“Certainly there is a need for free-market economics to be rescued from those who distort and discredit it, but that is the argument that must be made: that this system has delivered mass prosperity (and the self-determination that comes with it) on a scale unprecedented in human history, and that it deserves to be saved from the spoilers.”
Janet Daley, writing with justified scorn about those people who have been bashing Mitt Romney for his career in venture capital at Bain. To be honest, his background in this area is one of the few things going for him. It would be quite refreshing to have a president of the United States who can actually read a balance sheet.
For those who have not come across the “creative destruction” line before and how it applies to sometimes wrenching change in business, check out the great Joseph Schumpeter.
As a caveat, I should add that some – but no means most – private equity buyouts of firms have been made possible by cheap credit, and therefore might not have occurred in the way they did had interest rates not been how they were in the past decade or so. On a related point, here is what I wrote in defence of private equity at Samizdata several years ago. Excerpt:
“In the main, what these firms do is target cash-rich firms that are run by often lazy executives who have presided over crappy business decisions. Take the meltdown of Marconi a few years ago, one of Britain’s most famous companies. That was a listed company. The destruction of value and jobs in that company remains, in my mind, one of the most disgraceful episodes in British corporate history and who knows, it might have been saved from making big errors had a private equity fund been in charge, rather than deluded executives. Private equity firms helped stymie Deutsche Börse’s foolish bid for the London Stock Exchange 2 years ago, and have turned around businesses. They typically buy and hold a firm for 5 years or more, take a hands-on approach to running firms before spinning them off to another buyer or floating them in an IPO. So Will Hutton should spare us sentimental guff about how limited liability firms floated on the stock exchange represent the perfect model of doing business or something that Adam Smith or Voltaire would exalt. They are merely one of the many ways in which economic activity manifests itself. As interest rates rise and the economic cycle turns, some of the excesses of leveraged buyouts will fade and private equity transactions will decline.”
In the debate last night the questioner from the Wall Street Journal came out with the line….
“you loaded these companies with debt, and then walked out with millions of Dollars – leaving them to collapse”.
A wildly (absurdly) one sided account – but there you go.
Of course the WSJ person was just saying what the Obama campaign (and the msm) will say as soon as Romney is the nominee.
Indeed Dems in Congress are already comparing Mitt Romney to Bernie Madoff.
The fact that Bernie was a leading DEMOCRAT has already gone down the memory hole.
When a leading Democrat was interviewed on “Fox and Friends” this morning, Bernie being a Democrat was not even mentioned.
I really do not want to know how the msm are running the story.
Schumpeter:
In this particular context of “practitioners,” in the commercial enterprises of our social order, Schumpeter’s observations on the role of the entrepreneur are really more pertinent than his observations about the resultant processes of “Creative Destruction.”
Mr. Romney has functioned as an entrepreneur, in the true sense of that word. The manner of conducting those functions by any entrepreneur will never be fully appreciated by an inadequately informed public.
What has long puzzled me about Schumpeter’s observations, including his description of The Process of Creative Destruction is his view that it is the system of Capitalism that causes these processes, rather than observing that the processes result from the way our society is organized, which produces the sets of conditions we describe as Capitalism; that is, the way we have chosen to do things results in Capitaism, not that Capitaism is some kind of force that directs the way we do things.
My graduate study was under Schumpeter’s disciple, David McCord Wright (who dedicated his own work
Capitalism in 1951 to his master) in 1949 whilst the master was still with us. So, I may be a bit prejudiced.