I believe in capitalism. I don't believe in greed.
19 September 2024
I have been a small business owner for 40+ years, with businesses in IT, medicine, law and medical publishing. I believe in capitalism’s ability to improve people’s lives - not just the owners but our employees, too. However, we also know that capitalism is associated with greed - management wants to make more and more money, seemingly without end, typically at the expense of employees (cutting wages and benefits), customers (poorer service or quality products) or community (evading taxes, promoting corporate welfare).
In the below essay, Robert Reich, Secretary of Labor in the Clinton administration, talks about private equity investors and greed, which I have some familiarity with. When I spoke to equity investors in the past about possibly selling my business, I was amazed at their obsession with monetizing everything and their indifference to anything else about the company.
Excerpts are below:
Private equity and activist investors have been stripping corporations bare — taking profits that otherwise could have created good jobs at good wages and siphoning them off to themselves.
. . .
These people [corporate raiders and the private equity managers and activist investors who have emulated them] put an end to the era of “stakeholder capitalism,” in which corporations and their CEOs had responsibilities to their workers and communities, as well as to their shareholders. In its place they launched the era of “shareholder capitalism,” in which a CEO’s only responsibility is to maximize shareholder returns.
But ever since CEOs disavowed any responsibility to the common good, an ever-increasing portion of their income and wealth has depended on the value of their shares in the corporations they run. The line between management and ownership has blurred.
CEOs have assumed that their own wealth is synonymous with the wealth of their shareholders. Hence, they’ve been on a slippery slope that has led to CEOs selling out shareholders to pad their own pockets.
It has become common, for example, for CEOs to authorize stock buybacks that raise share prices, at the expense of those who sell their shares back to the corporation. And it’s now common for CEOs to time the buybacks — and the higher share prices buybacks create — to coincide with when they cash out their own shares and options.
Private equity managers are doing essentially the same thing, on a larger scale: They buy up the shares of a corporation and then make it more valuable for themselves, reaping fortunes when they sell it (or what’s left of it).
Private equity managers, activist investors, and CEOs have become fabulously wealthy — while American workers have been shafted, whole areas of the country have been abandoned, corporations have been deprived of funds they need to grow, and unwitting shareholders have been left holding the bag.
A report by the nonpartisan Congressional Budget Office (CBO) released this month shows that between 2019 and 2021, average household income, before taxes and transfers, increased by about $12,000. But most of that money went to the richest of the rich — among them, top corporate executives, private equity managers, and activist investors — in the form of capital gains. Labor income across all income levels barely budged.
The American economy has performed well under Biden and Harris, but this deeper structural doom-loop must be addressed if most Americans are to gain from economic growth. Shareholder capitalism isn’t working. Source
Vice President Harris and the Democratic Party are working to stop these abuses of the capitalistic system. To Trump and Republicans, this is how the system is supposed to work. This “shafting” of American workers has and will continue until we vote more Democrats into office who will stop this abuse.
Related essays:
Greedflation, part 3, 8 May 2024
Greedflation, part 2, 16 April 2024
Greedflation, part 1, 5 February 2024
The absurd salaries of CEOs in the United States, 30 October 2023
Employees are the heart and soul of your business, 7 March 2023
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