Mitt Romney's victory in the New Hampshire primary could be a wonderful thing for the country. What a resounding rejection by the Republican Party of the Michael Moore-style attacks on Mr. Romney by Newt Gingrich's SuperPac, by Rick Perry (who called Bain Capital "vultures that are sitting out there on the tree limb waiting for the company to get sick, and then they swoop in, they eat the carcass, they leave with that, and they leave the skeleton"), and even by Forbes' Robert Lenzner, a smart ex-Goldman Sachs guy who in a Forbes piece accuses Bain of engaging in "indefensible corporate rape." And who better to defend capitalism under attack than Mr. Romney, an actual successful capitalist who, in his victory remarks, promised "a clear and unapologetic defense" of "economic freedom"? Mr. Romney said he'd make the federal government "simpler, smaller, and smarter," that he'd "cut, cap, and balance the federal budget," and that his blueprint would be the Constitution.
On the other hand, Mr. Romney's victory could be a terrible thing for the country. He could lose the election because voters find him too stiff or perfect or remote, not the kind of guy they'd want to sit down and have a beer with, or because private equity, with its focus on an exit, doesn't necessarily always exemplify the best of capitalism. Or because one term as governor of Massachusetts, without the kind of ratification of success from voters that comes from getting re-elected, isn't much of a political track record.
Tonight's Wall Street Journal editorial defending private equity points to some of the risks on the private equity front. Bain's investors, the Journal wrote, "include college endowments and public pension funds that have increased their investments in private equity to get larger returns than stocks and bonds provide. The people who benefit from those returns thus include average workers." But Yale's endowment, which has access to some of the best private equity managers (Bain Capital's Joshua Bekenstein is a member of the investment committee), reported that for the decade ending June 30, 2010, its private equity investments had earned 6.2% a year, which was less than the 6.7% that domestic equity (stocks) earned and less than the 6.3% that its fixed income (bonds) earned. So they got a lower return, with less liquidity. Some benefit. As for the public pension funds, maybe imprisoned New York City comptroller Alan Hevesi will grant an interview about the benefits of private equity investments by public employee pension funds. It's true that Yale had some very good private equity years when it first started making such investments, but those were the early days before every mediocre prep school graduate who showed up at reunion started announcing "I'm in private equity."
Before the election season is over, expect to see some probing of just how Bain Capital got whatever public pension fund investments it got, and also of the fraudulent conveyance litigation in which Bain was sued.
In other words, if the election is going to turn into a contest over the future of the free enterprise system, the pro-free enterprise side of it sure doesn't want to wind up losing because of a flawed messenger, because the consequences of losing such a fight could be really devastating. The message of New Hampshire is that the people of that state, who know Mr. Romney well, find him a better messenger than any of the other candidates who were running. These are the same primary voters who chose Senator McCain on the last go-round. The bottom line is that these are questions that won't really be resolved for sure until the general election in November.