Last weekend, Barry Schwartz had this to say about Bain Capital, the firm founded by Republican presidential nominee Mitt Romney (boldface mine):
What Bain Capital, and firms like it, do is try to increase the efficiency of the companies they buy. They try to get more with less — to eliminate waste. They are not interested either in creating jobs or in destroying them. Nor are they interested in improving the lives of consumers by making products and services better and cheaper. They are interested in profit — for themselves and their shareholders. Sometimes a Bain success will lead to more jobs and better products. Sometimes it will not.
It may seem heartless to worship efficiency at any cost, including lost jobs and decimated communities, but it is important to understand that increased efficiency is the only way a society’s standard of living will improve.
What this paen to efficiency misses is that Bain Capital’s strategy of loading companies up with debt while extracting wealth (the financial equivalent of a mob bust out) is not that profitable. When Bain sold a bankrupt Dade-Behring, the new owners reversed course: they invested in R&D, focused on growth, and lowered the company’s debt. The result?
The value of the company increased five-fold which is more than Bain ever made. That’s how you increase ‘efficiency.’ It is not the same as looting.
There’s a difference between installing extra insulation or energy-efficient appliances and ripping the copper pipes out of the walls and selling them for scrap.
Related post: Peter Dorman has some thoughts about efficiency.