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Presidential Politics and Private Equity

This election season there has been a good deal of discussion over Mitt Romney’s time spent at Bain Capital. The Romney Campaign has sought to highlight that experience as a qualification to lead the country to a better economic future. The Obama Campaign and other groups affiliated with it have made the argument that Romney eliminated and outsourced jobs during his time at Bain Capital. [1]

Concerns exist that this election could bring increased public attention to the Private Equity industry, and give politicians extra incentive to regulate the industry. [2] In a recent survey of Tech Industry executives, where the Tech executives were questioned on the Presidential election, “78% say that the campaign’s focus on Romney’s roots in private equity have “damaged” the reputation of private equity and venture capital”; [3] and, “65% worry that there could be new regulation of private equity and venture capital investing”. [4] However, there is little reason to be concerned that the election will give politicians an impetus to further regulate the private equity industry.

There is evidence that political advertisements based on Romney’s Bain record have been effective; a Super PAC running political advertisements attacking Romney’s Bain record claim that their internal polling shows that “a decisive plurality of voters said Mitt Romney’s record as Bain CEO makes them less likely to vote for him.”[5] These advertisements highlight negative consequences of pursuing a strategy of profit maximization with a special focus on outsourcing, downsizing, and reducing employee benefits.[6]

However, the persuasive thrust of these advertisements could be effectively applied to all profit-maximizing business, particularly large businesses. In a recent PEW Research poll over 50% of respondents said businesses make too much profit. [7] In the same poll slightly less than 50% of respondents said that Wall Street hurts the economy more than it helps it. [8] And perhaps most significant, 67% of respondents claimed that Wall Street only cares about making money for themselves. [9]

It is a well-known fact that manufacturing companies pursue strategies of profit maximization as a rule of thumb. To maximize profits manufacturing companies have outsourced jobs, downsized workforces and when possible reduced employee benefits. However, manufacturing companies are not facing the same negative press as private equity firms. Consider for a moment that instead of working at Bain Capital Mitt Romney had become the CEO of General Motors. I suspect in this hypothetical world where Mr. Romney was CEO of General Motors – never having worked in private equity – we would see almost all of the same political advertisements currently on the air criticizing Mr. Romney’s Bain record, but with the word’s GM in place of Bain Capital.

In short, I posit that the public does not hold a special grudge for the private equity industry. That while the election may have certainly put private equity in the spotlight nothing of consequence will come from it because criticisms of the private equity industry are both general in nature and very similar to criticisms made of profit maximizing institutions in general. Consequently, concerns that new private equity or venture capital regulations may be coming as a result of the Presidential election are likely overblown.

[1] See , Michael Shear, A Final Push in Swing States, in a Bid to Break the Stalemate, N.Y. Times (Oct. 23, 2012) (describing Priorities USA plan to spend several million dollars on adds that tell the stories of people who lost their jobs after Bain Capital acquired the companies which employed them).

[2] Eric Savitz, Tech Execs Mostly Back Romney, But Expect Obama to Win, Forbes (Oct. 8, 2012, 8:04 PM)

[3] Id.

[4] Id .

[5] Alex Pappas, Democratic Super PAC to Revive Attacks on Romney’s Bain Record, The Daily Caller (Oct. 20, 2012, 9:41 AM)

[6] Shear, supra note 1.

[7] ‘Staunch Conservatives’ Are Warry of Wall Street , Pew Research Center (May 26, 2011)

[8] Id .

[9] Id .