The Simplest Way to Understand the Bain Outsourcing Drama? Think of a Lemonade Stand ...

A summertime analogy for the summer's weirdest and most confusing election controversy

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Reuters

There are two really important things to understand about the latest back-and-forth between President Obama and Mitt Romney over Bain Capital's role in outsourcing U.S. jobs.

First, the Romney camp's defense in this case amounts to a distinction without a difference for displaced American workers who don't much care if a company ships jobs overseas directly or just invests in people who show companies how to do the job-shipping.

Second, those workers would probably have lost their jobs even if Bain never existed. Bain just found a way to profit from the experience.

These things are true for complicated reasons, rooted in the nature of expanding global trade and the structure of Bain's investment model. To uncomplicate things, let's build an analogy that resonates with everyone in heat-scorched Washington. Let's think of the Bain question using lemonade.

Say in the summer, a kid in your neighborhood hawks lemonade at a stand on the south side of your busy, four-lane street. Lemonade Kid buys his lemons from a tween, for a dollar apiece. There's another tween, with lemons for sale for only a dime each. But the street's too busy for Dime Tween to get across.

The city says it will help, and it builds a bridge over the busy street. No matter, Lemonade Kid is still stuck buying expensive lemons because Dime Tween still won't cross the street. He's got too many lemons to carry that far a distance. But Dime Tween sees the sales potential, gets an idea, and sends a business proposition to his neighbor.

Let's call that neighbor Bobby Bain.

Bobby has some money. He buys Dime Tween a wagon and takes a stake in his lemon business. And the stage is set.

Dime Tween fills his wagon and delivers supplies to Lemonade Kid. Lemonade Kid books higher profits because the cost of his lemons drops from a buck to a dime. Dime Tween earns more money because he's supplying more lemons. And Bobby Bain gets a cut.

But Dollar Tween--the kid with the $1 lemons? He's a loser. He's out of work.

This is the Bain investment in outsourcing "pioneers" that reporter Tom Hamburger detailed in The Washington Post last month, a story the Obama campaign pounced on and the Romney campaign demanded be retracted.

It's important to note what Bobby Bain doesn't do in this story: Neither he, nor any of the companies he invests in, actually lays off Dollar Tween to hire cheaper workers from the Dime side. That's the argument the Romney camp made to the Post. It's true, but it misses the point.

The point is Dollar Tween lost his job. He doesn't care who, technically, took that job away. He sees the Lemonade Kid, Dime Tween, and Bobby Bain as coconspirators in the taking away of his income.

The second point is Bobby Bain isn't a linchpin in this story. The cheaper lemons were going to find their way across--somebody was going to buy Dime Tween that wagon--and Dollar Tween was bound to lose his gig, with or without Bobby Bain's involvement.

In the version of this story we like to call "the American economy," the real problem is bigger than who launched or perfected the outsourcing model. The problem is that the bridge should have helped both sides of the street, but it hasn't--not entirely. Many American workers have struggled to find a comparative advantage in a globalized economy that delivers the wages and middle-class security they enjoyed before trade opened up. It's not supposed to work that way; a good debate this election would be how to make that happen.

Presented by

Jim Tankersley is a correspondent (economics) for National Journal.

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