By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) — The Republican Party is on the verge of nominating a candidate who represents its wildest dream, or perhaps its worst nightmare.
After years of telling us that businesspeople are “job creators,” it looks like the Republicans are going to nominate a successful businessman, Mitt Romney, as their presidential candidate. Now that wealthy business owners have been elevated into the American pantheon, joining flag, Mom and apple pie, the Republican job-creation rhetoric could be put to the test.
How? Because Mitt Romney’s notable successes at Bain Capital show that businesses don’t create jobs. That is to say, businesses aren’t in the business of creating jobs. At best, job creation is a byproduct of a successful business. Most businesses — mostsuccessful businesses — actually destroy jobs. That doesn’t mean businesses are evil; it’s just what they do: They create wealth for their owners by maximizing profits.
Reuters
Romney on the campaign trail.
Maximizing profits often means minimizing costs, especially the labor costs that account for up to three-fourths of the overhead businesses carry each month. Destroying jobs — by introducing more productive methods, by outsourcing labor to other companies or to other countries, by cutting to the bone — is often the only way businesses survive in this competitive world.
It’s no surprise that Romney can’t tell us how many jobs Bain Capital helped to create from 1984, when he helped found the private-equity firm, until 1999, when he left the firm to save the Olympics and then Massachusetts. Job growth was never his mission at Bain. When Bain was providing venture capital to early-stage businesses, or later, when it was raising money from investors to buy out decaying companies in order to turn them around or to put them down, no one ever asked Romney about jobs.
They asked about profits.
Romney’s mission was to deliver high returns to his investors. He wasn’t running a charity ward. He wasn’t some do-gooder who spent every waking hour thinking of the jobs he’d create, of the lives he’d transform. His job was to make money, not create jobs. By all accounts, he was very successful.
But the fact remains that businesses aren’t job creators; they are profit maximizers. The two goals are very different.
For businesses, jobs effectively are a necessary evil. Jobs represent a cost.
Romney is a product of Harvard Business School. There are no classes at Harvard in “job creation.” Harvard MBAs are taught to rigorously analyze all aspects of business success, putting in place a good plan and good management. They learn that modern business is primarily about two things: finding a market and controlling costs.
For businesses, jobs effectively are a necessary evil. Jobs represent a cost, which must be minimized. Of course, the business must hire some people to produce its goods and services, but the focus is always on profit. If it’s profitable to hire more workers, then the business will hire more workers. If it’s profitable to fire workers, then most businesses will fire workers.
Everyone in America seems to know this, except political speech writers. Democrats seem to believe we can shame businesses into creating jobs, while Republicans seem to think that the wealthy just aren’t wealthy enough. But both parties ignore the essential fact that businesses aren’t ruled by cheap emotions such as sentimentality or resentment, but by the relentless arithmetic of profits
It’s well established that most large businesses that have been around for a while don’t create any new jobs, except by mergers and acquisitions. Most small businesses don’t create any jobs either, once they’ve made it to their second year. Almost all job growth comes from a tiny segment of companies: start-ups that quickly grow to a respectable size, whereupon they don’t create any new jobs either. Read more on why we should stop worshiping small business.
How can this be? Most people work for a business of some kind, yet few of those businesses individually creates any jobs.
With apologies to Adam Smith, it is not from the benevolence of the butcher the brewer or the baker that we expect our jobs but from their regard to their own interests. In this case, their interest is obtaining the goods and services that their income and their desires demand. Our jobs come from supplying the goods and services demanded by the butcher, the brewer and the baker, and billions of other people.
It is not businesses that create jobs but a vibrant economy, an economy with rising incomes demanding more and better goods and services, an economy that provides opportunities for entrepreneurs to find a market and grow a company.
In the beginning, Romney’s Bain Capital was in the business of helping entrepreneurs find those markets and control their costs in order to become successful. But then Bain turned away from venture capital and began to buy out troubled companies using tax-advantaged leverage.
At their best, leveraged buyouts can restructure a company from failure into success. At their worst, LBOs can loot a company, strip it clean and leave it to the vultures. But in either persona, angel or wolf, LBOs aren’t about job creation at all.
Mitt Romney was a very successful businessman who enriched his investors and himself. But no one should think that Mitt Romney’s success was in creating jobs. That’s not what businessmen do.
Rex Nutting is a columnist and MarketWatch's international commentary editor, based in Washington. |
