Romney's Republican rivals put capitalism on trial

Candidates dig into frontrunner's business past

This is a rush transcript from "Journal Editorial Report," January 14, 2012. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," Republicans put capitalism on trial. Eager to unseat the frontrunner, Mitt Romney's rivals mount a blistering attack on his business past. How should Mitt Romney respond?

Plus, the rise of the Super PACs. They're behind some of the most bruising ads of the campaign so far. Where do they come from and are they good for the political debate?

And the first big labor fight of 2012 is taking shape in the Hoosier State. Why right-to-work may be right on target for Indiana's economy.

(BEGIN VIDEO CLIP)

MITT ROMNEY, R-FORMER MASSACHUSETTS GOVERNOR & PRESIDENTIAL CANDIDATE: President Obama wants to put free enterprise on trial. And the last few days, we have seen some desperate Republicans join forces with him.

(BOOING)

ROMNEY: This is such a mistake for our party and for our nation.

(END VIDEO CLIP)

GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

That was Mitt Romney on Tuesday night, fresh off of his decisive victory in New Hampshire. The Republican frontrunner was referring to attacks by rivals Newt Gingrich and Rick Perry over his time at the private equity firm, Bain Capital. A group supporting the former House speaker has backed a 28-minute video and said they'll spend millions on ads in South Carolina portraying Mr. Romney as the Gordon Gekko of presidential politics.

(BEGIN VIDEO CLIP)

AD NARRATOR: A group of corporate raiders led by Mitt Romney. The company was Bain Capital, more ruthless than Wall Street.

UNIDENTIFIED MALE: Pulled the rug out from under our plant.

UNIDENTIFIED FEMALE: Everybody was fired. They fire people, they cut benefits, they sell assets.

UNIDENTIFIED MALE: Mitt Romney, them guys, they don't care who I am.

UNIDENTIFIED FEMALE: I feel that is the man that destroyed us.

AD NARRATOR: Winning our Future is responsible for the content of this message.

(END VIDEO CLIP)

GIGOT: Joining the panel, this week, Wall Street Journal columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman; editorial board member, Dorothy Rabinowitz; and Washington columnist, Kim Strassel.

James, you saw that ad, the king of Bain. Is that what private equity does?

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: That ad is a well- produced smear and so is the 28-minute film.

(LAUGHTER)

And I think, once Newt Gingrich quits and the PAC closes up shop, it will be able to sell it to the Obama campaign for a large amount of money.

(LAUGHTER)

(CROSSTALK)

GIGOT: Well, but, is it -- is that what -- a fair description of the public/private equity business.

FREEMAN: It is completely one-sided. And the point of private equity is to spot opportunities to make a profit. How do they make a profit? They see companies under performing, that could be made more efficient, and perhaps could go into new market, and what they try to do is make money by making those companies more profitable. And the real homerun ball is not just taking management fees and paying yourself dividends but also building an asset that you can sell to someone else.

GIGOT: Let's get -- look at a comment by Rick Perry about this issue.

(BEGIN VIDEO CLIP)

RICK PERRY, R- GOVERNOR OF TEXAS & PRESIDENTIAL CANDIDATE: We need to have more venture capitalism going on in America and less vulture capitalism. The idea that you come in and you destroy people's lives, the idea that you come in just to make a quick profit, tear these companies apart. I understand restructuring. I understand those types of things. But the idea that we can't criticize someone for these get-rich-quick schemes is not appropriate from my perspective.

(END VIDEO CLIP)

GIGOT: Dorothy, get-rich-quick schemes, does he have a point is there something vultury about this -- these businesses?

DOROTHY RABINOWITZ, EDITORIAL BOARD MEMBER: No. He doesn't -- let's all agree, these are horrendous displays --

(LAUGHTER)

-- of a war that equates of free markets with some sort of assault on human life and decency.

Having said that, let me point out that there is something feverish about the response to these ads. Because, let us agree that there is something rumbling in this assault on these two outliers here. And that is, some problem having to do with the feeling about the likely nominee. And I think the uneasiness with Mitt Romney as the nominee is feeding into a lot of the sense of catastrophe and this sense that somehow they have been undone.

GIGOT: So they focused on a weakness here --

RABINOWITZ: Indeed.

GIGOT: That Romney has and they think, in that sense, they have found something Obama would be able to exploit.

Dan, what do you think about that?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: I'm not sure I agree with that. I think it moved the focus away from his personal weakness and his weakness as a candidate to a more structural, supposed weakness as his experience. And, you know, Paul, this thing about private equity, we're talking about a specific period of time in American capitalism, which was the 1980s, raid and takeover artists. What they attacked was something we called country club capitalism. The United States --

(CROSSTALK)

GIGOT: The private equity business attacked that.

