Pulitzer Prize-Winning Journalist: Private Equity Runs – and Wrecks – America | Amanpour and Company
The Plunderers: How Private Equity Firms Undermine the Economy
In this interview, Pulitzer Prize-winning journalist Gretchen Morgenson discusses her book "The Plunderers" with Walter Isaacson. She explains how private equity firms are undermining the economy for their own benefit and traces the history of corporate takeovers in the United States.
Private Equity Industry
- Morgenson describes private equity firms as a small group of financiers who extract wealth from the many to enrich the few.
- The private equity industry has been growing in dominance over the past 30-40 years and is now so pervasive that 7% of the American workforce works for private equity-backed companies.
- Private equity firms buy troubled companies with the goal of improving them, streamlining them, and selling them within five years.
Negative Impact on Workers
- Private equity firms often make companies more efficient by firing workers and stripping them of assets, such as real estate under nursing homes.
- When private equity firms fail, they don't end up losing anything. Instead, it's workers and patients who are harmed by their actions.
Regulation
- Regulators are always behind Wall Street's creative minds. It's not realistic to depend on investors' kindness to ensure safety in industries like nursing homes.
Private Equity Firms in Healthcare
In this section, the speaker discusses the impact of private equity firms on healthcare, specifically nursing homes and emergency rooms.
Nursing Homes Owned by Private Equity
- Over 50% of nursing homes in the US are owned by private equity firms.
- A study conducted by NYU UPenn and University of Chicago found that nursing home residents in facilities owned by private equity had a 10% greater mortality rate over time.
- The higher mortality rates were attributed to lower staffing levels due to cost-cutting measures implemented by private equity firms.
Emergency Rooms Operated by Private Equity
- 40% of emergency rooms in the US are operated and run by private equity firms such as Team Health and Envision.
- Private equity firms operate emergency departments because they are profitable areas for hospitals.
- Private equity firms focus on areas where there are profits to be made.
Problems with Healthcare System
- Healthcare is 17% of gross domestic product (GDP), which is larger than most other nations.
- There are systemic problems with the inefficient and bloated way healthcare is done in the US.
- Private equity firms have not made healthcare more efficient or effective.
Impact of COVID-19 on Healthcare
- The pandemic revealed how unprepared hospitals were for a crisis like COVID-19.
- Congress asked for a study about what might happen if there were a pandemic back in mid 2000's. The Congressional Budget Office said it would cause huge havoc and recommended investing in ventilators and hospital beds.
Private Equity and the American Economy
In this section, the discussion is about private equity firms and their impact on the American economy. The conversation revolves around how these firms operate, their claims of creating jobs, and whether they are beneficial to the economy or not.
Private Equity Firms' Claims
- Private equity firms claim that they create jobs and add value to communities.
- Blackstone Group claims to have created 200,000 new jobs over 15 years.
- However, when asked for data backing up these claims, Blackstone declined to provide it.
Impact on Pensions
- In the early stages of private equity, pensions were making more money through their investments with these firms than with other options.
- Now, pensions are not making as much money from private equity investments as before.
- Buying an S&P 500 Index Fund may be a better option than investing in a private equity firm due to lower fees.
Balancing Capitalism Goals
- There are two ways of looking at capitalism goals - one is focusing on nurturing corporations that benefit all stakeholders (employees, shareholders, communities), while the other focuses on making things more efficient by trimming costs and maximizing returns on investment.
- The current approach has been shareholder-centric capitalism where only stockholders benefit. This approach has led to an increase in wealth inequality in America.
- The goal should be to make nurturing corporations that benefit all stakeholders a goal for American capitalism.
The discussion is about private equity firms and their impact on the American economy. The conversation revolves around how these firms operate, their claims of creating jobs, and whether they are beneficial to the economy or not. The speakers also discuss the impact of private equity on pensions and balancing capitalism goals.
Can Capitalism Improve the Lives of All Stakeholders?
In this section, Gretchen Morgensen discusses the potential for capitalism to improve the lives of all stakeholders.
The Importance of Examining Capitalism
- Morgensen believes it is important to examine why capitalism cannot improve the lives of all stakeholders.
The Role of Stakeholders in Capitalism
- Morgensen explains that stakeholders are not just shareholders, but also include employees, customers, and suppliers.
- She argues that companies should prioritize the interests of all stakeholders rather than just shareholders.
Shortcomings of Shareholder Primacy
- Morgensen discusses how shareholder primacy can lead to short-term thinking and neglecting long-term investments.
- She also notes how it can lead to unethical behavior and a lack of concern for social and environmental issues.
Potential Solutions
- Morgensen suggests that companies should adopt a stakeholder approach and prioritize the interests of all stakeholders.
- She also proposes that companies should be more transparent about their actions and decisions.