Jonathan Macey (Yale) defends private equity against nonsensical attacks from Newt Gingrich, Jon Huntsman and others (Rick Perry is spared by Macey, but not by Bainbridge) in today’s Wall Street Journal:
Mitt Romney’s candidacy is subjecting the entire private-equity industry—where Mr. Romney spent most of his business career—to vicious attacks by journalists and several of his rivals for the Republican presidential nomination.
Newt Gingrich’s political action committee is sponsoring a film called “When Mitt Romney Came to Town” that accuses Mr. Romney and his former company, Bain Capital, of taking over companies, looting them, and then tossing their workers out on the street. Jon Huntsman’s attacks on his rival include the description of private equity as a business that “breaks down businesses [and] destroys jobs, as opposed to creating jobs and opportunity, leveraging up, spinning off, [and] enriching shareholders.”
This is anticapitalist claptrap. Private-equity firms make significant investments in companies, mainly U.S. companies. Most of their investments are in companies that underperform industry peers. Frequently these firms are on the brink of failure.
Professor Macey ends with a sharp, and I think wholly appropriate, note:
Assaults on the private-equity industry really are attacks on economic freedom, because the private-equity process is nothing more and nothing less than free-market capitalism at work. Shame on all the people, particularly those who claim to be friendly to capitalism, who attack Mitt Romney because of his association with the U.S. private-equity industry.
There is, of course, another angle to evaluating the attacks against Romney’s private equity experience. As Larry Ribstein was fond of pointing out, for example here and here:
I understand what the OWS crowd will make of this story. But they need to persuade me why this story should make Romney look worse than the typical presidential candidate who has spent his life in politics and whose job history has consisted mainly of engineering wealth transfers from weak interest groups (e.g., taxpayers) to more powerful ones (e.g., big banks).
Larry’s critiques, unfortunately, should be mandatory reading not just for the “OWS crowd,” but for the Republican candidates — especially the few that claim to be market-oriented.
