bain partners, he would have made even larger gains. One Romney associate said Romney’s total profit could have been as much as $40 million. (A Romney spokesman did not respond to questions about the deal.)

It was those kinds of deals that enabled Bain Capital to report the highest returns in the business in the 1990s. Romney’s own net worth would grow to at least $250 million, and maybe much more, a trove that would enable him to foot a large part of the bill for his 2008 presidential campaign. Asked about a report that his wealth at one point reached as high as $1 billion, Romney said, “I’m not going to get into my net worth. No estimates whatsoever.”

I almost can't wait to see what these "financially struggling whites" are going to do when they find out exactly what Willard has in store for them.

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Blogger Bob said...
Families aren't even run like businesses. Sure, there's a budget. But as a business, what would a family do with a child with a chronic, serious, even catastrophic illness? Get rid of it.

Anonymous CC said...
Why, Jill, these "financially struggling Whites" will continue to blame minorities, Democrats, Communists, socialists, liberals, gays, illegal immigrants, etc. Anyone except themselves and the one percent who put them there.

Anonymous Southern Beale said...
God I hate that "run government like a business" trope. It's another one of those Right-Wing myths that they repeat, robotically, as if it has meaning. It doesn't/ Government exists to perform the functions that business can't or won't do. They are completely different things.

And seconding what Bob says. The "families have to live within a budget" nonsense is the second most popular wingnut saying, and it too is 100% false. Families take out home mortgages and car loans and student loans and carry huge loads of consumer debt on their credit cards. They take out second mortgages and they declare bankruptcy. ALL THE DAMN TIME. That is not "living within a budget," that's living with debt, the same way the government does.

And when money is as cheap as it is right now -- interest rates have never been this low for this long -- every financial advisor in the country will tell you now is the time to borrow money not pay off debt for longterm growth: things like home improvement projects that increase the value of your home or self improvement like education that improve your job skills.