There is such a thing as a Perfectly Good Business. It provides a Perfectly Good profit for its owners, a Perfectly Good living for its workers, a Perfectly Good product for its customers at a Perfectly Good price. It is a Perfectly Good neighbor to its community.
Obviously, the people running this PGB are total suckers. If a private equity (PE) firm sees such a business, you’d have one of those sequences from old cartoons where the PGB suddenly looks like a lollipop. Or maybe a pigeon.
I mean, if they’re providing a Perfectly Good living to its workers, clearly too much is going toward labor and those workers need to make less. If they’re unionized, the anti-union arsenal needs to be brought into play to crush the union.
If they’re providing a Perfectly Good product, there is money that can be squeezed out there. Can’t we reduce the quality? Why should it be Perfectly Good? Can’t it be made crummy, but spend some more on lawyers and marketing to mask that?
And, worst of all, if it’s a Perfectly Good member of its community, there’s certainly money to be made there. Why can’t it dump its waste into the groundwater, if that would save some money?
And all that money that comes from impoverishing the workers and denying their bargaining power, from reducing quality, from being a bad neighbor, all that new wealth and profit can go to some douchebag on Sutton Place who was clever enough to see this opening.
In the sentimental vision of America, Main St of a small town, the businesses are locally owned, staffed locally, and local people brought their custom. The businesses and staff reflected the local culture. (For better and for worse, but still.)
A business owner might hire on the local slow kid. They might contribute toward the local smart kid going to college. They might give a break to the local widow. They might notice local environmental damage, and because they hunt or fish or hike, or just live, locally, they might care.
How inefficient! What suckers! Now we have hedge funds who come in and have no local ties, who just see costs and profits. Stakeholders? Pfui. They’ve got to pay executives and shareholders. Period. Employees and staff become human resources. They can charge more for less up until we lose customers, then pull back a tiny bit so the customers feel like they’re getting a deal. They use marketers with neuroscience degrees to leverage biases and convert them into sales. They use biologists to figure out how to double the size of our customers’ stomachs so we can sell them more cheap crap. They poison the land because that saves money that can go into executives’ and shareholders’ pockets (in that order), and the local people will be so poor and desperate and unhealthy at that point that they will fight to the death for the right to sell their birthright.
I have no idea how to stop this. Wish I did. You might be able to stop private equity firms by figuring out how to restrict their ability to saddle their vassal companies with debt; these companies used to be in the business of whatever their business was, but now their only purpose is to pay the PE firms. How to stop hedge funds ruining communities is harder. Certainly beyond me.
PS: I am excited about Warren’s presidential bid because I think she is especially able to focus on this domain. I don’t think anyone else can figure out how to rein in Private Equity or hedge funds.