Romney and Private Equity Job Creation

October 18, 2012

With the presidential election bringing private equity and wealth creation to the fore, one might reasonably ask: first, did Romney really create 100,000 jobs and second, what kind of economic impact did Romney’s Bain Capital have on the economy as a whole?  The first question is an accounting exercise using varying assumptions regarding the time period applicable to Mitt Romney’s effect, while the second involves evaluating the multiplier effects Bain’s activies had on all workers, be it jobs created or destroyed.

Addressing the accounting exercise first, during Mitt Romney’s tenure at Bain Capital, the private equity firm and the funds under its management invested in numerous firms, of which 30 are included here.  The firms include well known names, such as Staples, Dominos, Sports Authority, and Steel Dynamics.  In addition to these well known success stories, Bain also invested in less known companies that saw a decrease in employment while Bain was involved, including such firms as Physio-Control and GS Industries.  In regards to these two companies, although employment declined during Bain’s involvement, investor return was 1,980 percent and 320 percent.  A list of the companies is given below.

The list of 30 companies includes, of course, some unsuccessful and successful investment and emplolyment outcomes.  For instance, Bain experienced around a 4,634 percent return from Wessley Jessen Vision Care or around a 2,234 percent return from Accuride, while also experiencing a full loss on Jostens Learning or a 76 percent loss from its investment in Handbag Holdings.

Of course, an alternative method of evaluating Romney’s effect is to only include the time period during which Romney was actively involved in Bain’s investments or somehow measure Bain’s overall contribution.  This limits the time period to 1999, which is the year Romney left Bain to pursure other activities.  Limiting the analysis to 1999 has its own problems, as does trying to “share-out” the Bain effect, and is therefore left for another article.

The simple accounting exercise ignores the overarching issue, which is the dynamic effect private equity firms have on the overall economy.  Was Romney (and all private equity professionals in general) only redistributing wealth from previous owners and employees to Bain Capital investors?  Or, was Romney involved in making the pie bigger, thus increasing overall wealth rather than redistributing it?

In order to get an estimate for this figure, this researcher simply analyzed the situation using the employment increase or decrease by company in conjunction with an economic multiplier system, in this case using MIG’s IMPLAN model.  For instance, the analysis assumed a 70 job decrease at Waters, while also assuming a 1,000 job effect at Physio-Control.  The overall results are reported below.

Overall, the dynamic effects come out to an estimated increase of 678K, with the largest gains experienced in the indirect sectors, such as food services, real estate, and wholesale trade.  The employment gains equate to $35 billion in induced labor income.  The real results are probably half of these high end results, but, this initial look does point towards the fact that private equity activity is, by most measures, not a zero sum game.

In all, Romney’s effect, just like most other private equity wealth professionals, turn out to be wealth creators, not only for themselves, but the economy as a whole.


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