The film denouncing Mitt Romney's work at Bain Capital, which apparently is playing in South Carolina but is also available here via youtube, may appear at first glance to be longer on story than coherent critique. But in fact it makes a specific claim about Romney's private equity career that deserves broader attention and assessment.
The claim is that Bain's business model under Romney was as follows. They would buy a business and boost its short-term profitability through measures that did not actually increase, and might indeed reduce, its long-term profitability. A specific example mentioned is demanding swifter production at the cost of much lower quality, which could increase sales for the first six to twelve months but then destroy a product's reputation and longer-term sales. Another is slashing wages, where they were previously higher for "efficiency wage" reasons, generating immediate savings but over a longer period reducing workforce productivity (e.g., due to higher turnover costs, change in the quality of the workforce, and morale effects).
The short-term profit jump would immediately be cashed out via higher debt, in many cases accompanied as well by a public stock offering. Bain would then cash out, leaving the business to fail because profits, once they reverted to lower levels, couldn't handle the debt burden.
While I don't know for sure that this story is (at least generally) true, it hangs together and makes logical sense. Note that, in bankruptcy, it might make sense to break up the business rather than simply refinance and keep it going, even if before the arrival of Bain Capital this would not have made sense even with a high debt overhang. Once they have destroyed intangible value (goodwill, workforce in place, etcetera), the company they purchased is no longer optimally using resources.
Obviously, the story requires a healthy dose of asymmetric information and capital market gullibility to get off the ground. (The suckers, after all, are not just the workers but also the lenders and the public offering stock purchasers.) But this is entirely believable. Think of Goldman conning its customers, AIG offering what was effectively an insurance product that it would never be able to make good if the insurance was needed, or mortgage securitizations that offered sham diversification benefits and were priced based on credit ratings that they did not deserve. Bain, under this view, is simply one more member of the rogue's gallery of players that found ways to generate enormous profits by causing the U.S. economy to work worse, not better.
This of course would be a story not of capitalism's "creative destruction," but of destructive destruction and the use of information asymmetries (pertaining here to the short-term profitability jumps that apparently drove the ability to borrow and drain out cash) to undermine the sound functioning of capital markets. And the extent to which it is true certainly deserves serious scrutiny in the months ahead.