When asked for my reaction to the spectacular failure of Team Romney’s Get Out The Vote (GOTV) computer system touted as the secret weapon that would defeat Team Obama on Election Day, I thought it was like beating a dead horse.
The way Team Romney failed and tried to hide it explains why Karl Rove and Fox News refused to believe what was happening election night, and for that, there is something to learn. As part of the campaign post-mortem, the bust that was Romney’s ORCA system simply underscores the fact that Romney’s business success wasn’t based on productive business purposes.
Bain’s success consisted of taking advantage of a tax arbitrage from issuing junk bonds and paying massive fees to the arrangers via offshore tax-advantaged investment funds. That’s true for all LBO deals, and one of the fundamental failures of our tax policy for the past four decades. When a company’s profits are turned into interest payments on newly issued junk bonds, that company stops paying any income tax. Think of it as an easy way to increase profits by just over 50% by not paying a 35% tax rate on those profits.
We also reward monetizing and extracting prior earnings such as fully funded pension funds and company-owned factories with far lower tax rates than we reward creating new earnings, and that has made some huge fortunes for those like Mike Milken who recognized the arbitrage.
But Team Romney did blow it on Election Day with its GOTV system, and as a former large-scale system developer, I can see why.
First and foremost, they didn’t test the system before deploying it. A test, by the way, doesn’t consist of having the developers show off the screens and reports they expect the system to produce. A test of a real-world data aggregation and analysis system consists of end-to-end simulation of the operation, with the actual people who will use it at each node where a human being is involved.
Any competent business manager knows this.