The point being made here is whether Private Equity CEOs are contributing anything substantial apart from concentrating capital. The answer to that has to be no. Private equity firms (the refashioned lbo firms, not vc) have a history of preying on medium-sized solid businesses where they strip the company of assets, load it with debt, and eventually pocket gains at the expense of employees and other stakeholders.
That said, I agree with you in that a PE CEO is a bad example to use in this case. A PE firm is not neutral-useless, it is deleterious to society.
I think that's a different discourse. Slave labour was not a "bullshit job", it was productive. However, it was unethical. You can have productive jobs which are unethical, but that's a separate discussion from bullshit jobs.
That depends on how you do the accounting. If you account for slave labor as the cost of minimal food and housing, then it's not only productive, it's cheaper than almost anything else, especially because the slaves are property, so you can breed them and get a return-on-investment while also extracting labor.
Of course, if you account for slave labor in terms of some equivalent to wages, then all of a sudden society has reason to stop using slave labor and innovate instead. Ditto for today's low-wage labor in which sub-living wages end up subsidized by state antipoverty benefits.
Society has always faced a choice between exploitation and innovation, a zero-sum arrangement and a positive-sum arrangement. Unfortunately, rarely has it been wise enough to choose the latter.
Private equity is one of the most valuable functions of a market based economy, and that's understating its importance. To say the head of a private equity firm serves no purpose, is to claim allocating private capital in a market economy needs nobody in charge of that process at the company doing it.
Nearly all venture capital is private equity. Sam Altman is the President of a private equity company.
Private equity is not about concentrating capital, it's about allocating capital to productive use. It's no more vile than the stock market, which allocates capital from investors during the IPO process and afterward through the common purchase of shares.
Further, your comparison about slavery is obviously entirely false. An angel investor - aka private equity investor - like say Mark Cuban, who owns his own investment company and is the head of it, is not performing a function similar to slavery. Mark's capital is his own, and it was not stolen from people held in slavery by force. There is no similarity, and one cannot simply say they're similar because slavers were re-allocating capital too, that would be an intentionally nonsensical comparison.
Having a good understanding of what KKR does, I fail to see how they're so bad. Most of KKR's deals have involved voluntary buyouts, which were then spun back off and voluntarily purchased by other investors. Almost all of the deals that made them famous in the 1980s were friendly deals.
Can you give me a better understanding, in a short summary, of why KKR is so terrible?
http://www.nakedcapitalism.com/2014/08/guitar-center-private...
The theory and reality of private equity do seem to be worlds apart. Much like the theory and practice of high speed trading.
In theory they reallocate capital more productively. In practice they seem to make money by squeezing workers, taxpayers, investors and even their own customers (some of whom seem content to squeezed - CalPERs, for instance).
Because it sure seems to me that all they are doing is squeezing their employees and vendors ever harder as per the Bain "how to run a company into the ground" handbook.
A successful company is worth vastly more than a destroyed one, or one that has had its assets stripped.
The ideal LBO is one in which you take an undervalued company private, maximize its operations, and then spin it back out at a time when you can achieve maximum return (eg when the market is high).
If Guitar Center is such an amazing business, how did they end up in a shark's mouth to begin with? It's precisely because they were a poorly run business that they were consumed by Bain. If Bain sells pieces of the business, who does that harm exactly? If Bain maximizes profitability and spins GC back out, who does that harm? Fired employees? Well it's business, not charity, nobody is entitled to a job; most businesses exist to generate a profit, not employ people. I find that most people dislike that fact, however that's how every economy works, on profit not charity (which derives from having earned a profit in the first place).
Not to mention that even if you were right, and a company is extremely valuable and all Bain does is destroy good companies, that opens up vast opportunities for good competitors to grow and hire new employees.
Your response might be: and how about the employees of said destroyed company? Sure, and how about the employees of a million businesses that go under every year due to incompetence, we should obviously outlaw bad business operators and entrepreneurs. If you're an employee of any company, anywhere, you're assuming risk of employment, that your employer may go under, weaken, or restructure. There's no avoiding that risk.
When you get down to details, this is basically a euphemism for what I just wrote.
Are these good things? Is it a good thing when a private equity investor starts stomping around your startup demanding you treat your hires like exploitable assets and not like friends or colleagues you respect?
