It’s the same old song: Wherever you go, whatever you do, if it involves making profits, President Obama will be right there criticizing you.
These days, his administration is targeting Bain Capital and the entire private equity industry for seeking to “maximize profits,” which is “not always going to be good for communities or businesses or workers.”
Let’s be real. Anyone who’s sincerely interested in jobs for Americans needs to understand that the only source of jobs is profitable enterprises. Private equity firms are in the business of creating such enterprises — sometimes by rescuing salvageable companies, sometimes by closing down dying businesses and shifting the remaining capital to profitable firms.
A century ago, profit-seeking capitalists were shifting money out of the horse-and-buggy industry and into automobiles. Were the resulting shutdowns and layoffs painful? Sure they were. But everyone — even former buggy whip makers — had the chance to live better in a car economy.
Today, private equity is, among other things, helping reallocate capital from steel mills that can’t compete on a global market to American high-tech companies, which are industry leaders. More broadly, Bain Capital and other private equity firms engineer the difficult structural, managerial and financial changes necessary to make long-term successes out of companies like Skype, Staples and Domino’s Pizza.
Sometimes these ventures fail, despite best efforts. But companies like Bain could not stay in business by repeatedly luring investors into multimillion-dollar failures.
As for layoffs, employers aren’t parents and employees aren’t children. They’re grown-ups cooperating in the pursuit of profit. Employees want to profit by earning a paycheck, and businesses want to profit by selling at a price that exceeds all costs of production, including wages.
That’s the sort of win-win relationship that makes capitalism great. We don’t blame employees who quit to take higher-paying jobs elsewhere. Why should we blame companies that lay off employees to stay or become profitable?
Businessmen who prosper in private equity earn their wealth. That’s something to celebrate, not condemn.