Mitt Romney's private equity record is suddenly the talk of the GOP presidential contest. What do we know about the industry he helped to create?
With Mitt Romney on the march towards the Republican presidential nomination, chances are we're all going to be hearing a lot about the world of private equity for the next 11 months. The GOP frontrunner is already getting tarred by his primary rivals for his time running Bain Capital, where he helped write the playbook on how to buy up companies, rebuild them for maximum value, and flip them for a tidy profit.
Was Romney just running a corporate chop-shop? Or was he pioneering a new way to unlock the worth in American business? Whatever the answer, the blueprint he helped design has been massively influential. In 2007, investors had plunked more than $200 billion into funds like Bain.
Academics have scrutinized the broader economic effects of private equity and what it does to companies, industries, workers, and investors. Here's a brief guide to help you answer the question: Is private equity good or bad for the economy?
Do private equity buyouts hurt workers?
Yes, then no.More workers get fired in the aftermath. Then more get hired.
In the nightmares of unions and Occupiers, a private equity buyout works something like this: A firm run by men wearing Brioni suits snaps up a helpless corporation, fires as many workers as it can, lards their new asset up with debt, and then sells it off for as much profit as possible. The employees suffer. The fat cats make bank.
The reality, as illustrated in a 2011 study from researchers at the University of Chicago, Harvard, and the U.S. Census Bureau, is more complicated. The paper examined what happened to workers at 3,200 companies targeted in private equity acquisitions between 1980 and 2005. Companies did tend to fire more workers in the years after a buyout compared to competitors in their industry. But they also tended to hire more new workers. They also were more likely to sell off divisions or buy up new ones. As a result, companies involved in a private equity deal saw much, much more turnover -- or "job reallocation" as the academics put it -- but only a net decrease in employment of about 1% compared to other businesses.
In other words, it's creative destruction, but chronologically, it works out more like destructive creation. Employees are fired. Then new ones are hired. The chaos and change is undoubtedly brutal for those who get caught up in it, but the stereotype of massive net job losses isn't necessarily accurate.
Do private equity firms drive companies into bankruptcy?
The data isn't complete, but some indicators say no.
Some criticize private equity firms for leaving companies in worse financial shape than when they were purchased. In its recent look at Romney's record regarding 77 companies he worked with at Bain, the Wall Street Journal said that 22% of them filed for bankruptcy reorganization or closed up shop within eight years of the fund's initial investment. However, it's unclear whether those numbers are normal for private equity on the whole.
Steven Kaplan of the University Chicago and Per Stromberg of the Stockholm School of Economics reviewed a sample of more than 17,000 private equity transactions to see how funds exited the deals. Only about 6% ended in either bankruptcy or reorganization, giving them a yearly default rate that was lower overall than the average corporate bond issuer.* That feat was especially impressive, considering that many private equity firms, including Bain, specialize in turning around troubled or risky businesses.
The analysis did not include bankruptcies that occurred after a private equity firm sold off its stake. Does that matter? Depends. You might say a private equity firm can't be held responsible for what happens to a business after they cede control. But these businesses matter to private equity's record if you suspect firms are more likely to offload companies that aren't working out.
Does private equity make the whole economy more efficient?
Possibly. Industries with lots of private equity activity actually see faster growth.
Whether or not private equity helps most businesses, it seems to have a positive effect on the wider business climate. Looking at 20 industries in more than two dozen countries between 1991 and 2007, a research team from the Stockholm School, Harvard, and Columbia University found that industries with private equity activity grew 20% faster than other sectors. After running several mathematical checks, the paper concluded it was unlikely that private equity funds were simply investing in industries that were already primed for faster growth. Rather, they concluded that the lessons from private equity firms taught entire industries to be more efficient.
Do investors make money?
Not as much as you might think. They might be better off putting their money in stocks.
In 2005, The University of Chicago's Kaplan and Antoinette Schoar of MIT looked at whether investors who pour their billions into private equity got their money's worth. The answer: Not so much. Looking at data from 1980 through 2001, the researchers found that, after the managers took out their fees, investors actually made slightly less on private equity deals than they could have by investing in an S&P 500 index fund. Some funds were much more profitable than others. In the big picture, though, stocks won out.
