The Looting of America
August 31, 2020 (643 words)
Another irony is that the financial institutions whose CEOs are now taking a kneel in solidarity with Black Lives Matter, and pledging $500 million over four years to combat these issues in the communities they serve, are the very ones that have become ever-more predatory in their day-to-day operations.
These practices undermine the middle-class existence of whites and blacks alike, and prevent the black underclass from ever gaining a foothold in middle-class America.
As many have noted, an ideological coup has transformed American society over the last fifty or sixty years, by fundamentally altering the rules of the market. The fortunes of the financial economy – and its agents like private equity firms – have dramatically improved, at the expense of the real economy experienced by the rest of us.
This coup was launched on the belief only unfettered markets can ensure social justice and enhance personal freedom, since only the profit motive can dispassionately pick winners and losers based on their contribution to the economy.
Its iron logic holds the private sector can do everything better than government.
The heralded magic of the market has indeed lived up to its promise of turning everything into gold – if you are a wealthy investor. This windfall occurred via widespread deregulation which created a winner-take-all, debt-fueled market. And just as importantly, a growing cultural acceptance of purely profit-driven corporate managers.
As Professor Mehrsa Baradaran explains in the short essay, “The Neoliberal Looting of America:”
“Private equity firms use money provided by institutional investors like pension funds and university endowments to take over and restructure companies or industries. Private equity touches practically every sector, from housing to health care to retail. In pursuit of maximum returns, such firms have squeezed businesses for every last drop of profit, cutting jobs, pensions, and salaries where possible.
“The debt-laden buy-outs privatize gains when they work, and socialize losses when they don’t, driving previously healthy firms to bankruptcy and leaving many others permanently hobbled. The list of private equity’s victims have grown even longer in the past year, adding J. Crew, Toys ‘R’ Us, Hertz, and more.
“In the last decade, private equity management has led to approximately 1.3 million job losses due to retail bankruptcies and liquidations. Beyond the companies directly controlled by private equity, the threat of being the next take-over target has most likely led other companies to pre-emptively cut wages and jobs to avoid being the weakest prey.
“Amid the outbreak of street protests in June, a satirical headline in The Onion put it best: ‘Protestors Criticized for Looting Businesses Without Forming Private Equity Firm First.’ Yet the private equity take-over is not technically looting because it has been made perfectly legal, and even encouraged, by policymakers.”
Professor Baradaran closes her essay as follows:
“We can start fixing the big flaws propagated over the last half century by taxing the largest fortunes, breaking up large banks, and imposing market rules that prohibit the predatory behaviors of private equity firms.
“Public markets can take over the places that private markets have failed to adequately serve. Federal or state agencies can provide essential services like banking, health care, internet access, transportation, and housing at cost through a public option. Historically, road maintenance, mail delivery, police, and other services are not left to the market, but provided directly by the government. Private markets can still compete, but basic services are guaranteed to everyone.
“And we can move beyond the myths of neoliberalism that have led us here. We can have competitive and prosperous markets, but our focus should be on ensuring human dignity, thriving families, and healthy communities. When those are in conflict, we should choose flourishing communities over profit.”
(Mehrsha Baradan is a professor of law at the University of California, Irvine, and the author of “The Color of Money: Black Banks and the Racial Wealth Gap.”)
Robert J. Cavanaugh, Jr
August 31, 2020