The Bain Capital wars move offshore (Updated)

The lead story in today’s Washington Post is a report about how companies which with Bain Capital was involved during Mitt Romney’s time there “sent jobs overseas.” Having failed to gain much mileage out of a “Romney the job-cutter” theme, the White House and its allies in the MSM hope that a “Romney the outsourcer” theme will resonate.

The Romney camp reportedly has criticized the Post’s story because it “does not differentiate between domestic outsourcing versus offshoring, nor versus work done overseas to support U.S. exports.” Outsourcing, as I understand the term, means any instance in which an organization has work performed for it by an outside unit. Offshoring covers instances in which the outside unit is located in a foreign country.

In fairness to the Post, however, its story relies on Bain’s role in foreign companies and in companies that were involved in moving jobs outside the United States. Thus, it would appear that the Post has made a case for viewing Romney as an “offshorer” as well as an outsourcer. [Note: As stated below, there is reason to doubt that the Post’s case holds up to scrutiny].

Whether, or to what extent, that case is damning, or will be viewed as such, is another matter. The Post points to two different types of involvement by Bain-related companies in offshoring. The more predictable type involves firms that moved or expanded their operations outside of the U.S. The Post points to a bicycle manufacturer (GT Bicycle) that used Asian labor; to an electronics manufacturer (SMCT) that expanded production in Mexico and Ireland; and to another electronics manufacturer (Chippac, a subsidiary of Hyundai) that had plants in South Korea and China.

It shouldn’t come as a surprise that some Bain-related companies performed some manufacturing outside of the U.S. I suspect that anyone, including politicians in both parties, with a substantial stock portfolio has invested in companies that do this.

Moreover, there’s nothing wrong with the practice. If a company can lower its costs by doing some of its manufacturing overseas, there are plenty of winners, most notably, American consumers who can purchase the company’s goods at lower prices. The losers, of course, are Americans who aren’t allowed to do the work that the foreigners perform, though offshoring may help create other domestic jobs. On balance, there is no disservice to the American people.

Nor is there any hypocrisy associated with Romney’s campaign trail lament about the outsourcing (or offshoring) of American jobs. Romney’s beef is with a U.S. business climate that induces companies to engage in large-scale offshoring. He wants to keep jobs in the U.S. by creating a more favorable business climate, e.g. by reducing the regulatory burden. To my knowledge, he has never advocated a ban on offshoring or blamed the companies who engage in this practice. But even if he did, this would not be hypocrisy (just very bad policy). At Bain, Romney’s job was to see to the success of companies he invested in. As president, his job would be the very different one of promoting the public interest.

The second type of Bain involvement in offshoring was direct investment in companies that, according to the Post, provided support services to large corporations like Microsoft. One of these services was to help them outsource customer support.

The first such company that Bain invested in was called Corporate Software Inc. It later merged with Stream International Inc. which, according to the Post, ran call centers overseas. And one of Stream’s subsidiaries, Modus Media, which later became an independent company with Bain as its largest shareholder, provided training and other services in Australia and Asia on behalf of American companies.

In essence, then, Bain invested in a few companies that were meeting the growing demand to offshore operations like call centers and training. Bain did not create that demand; it simply took advantage of business opportunities, which was what Bain existed to do. If Bain hadn’t done this, another venture capitalist would have.

And again, Bain performed no disservice to America by helping companies that provided these kinds of services to corporations like Microsoft. To the extent that Microsoft was able to run its call centers at a lower cost through offshoring, many American consumers benefitted. In addition, as the Romney campaign suggested, this work may have supported U.S. exports.

None of this means that Obama will get no political mileage from the “Romney the outsourcer” theme. However, I doubt he will get much. First, this election is a referendum on Obama’s handling of the economy, not on Bain Capital. Second, Bain Capital has already been blessed by Bill Clinton and other important Democrats. Third, the outsourcing story isn’t fundamentally different from the job slashing/plant closing story, which seems not to have taken the Obama campaign very far.

For Obama, Bain may be the gift that keeps on giving. But I’m not sure it’s giving him much.

UPDATE: The excellent James Pethokoukis argues that the Washington Post has distorted the record and has, indeed, failed to make important distinctions regarding Bain’s investments. I’ll have more to say on this later.