But the fees make all the difference. Private equity firms are known to regularly take a 20% cut of profits. Lo and behold, once the researchers accounted for fees, private equity thoroughly outperformed stocks. Apparently, quite a lot of value winds up with the private equity guys, themselves.
*There was a big gap in the data, however. The research sample marked the outcome of 11% of the private equity deals as "unknown." As
Kaplan and Stromberg noted, there might have been more bankruptcies
lurking within that group of unknowns. A previous study found
that 23% of the large private equity transactions that took public
companies private during the 1980s ended in bankruptcy.
By excusing Donald Trump’s behavior, some evangelical leaders enabled the internet provocateur’s ascent.
The Conservative Political Action Conference (CPAC) takes place this week near Washington, D.C., the first such gathering since Donald Trump took office. The conference purports to be a gathering for like-minded folks who believe, generally, in the well-established principles of the conservative movement, as enunciated by the American Conservative Union.
This year, aside from President Trump himself, activist Milo Yiannopoulos was briefly granted a featured speaking slot, and it caused a lot of disruption, garment-rending, gnashing of teeth, and in-fighting on the right.
Yiannopoulos, who prefers to go by MILO (yes, capitalized), is a controversial figure with dubious conservative credentials, most famous for being outrageous during speeches on his college campus tour, soberly called the “Dangerous Faggot” tour. Throughout the 2016 election, Yiannopoulos seemed to enjoy nothing quite so much as the crass, antagonistic side of candidate Trump. He didn’t just celebrate it; he rode it like a wave to greater stardom.
New Homeland Security Department memos prioritize almost all undocumented immigrants for deportation, order the hiring of 10,000 more agents, and more.
The Department of Homeland Security issued new memos on Tuesday that give U.S. officials sweeping latitude to target “removable aliens” for deportation, effectively making most of the estimated 11 million undocumented immigrants in the U.S. as priority targets.
The memos, issued by Secretary of Homeland Security John Kelly, enforce executive orders issued by Trump shortly after taking office. Obama administration policies previously directed immigration officials to focus on convicted criminals instead of the broader undocumented population.Kelly’s memos instruct agents to also prioritize undocumented immigrants who have been charged with a crime but not convicted of it, or committed an act that may be criminal offenses but haven’t been charged for it. Those categories mean that almost any brush with the American law-enforcement system could make an undocumented immigrant a target for removal.
Trump’s attacks on the free press don’t just threaten the media—they undermine the public’s capacity to think, act, and defend democracy.
Are Donald Trump’s latest attacks on the press really that bad? Are they that out-of-the-ordinary, given the famous record of complaints nearly all his predecessors have lodged? (Even George Washington had a hostile-press problem.)
Are the bellows of protest from reporters, editors, and others of my press colleagues justified? Or just another sign that the press is nearly as thin-skinned as Trump himself, along with being even less popular?
I could prolong the buildup, but here is the case I’m going to make: Yes, they’re that bad, and worse.
I think Trump’s first month in office, capped by his “enemy of the people” announcement about the press, has been even more ominous and destructive than the Trump of the campaign trail would have prepared us for, which is of course saying something. And his “lying media” campaign matters not only in itself, which it does, but also because it is part of what is effectively an assault by Trump on the fundamentals of democratic governance.
Neither truck drivers nor bankers would put up with a system like the one that influences medical residents’ schedules.
The path to becoming a doctor is notoriously difficult. Following pre-med studies and four years of medical school, freshly minted M.D.s must spend anywhere from three to seven years (depending on their chosen specialty) training as “residents” at an established teaching hospital. Medical residencies are institutional apprenticeships—and are therefore structured to serve the dual, often dueling, aims of training the profession’s next generation and minding the hospital’s labor needs.
How to manage this tension between “education and service” is a perennial question of residency training, according to Janis Orlowski, the chief health-care officer of the Association of American Medical Colleges (AAMC). Orlowski says that the amount of menial labor residents are required to perform, known in the profession as “scut work,” has decreased "tremendously" since she was a resident in the 1980s. But she acknowledges that even "institutions that are committed to education … constantly struggle with this,” trying to stay on the right side of the boundary between training and taking advantage of residents.
Plagues, revolutions, massive wars, collapsed states—these are what reliably reduce economic disparities.
