Answer: They are both venture capitalists.
The main differences between Bain and the Federal Government are: A. Bain employs private capital while government uses taxpayer funds, B. Bain invests for profit and government invests based on ideology, C. Bain produces a return on investment while government returns for more taxpayer money and D. Bain utilizes the skills of experienced problem solvers while the government uses the cosmetic talents of politicians.
Venture capitalists evaluate the strengths, weaknesses, opportunities and threats (SWOT) of potential investment opportunities and evaluate their resources. People are reassigned, promoted, demoted or separated; machines and equipment are replaced, upgraded or relocated. In many cases technological changes replace workers to increase efficiency. Productivity is targeted and people are hired while others lose their jobs, some permanently.
Compare two companies that were affected by venture capitalists: Staples/Bain Capital and General Motors/the Obama administration. In 1986, Bain Capital stepped in with capital to fund Staples and their strategy of supplying consumers and businesses large and small with low cost office supplies. Because distribution of all products and services are in constant evolution, people at office supply distributors and brokers became victims while millions of people and businesses were benefactors of lower costs. Currently Staples employs about 88,000 people at 2,000 branches worldwide.
General Motors (and Chrysler) were wallowing in debt and unable to meet their obligations. The Obama administration devised a plan to take both GM and Chrysler through (Chapter 11) bankruptcy and reorganize the slimmed-down companies. Steve Rattner, a well-connected former New York Times reporter and more recently the managing principal of Quadrangle Group, LLC, was selected to be ‘car czar’ in the spring of 2009. His first task was to inform GM CEO Rick Wagoner that his services wouldn’t be needed anymore. Additionally, 1,100 GM dealers were advised that they would lose their franchises. Chrysler dealers also received termination notices and 789 were closed down. Closings at both companies cost the jobs of thousands of clerical workers, salesmen, mechanics and others.
Notice the similarities in these two transactions. Both Staples and GM created or retained jobs while eliminating the jobs of people in both the subject companies and associated industries.
The vast difference between the two investments (Staples and GM) is that the principals at Bain made substantial incomes and the company (Bain) flourishes to this day. On the other hand GM still has substantial financial obligations. GM bondholders (taxpayers) lost most of their original investment following the bankruptcy filing.
Ideological and economic purposes sometimes intersect at a point far beyond the intellectual capacity of people whose daily toil deals with anecdotal theories and mundane investment formulas. When government invests in any venture, there is a perpetual fountain of tax funds to keep pumping into hopeless undertakings using the fictitious sentiment that ‘success’ will follow the next several million dollars of taxpayer’s investment.
Consider GM’s Chevrolet ‘Volt’ electric car. In spite of the government’s subsidy of $7,500 per vehicle, the product features high cost, limited operating range and low buyer demand. The subsidy will soon be increased to $10,000, costing taxpayers additional billions of dollars. This is a stellar example of ignoring economic principles in favor of misguided philosophical convictions.
It has been said that Mr. Obama is so narcissistic that he really likes what he sees when he looks into a mirror. The President and his minions, most of whom have never signed the front side of a payroll check, should spend more time looking into the flaws of the ventures where his administration has squandered the money of hard working taxpayers.
