The importance of understanding private equity

Stuart Elliott

Our friends at Dissent have made available on-line a very important article from their Winter 2008 issue–Stephen F. Diamond’s “Private Equity and the Public Good.” (It’s a reminder that subscribers get to read many articles before they’re on-line. I’m looking forward to getting the Spring issue in the mailbox to read “Show Me the Money”: Labor and the Bottom Line of National Health Insurance by Marie Gottschalk and A Southern Strategy For Unions by John Lalas. So subscribe, already)

Diamond argues that the emergence of private equity firms as an important form of capitalist organization marks “the arrival of a potentially new stage in the history of capitalism.”

To understand this new stage, we must understand the strengths and limitations of the model of capitalism developed in the classic 1932 study by Adolf Berle and Gardiner Means, The Modern Corporation and Private Property.

Diamond provides lots of insights into thinking what private means and the evolving attitudes of unions.

Here’s his conclusion

Private-equity-led buyouts represent an evolution in the effort by a significant fraction of sophisticated players in the economy to forge new methods of managing and controlling the process of creating and appropriating value from the labor force on behalf of investors. It is possible that the concentration of expertise in finance with operational know-how, may enhance the ability of capital to engineer greater returns. To recognize the magnitude of the accomplishment of PE funds is not to support the result. Instead, it helps to highlight the challenge for labor and the left. Private equity funds are doing what capital has always done and will continue to do unless an alternative form of organizing economic activity is established. A misguided fear of “financialization” does not bring us any closer to exploring that alternative.

Diamond’s article should be read in conjunction with a report by the UK’s GMB union, “Private Equity’s Broken Promises” and the IUF’s A Worker’s Guide to Private Equity.

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2 Responses

  1. I highly recommend the IUF’s Workers Guide to Private Equity, and not only because of the whimsical cartoon drawings made by my wife Willy Garver.

    The IUF has also developed a website dedicated to private equity issues at http://www.iuf.org/buyoutwatch/

  2. I have shared this guide with many of my friends with the hope of permeating a deeper understanding of how important change must be. Although I may not be able to change the world myself; I can be more effective by sharing the knowledge I have to help signify a greater diverse nation.
    I hope all fellow Americans will take the time to read this article.

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