Private Equity Isn’t Creating Jobs Because it Shouldn’t
Here’s a topic that none of you in private equity would ever willingly be affiliated with or quoted on, but you can all agree on, privately: Private equity doesn’t create jobs. But, perhaps, the industry should publicly take a stance that they’re out to save the ones that should still exist.
It’s a tough thing to get the public to swallow. Bank tellers and store clerks, forklift operators and truck dispatchers, automotive workers and account managers, they’re all being automated and outsourced right out of their chairs and onto the bread line. You guys admittedly make an “embarrassing” amount of dough, you should probably have to pay higher taxes on it and the real unemployment rate in this country is close to double the politically-acceptable level. Yes, it is pretty easy to point toward private equity, and say: “Hey, those guys ought to make with some jobs!”
But that’s not the way it works. Private equity has a primary commitment to limited partners to generate returns—but that’s not the issue here. It seems you know you don’t have to create jobs. Profit aside, the reason many companies that get bought by private equity are acquired is simply that their existing structure or industry economics has made them a burden onto themselves and a threat of failure to the larger group of employees dependent on the organization.
Naturally, when 20% of the staff at any company gets trimmed, a simple and visceral reaction is to blame PE for the emotional burden and the additional work. Not Hank in procurement who hasn’t shopped a contract in eight years, because he has been buying exclusively from his brother-in-law’s company and getting his bar tabs picked up in exchange. Not the accounts manager who hasn’t so much as questioned an expense report since the late 90s, no matter how many times the address “12th & 51st” appears. And not the dispatcher who, through no fault of her own, can’t even close to keep up with the cheaper, automated logistics system for the truck drivers who will, years from now, be replaced with something being developed at Google.
It’s hard as hell to look in the mirror after you get laid off, and it’s even harder to admit it was because you either weren’t good enough, or, worse yet, because you’ve spent decades working in a declining industry. Private equity firms will never be able to say “we are your job-creating saviors.”
Instead, this is what the argument should be, for those in private equity who feel compelled to mount a defense in the jobs fight: “Our country is undergoing a transition in which many jobs will be automated out of our economy, permanently. In most cases in North America, we will eliminate—not add—positions. And the reason that we are doing this is so that the other 80% of you who do get to keep your jobs don’t have to work at a company that collapses under its own weight.”
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Velios Kodomichalos said on September 12, 2011
It is accurate to state that PE does destroy many inefficient jobs, but you are missing the big issue that PE then creates about the same number of new jobs that are more productive and effiecient for the economy. Josh Lerner has research which proves this. On a bigger issue, the US has always succeeded on destroying inefficient/low productivity jobs and creating new efficient jobs for an ever evolving economy.
R Dandurand said on September 12, 2011
The private equity industry is not out to create jobs or save the jobs that should exist. They are out to maximize the amount of money they make for themselves and their investors.
The premise of your essay seems to be that people whose jobs are cut deserve it because they are lazy, dishonest or can be displaced by technology and that private equity firms should position themselves as heroes for saving the jobs of the rest of the people from being sabotaged by these characteristics of the workforce.
It is hard to look in the mirror when you are being criticized as well as when you are laid off. There are people who are lazy, dishonest or can be displaced by technology in private equity firms and PeHub I would bet. But of course that is not the point. Private equity firms can make great returns by restructuring companies as well as by growing companies. They should do both if they can generate the returns their investors expect. What they should not do is follow your advice and blame the people who get hurt by this economic activity.
The reason the U.S. economy has rebounded from job and economic crisis in the past has been the combination of creative, effective business people and an adaptive, dedicated workforce.
Robin Rowe said on September 12, 2011
There’s a response to this article at Hollywood Today:
http://www.hollywoodtoday.net/2011/09/12/money-private-equity-and-jobs/