Calls to make America great again hark back to a time when income inequality receded even as the economy boomed and the middle class expanded. Yet it is all too easy to forget just how deeply this newfound equality was rooted in the cataclysm of the world wars.
The pressures of total war became a uniquely powerful catalyst of equalizing reform, spurring unionization, extensions of voting rights, and the creation of the welfare state. During and after wartime, aggressive government intervention in the private sector and disruptions to capital holdings wiped out upper-class wealth and funneled resources to workers; even in countries that escaped physical devastation and crippling inflation, marginal tax rates surged upward. Concentrated for the most part between 1914 and 1945, this “Great Compression” (as economists call it) of inequality took several more decades to fully run its course across the developed world until the 1970s and 1980s, when it stalled and began to go into reverse.
The Italian philosopher Julius Evola is an unlikely hero for defenders of the “Judeo-Christian West.”
In the summer of 2014, years before he became the White House chief strategist, Steve Bannon gave a lecture via Skype at a conference held inside the Vatican. He spoke about the need to defend the values of the “Judeo-Christian West”—a term he used 11 times—against crony capitalism and libertarian capitalism, secularization, and Islam. He also mentioned the late Julius Evola, a far-right Italian philosopher popular with the American alt-right movement. What he did not mention is that Evola hated not only Jews, but Christianity, too.
References to Evola abounded on websites such as Breitbart News, The Daily Stormer, and AltRight.com well before The New York Timesnoted the Bannon-Evola connection earlier this month. But few have discussed the fundamental oddity of Evola serving as an intellectual inspiration for the alt-right. Yes, the thinker was a virulent anti-Semite and Nazi sympathizer who influenced far-right movements in Italy from the 1950s until his death in 1974, but shouldn’t his contempt for Christianity make him an unlikely hero for those purporting to defend “Judeo-Christian” values?
The journalist’s comments suggest gay men enjoy sex with children—an idea that has been widely debunked.
In the comment that cost him his book deal and speaker slot at the Conservative Political Action Conference, the Breitbart journalist and right-wing provocateur Milo Yiannopoulos defended “relationships in which those older men help those young boys to discover who they are.”
In the video, a clip of an old podcast episode that was tweeted this weekend by the group Reagan Battalion, Yiannopoulos says he isn’t defending pedophilia, before adding that “in the gay world, some of the most enriching ... relationships between younger boys and older men can be hugely positive experiences.” (Yiannopoulos later blamed “sloppy phrasing," saying when he was 17 he was in a relationship with a 29-year-old man. The age of consent in the U.K. is 16.)
In only now canceling the Breitbart editor’s book deal, the publisher is left with no goodwill, no payday, and no valid reason for working with him in the first place.
On Monday, when videos reemerged on social media in which the Breitbart News senior editor Milo Yiannopoulos seemed to condone sexual relationships between adult men and teenagers below the age of consent, the overwhelming response was one of outrage. The CNN host Jake Tapper posted several tweets excoriating Yiannopoulos and his followers, quoting a horrified friend who was a survivor of sex trafficking. The former Breitbart writer Michelle Fields described the tapes as “disgusting.” There were mounting calls for the Conservative Political Action Conference, which had announced Yiannopoulos as its keynote speaker last week, to cancel his appearance, which it subsequently did.
According to Washingtonian, even employees at Breitbart, which has elevated and supported Yiannopoulos in his rise to prominence as an outspoken supporter of the alt-right, threatened to walk out unless he was fired. And on Tuesday afternoon, Yiannopoulos resigned from Breitbart, stating that he didn’t want his “poor choice of words to detract from my colleagues’ important reporting.”
The preconditions are present in the U.S. today. Here’s the playbook Donald Trump could use to set the country down a path toward illiberalism.
It’s 2021, and President Donald Trump will shortly be sworn in for his second term. The 45th president has visibly aged over the past four years. He rests heavily on his daughter Ivanka’s arm during his infrequent public appearances.
Fortunately for him, he did not need to campaign hard for reelection. His has been a popular presidency: Big tax cuts, big spending, and big deficits have worked their familiar expansive magic. Wages have grown strongly in the Trump years, especially for men without a college degree, even if rising inflation is beginning to bite into the gains. The president’s supporters credit his restrictive immigration policies and his TrumpWorks infrastructure program.
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