HENNINGER: That's right. And mainly what they took over were very large companies. This is not an attack on mom-and-pop grocery stores. It was an attack on big media companies, big entertainment companies, energy companies. Incorporated --

GIGOT: Poorly managed.

HENNINGER: Poorly managed and complacent, and were basically taking American capitalism towards in the direction of France, where you simply run the company for the managers, not the shareholders or even for the employees.

GIGOT: And what about, Kim, the argument that if Mitt Romney cannot stand up to this attack from Republicans, how will he do it from Barack Obama?

KIM STRASSEL, WASHINGTON COLUMNIST: Well, I think one of the good things you are seeing out of this is that, you know, the Romney campaign, for months and months, has been steady as you go, very careful of not tuning the message at all. This has required it to step up his game and address what is going to be the biggest point of attack from Barack Obama. You saw Romney in the clip earlier talking about putting it in the bigger context, the free market. You've got an ad that he is going to put up talking about what he did in the private equity market. This is encouraging him to think out there. And that is probably one of the only up sides to this.

GIGOT: Is it going to help him, Dorothy?

RABINOWITZ: I think it will. I certainly think -- this is what he needs. He needs to be out there saying -- you know, if we remember when he first came to see us four years ago, he spent an enormous amount of time talk about his background as a business man.

GIGOT: Sure.

RABINOWITZ: Fast forward four years now, he learned something. But, still, there's a sense that you cannot run on your biography as a business man alone. You need the larger vision, the vision thing. And I think one of the strengths, one of the things most feared about Newt Gingrich is, he had the vision.

GIGOT: And this will force Romney to raise his level of debate so it's not just about him, James?

RABINOWITZ: Absolutely.

FREEMAN: That's right. This is actually one reason I've always doubted the Romney electability claim. Maybe this isn't the best year for a wealthy finance guy to run for president.

(LAUGHTER)

GIGOT: Right.

FREEMAN: But, having said that, the Bain record is really exceptional. And it created wealth and created jobs and it's created 900 jobs at Bain Capital alone.

GIGOT: Yes, but there are failures on the record. No question, there are bankruptcies.

(CROSSTALK)

GIGOT: And people are not making up the stories about being laid off.

FREEMAN: No, they're not. And everybody -- it's a sad story for the people in that film. But even in the film, the stories they pick from the film, one of those companies went bust after Bain Capital sold it to someone else. Maybe it was the next owner that screwed up the business. You look at other companies in there. In many cases people didn't want to work anymore because the business said we have to rationalize our costs and people will have to take less pay or benefits so --

(CROSSTALK)

GIGOT: Briefly, Dan?

HENNINGER: The details are very vulnerable to demagoguery. At some point, Mitt Romney will have to stands back and launch a defense of modern managerial capitalism that people can understand.

GIGOT: Modern managerial capitalism, it doesn't sounds like a winner, Dan. Managerial capitalism?

(LAUGHTER)

HENNINGER: All right, capitalism and free markets. He'll have to give a speech in which he defends the way this economy is run.

FREEMAN: But we'd also like to see a plan that promotes free markets and lower taxes and regulation.

GIGOT: All right, thank you all.

When we come back, the rise of the Super PAC. The Gingrich allied assault on Bain Capital is merely the latest in a string of attack ads put out by the supposedly Independent groups. When and why did they spring up, and are they good for the political debate? We'll have an argument, ahead.

(COMMERCIAL BREAK)

GIGOT: The so-called Super PAC behind Newt Gingrich's Bain Capital assault is not the only one making headlines. You will remember that Gingrich himself blamed attack ads funded by a group supporting Mitt Romney for his disappointing fourth-place finish in Iowa. The PAC, Restore our Future, spent a reported $2.7 million there. And it is spending millions more on ads in South Carolina and Florida.

So why are these groups springing up and are they good for the political debate?

Wall Street Journal senior editorial page writer, Collin Levy joins us with more.

So, Collin, why are these Super PACs coming to the fore, now?

COLLIN LEVY, SENIOR EDITORIAL PAGE WRITER: Paul, the Super PAC phenomenon is the result of two major legal decisions that happened in the past couple of years. 2010, Citizens United versus SEC basically restored the rights of corporations and unions, as you know, to participate in the political process. And it was followed by a case called Speech Now versus SEC, which allowed contributions to be bundled together. So before these decisions, you had a situation where a wealthy individual could spend unlimited amounts of money. But as soon as you had two to three people in a room, they had to register as a political committee and abide by the rules and regulations. So now, you are seeing the rise of political committees because of that new freedom.

GIGOT: These are essentially down to us because the First Amendment, right now, the Supreme Court says individuals had.

