Private equity made headlines recently due to its bid for a share of NZ Rugby and the All Blacks. High profile failures like Toys R Us in the USA and Dick Smith in Australasia have highlighted problems caused by Private Equity.
This article in Vox by Emily Stewart is a scathing indictment of private equity firms. The usual pattern is buying companies, many facing problems, saddle them with even more debt, make a quick profit, and sell them. Even when they bankrupt the company, they walk away with substantial profits, while everyone else loses their shirts or, as Emily puts it, Heads I win, Tails you lose!
Failures are exceptionally high with the larger private equity firms. As per Binyamin Appelbaum of the New York Times; “The big private equity firms that have no idea about the particular industries in which they are investing, they think they can have this cookie-cutter model and make money. That’s where we’re seeing these terrible models happen”.
Statistics cited by Emily is fascinating reading. 20 per cent of public companies that go private through leveraged buyouts go bankrupt within 10 years, compared to a control group’s 2 per cent bankruptcy rate. Employment shrinks by 4.4 per cent two years after companies are bought by private equity, and worker wages fall by 1.7 per cent. Everyone else loses!
This book portrays the life of John Maynard Keynes and how his economic philosophies rescued the world after the great depression of 1929, also how ignoring his advice after World War 1, led us to World War 2 and all it’s horrors.
It also shows how his economic philosphy led us to wide spread prosperity of the developed world from 1950 to 1970 and the rise of a well to do middle class. Keynes died in 1946, but his economics lived on, with the help of influential economists like JK Galbraith.
The fight back of the elites with the help of a few influential neo liberal economists has decimated the middle class and led to a world more inequal than at anytime in recent history.
The inequality and rising poverty have led us to the rise of dictatorial leaders like Trump, increasing risks for democracy and heightening potential for violence. Interestingly the author puts the blame of the current situation on centrist leaders like Clinton and Blair, Obama and Merkel, rather than right wing leaders. Their failure to deliver for those hurt by neo liberal policies, led to normally left leaning workers fleeing to populist leaders like Trump and Johnson.
“The cruelty of high inequality countries is to induce starstruck dreams upon their young people, but refuse to fund pathways to get there”
George Lakey, ex Professor for Issues in Social Change, Swarthmore College
The social-democratic economic model.
High taxes, high wage costs, short hours of work, long vacations, even longer maternity leave, free childcare, free college education, extensive social welfare programs that pay an unemployment benefit of up to 80% of your wage,
And highly productive economies sound like an oxymoron, a fantasy too good to be true.
How would you encourage entrepreneurs and compete in a globalised economy when your costs are so high? In a world where low labour cost and low taxes are deemed essential for success.
This book dispels the myths that prevail, putting Scandinavian success down to culture, a homogenous population, size of the countries etc. An anomaly.
The arduous journey these nations undertook to transform their economies, from the Viking spirit of war and adventurism to capitalism with a human touch, a caring society. The struggles of the Nordic people to achieve a more equal country over more than a hundred years. The battles to overcome missteps that arose, trying to follow the neo-liberal models that changed the Anglo-American economies in the 1980s. The recovery from virtual bankruptcy that engulfed Iceland following the Global Financial Crisis of 2008. A clue -they didn’t bail out the reckless bankers. And they resisted pressure from the IMF to implement harsh austerity measures.
Scandinavian countries have a higher rate of startups than the USA, free higher education builds human capital, an excellent social welfare net encourages risktaking.
Businesses are encouraged to be competitive, except by cutting wages and benefits. Strong unions provide a balance between employers and employees. Successful cooperative ventures dispel the myth that private ownership or listed companies are the only viable economic models.
Scandinavians support high taxation, as they know they get a high level of services in return– “To get a lot, we pay a lot”. The economic system was built for everyone. It is not a system that encourages the notion in high inequality countries that the winners are supporting losers.
Social welfare programs, while comprehensive, encourages a strong work ethic. The focus is on getting people back to work. Sole parents are encouraged to work by providing free childcare. Teenagers are supported into employment or apprenticeships, providing a smoother transition from school.
This book by George, an American who lived in Norway for many years tells the story of the Nordic economic model. The successes, the challenges, warts and most importantly, lessons for the rest of the world. How we can achieve a highly productive economy where people are treated with dignity and the balance between business and society is highly equitable.
Kushlan from Auckland, New Zealand.Welcome to my blog. I am semi retired and looking forward to doing something different with my life and hopefully make a difference to yours and a few others.
I am passionate about social justice and climate change issues, of which there are plenty of, even in New Zealand, a reasonably affluent country in the developed. New Zealand is part of the Anglo American world and affected by the shift to a globalized and more capitalist economy, which happened here in the late 1980’s and early 1990’s.
We have become a less caring society, less ‘tax dollars for me’ has taken priority vs what the same dollar can do for the society and giving a helping hand to the less fortunate.
I hope my writing can cast a light on social issues like poverty, inequality and climate related issues. I want to simplify what is on 500 page technical to a readable blog length article. I will focus on New Zealand, but many of these issues are universal.
I am very interested to hear about how these issues are tackled in all parts of the world and connecting with like minded folk