There has been a lot of discussion about the new Obama ad, “Steel”, attacking Mitt Romney’s tenure at Bain Capital. The ad portrays Romney as a heartless capitalist pig who destroyed lives and killed jobs. Republicans have criticized the President for the ad claiming he doesn’t understand capitalism. They de-legitimize it by saying for every negative story about Bain there is a positive one as well. Meanwhile Democrats view the ad as highlighting the problems of capitalism. Although I have written before about the pros and cons of capitalism I think this is a completely separate issue. I think both sides are wrong. The ad is not about capitalism. However, the ad is effective and legitimate for another reason.
Romney’s whole message is that he knows how to create jobs. He’s the businessman candidate who is going to take his business world experience and translate that into running the government and the economy. Here’s the problem, (and here’s why the ad is effective) running a business and running an economy is completely different. Successfully running a business means finding ways to cut costs, and increase profits. Successfully running an economy means achieving full employment with consistent GDP growth. Cutting costs doesn’t lead to full employment though; it actually leads to the opposite. When Republican governors across the country came into office and decided to run the government like a business and reduce spending (cut costs) we ended up with massive lay-offs of teachers, police officers, and firefighters – not good for a struggling economy.
Similarly Bain cut costs but did so at the expense of the employees. And although Bain had success stories, the job creation was just a product of making the business more efficient and cost-effective. Running a business is not about job creation it is about the bottom-line, which is fine, it’s just not ideal for an economy, especially one with high unemployment. The point is that many of the practices of a successful business would be detrimental if they were carried over to an economy, like that of cutting costs to boost growth.
So the takeaway from the ad is not that capitalism is bad, or Romney is some fat-cat. The takeaway is that being a business person, and owning and operating a business does not qualify a person to run an economy. Running an economy and running a business are categorically different. Trying to run an economy like a business is not only misguided, but irresponsible.