Dorothy, that, of course, does beg the question what about -- whether it is good.

RABINOWITZ: Yes, the impact is. Now, you see in clear, living, vivid color what happens when you have a limitless amount of money, especially in a cheap-buy market like Iowa was. And you see Newt Gingrich descending, downward. The public is watching this. And if anything can make the public cynical was watching this very clear effect of money, limitless money. And it is now laughable now, because I see people like Mr. campaign finance reform, Senator McCain --

(LAUGHTER)

-- advocate of Mitt Romney, appearing on television --

(LAUGHTER)

-- to attack Newt Gingrich for having accused Mr. Romney -- a short memory, Senator McCain, who, four years ago, when running against Mr. Romney, attacked him for all of those layoffs. So it depends on where you are.

But the answer to your question is, it has a very questionable effect.

GIGOT: OK, Dan?

HENNINGER: Paul, let's understand why the Super PACs exist. They exist because there are limits on the amount of money that individuals can give to individual candidates. In a primary that is $2500. As a result, the candidates cannot raise as much money as they need. And the Super PACs operate independently of the campaign. what you should have is no limit on those contributions of individuals so this money would go inside the campaigns where they would be better run and organized along with the campaign rather than running alongside of them.

GIGOT: Collin, all the campaigns have the ability to marshal these PACs if they want. Does it increase political competition by making it easier for a few backers to get behind somebody who otherwise would not be able to make 4,000 phone calls, say, to get $2500 from each individual donor, which are the limits you have -- that candidates can raise money on?

LEVY: Right. There is no question here, it made the race more competitive. Let's not forget, without these Super PACs -- a lot of these candidates were running bare-bones operations and the PACs, in some cases, pulled them out of the mud.

Something else to note too, Paul, is everyone talk about the negative ads coming out of these Super PACs, but the amount of money that Super PACs have spent supporting candidates is twice what they've spent opposing candidates. This isn't a net negative influence. This is also something they are looking at that voters are getting more information.

GIGOT: And it's -- what, Dorothy?

RABINOWITZ: Pull them out of the mud? It pulled them into the mud.

(LAUGHER)

It's pulled into an expansion and spread the mud. And that is what the voters are registering. This is politics.

HENNINGER: If you had the money run by the campaigns instead of the Super PACs, you would get a better quality of candidate as well. The candidate wants to be in control of his own message.

GIGOT: Because now they have this deniability.

HENNINGER: Yes.

GIGOT: It is phony. But nonetheless, they can say, hey, I had nothing do with that. Even though the people running it are their former aides.

HENNINGER: And it is obviously ridiculous situation. Congress ought to lift the limits on campaign --

(CROSSTALK)

GIGOT: So these limits -- on these campaign limits, Collin, in a way, has limited -- have reduced political accountability?

LEVY: Oh, they have, for sure. But lesson number two, you know, people talk about this as they are driving some sort of loophole here. But the real reality is that the loophole is the First Amendment, and, the machinations you are seeing are the remains of the result of the restrictions on campaign finance, not the new freedoms we are seeing.

GIGOT: OK. Thank you.

Still ahead, the first big labor fight of the year is taking shape in the Hoosier State. How Indiana's right-to-work push could change the political and economic landscape in the Midwest, when we come back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

MITCH DANIELS, R- GOVERNOR OF INDIANA: The idea that no worker should be forced to pay union dues as a condition of keeping a job is simple and just. But the benefits in new jobs would be large. A third or more of growing or relocating businesses will not consider a state that does not providing workers this protection.

(END VIDEO CLIP)

GIGOT: He was reportedly booed by protesters in the state house hallways for those remarks in the annual State of the State Address this week but Governor Mitch Daniels hopes to make Indiana the first state to approve right-to-work legislation that would allow individual workers to decide if they want to join a union and ban contracts that require non- union members to pay dues once the work site is organized. Republican leaders in the state made it their top legislative priority this year. But Democrats and their union allies are not giving up without a fight.

So, Collin, we heard last year after the brawl in Wisconsin, somehow this was over for a union reform movement. What -- why is it happening in Indiana now?

LEVY: Well, I mean, I think it is a really interesting situation you see happening in Indiana, because Indiana is just sort of the industrial state of the Midwest. And you have a particular situation now where Indiana is poised to achieve enormous competitive advantages over states in the Midwest, like Michigan and Illinois. These are high-tasked unionized states. And Governor Daniel has taken this moment to say, you know, we have already made significant gains in terms of improving the business climate here. We saw what happened in Wisconsin. But, look, you know, we have an opportunity to lure a lot of businesses here if we can make it clear that workers can act as free agents, you know? Unions are portraying it as a radical change but it is really about worker freedom.

