By William C. Shelton

(The opinions and views expressed in the commentaries of The Somerville News belong solely to the authors of those commentaries and do not reflect the views or opinions of The Somerville News, its staff or publishers.)

Last week, Newt Gingrich and Rick Perry attacked Mitt Romney’s claim to having created 100,000 jobs as owner of Bain Capital. Instead, they said, Romney had practiced “vulture capitalism,” neither venture capitalism nor free enterprise.

With Perry, this was a case of the pot and the kettle, since he claims that because of his governorship Texas has led the nation in job “creation.” In fact, Texas’s net gain in jobs has been largely due to companies leaving other states to take advantage of Texas’s anti-worker policies, inferior environmental protections, and low wages.

Republican leaders quickly counterattacked, outraged that two of their own would criticize any large corporation. However cynical Gingrich was, he shined light on the private equity sector. These shadowy firms own companies that employ one out of ten American workers.

To my mind, venture capitalists produce tangible and sustainable benefits. They support entrepreneurs who would not otherwise obtain needed capital. They invest in companies that succeed only if they produce innovative products and services. Venture-capital-funded companies frequently generate exponential job growth. And they contribute much-needed federal, state, and municipal tax revenues.

For all of benefits that venture capitalists produce, private equity firms produce the opposite. They kill jobs. They reduce service and product quality while increasing prices. They burden companies with enormous levels of debt, first to buy the companies and then by borrowing even more to pay themselves lavish “dividends.”

U.S. tax code allows them to deduct all of the interest on the debt, so they pay taxes at about half the rate of their competitors. And when they sell those companies that they have not driven into bankruptcy, they pay taxes on their profit of only 15%. They cost the government about $10 billion per year in lost tax revenues.

Under Mitt Romney, Bain Capital pioneered of these practices. In 1984, Romney and T. Coleman Andrews III became Bain Capital’s first chief executives. In 1992, Bill Bain, principal owner of the consulting group Bain & Co., gave 100% of the firm to Romney in return for his help in rescuing the consultancy from bankruptcy.

Under Mitt’s leadership, Bain Capital went from being a venture capital firm to being almost exclusively a private equity firm. The latter was much more lucrative.

The mattress industry provides an excellent case study of private equity firms’ impacts on American business and on Americans. Between 1986 and 2004, four private equity firms bought and sold the company that owned Sealy, and four bought and sold Simmons, achieving a 320% return on investment in the first case, and 370% in the second.

When private equity firm Wesray bought Simmons, it closed down factories, fired workers, and used the cash to pay down much of its debt. It then created an employee stock ownership plan (ESOP) and, on paper, sold the company to the employees.

Having bought the company for $120 million, Wesray borrowed $249 million to fund the ESOP. After paying off the balance of its prior debt, Wesray took half of the remaining profit from the “sale” of the company. It had created the ESOP because, by selling the company to it, Wesray was not required to pay taxes on its profit.

The first tactic of the new Sealy owners was to raise prices. But during the 1989-91 recession, this didn’t work. It’s next tactic was to increase the quality of its mattresses, and increase prices even more. This produced some success. Simmons followed suit. Because, together, they controlled half the U.S. mattress market, they did not compete on price.

In 1997 Mitt Romney decided to partner with Charlesbank Capital and buy Sealy for $791 million. Bain put $140 million down and borrowed the rest.

Sealy then brought in workers who spoke only Spanish. It put in place a Spanish-speaking general manager to persuade them to vote to decertify the Furniture Workers Union. The attempt failed when the Spanish-speaking workers joined the union.

Ultimately, both companies became more profitable by reducing the quality of their products while increasing their prices. They created the one-sided no-flip mattress.

Between 1998 and 2006, they raised prices by 54%, over twice the rate of inflation. Their arrogance eventually caught up with them, and both companies lost market share to foam-mattress companies like Tempur-Pedic. Simmons reached a point where it could not service the interest on its huge debt, and Sealy’s private-equity owner had to lend it money and restructure its debt.

The U.S. economy went through a profound shift in the 1980s. Wall Street reasserted its control over American business, forcing it to adopt practices and a culture that has hurt both business and society.

Private equity firms were a key force in this change, although their senior partners in wrongdoing, investment banks, have received much more attention. Mitt Romney was a pioneer in these practices.

His claim that he “created” 100,000 jobs goes back to when Bain was a venture capital firm, before he owned it. If one factors in the jobs that Bain subsequently eliminated, the number is most likely negative.

But Mitt’s net worth is estimated at a quarter-billion dollars. He declines to release his tax returns, with good reason. They would be deeply disturbing to most Americans.

In Forbes magazine—no leftist organ—John McQuaid writes that Mitt’s electoral campaign is “spinning us a tall tale…that ignores the past generation of economic change that he championed, a kind of fantasy capitalism where the economy grows and jobs are created and government restrained, all at no cost to anyone but some bureaucrats.

Also writing in Forbes, Josh Barros says that the role of business leaders is only to make profits for their shareholders. It’s a rationale that Goldman Sachs executives offered during Congressional hearings. But Barros goes on to write that “while the human effects of these economic shifts are not properly the concern of business executives, they are the concern of government officials, and Romney wants to be president.”