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Is Mitt Romney really a job creator? What his Bain Capital record shows.

Mitt Romney is running for president on his business acumen, saying he knows what it takes to create jobs. He puts less emphasis on what he knows about eliminating jobs. Marion, Ind., has experienced both via Romney and Bain Capital.

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In 1984, Mr. Bain offered Romney and other partners an opportunity to invest in companies and improve them using the Bain method, via a new firm called Bain Capital. With $37 million raised from private individuals – many of them Bain executives – the company under Romney’s leadership looked for firms to buy or invest in. One early investment was a startup called Staples, which was trying to become a national office supply store.

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“In the venture area, if you hit two home runs you are golden,” says Joyce Greenberg, a partner in Coburn Greenberg Partners, a boutique investment-banking firm. “Bain Capital also made investments in traditional private equity in more mature companies, sometimes companies that were distressed, sometimes companies they thought would grow.”

The aim of any private equity firm is to invest money of its shareholders and maximize the return on their investments. It’s not to create jobs, though that can be an outcome. A private equity firm doesn’t provide a product or service itself, but it buys, owns, and sells companies that do. It can also play the role of venture capitalist.

But job creation is the big issue for the 2012 presidential campaign. Bain invested in a lot of retail establishments – Toys“R”Us, Burlington Coat Factory, and Guitar Center, among others – and many hire a lot of people, notes Ms. Greenberg. “They hire a lot of people at minimum-wage plus [using the minimum as a base], but also store managers, regional managers, and buyers,” says Greenberg, who specializes in retailers. “On a net basis, did Bain create jobs? Probably,” she says. 

The jobs track record for private-equity firms in general appears to be a wash. In an analysis issued in September, five economists, using US Census Bureau data from 1980 to 2003, examined what effect private-equity firms had on job creation two years after they had acquired a company. They found that employment at an acquired firm was down 2 percent.

“The net effect on jobs of private equity was pretty small,” says Steven Davis, a co-author and a professor at the University of Chicago’s Booth School of Business. “But we think we found something else,” he continues. “We think the evidence is telling us [that] private equity accelerates the creative destruction going on in the economy all the time – and by a considerable amount,” says Mr. Davis. As the economy continually reinvents itself, some people get laid off. But “of course there are winners, too, including the workers who benefit from the more rapid creation of new jobs at firms controlled by private equity,” he says. 

That may be one reason some union leaders do not oppose private-equity takeovers. “To be honest with you, we have good relationships and bad relationships” with private-equity firms, says Leo Gerard, president of the United Steelworkers in Washington, D.C.

His union has worked with private investors such as billionaire Wilbur Ross, who bought Bethlehem Steel after it went into bankruptcy. “He did the restructuring in a way that brought efficiency and helped firms survive,” says Mr. Gerard. 

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