Vanity Fair recently published an article about Mitt Romney’s wealth. Like many recent articles and ads, it viewed the activities of Romney’s private equity firm, Bain Capital LLC through a political lens.
Buried in the piece was a list of “formerly healthy” companies that Bain bought and bankrupted. These firms were mentioned in an offhand way, without elaboration, as though the author and editors didn’t really expect the reader to know of or care about the once proud enterprises – much less the struggles of the people whose lives were impacted by the store closures and layoffs that followed in Bain’s wake.
But one of these companies caught my eye: Stage Stores. I had heard this name before.
It turns out that Bain’s many investments during Romney’s tenure included a pair of Texas department store chains, which it bought in 1988. These were merged with several other small chains over the next decade and cobbled together into Stage Stores, Inc., which focused on providing clothing and household goods for smaller towns in the central and southeastern United States.
Bain sold most of its shares in 1997. Stage started closing stores in 1999 and declared bankruptcy the following year.
The Stage Store in Powell, Wyo. was among the first to go. Small and geographically isolated towns are often not conducive markets for the “efficiencies” needed to drive the profits of outside investors.
Stage restructured after bankruptcy, and has since resumed its expansion. And today Powell has a thriving department store that is the anchor for a vigorous downtown where people sometimes have trouble finding parking.
That doesn’t sound so bad. So what happened?
Powell is now somewhat famous as the birthplace of the Merc. When Stage Stores pulled out, the residents of Powell recognized that the future of their town was on the line. They would have to travel now to buy a shirt. No doubt people would combine their out-of-town clothes-shopping errands with stocking up on groceries, having lunch and possibly seeing medical specialists. Each of these efficiencies would further undermine the local economy until the grocers, restaurants and doctors closed. Powell’s days as a living town would be numbered.
So people got organized. They created a community-owned company that was structured in a way that prevented a repeat of the Stage cycle of capture and closure: Prospective local investors could only purchase a limited number of shares, preventing outside interests from taking control and once again sacrificing the operation on the altar of efficiency.
Powell has become an inspiration for other communities, some of which have opened their own mercantile stores and sometimes even joined Powell in bulk purchasing to get better prices – for example by pooling orders for suits to meet a suit manufacturer’s minimum order.
This mutual aid and cooperation is helping restore the local economy and prevent the concentration and extraction of wealth like that which occurred after Bain came to town. People of Powell shop enthusiastically at the Merc now, and when they do, profits mostly stay in the community. And tour buses bring delegations from around the country, seeking to understand what’s happened in this town.
Is the Powell revival a vindication of Romney’s capitalist tough love, which requires dispassionate outsiders to make the hard choices needed to save a struggling company from collapse or sometimes pull the plug to make room for another competitor? Or does this affirm the Obama campaign’s implication that we must fear the disastrous national downsizing that would come with a Romney presidency and hope the government will protect us from the worst abuses of capitalism?
Powell is certainly not the kind of success story that Romney would recognize. Stage Stores may indeed be more profitable now than its components were in 1988, but that comes at great cost to many communities like Powell that were already struggling in a challenging economy. In the absence of vigorous growth “efficiency” is a euphemism for job losses. So while Stage Stores is a success within the capitalist paradigm, it also shows how that paradigm is at odds with the needs of communities.
The Powell story also undermines a key part of the Obama narrative (which is really not more explicit than “Bain is bad!” but may still be read between the lines): The Democrats would have us believe we are helpless in the face of the capitalist juggernaut, and must depend on their party to protect us, even though it has repeatedly shown itself to be deeply dependent on the very financial forces destroying our economy through consolidation and destruction of local control.
Yes, it is bad news when private equity comes to town. But we must not despair when it does, and we should not wait for government to solve our problems. Instead, we should use the threat of predatory profiteering as a wake-up call, and begin to reorganize our communities in more resilient ways, returning the power and profits to the local arena.