root cause of the US economy turning it into what is today, must be sought in early 80s. Built into this article about the rise of the private-equity firm Bain Capital, it shows the new brand of capitalism.
newyorker.com
What was the measure of “doing better”? The price of the stock. This was a relatively novel concept in 1973, the year Bain & Company got started. As Walter Kiechel III explains in “The Lords of Strategy,” an entertaining history of the consulting business that has a lot to say about B.C.G. and Bain, stock price was not a useful benchmark of anything in the nineteen-seventies, because the market was stagnant. On November 14, 1972, the Dow stood at 1,000. By 1974, it had fallen to 577, and it didn’t get back to 1,000 until 1982. In the rising market after 1982, though, the idea that the fundamental purpose of a publicly owned business is to make money for its shareholders became a basic tenet of capitalist faith. This is when the idea of launching a private-equity firm became a gleam in Bill Bain’s eye.
If you’re a consultant devoted to the fortunes of a single company, forsaking all others in its “competitive set” and responsible for management decisions that make the price of that company’s stock go up, thereby enriching its shareholders and its management, what might you begin to feel? You might begin to feel that you deserved a piece of the action. Bain and his partners started, as Kiechel puts it, “to ponder how they might more effectively capitalize on the stock-market success they were helping others achieve.” Bain Capital was their answer.
According to “The Real Romney,” Bain called Romney into his office, in 1983, and outlined his plan for the new business. Bain Capital would invest in start-ups or would buy existing businesses that were distressed or underperforming; it would provide Bain-style advice to management (not manage the companies directly); and it would then either take the companies public or sell them, and pocket the profit. Bain and his partners would provide seed money for this new enterprise, and they would be among the investors as well. He invited Romney to head up Bain Capital. Romney said no.
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