Cut Off Private Equity’s Money Spigot A variety of legislative and regulatory actions would make it hard for private equity to stay in business. That should be the goal. By David Dayen It is genuinely hard to find a more destructive economic force in America today than the private equity industry. It encompasses all of the negative trends that have undermined living standards for the broad mass of citizens since the Reagan era: the escalating share of national income going to finance, the rise of market concentration, the contempt for workers, the yawning gap between rich and poor. The biggest private equity firms buy up companies with borrowed money and load them with debt. While fund managers extract cash through fees and financial engineering, the companies struggle to pay off these new obligations on their balance sheet. The subsequent cost-cutting of jobs, wages, and pension plans can be seen as a direct transfer from labor to capital, with the financiers growing impossibly rich while everyone else suffers. The leveraged-buyout era has immiserated labor, dampened productive investment, and degraded the experience of workers, customers, and the larger economy. We should ameliorate this suffering by ending private equity as we know it. Right now, that seems like a fantasy. The industry is entrenched in housing and health care and energy and retail and restaurants. It’s involved in far more obscure markets, from Nielsen ratings to Smarte Carts at the airport to voting machines to Plan B, the morning-after pill. As of 2020, companies owned by private equity directly employed 11.7 million employees, comprising roughly 1 out of every 13 U.S. workers. Cheap money issued during the pandemic likely expanded that further, producing a record number of buyout deals. But the market downturn in 2022, the ebbing power of the industry, and the grow-
ing awareness of its perverse impact on the economy present an opportunity to rethink how easy America makes it for predatory financiers to thrive. At every level of the private equity experience—from fundraising to acquisitions to exits—we either subsidize the industry’s business model, facilitate its war chest, or allow firms to
separate actions from consequences. If we focused attention on turning off the fire hose of money flowing into the biggest firms, the worst elements of private equity could be a thing of the past. Here’s how. Private equity firms raise funds from several different sources. But after the industry tem-
AUGUST 2022 THE AMERICAN PROSPECT 19
