Saturday, November 19, 2011

Mitt Romney the business man - profits & lay-offs?

In one of the past debates Mitt Romney explained one of his tax theories: if you give big companies tax breaks, they will have more money, will be able to profit, and will then be able to have more workers.

The money trickles down from top to bottom, also known as Reaganomics or the trickle down theory.

The New York Times this past Sunday published an article on Mitt Romney the bussines man and told us the story of how he ran his company- how he profitted, laid off thousands of workers, then ran his company into bankrupcy.

This series of events is quite opposite to his trickle down theory in terms of what a company does when it profits.

Bain Capital and Dade International

Once upon a time Mitt Romney was executive chief of Bain Company, which he also owned. His company was a private equity firm.

It simple terms, private equity firms manage investments. They go into companies, analyze what they are doing and find ways for the companies to make better profits.

They are sort of like house flippers, (I think I have the right name for that), where they buy something, make it better, and then sell it for more than what they bought it for.

They had also done this sort of thing for other companies such as Staples and the Gartner Group.

In 1994 it led the buy of Dane. Funny enough, it was on the investment adventure with Goldman Sachs, a firm that was involved in the financial crisis.

"Bain Capital, sent in a team of 10 turnaround experts from Boston to ferret out waste, motivate executives and study untapped markets."

Dade International doubled in size, and Bain Capital also bought two of its competitors while also receaiving a profit of eight times what it had invested.

Then came another business opportunity. Dade was considering buying DuPont, a medical equipment manufacturing company which could be useful for Dade.

Bain pushed for the buy and it became a success and Dade continued to grow. After this time of growth and profits soaring however, there came many odd consequences. Lay-offs.

Tough love or just mean?

Around 1997 plants began to close and around 1,700 workers were laid off. It was to save the company money and increase revenue.

"There was absolutely no concern for the employees. It was truly and completely profit-focused." Said one of the former human resources managers.

This was after workers were persuaded to move from Puerto Rico to Miami after their plant shut down there to find that the one in Miami had been shut down also.


The article states that "cost-cutting became a mantra". Earlier in it however, it stated that Mitt Romney, as an executive, was a tough love kind of guy. He believed that sometimes the medicine was bitter, but at least the patient would be saved.

When comparing some of his business strategy to his political strategy he says that this tough love view also applied. That GM should have gone down, the housing market should have fallen, the government should cut wasteful spending, and that businesses that made bad decisions should have hit bankruptcy and not been bailed out.

This is approach is I think what lead to all the lay-offs. The company was trying to cut costs by all means even while it was profiting greatly.

Bankrupcy, almost

[alright I have to admit this part sort of confuses me but I am going to try my hardest]

After a while, Bain decided it would cut Dade lose meaning, it wanted to sell it. It was offered a good sum by a company but it was not satisfied with the amount the company proposed.

In 1999 they persuaded Dade to borrow money to buy half of Bain's shares. This borrowing is what lead to the company going deep into debt while also giving Bain's executives gracious bonuses, 242 million bonus to be exact.

Many agree that it was this transaction that set the company deep into debt and looking back, they say it was probably not the best move but at least they got some cash out of it.

After this Dade fired a few hundred more people and as it was going into bankruptcy it was bought by another company.

"Mr. Romney’s career at Bain Capital, which he owned and ran as chief executive, is a cornerstone of his campaign for the Republican presidential nomination — a credential, he argues, that showcases the management skills and business acumen that America needs to revive a stalled economy. Creating jobs, Mr. Romney says, is exactly what he knows how to do."

The end

So... the next time Mitt Romney says "How do you create jobs? You cut corporate taxes and then companies profit. Then what do they do? They can then hire more workers."

WRONG, and he should know better.

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