I was reading “Inside the Private Equity Scam—and the Livelihoods It Has Destroyed“, by Molly Osberg on The New Republic, this morning and it occurred to me that this is another problem that would be solved by a suggestion I made in earlier post here on reorganizing what corporations are.
Private equity funds are classic parasites.
They provide no value themselves, and exist to leech resources from other organisms in the ecosystem; they often kill their hosts in the process.
Now, in the real world this classic form of parasitism is actually less common than you might think. Many organisms previously thought of as classic parasites have later been found to have varying degrees of mutualism with their hosts instead.
In capitalist economics, though, there are more classic parasites than you might think.
Organizational consultancies, for example.
But private equity firms are probably the most clear example.
Osberg describes them like this:
Ostensibly, private equity firms flip underperforming private companies kind of like houses: The firms raise capital to buy “distressed assets” wholesale, take out (often massive) loans to cover a rehabilitation job, and pay their investors when the business either goes public or is sold.
That’s actually a very generous description; usually the actual investors get paid out from the loans so they’re not dependent on whether the “asset” can later be unloaded at a profit.
Quite often the “asset” is completely destroyed in this process, since the new debt-load is way too much for the already-in-trouble company to manage.
Think, for example, of the way Musk acquired Twitter.
That was a bog standard private equity buyout, but with the bonus problem of Elon Musk then being in charge of the reorganization.
Hence the company shedding 3/4 of its stock value in the first year.
This is not “productive” economic activity; it’s parasitism.
And the system should not support, much less encourage, it.
It doesn’t have to. I suggested in that earlier post that ownership should only be acquirable through working for a company:
People should have a stake in the organizations that consume their lives, in their corporations as workers just as they should in their State as citizens.
Work for a company, get shares; the longer you work, the more shares you have. When you quit, retire or die the corporation buys out your shares.
We can keep investment around, but as loans and corporate debt rather than as ownership. The wealthy can still use their money to get more, they just wouldn’t get ownership of everything as well.
Today, I might also add that your inheritors should be able to get your shares? Maybe, maybe not; since it’s not central to the principle that labor should create ownership, maybe that could be left to each corporation?
The exact details are negotiable.
That would go a long way towards solving the private equity problem, though.
If you can’t get ownership other than through labor, then you couldn’t force a corporation into this situation through a buyout.
You could still make money by lending money to corporations who want to borrow, but you couldn’t just go out and buy a company to loot.
So that’d be progress.
