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Froma Harrop
Froma Harrop
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The Missing 'Humanity Clause' at Bain

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During the Great Depression, my father toiled in a box factory. The workers were all flat broke, he recalled, and desperate for every nickel. But when overtime hours appeared, the men made sure they went to a guy with kids. The laborers were obeying the unwritten and unenforceable "humanity clause," whereby one gives up some personal gain in deference to another's screaming need.

My father later built a prosperous small business and became a reliable Republican (until the Bill Clinton impeachment). But he never saw working people as nobodies. Profits, while important, were not all.

A lack of similar empathy is what many find most disquieting about Mitt Romney, whose private-equity firm pumped his fortune to perhaps $250 million. It's more than just the nature of the business. It was a certain inhumanity of the Bostonians running Bain Capital, namely Mitt.

Private equity executives argue that by wringing costs out of the companies they buy, the firms emerge stronger. They often save ailing businesses for the good of the workers, as well as the investors.

Critics say such investors often loot companies. They slash workforces, pile on debt and enrich the partners, leaving the weakened patient to die. Bain excelled at these leveraged buyouts. A steel mill in Kansas City serves as a vivid example, as Reuters reports.

Under Romney's leadership, Bain bought majority control of Worldwide Grinding Systems in 1993. It put up $8 million of the $75 million purchase price and borrowed $125 million by issuing bonds. In business since 1888, the mill was renamed GS Technologies. Bain immediately sent investors $36 million in dividend checks.

"Paying distributions with debt is not uncommon," Duke University finance professor Campbell Harvey told Reuters. "The only thing that strikes me as a bit unusual is the size of the dividend.

There would be logic in them saving some cash for a downturn."

A steel business is capital-intensive and sensitive to economic conditions. That's why it needs to conserve money for the lean years. When the economy did go south, so did GS Technologies. Its bean-counters reportedly started skimping on everything from earplugs to basic maintenance of equipment.

GS Technologies went bankrupt in 2001, the plant closed, and 750 workers lost their jobs. Bain skipped out on a previous agreement to provide severance pay and health coverage if that happened. The workers saw their pensions slashed by up to $400 a month.

But Bain walked away from the smoking ruins $12 million richer, not including $4.5 million in consulting fees. And it had tapped government, as well. The company had extracted $3 million in tax savings from Kansas City and partook of a federal program putting taxpayer guarantees on loans to troubled steel companies. The federal Pension Benefits Guarantee Corp. bailed out the company's underfunded pension plan to the tune of $44 million.

Bain blamed the company's failure on an economic downturn and cheaper steel imports. The company's former CEO Roger Regelbrugge blamed burdensome debt and new managers from outside the steel industry. "I have no question that the company would have survived under different management," he said.

The moral here is that there was no morality. In normal business, companies do fail, and layoffs sometimes must happen. But after feasting off the company, Bain had the means to keep its word to the workers. That should have been a matter of honor.

I don't think Romney took sadistic pleasure in firing the machinists and pipefitters. Possibly worse, he never saw them as human beings — but as potential subtraction to his personal bottom line. They never registered with him one way or another.

To find out more about Froma Harrop, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2012 THE PROVIDENCE JOURNAL CO.

DISTRIBUTED BY CREATORS.COM



Comments

8 Comments | Post Comment
Ms. Harrop,
Usually I tend to agree with what you write, but this is just wrong. You do not mention the businesses that he did help grow or what would of happened if Bain never stepped in the first place.
Comment: #1
Posted by: CSteve
Thu Jan 12, 2012 8:15 AM
Just saw you on the Daily Show and you could be one of my new favorite columnists. I look forward to reading you in the coming year. Oh by the way, I totally agree with your definition of terrorists; I have been saying it for several years but no one listens to me. ;-)
Comment: #2
Posted by: Joel
Fri Jan 13, 2012 3:45 AM
I read your article several times looking for word of the 40 or so steel companies that went under during the same period. I couldn't find even mention but I'm sure you'll mention them in future articles, won't you?
Comment: #3
Posted by: Ron
Fri Jan 13, 2012 4:42 PM
Joel...lol...you didn't even get the joke. You and harrop would be hilarious if not so said.
Comment: #4
Posted by: jim
Fri Jan 13, 2012 4:50 PM
Joel...lol...you didn't even get the joke. You and harrop would be hilarious if not so sad.
Comment: #5
Posted by: jim
Fri Jan 13, 2012 4:50 PM
Of course, Romney did not see them as human at all. He is a sick, inhuman, monster, more reptilian than human. He is, one might even say ... A TERRORIST!!!!!!!! Oh, sorry, just got carried away. Sorry. Sorry.
Comment: #6
Posted by: Chuck Schulz
Sat Jan 14, 2012 10:54 PM
So where is the article attacking Obama from making crooked investments in solar energy companies like solyndra?
If what she says is true about the cost that Rommey supposedly put on the tax payer is insignificant compared to the crony payback of solyndra to Obama supports that cost the TAX PAYER about $1 Trillion. Ms. Harrop is a hypocrite for not using the same rules on lying Democrat Presidents.
Comment: #7
Posted by: Exton1
Sat Jan 14, 2012 11:33 PM
This article appeared in todays local newspaper.
Would like comments regarding :
Jeffrey Zients will serve as President Obama's new acting director of the Office of Management and Budget (OMB), but the president's decision might undercut attacks on Republican Mitt Romney's career as a venture capitalist, because Zients and Romney are both alumni of Bain & Company
thank you
Comment: #8
Posted by: SS
Wed Jan 18, 2012 7:46 AM
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