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.
The fact that Team Romney spent months and hundreds of thousands of dollars developing and pitching their voter tracking and contact system as far superior to the battle-tested Team Obama system was just marketing hype. I suppose you could say that it was a success in one way, if getting big-money contributions that exceeded the development cost is what makes “success.”
So let’s bury this horse and stop beating it.
I would suggest that we take note of the names of the senior staffers who sold Romney on this particular failure, and watch whether they reappear in future campaigns. After all, the voter registration contracts for six important states in 2012 were outsourced to a man who had already been accused of voter fraud in prior election cycles, yet the Republican National Committee seemed genuinely surprised when his “new” company committed voter fraud in several states.
Sadly, partisan purity seems to trump competence and integrity these days, so we might see these same trainers get another horse entered in next cycle’s political Triple Crown.
Howard Hill is a former investment banker who created a number of groundbreaking deal structures and analytic techniques on Wall Street, and later helped manage a $100 billion portfolio. He writes and blogs at mindonmoney.wordpress.com. Follow on Twitter: @hhill61
Photo credit: AP/Evan Vucci