Real income is rising, BTW. It's only real wages (i.e. income excluding benefits) in the US which have not due to a shift of comp from wages to non-wage benefits (the total is also rising).
Pitting third world workers against first world workers isn't good for either of them in the long run.
The same threat that hangs over US workers (we will offshore your job if you unionize and demand higher wages) actually hangs over 3rd world workers too (we will reshore your job if you unionize and demand higher wage).
It's a win/win situation for private equity though.
> It's true that the wealthy Americans who formerly collected rents
Wages are rents now are they? That's doubleplus good doublethink.
>Real income is rising
Median incomes are in decline.
>shift of comp from wages to non-wage benefits
...if you do some creative accounting on healthcare costs. Theoretically you might be getting $150,000 worth of benefits if your company insurance pays for your appendectomy. You and I both know that those absurd prices only really apply to the uninsured.
I'm born to the middle class in Norway. I have done little productive with my life and yet I enjoy better personal financials than 95% of the world's working population. After I'm done with my education I could go into unemployment and be even better off. All because of where I was born. I'm just collecting on the rest of the world's wealth because... Norwegian passport. I am clearly collecting rent.
>Pitting third world workers against first world workers isn't good for either of them in the long run.
>The same threat that hangs over US workers (we will offshore your job if you unionize and demand higher wages) actually hangs over 3rd world workers too (we will reshore your job if you unionize and demand higher wage).
Unionisation's purpose is to increase workers' bargaining power and thus change the wealth distribution in favour of workers. 3rd world workers' problem is that there isn't all that much wealth to be redistributed. 3rd world workers have more to gain from the industrialization of their countries than from unionisation. Your emphasis on the different factors is way off. Eventually we will need international unions to deal with mobile multinationals, though, but it doesn't make sense as long as the income inequalities across borders are as high as they are.
As for income (not wages, which is a subse of income), data is easily googleable.
http://m.research.stlouisfed.org/fred/series.php?sid=COMPRNF...
The rent is not 90k in that case. The rent is negative, in favor of the US; the US economy has benefited most other countries far more than those countries have benefited it. Most of the world gets a vast free rider benefit from what the US economy accomplished in the last ~140 years.
The fact that the US benefits most other countries a lot (primarily due to trade) doesn't mean that anyone collects a rent.
Oh really. What is the price delta between a logically-impossible perfectly competitive market and the current labor market?
>Only part of their wage is rent - if deepika earns 10k rs/month and Danielle earns 100k rs, the rent is 90k.
Assuming deepika and Danielle are the same person.
None of this changes the conclusion that Deepika (a real person and a friend of mine, albeit not named deepika) has escaped poverty thanks to her job at a call center. Based on our previous conversations I know you dont consider her as valuable as a hypothetical american (ugh, dirty foreigners with animal gods and spicy foods), but that's simply a normative difference.
Most labor off-shoring from the US has not gone to corrupt countries (if we're talking about corrupt being Sudan, Venezuela, Zimbabwe, Somalia, etc).
Most of it has gone to India, Mexico, China, Philippines, Vietnam, etc. Rising, former third world nations. US companies obviously don't like to off-shore to countries like Sudan because those countries are neither safe nor stable for investment or operations. It does a company no good to build a factory in Somalia if it's just going to be arbitrarily nationalized or destroyed.
The ones you mention have all problems with corruption, to the point that as a Westerner doing business there you have to be aware of it.
Certain parts and certain businesses are worse off than others, of course, and for example the textile industry which is probably the most discussed and studied, have had huge problems with everything from organized crime to outright slave labor.
A general statement that off-shoring helps poor people is simply too easy to find counter examples to.
b) If you have a private equity investor stomping around your startup, it's because you solicited their investment. If you didn't want it, don't take the money. Simple.
b) So you're saying founders have a choice between accepting bullying or being starved of funding? Perhaps that's not the positive argument for PE it might appear to be.
The reality is that PE culture vampirises and kills real businesses and real affluence. It's only investment in the most toxic and predatory sense.
I will assume what is being referred to here, is LBO or more aggressive acquisition type firms like Bain.
The parent is right however, if Bain comes knocking on your private business, it's up to you as to whether you take their money. They do not use force to make you take their money or terms. I don't think the parent is making an argument in favor of these companies being saints, rather, that they function on a voluntary basis.