Mitt Romney’s private equity firm, Bain Capital, has been in the news lately because of the Republican presidential candidate’s record there, which is being attacked by President Obama.
But Mr. Romney turns out not to be the only participant in the public policy debate these days with a Bain Capital pedigree. Edward Conard was a Bain Capital partner from 1993 to 2007, headed its New York office, and is out with a new book, Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong. It’s a dense, quirky, highly analytic book about why America’s economy has done better than international competitors and about how to avoid ruining that success.
Mr. Conard begins by explaining just how strong American growth has been. Since 1991, he says, the U.S. economy has grown 63% in real terms, while during the same period France grew only 35%, Germany, 22%, and Japan, 16%. America created Google, Facebook, Microsoft, Intel, Apple, Cisco, Twitter, Amazon, eBay, and YouTube, while Europe and Japan “scarcely contributed.”
Americans work harder, he says, in part because of a tax system that provides greater rewards: “Today, a dollar of incremental income produces sixty cents of after-tax income for the average U.S. worker but only 40 cents in France.”
Then he turns to the financial crisis. The cause, he says, was not a housing “bubble”: “housing only doubled in value from the mid-1990s to its peak in 2007 while the Dow grew 370 percent over the same period….The price of oil rose sevenfold…Ironically, residential housing was one of the worst performing asset classes.”
Nor was the problem the supposedly short-term-oriented incentive structure of Wall Street pay, he argues. At Bear Stearns, 50% of compensation was in stock employees had to hold for five years; senior Lehman Brothers employees had close to half their compensation subject to the same rules.
End “too big to fail”? Forget it, he writes: “Reducing the size and interconnectedness of banks will do little, if anything, to reduce the threat of panicked withdrawals…Busting up big banks will only reduce our economy’s competitiveness.” Mr. Conard allows that “Florida homebuilders need to go bankrupt and move to new endeavors,” but argues, “it is illogical, even irresponsible, not to save the banks once they begin to fail from panicked withdrawals.” In an appearance on The Daily Show with Jon Stewart (well worth watching), Mr. Conard went even further, crediting Timothy Geithner, Ben Bernanke, and Henry Paulson for having “saved our economy” and doing “a brilliant job.”
Mr. Conard is skeptical about restoring American manufacturing, preferring that American-based companies take advantage of the 75-cent-an-hour labor available offshore.
A weakness of the book that makes it sometimes a hard slog for a reader is that it is written at a fairly high level of abstraction. Anecdotes from Mr. Conard’s Bain experience, or from anywhere else, for that matter, are rare, though when they do appear they are welcome.
I disagreed with some of Mr. Conard’s proposed solutions. He wants more temporary immigrant workers in America, suggesting a system by which such workers would be sent home in recessions “to reduce the volatility of our domestic employment.” Good luck with those deportations, and with managing a population of “guest workers” at risk of deportation in a downturn. Mr. Conard also makes the odd prediction that “voting-age children of poor immigrants will soon wash over the United States, demanding increased consumption through the redistribution of income.” Who is he talking about? Marco Rubio? Bobby Jindal? Norman Podhoretz? Not every child of immigrants favors increased redistribution.
There’s also an unwarranted attack on the liberal arts. “The U.S. economy is full of underutilized talent. Many liberal-arts majors choose selfish solipsism over the burden of shouldering the risk and responsibility critical to increasing economic growth. They study literature and art history rather than computer programming and engineering,” he writes. “Art history and Elizabethan poetry doesn’t employ workers; the arduous and tedious application of business sciences such as computer programming and accounting does.”
Mr. Conard’s own writing might be better if he had studied literature or valued it more; as for fine arts, remember the story of Steve Jobs and the Reed College calligraphy class. The larger point is that the liberal arts — or at least some exploration of a philosophical, religious, or historical framework, if not through the liberal arts than through the social sciences — is necessary if students are to be able to explain or understand why increasing economic growth is even desirable.
On most of the big issues, though, Mr. Conard is pretty good. Toward the end of his book, he writes, “The strategic question then is straightforward. With politicians now directing more than 40 percent of the economy’s resources, are we better off letting politicians control more or less of the economy’s resources?” Put that way, the question answers itself.