Bain Capital

Presidential candidate Mitt Romney has been criticized, and scandalously so, for his participation in the venture capital/private equity firm of Bain Capital. Yet Federico Pena, Obama’s 2008 campaign co- chair and Bill Clinton’s Secretary of Transportation and later Energy, did the very same things with the firm of Vestar Capital Partners. Hundreds lost their jobs when he reconfigured companies such as Del Monte, Birdseye and Solo Cups. This same process, called industrial reorganization in Western Europe, is sometimes orchestrated by left wing governments. It all these instances it happens for the same reason: common sense.

Once an organization comes into being and begins to work well, it also tends to stagnate and resist change as the world around changes. This can breed a cumbersome operation. But efficiency is profitable and it leads to a bigger pie for everyone, even in the muted European version. From the 1930’s to the 1950’s it was generally more efficient to produce as close to your market as possible. The auto assembly plants in California closed when changes in the market made it more efficient to manufacture at a central location and ship the final product. A few decades ago food companies found it cheaper to make their own packaging. When independent packaging companies achieved much larger volumes of production and lowered prices, the food processors sold off their packaging divisions. Warehousing has also changed. Regional warehouses have given way to a few mega warehouses for most companies. Many once thought that FedEx using a single Memphis hub was crazy.

What if we maintained employment for covered wagon manufacturers? Had the government still training pole boat operators for the Mississippi River? The black and white TV factory workers are gone. Where are they? In the early 1960’s it was feared that the layoff of over 10,000 manual elevator operators would lead to massive poverty among Manhattan’s low wage workers. But there was no more than a ripple of hardship as people found new occupations within the free market for labor. Change can hurt at times, but it is a constant and far preferable to stagnation financed by government debt and usually accompanied by higher prices for everyday goods.

Copyright 2012, Mark L. Bennett