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

Before Mitt Romney’s Bain Capital bought the rambling SCM factory in Marion, Ind., it was running three shifts a day, making hanging file folders and other office supplies. But on July 5, 1994, everything changed.

The new owner, American Pad & Paper, owned in turn by Bain Capital, told all 258 union workers they were fired, in a cost-cutting move. Security guards hustled them out of the building. They would be able to reapply for their jobs, at lesser wages and benefits, but not all would be rehired. 

“We were told they bought the assets, not the union or the [labor] contract,” recalls Randy Johnson, who at the time worked as a machine operator and was a union shop steward. The workers – some the third generation in their families to have jobs there – eventually went on strike, and Bain closed the factory 5-1/2 months after acquiring it.

Not far from the former plant is a Staples office supply company – the typical store employs 20 to 30 people – and a Domino’s Pizza franchise, which typically has about 15 workers. Both outlets can point to contributions from Bain Capital, which provided seed money for the parent company to grow, eventually adding thousands of jobs across the US. 

Bain Capital’s activities while Mr. Romney ran it from its founding in 1984 until he left in 1999 are being scrutinized now that he is front-runner in the Republican presidential race. Romney says that he knows business and that his work at Boston-based Bain led to the creation of 100,000 jobs. His business record and management prowess could be deciding factors if he’s the GOP nominee, because credibility on the issue of jobs is likely to determine who resides at 1600 Pennsylvania Avenue next January.

“When we ask people what worries them most, jobs is the most important, the top issue,” says Frank Newport, editor-in-chief of the Gallup Poll. In its November poll, Gallup found that only 30 percent of the public approved of the way Mr. Obama is handling the economy. 

But Romney’s GOP rivals are endeavoring to take the polish off his job-creation credentials. Texas Gov. Rick Perry, who dropped out of the GOP contest Jan. 19, had referred to Romney’s record at Bain Capital as “vulture capitalism.” And leading up to the South Carolina primary, a group backing Newt Gingrich for president let loose with a 28-minute TV ad (containing inaccuracies and unsubstantiated claims, including about the AmPad episode) that sought to portray Romney and Bain Capital as ruthless job-killers. The Obama campaign would likewise be expected to assail Romney’s jobs record.

Efforts to tar Romney over his time at Bain are not viewed favorably by voters – at least in South Carolina. An NBC News/Marist poll released Jan. 19 found 48 percent of likely voters there see such criticism as unfair, while only 22 percent say it is fair. 

Certainly, the 1980s and ’90s was a time when Wall Street financiers went on a dog-eat-dog scramble to buy companies. These pin-striped new owners sometimes squeezed workers in a bid to make the acquired company more profitable. They sometimes stacked debt on top of the companies – as Bain Capital did with AmPad – and then wrote themselves dividend checks from the borrowings. The Wall Street Journal calculated Bain made between 50 percent and 80 percent annually on its investments between 1984 and a few years after Romney left the firm to run the Olympic Games in Salt Lake City.

In an analysis of Bain Capital under Romney, the Journal estimated that Bain made $2.5 billion in profits on $1.1 billion invested in 77 separate deals. Of those 77 transactions, 22 percent ended with the firms in bankruptcy after the eighth year of the Bain investment. Bain disputes the Journal’s account as inaccurate.

Romney acknowledges he made millions, but says the reward was for hard work and risk-taking.

“The reality is in the private sector that there are some businesses that are growing and thriving, and we were fortunate enough to be able to be a part of that in a small way,” Romney said in mid-January after a campaign event in South Carolina. But “there are some businesses that have to be cut back in order to survive.... Sometimes we’re successful at that, and sometimes we’re not.”

Romney is the first modern financier to run for the Oval Office, says political scientist William Grover of St. Michael’s College in Colchester, Vt. H. Ross Perot was viewed as a high-tech executive, and Jimmy Carter as a small-scale peanut farmer. George W. Bush had business experience, but he was seen more as governor of Texas (never mind that Romney was governor of Massachusetts).

How will Americans feel about a candidate who made his fortune buying and selling companies? Polls show that the public has a low regard for Wall Street bankers, says Mr. Newport. Romney would be wise to brand himself as an entrepreneur, perhaps of a small business. “That works well,” Newport says.

But that would be changing history.

In the late 1970s, Romney, after graduating from Harvard Business School, went to work at consulting firm Bain & Co., founded by Bill Bain. The Bain method was for its consultants to become intimately familiar with its clients’ work and competitors, and even to make sure clients followed its advice.

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.

“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. 

He is less positive about Romney and Bain, his union having dealt with them at least three times. “They take out ... fees [for themselves], flip the company, and away the company goes,” he says. They also fire the senior workers, says Mr. Gerard. “There is a reason the vulture capitalists do that: If they keep the older workers, they have higher pension obligations, obviously, with more years of service, and their health-care costs are probably higher because as you get older you need more medical care.”

He would get no argument from Loris Huffman. She had worked 40 years at the AmPad factory in Marion and was 59 when the plant closed. 

“I was on the negotiating committee for the union, and we had to give up and give up until we could give no more,” Ms. Huffman recalls. “They tried to make the working conditions not very good.” AmPad began moving automated machinery out of the factory soon after acquiring it. “I think they were planning on shutting the plant down,” she says. “We were union, and they did not want that.” 

Bain Capital bought AmPad in 1992 for $5.1 million. It borrowed heavily, boosting AmPad’s debt from $19.8 million in 1994 to $443.7 million in 1995, and Bain charged it tens of millions in fees. Bain took the firm public in 1996, making tens of millions more. AmPad, still saddled with debt, filed for bankruptcy in 2000. It has since reemerged as a private firm, based in Dallas. 

Former Bain executive Marc Wolpow, defending Romney’s and Bain Capital’s decisions in a New York magazine article in October, said some of the Marion work could be done more cheaply in China or Indonesia. It was only a matter of time, he said, until those jobs were destroyed by international competition. “That plant was going to go out of business, and there was nothing Mitt should have done, or could have done to prevent it,” he said. Mr. Wolpow, now an executive at Boston-based Audax Group, a private investor organization, said in an e-mail that he stands by his statement.

That’s no consolation to Huffman, who returned to school but never to work. She did, however, fly to Romney events as part of a "truth squad" during his US Senate campaign against incumbent Ted Kennedy back in 1994. “It is a story that needs to get out,” she says, “not just for us but for other plants.” [Editor's note: This paragraph has been changed to clarify Loris Huffman's involvement with an anti-Romney "truth squad," which the Democratic National Committee was not a part of.]