Suppose a government-owned and operated enterprise does what they do best, which is lose tons of money by squandering scarce resources. (Never, ever, ever underestimate the importance of incentives. If I am not a residual claimant to the profits of an enterprise, I don't care whether it profits or loses money. I just want my paycheck.) In order to raise revenue to pay some of its debt, the government privatizes this company and you buy it . . . cheap. (Why not, it's a losing venture.)
After turning the company around and making it profitable, you sell it. Yes, you were able to utilize the same resources that the government had been squandering for the benefit of greedy bureaucrats and their political allies to finally create great value for the rest of society. You were rewarded for that in the form of higher profits, which increased the value of your firm.
You are not in the business of running companies like this per se, but in salvaging currently unprofitable ones. Once you have it turned around it's time to sell. You do . . . and for a handsome profit. There is nothing illegal about what you did, and in fact, you did exactly what capitalism dictates. You profited by transforming resources from where they had been either unused or were being wasted into something that benefited society most. Your actions improved social welfare.
Now, you take those profits and use the same rules and laws that politicians legislated to protect their own wealth and the wealth of their friends and cronies and benefactors to keep it from being confiscated by people who, you guessed it, like to waste resources most. You deposit it into accounts in foreign countries that allow you to avoid paying huge capital gains tax on the sale of your business in another country. Whether this is just or unjust from a political perspective is irrelevant; you've simply used the same rules that protect anyone else in that country from having their wealth plundered by wasteful politicians and bureaucrats. They set up the rules and if the rules are unfair then change them. But don't villify people who simply use existing laws, the same laws that apply to everyone else, to avoid paying taxes.
Things happen, all beyond your control, though maybe not without your foresight that they might happen. It was this knowledge that was the impetus for you selling the company then. As a consequence of these changes, the value of your former company plummets. The buyer of your former company had at once also been a former government-owned and run enterprise. The managers of that firm might have expected to benefit from the crony capitalism so widely prevalent in their country, so might have had less an incentive to run it profitably. Are you obligated to refund their losses because they either lacked the same knowledge and information you had, or because they didn’t have the incentive to operate it profitably like you did? Might they have aided in the downfall of the value of their acquision?
What if you, a specialist in expressionist art, come across what you believe to be an original, but lost, Van Gogh while stopping at a garage sale. The owner sells you the painting for $50 and you then turn around and auction it off for $50 million. Are you obligated to inform the owner of the potential value of that piece of art? What if you purchased a house a year before the peak of the housing bubble and flipped it right at the peak, pretty certain that a bubble existed and it was ready to pop. Again, are you obligated to refund the difference between the price at which you sold the house and its current deflated value simply because the buyer, who probably wanted to flip it too, didn’t understand fundamental values? If so, is there any incentive for people to become informed about the fundamental value of assets?
I am not fully informed about the Bain Capital acquisition of Seat Pagine Gaille, but from everything I read in this story of it, my metaphors above explain things pretty much the same. There may be more to it, I don't know, but it seems that Bain Capital did nothing more than expose the gross inefficiencies of the Italian government running enterprises and was able to profit from it when the Italian government decided to privatize some of them. Just like the speculators forced the collapse of the Malaysian and Indonesian currencies (and government), exposing the political corruption and cronyism in those countries, Bain capital did the Italian people a service by exposing the flaws in the corrupt political system of that country and in the process profited from it.
Dana Milbank of the Washington Post defends crony capitalism and vilifies true capitalism. Maybe he doesn't understand public choice and the importance of incentives.
Again, I'm not an apologist for Romney the candidate - I actually think he's weak and unprincipled. But I will defend capitalism and what Romney did at Bain Capital. I don't have full knowledge of what Bain Capital did, but neither does the media and people like Milbank. Until we know differently, Romney and Bain Capital served society well. It is quite possible, and given his political heritage highly probable, that Romney and Bain Capital unjustly profited from political connections. But no one has revealed anything unscrupulous yet, and so until they do I will defend Bain Capital just as I will defend any private equity firm and the crucial role they have in allocating resources more efficiently.
