Sunday, January 8, 2012

Romney, Bain, and layoffs

Losing your job is a terrible thing. I should know. I've been laid off twice in the last two years. I wasn't fired, I remained on good terms with both companies, and the first, an automotive business consultancy, even contracted me to do work for them while I was looking for work.

But it still sucked. And so you might expect me to join the chorus of those attacking Mitt Romney for his stint at Bain Capital, during which time companies he was in some way responsible for laid off workers left and right. But I'm not going to. I don't think it's that simple.

The last few years have given layoffs a very bad name. This is in part because corporations have laid off workers when they've still been cash rich, and when there was no evidence that they couldn't afford to keep the workers on. By laying off people, they've reduced demand, which in turn, collectively, has damaged their own interests. This is a classic tragedy of the commons, or race to the bottom. It's in each corporation's best interests to lay off people if it can do the same work with fewer people, but collectively, the corporations end up with less work to do (and less income) because they've laid off all these people.

Of the two companies that laid me off, one fits the above description, the other doesn't.

The other laid me off because it was on the verge of bankruptcy. It's arguable it shouldn't have hired me in the first place, and even more arguably (because I'm me!) that it should have hired me a year earlier, because one of the problems the company was facing was it needed its IT infrastructure drastically upgraded, and that's the job I was brought in to do. But that said, actually primarily its problem was that it operated in the health field, and insurance companies were being bloody minded at the time because they didn't like HCR, and so a company that already had problems was suddenly fast-forwarded to bankruptcy many years too early.

Unhealthy businesses do need restructuring from time to time. When Bain bought companies, many companies it bought were in bad shape. Those companies needed to be restructured. It would be nice to claim that each company could have found some way to increase business 500% so that they could live with the same number of employees, but realistically, by the time its noticed that a business is doing badly, it's usually too late to do anything other than cut costs.

I have a second reason for knowing this. It relates to the first company that laid me off. As I said, we were an automotive business consultancy. To be specific, we collected information about the performance of our client's dealer networks (our clients were the manufacturers.) Car dealers are independent businesses, but they must operate efficiently and profitably in order for car manufacturers to stay in shape. We had one, and only one, client in Detroit. Guess which one?

If you said "Ford", and answered that because it was the only car manufacturer that survived 2008, then congratulations. You get the cookie.

Now, to be clear, I'm not arguing I saved Ford! Indeed, I have no idea what impact I had, although I'm 99% sure we helped them. What I do know is what Ford was doing at the time.

What differed Ford from GM and Chrysler was that Ford was on the ball well before the recession. It recognized it was unhealthy, that it needed to become healthy, and it enlisted a lot of help to make sure it did. Ford went through a restructuring without going bankrupt first. That restructuring left more of Ford and more of Ford's dealer network alive, and proportionally more people working directly and indirectly for Ford, than the bankruptcies did for GM and Chrysler.

It was hell for everyone involved at the time, of course, but we knew Ford didn't have much choice. There were hushed silences when we discussed the situation. We personally knew many of the people affected. We felt bad for them. We knew that some of the data we were supplying would affect the jobs of people we knew.

And because Ford did those painful things at the time, Ford is healthy today. People have jobs at Ford that wouldn't do today if it wasn't for the pain everyone went through a few years before the recession.

I never worked for Bain Capital. I can't say for sure whether Bain always made the right decisions. But I can say that there's nothing wrong with taking a company that has problems, and making sensible job cuts a part of fixing it if that's what's necessary to get the company working again.

And as such, I don't believe it's right to attack Romney for his Bain associations on this issue.

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