Mitt and vulture capitalism
Carlton M. Caves
2012 January 12

How distressing it is to listen to the Republicans' discussion of Mitt Romney's vulture capitalism at Bain Capital. Not distressing in the mundane sense that they are all catering to extreme right-wing views, which is bad enough, but distressing in a more fundamental way.

What we have, admittedly exacerbated by the idiocies of campaigning and the opportunism of the candidates, is something I learned from reading Stephen Jay Gould: People find it very difficult to think in terms of anything but dichotomies. Free-market capitalism is good. Free-market capitalism is bad. Make your choice, and start rooting for your side. This reduction of an extremely complex and varied set of questions to a single yes-no question is regrettably one of the things we like to do as humans, but in this case, the absurdity of it is so obvious that any sensible person refuses to choose sides.

Free-market capitalism is a completely amoral system based on the pursuit of individual gain, measured in terms of money. What was realized over the last two-and-a-half centuries is that, somewhat paradoxically, turning the economy over to free markets is the best way to maximize wealth, innovation, and efficiency. Adopting this view does not mean that you think free-market capitalism is an unalloyed good in the sense that every consequence of free markets is good for every person they touch. All you have to think is that free-market capitalism is, on balance, a plus, but has both good and bad effects. Indeed, it is the source of some of the best things in our civilization and of some of the very worst things as well.

Other institutions in our society---religion, educational, and civic institutions, and government---are all involved, at least to some extent, in ameliorating the negative consequences of capitalism, by putting moral considerations in the picture, by ensuring some level of fairness, by muting capitalism's effects on the people most negatively impacted, and by addressing and minimizing environmental costs. Government, in particular, is supposed to act in this way, regulating and taming capitalism so that its benefits are spread widely, instead of being concentrated on a few, without reducing too much its positive effects on innovation and efficiency. One inherent flaw in government's role, understood by Adam Smith, is that economic entities inherently try to use the government to rig markets in their favor. When economic entities become big enough, they can often do this. They simply buy the government and rig the system in their favor, and you end up with oligopolies, not free markets.

So what about Mitt? He was apparently good at managing a private-equity firm. Being good at that has nothing to do with creating jobs. If such a firm can maximize profits by creating jobs, it will do that. If it can maximize profits by destroying jobs, it will do that instead. Should he be condemned for this? Only if you think that capitalism is an inherent evil. Should he be elected President because he knows how to create jobs? That's silly. I would challenge anyone to find a Bain memo that advocated taking over a company in order to create jobs. Should he be elected just because of his experience at Bain? Only if you think he's running to be the head of a private-equity firm. It's not that his experience is a disqualifier. His experience shows he can manage a big enterprise---that's a plus, as was his management of the 2002 Winter Olympics---but running the United States government is a much bigger job, with many more competing interests and far more varied objectives. Running a private-equity firm or the Olympics is not even remotely comparable to being President, but then not much is. Being governor of Massachusetts---well, that's more like being President, but despite liking to be called Governor Romney, Mitt the candidate seems mainly to be opposed to the Governor.

We need to elect leaders who are both pragmatic and principled, who understand government's essential and subtle role in regulating capitalism to avoid its evil consequences, and who can stand up to the pressure from big economic interests to rig things in their favor. Getting the regulation right is extremely difficult, perhaps impossible, given the complexity of the economy, the sluggishness of the political system, and the fact that the economy is a moving target, but we at least need somebody who understands that government plays an essential role and who will try. Regrettably, the last of the qualifications is probably not possible in our present system. Corporations have always been influential, but after Citizens United, they have been given carte blanche to buy elections. The current arguments among Republicans are an example of the odd turns this system can take, apparently firing on itself, but we will all have plenty of opportunity to witness the system's manifold evils by next November, no matter who wins.

   Index to CMC commentaries