Author Archives: Peter Galuszka

By Peter Galuszka

The Republican presidential primary season has taken on a peculiar wackiness, particularly when free market advocate Next Gingrich takes on front-runner Mitt Romney for his days as a private equity capitalist at Bain Capital.

The conservatives amongst us shudder at the very idea that something as precious as finance can be spotlighted (as they conveniently forget just how cravenly the finance industry nearly crashed our economy in 2008).

What raises my interest, however, is not that capitalism is inherently evil, but that there are different ways to go about it.

Harvard-trained Romney lead Bain Capital in the 1980s and 1990s and profited mightily. Bain was part of the leveraged buyout revolution of the 1980s in which financiers would target companies, amass takeover war chests, buy them and either sell them off or not. Proponents argue that this approach leads to greater efficiency and they cite the old Schumpeter saw that “creative destruction” is a necessary part of  boosting free market capitalism by chipping off dead wood and letting new sprouts grow.

Sounds good, but the fact is that the LBO raiders of the 1980s were not out for the betterment of mankind. They were out to make zillions of bucks, regardless of whomever paid the real price in layoffs, shattered lives and the like. This is apparently what Romney was up to, despite his unprovable claims that he “created” 100,000 jobs. NPR has knocked that one down, noting that Bain never kept track of such things, so how would Romney know?

Another point comes up in a Sunday Washington Post article by William D. Cohan a former finance executive with Merrill Lynch and Lazard Freres who wrote “Money and Power: How Goldman Sachs Came to Rule the World.” He says that Bain and Romney not only played the LBO game, they did so ruthlessly, even by private equity rules. “In my experience,” he writes,”Bain Capital did all it could to game the system by consistently offering the highest prices during the early rounds of bidding — only to try to low ball the price after it had weeded out the competitors.” This practice led to an industry-wide mistrust of Bain — that it couldn’t be held to its word.

If so, that suggests some bad things about Romney, who is devoutly religious. But this is not to put down entrepreneurship among aspiring politicians.

For another style look at U.S. Sen. Mark Warner. Back 30 or so years, he parlayed his experience as a young Capitol Hill aide and knowledge of federal communications law to rationalize the rising cellular telephone business. One thing he did was organize auctions of bandwidth needed for the telephones. That way, a company with rights to bandwidth in Phoenix could add to its local area by swapping its bandwidth in a place such as Buffalo to a firm that wanted to expend there.

Besides sorting out bandwidth, Warner also helped create telecom giant Nextel which is now part of Sprint. He also formed Columbia Capital, which financed the high tech boom in Northern Virginia in the late 1990s. He ended up with at least $200 million in personal wealth. He’s also a Democrat.

So, who do you think has created more jobs? Mark Warner? Or Mitt Romney?

By Peter Galuszka

Barack Obama’s nearly $500 billion in budget cuts are certain to impact Virginia.

It’s only fair, of course, that if Obama is going to join the chorus of (largely Republican and often hysterical) budget cutters, then the military should be included. After all, we haven’t even begun paying yet for the wars in Iraq and Afghanistan even if the former was unnecessary and disastrous. Everything else, aid to the poor, education, medical care, is on  the block.

Most of the cuts appear to be aimed at the Army and Marine Corps, which did most of the fighting in South Asia. Perhaps that makes sense since there’s no similar war on terrorism on the horizon, not that one might be easily foreseen.

But there are some major, big ticket items whose value might be questionable. None is used directly by the Marines or Army and
some have a major footprint in Virginia.

Topping the list is large, nuclear-powered warships. These, of course, are made at Newport News shipbuilding, which is the only yard in the country capable of making nuclear-powered surface warships. It makes its fair share of submarines, too.

The U.S.S. Gerald R. Ford, now under construction at Newport News, costs about $13.5 billion. The nuclear-powered aircraft carrier can carry about 100 aircraft and is due in service in 2015. It has created thousands of jobs in the Tidewater area, but it has some question marks.

For projecting power, there’s nothing better. The aircraft carrier came into its own in World War II, replacing the battleship as the fleet’s most important surface vessel. For a half a century aircraft carriers have  been the most visible part of the Navy, although nuclear-powered submarines have much more stealth firepower.

During the most recent wars, the limits of aircraft carriers became evident. Its short-range aircraft were hard-pressed to sustain strikes within land-locked Afghanistan unless the Navy could organize complicated aerial refueling.

The most likely enemy of the future is China, and maybe Iran. The Chinese have been experimenting with a new ballistic missile whose major task is to explode on the crowded, munitions filled decks of American aircraft carriers. The missiles could hit targets 2,000 miles away. That would keep Navy strike aircraft about at the limits of their range.

Another big ticket item is the Air Force’s F-22 Raptor, a sleek-looking stealth jet fighter. Langley Air Force Base, has a number of F-22s which are designed as interceptors. Unfortunately, they were planned to counter advanced Soviet jet fighters and are somehow jobless since the Soviet Union doesn’t exist anymore. They proved useless in fighting Saddam’s forces in Iraq or the cave-dwelling Taliban in Afghanistan. They cost
$150 million a plane.

That’s also the approximate price tag for the F-35, a new jet fighter that is capable of hovering and taking off vertically. It had been planned for the Air Force, Navy and Marines, but faces cuts as planners wonder if updated but older model  F-15s, F-16s or F-18s can continue doing the job just as effectively.  The F-35 already has been a pork barrel item since Virginia politicians lead by House Majority Leader Eric Cantor wanted Rolls Royce to be the second maker of its engines. Rolls’ American operations are based in Virginia, which explains Cantor’s pork. The Pentagon was perfectly happy with a sole engine supplier (not Rolls). Now, a lot fewer F-35s may be built which will impact both Langley and Oceana Naval Air Station. Meanwhile, unmanned drones are coming into their own as powerful and much cheaper alternatives to traditional military aircraft.

It isn’t clear whether the many high tech, military software firms in Northern Virginia will be cut back. Apparently, Navy SEALs based at Little Creek and Dam Neck will be boosted given Obama’s plan to keep a
keen counter-terrorism force. SEAL teams, however, are few in number and don’t use many resources. Their impact on the Virginia economy is probably limited to bar tabs during Happy Hour on Shore Drive.

In any event, defense will be cut and Virginia is going to feel the pain.