Romney Capitalism: Mitt's Father Knew That Industry, Not Finance, Built America

Article excerpt

Edward Lewis: "We don't make anything, Phil!' Phil Stuckey: "We make money, Edward!'

--"Pretty Woman" (1990)

There's a subplot in the movie "Pretty Woman" that serves as an apt metaphor for the business careers of George Wilkin Romney and his son Willard Milton "Mitt" Romney. The Edward Lewis character, played by Richard Gere, is in the same line of work that was once Mitt's. His business buys the stock of ailing companies up to a majority stake, using money from investors and banks. Once these companies are under his control, they are then broken up and sold off piece by piece for a profit.

Lewis's firm is trying to do this to a Los Angeles shipbuilding company whose exec is played by the venerable actor Ralph Bellamy. At a dinner meeting--which includes the star of the film, Julia Roberts--Bellamy's character mentions once encountering Lewis's father, Carter, who turns out to have been estranged from his son before his death. The scene subtly suggests father disapproved of son for more than just being kicked out of college.

It's pure speculation what the elder Romney thought of his son's business in comparison with his own career as an auto executive. But their divergent paths illustrate how the once all-powerful manufacturing sector that produced men like George Romney for public office gave way to the all-powerful financial sector from which Mitt springs.

George Romney knew how to work with his hands, whether on his parents' potato farm in Idaho or in his father's construction business after his family sold the farm and moved to Salt Lake City. He also knew debt and deprivation in the Glasgow slums during his Mormon mission to Scotland in the late 1920s and in the hardships his family faced during the Great Depression.

He worked his way from the bottom to the top, starting as an apprentice with the Aluminum Corporation of America (Alcoa) in 1930 before rising to become a leader of the Automotive Committee for Air Defense and the Automotive Council for War Production during World War II. Thereafter he was a general manager of the Automobile Manufacturers Association in the late 1940s before finally becoming CEO of the American Motor Company (AMC) in 1954.

That's where Romney built his reputation as an innovative businessman before launching his first campaign to become governor of Michigan in 1962. He streamlined management, cut executive salaries (including his own), fended off takeover attempts, produced cars like the Rambler, cultivated good relations with United Auto Workers, and established a profit-sharing program. When Romney took over at AMC it traded at $7 a share. When he resigned in 1962, it was trading at $90 a share.

By contrast, Mitt Romney always knew he was well ahead by virtue of being his father's son. George Romney, like many of his generation, wanted to make sure his children didn't have it as tough as he did. So Mitt grew up in the ritzy Detroit suburb of Bloomfield Hills and attended its exclusive prep school Cranbrook with the sons of other auto executives and Detroit businessmen, then went on to Stanford and Brigham Young universities, before law school and business school at Harvard in the mid-1970s.

Top companies wanted the cum laude graduate Romney working for them. But the young, would-be executives like Romney being churned out by the top business schools at the time were not always eager to jump into established industries, perhaps with good reason. The industrial old guard, especially in manufacturing, had to deal with strikes, oil embargoes, inflation, and cheap imports eating into their profit margins at a time when the country was struggling to shake off a decade-long malaise. Mitt didn't use his Harvard MBA and law degree to follow his father into the auto industry. Instead, he went into management consulting, which led to his hiring by Bain and Company in the late 1970s. Following that, in 1984 he founded Bain Capital. …