(Photo courtesy of Creative Commons-Flickr/Tripp)
By Mike Matejka
With unemployment still hanging over us, jobs are a big issue this election season.
The candidates on both sides are full of promises, though results are harder to measure. Before we talk about jobs, I think we first have to look at our current economic model. Historically, banks lent money to capitalists, who built factories or stores, hired people, and hopefully with success, repaid the loan.
Mitt Romney’s dad, George Romney, operated under that model. As Detroit pumped out larger cars with V-8 engines, George Romney and American Motors went a different direction – smaller, economical vehicles with superior gas mileage. It was a risk in the day of big tail fins, but George Romney made millions; in return, factories hummed and UAW workers built cars – jobs were created.
Mitt Romney and Bain Capital are a different model. In some cases, equity firms like Bain can rationalize a business model and save a company. In other cases, they simply take over companies to make money fast. American Pad and Paper, or Ampad, is an example. In 1992, Romney’s Bain Capital bought Ampad for $5 million, borrowing the remainder needed.
Within three years, Ampad was burdened with $60 million in debt, bank repayments to cover Bain’s buy-out, plus another $7 million annually in management fees to Bain. In its final move, Bain had Ampad go public with a stock offering, which Bain arranged for another $2 million.
Ampad went bankrupt and its factories closed. But Bain Capital did not cry over the closed factories; in a few short years they had made $100 million off their initial $5 million investment.
This model of predatory capitalism is not job creation – it is simply wealth accumulation at the easiest moving target’s expense. This is not just a Republican problem, as many of President Obama’scabinet officers and financial advisers came from Goldman-Sachs and similar firms.
It was under Democrat Bill Clinton and a Republican Congress that the 1933 Glass-Steagall Act was repealed, removing limits on bank speculation. Job creation is a difficult challenge; but I wonder if Wall Street is simply a speculative island, often divorced from real investments in long term results.
Risk takers and investors are needed, but something productive needs to result – not just short term, quick grab profits. Until we solve this riddle, I fear job creation will remain election year rhetoric.
Mike Matejka is the Governmental Affairs director for the Great Plains Laborers District Council, covering 11,000 union Laborers in northern Illinois, Iowa, Nebraska and South Dakota. He lives in Bloomington with his wife and daughter and their two dogs. He served on the Bloomington City Council for 18 years, is a past president of the McLean County Historical Society and Vice-President of the Illinois Labor History Society.
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