GIGOT: Kim, the nearest right-to-work state in the Midwest is Iowa. How much economic benefit could there be here, really when you get down to it?

STRASSEL: It is huge. When Mitch Daniels talks about this, he's looking at the south. That is where the epicenter of most right-to-work states have been and where there has been a flood of manufacturers who have moved from the north to the south over recent decades to take advantage of those lower-cost, non-unionized states. And if Indiana could do this, it would be a sort of central pole for people to remain in the Midwest and locate, and give an enormous advantage over competitors.

GIGOT: The last state to try to do that was New Hampshire, which elected huge Republican legislative majorities in 2010. Tried to pass right to work. They did. It was vetoed by the Democratic governor. Indiana Republicans also have big majorities and it looks like they are poised to do it?

HENNINGER: And I hope they do. I think this is really almost a life- and-death issue for Indiana. 20 percent of Indiana's workforce is in manufacturing. The highest percentage in the United States.

GIGOT: Wow.

HENNINGER: And people don't -- Indiana -- what is Indiana --

(CROSSTALK)

GIGOT: Manufacturing is only 11 percent of the entire U.S. economy.

HENNINGER: It's about 20 percent in Indiana. They make elevators and refrigerators, mobile homes, engines, Cummings (ph) engines there. They attracted Toyota and Honda to the state. But if you are in manufacturing, that is about half of your costs. Labor costs about half of the total cost of a company. They have to be competitive with the southern tier of states that we just saw in that map, or those companies will inevitably migrate. There's a lot of out-migration in Indiana now. The level of real income is falling because the manufacturing is going to the south. It is a make-or- break deal for Indiana, Paul.

GIGOT: Collin, Democrats are trying to play a game of Hide and Seek in Indiana, trying to go -- leave the state or leave the -- not provide a quorum for Republicans to pass this. Is it likely to succeed?

LEVY: No, it's not. And one reason is, if you recall, after the Wisconsin battle last year and walkout, you also had about a five-week walkout by Indiana Democrats, after which time, Republicans and -- in the legislature passed a law that said, if you are gone from work for more than three days, guess what, there are consequences. There is a thousand dollar personal fine. So, what you are seeing now are these rolling walkouts, where they are here for a few days and gone for a day, and so that is what is happening. But I don't think that that is going to hold. They -- basically the Democratic leader has acknowledged that this is probably going to go forward.

GIGOT: Kim, quickly, what would be the impact nationally and on the presidential election in 2012 if Indians passes this?

STRASSEL: It puts the union issues back in here. And just on the political point, Paul, I want to point out that this is different than what happened in Wisconsin. The tough thing for Scott Walker, in Wisconsin, was union guys could say, you are attacking the middle class, taking away benefits. This is an issue in Indiana that really resonates with Americans when they say, will you be forced to join a union and pay dues. Most Americans don't agree with that. If Republicans can frame that in a national debate, it definitely helps them.

GIGOT: OK.

We have to take one more break. When we come back, "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Time now for "Hits and Misses" of the week.

Collin, first to you.

LEVY: Paul, this is a big hit to the Supreme Court, which ruled this week that the government can't second-guess the decisions of religious institutions, about who they hire and fire as ministers. The decision was unanimous. And it was a big smack down to the Obama administration, which basically arguing churches and synagogues were due no more deference than labor unions and social clubs in terms of employment disputes. This is a major victory for religious freedom and an important reminder the First Amendment was intended not to protect people from religion but to protect religion from government.

GIGOT: All right.

Kim?

STRASSEL: A hit to California Governor Jerry Brown for his honesty. California is about to run the first-in-the-nation state program for cap- and-trade to regulate carbon emissions. And the governor came clean and said he intends to use half of the money generated from the program to pay down the state's deficit. In other words, this is exactly what critics always said it is. It is a tax on energy to give people like Mr. Brown Mr. more ability to spend.

GIGOT: OK.

James?

FREEMAN: Paul, this is a re-hit, really, to --

(LAUGHTER)

-- New York Giants quarterback, Eli Manning. You'll recall, at the end of the summer, before the NFL season began, Eli Manning said that he was an elite quarterback. Some people expressed skepticism, including the moderator of this program.

(LAUGHTER)

I gave him the hit because I thought it was true and it showed confidence. And this year, he broke an NFL record for most scored touchdowns. So --

(CROSSTALK)

GIGOT: And Mitt Romney might say, you want to make a $10,000 bet on the game this weekend, James?

(LAUGHTER)

(CROSSTALK)

FREEMAN: -- tomorrow. But I think it is clear, he's an elite player.

GIGOT: All right.

FREEMAN: He will show it though.

GIGOT: All right.

That's it for this week's show. Thanks to my panel and to all of you for watching. We hope to see you here next week.

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