The Romney Private Equity Defense Conservatives Hate

Mitt Romney’s spokeswoman Andrea Saul put her foot in her mouth yesterday when she invoked Romneycare as a defense against an outlandish attack ad. Or did she?

The ad, from Priorities USA Action, a pro-Obama Super PAC, indirectly blames Romney for killing a woman, Ranae Soptic. The ad says that Bain Capital’s layoff of her husband led her to lose her health insurance and then die from cancer when she got sick.

Saul responded by noting that Romney has actually done a lot, personally, to help people get health insurance if they don’t get it through work. “If people had been in Massachusetts, under Governor Romney’s health care plan, they would have had health care,” said Saul.

Most conservatives hate Romneycare, so this line was not well received on the right. Red State editor in chief Erick Erickson tweeted, “This might just be the moment Mitt Romney lost the election.” Ann Coulter called Saul a “moron” and said Romney’s donors should withhold their funds until Saul is fired.

But Saul’s line was actually a key component of the best defense Romney can offer of his business record and of the usefulness of private equity. Romney and his campaign need to find a way to comfortably make this argument without getting their heads bitten off.

Usually, Romney defends private equity by pretending it’s venture capital: the development of new businesses, not the restructuring and streamlining of existing ones. In fact, private equity very often involves laying people off, closing factories and otherwise shedding unnecessary labor costs.

If you concede that the purpose of a business is to provide well-paying jobs and solid benefits, then you cannot defend private equity. Private equity defenders must stand up for the idea that firms do not have a social obligation to retain and pay their employees; their function is to produce products and profits and getting them to do so more efficiently is good for consumers and for the economy as a whole.

But then that leaves the question of what to do about the workers who are on the losing side of economic shifts. If Bain Capital didn't have a moral obligation to provide health insurance to Ranae Soptic, who did? Did anyone?

As of 2006, Romney’s answer was that the government had that obligation, which is why he ushered in the country’s first program to provide near-universal health insurance. As Saul pointed out, Massachusetts residents get health insurance whether or not they are wealthy and whether or not they are covered through an employer.

That’s a straightforward neoliberal proposition: The government should provide a robust safety net so that employers can be left free to hire, fire, open and close at will. A dynamic private sector is important, but it needs a substantial welfare state to support the people who fall through its cracks.

The problem for Romney is that his base consists not of neoliberals but of conservatives. They do not want the government taking on increased safety net responsibilities. But if you don’t think the government should provide health insurance, what is there to say about Ranae Soptic?

The libertarian answer is that it was fine to leave Soptic on her own, and more broadly, that if economic changes make it harder for some people to get health care, so be it. That view is not likely to appeal to the median voter.

Another answer -- the one more commonly employed by conservatives -- is to deny the existence of a problem created by the free market. As this argument goes, a fast-growing and free private sector will make it easier for people to get jobs and health insurance; no government action is needed.

But even policies that do lead to aggregate job growth and GDP growth don’t benefit everyone. Creative destruction entails destruction, and there are always people like the Soptics, who lose out personally due to economic changes that make the country as a whole better off.

This is why lots of voters in the center are skeptical of trade, unregulated labor markets and economic change in general. Stressing the ability of government to smooth around the economy’s edges is important in getting the public comfortable with liberal capitalism. Romney needs to be able to tell a story about what he will do for people on the losing side of globalization and automation.

That’s not a message conservatives want to hear, which is why Romney confuses the issue by misrepresenting his experience at Bain Capital. It’s unlikely that the Obama campaign will let him get away with that for the next three months, so the campaign should try to find a way to make Saul’s pitch palatable to both the right and the center.

(Josh Barro is lead writer for the Ticker. E-mail him and follow him on Twitter.)

Read more breaking commentary from Josh Barro and other Bloomberg View columnists and editors at the Ticker.

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