For most of us, to understand capitalism is to appreciate risks. Someone takes a chance, makes an investment, and if the enterprise thrives, the investor benefits. The reward comes with the payoff -- if you're smart, work hard, and make good choices, you'll be compensated accordingly.
But to understand Mitt Romney, one must realize how much this guy hates risks. About a month ago, the New York Times had an interesting report on how Bain Capital created a business model in which they made millions whether their investment prospered or collapsed. It was "difficult," the report noted, "for the firm and its executives to ever really lose."
As it turns out, the risk aversion goes even deeper. Ezra Klein explained yesterday that Romney was initially reluctant to run Bain, but agreed when Bain eliminated the possibility of failure.
As Michael Kranish and Scott Helman, authors of "The Real Romney," describe it, Romney "explained to Bain that he didn't want to risk his position, earnings and reputation on an experiment. He found the offer appealing but didn't want to make the decision in a 'light or flippant manner.' So Bain sweetened the pot. He guaranteed that if the experiment failed Romney would get his old job and salary back, plus any raises he would have earned during his absence. Still, Romney worried about the impact on his reputation if he proved unable to do the job. Again the pot was sweetened. Bain promised that, if necessary, he would craft a cover story saying that Romney's return to Bain & Co. was needed because of his value as a consultant. 'So,' Bain explained, 'there was no professional or financial risk.' This time Romney said yes."
Romney managed, in other words, that most unusual of career transitions: a move entirely without risk.
And Romney's departure from Bain fits into the same model -- he kinda sorta "left" the firm, but made it easy to come back if other opportunities didn't work out. After all, he remained Bain's CEO, chairman, president, and sole stockholder until his "retroactive resignation."
What's more, while he was at Bain, as Bloomberg reported this week, Romney's business model was built around ensuring that he "privatized the gains and socialized the losses."
Why does this matter? For a couple of reasons, actually.
For one thing, it tells us a bit about Romney's personality.
But more importantly, there's a policy significance -- as Ezra explained, Romney's "arguing that the tax code needs to do more to reward risk taking and the safety net needs to make it more difficult for those who don't take risks."
And yet, Romney’s life and career show a man who did not have to take many risks, and perhaps wouldn’t have used his talents to nearly the extent that he has if not for the fact that he was able to rely on three expansive of safety nets: that of family, personal and corporate wealth. [...]
There’s little in Romney’s finances to back up the contention that the rich are insufficiently rewarded for the risks they take, and there is much in his history to support the idea and that safety nets have a role to play in empowering people — even wealthy people who don’t run the risk of economic ruin — to take on risk. But Romney’s policies seems to reflect the inverse of these lessons.... There is a sense in the United States that the rich play by different rules than the poor or the middle class — rules that make it easier for them to get even richer. Romney’s history shows he has been aggressive in taking advantage of those rules, which is fine. But his proposed policies would make it even easier for the rich to stay rich and even more difficult for the poor to scrape by, which is not fine.