Bain Capital, Dunkin’ Donuts and U.S. National Security

For the past three and a half years I have been trying to figure out why the Department of Defense has exhibited an increasingly hostile attitude towards the private sector. What President Eisenhower had once referred to as the “military-industrial complex” has rapidly become the Hatfields and McCoys. It made little sense to me because the Pentagon was absolutely dependent on private companies for its major platforms, weapons systems, ordnance and even uniforms. Most of these companies are filled with veterans. A number of them such as ITT Exelis, SAIC and until recently, General Dynamics, are run by former general officers. When the military deployed to Iraq and Afghanistan so did thousands of employees of private U.S. companies. Who did the Pentagon think produced the armored vehicles, IED jammers and body armor that saved the lives of countless soldiers and Marines?

Yet, from the time the Obama Administration came into office, the relationship between DoD and the private sector has deteriorated. First, there was the White House directed campaign to expand the range of activities from which companies had to be excluded. Second, there was a broadening of the definition of organizational conflicts which forced some major defense firms that built hardware to divest themselves of divisions engaged in engineering and technical support work for the Pentagon. Third, there was the program of acquisition reform in DoD that centered on getting the companies to lower their costs while leaving virtually untouched the dysfunctional way the Pentagon set requirements, funded programs and provided oversight. Fourth, there was language put in the fiscal year 2012 defense appropriations bill that expanded the role of the public defense industrial base in maintenance work at the expense of the private sector. My list of anti-business initiatives goes on and on. It was as if the defense companies were the enemy, not Al Qaeda.

One of DoD’s most puzzling initiatives was that of insourcing which is transferring to public defense facilities such as depots and air logistics centers maintenance and support work being done by private companies. The Pentagon claimed that it could do the work cheaper than the private sector. It turned out that this assertion was not just wrong but a lie. As a recent study by the Center for Strategic and International Studies concluded, DoD could not do a credible cost comparison of private and public sector costs because it didn’t have the data on its own costs. In addition, according to the non-partisan Congressional Budget Office, federal workers cost between 15 and 35 percent more than their civilian equivalents. There is no way insourcing could save the Pentagon money. So why was the Pentagon advocating a policy that hurt private business and did not save it money?

The answer came to me when I listened to the Obama campaign’s attacks on Bain Capital. This is a company that has created more than $100 billion in value, built new companies such as Staples, Steel Dynamics and Stage Stores from scratch and brought new technologies and services to the American people. If you like Dunkin’ Donuts, say a thank you to Bain Capital. I bet that the hundreds of franchise owners and thousands of workers at Dunkin’ Donuts shops across the country do. Bain Capital provides many of the franchisees with the funds to start their businesses. This is stimulus without the federal government.

In a speech the other day, the President went so far as to criticize Bain Capital and Governor Romney for outsourcing, which is when a company contracts for services that can be done better and cheaper by another company. Outsourcing by the private sector results in reduced costs for the company doing it and an increase in jobs in the company getting the additional work. In his critique of Bain Capital, the President pretended not to know the difference between outsourcing and offshoring, which is when jobs are sent overseas (as did the Washington Post which published an article on Bain Capital the President cited). But as the President must know, the United States is a service economy in which the practice of outsourcing has created tens of millions of new jobs and entire new industries. Xerox has a massive television ad campaign in which it brags about how companies like Ducati and Marriot outsource back office work to it so they can concentrate on what they do best. Why is the same behavior when done by Xerox good but when it is done by Bain Capital it is bad? Outsourcing, whether done by Bain Capital or the Pentagon, saves money and creates jobs.

Despite a successful track record of creating value and jobs, Bain Capital is being treated with the same hostility by the Obama campaign as the DoD is meting out to the defense industry. The Pentagon, apparently taking its lead from the Commander-in-Chief, is acting the same way towards private defense companies. Simply put, it seems as though if you create or run a business, try to employ people, provide a good or service and make a profit, you are suspect in the eyes of this administration. It is as if to the White House and Pentagon government jobs are good; private sector jobs are bad.

President Obama called Governor Romney a “pioneer of outsourcing.” I guess that makes the Chief Executive the “lord of insourcing.” Insourcing reduces the nation’s wealth, costs jobs, increases costs and, as applied by the Pentagon, harms national security. What this country needs is more outsourcing, more Dunkin’ Donuts and more companies like Bain Capital.