It’s incredibly important for these arguments to be coming from the right of center - a quick way to build bipartisan consensus with those of us on the left of center who have been worried about the influence and control the financial services industry exerts for a long time. Great write up.
Important article. Republicans are beginning to pull away from Wall Street and align with Main Street. The revolution is incomplete and the pressure needs to be kept up. The Democrats are still stuck in the old paradigm and blinded bt TDS. I endorse what Conner said below and would add that it needs to be a particular sort of bipartisanship. Populists of Right and Left need to unite and smite the Establishment in the center. So far I haven't seen much inclination from the Left.
Did you miss Lina Khan? Or Warren siding with Jim Jordan to go after fire truck manufacturers? Or the Chips Act that invested directly in manufacturing? Or Klein and Thompson on Abundance? I mean I don’t think you’re looking hard enough.
News outlets ran an article on the costs of building a firetruck have risen from ~$800k in 2018 to $2mm today. Build times have gone from under a year to 4.5 years. So we are paying double the price and waiting 4x longer to receive these trucks. The Chinese and British are building these things for $400k. PE firms have scooped up a lot of American manufacturers of these trucks and predictably, prices skyrocketed and products worsened.
There’s a lot of theory about how trickle down economics works, but the evidence mostly points to yachts, mansions and space shots for your fiancée’s lady friends. Not a lot of value for average Americans in that.
Straw man argument. The question of the effectiveness of trickle down is whether the monies earned go back into new ventures, creating more permanent jobs. Yachts and mansions funnel funds to already established companies, and into profits for the owners of those already established firms. No new jobs created, no wealth created for the average person.
Doesn't that depend on who makes the yachts and builds the mansions? I want employment for my fellow citizens. In terms of jobs provided and people given purpose in their professional lives, does 1M people spending $5 at Starbucks equate to 1 person spending $5M on a custom built house. I don't think so.
I'm not defending PE here. I think that behavior is disgusting. But there are many socially beneficial things that even very high levels of wealth can (and do) provide. Who's your university library named after?
My university library, when I attended 40 years ago, and today, is named after the taxpayers of Ohio. Built in the 60’s, when tax rates where sky high, proves that that taxing egregious income works out well for the average American.
When a private equity firm (ex HIG Capital) annouces the acquisition of a company (Pixelle Specialty Solution), the annoucement should really say "Pixelle Specialty solution will be closing in less than 4 years."
I understand that sentiment. But as a retiree from a company that was “bought” and “sold” twice with PE and grew tremendously in the process, in market footprint, revenue, jobs and every indicator that could have social value, whose special dividends were shared with all employee shareholders, and that also leveraged debt to a conservative standard, I am a witness to the fact that it doesn’t always have to turn out poorly. I am no economist or PE expert, but I suspect the PE success stories—and by “success” I mean “don’t result in shutting a company down”—don’t generally get the media attention that the closure stories do. IOW, there can be a social value to PE investment and management that is in addition to the ROI to the PE firm and its investors.
The only lesson I take from that is that there are in fact smart, well-motivated PE managers who should have the freedom to keep up that kind of work within guardrails that protect against rapacious investing and management.
Then there’s the other side of this coin: sometimes a company is either going to go bankrupt, or get bought by PE and chopped up for parts. This too is a genuine service to society, but no one is going to love them for it.
Still, when reckoning the accounts of their social value, we should be careful not to put those cases on the debit side of the books. When a company’s assets exceed their debts but they cannot operate profitably, a managed sell off is the best of the bad outcomes.
There's always a reason that companies are up for sale before PE buys them, and when the acquisition goes poorly it's usually for reasons that were baked in from the beginning.
Blaming PE firms for, essentially, failing to rescue failing businesses is one of the most noxious aspects of the discourse around that particular slice of the financial industry.
You should read a book called "The Unaccountability machine" by Dan Davies that explains how amorphous corporate entities make decisions where no one really owns the decision.
Thanks for this history. I don't have an opinion on the profitability of the plant nor the marketability of the product. There are a host of reasons to buy and close a business, most of which are legitimate. Financial corruption or fraud is a different matter and should not be defended or protected. I trust government less than business in such matters.
That's not entirely fair. How do you distinguish (in policy or law) between Elon Musk's acquisition of Twitter and the example given here? Are not both forms of private equity taking over a company?
Um, what is "not entirely fair"? The original essay about Pixelle or my personal example? As to distinguishing between good and bad examples—is Twitter/X a good or bad example? As an anti-censorship type, I am reasonably pleased Elon bought Twitter, but I don't think it's a classic PE case at all—that is why I suggested "well-motivated PE managers should have the freedom to keep up that kind of work within guardrails that protect against rapacious investing and management." I don't have any easy answer for how to construct those guardrails in policy or law
I'm asking how can you distinguish in law between Pixelle and Twitter? At the transaction point (the purchase) both look the same and the words of the purchaser are the same: "we're buying this to improve the business!"
So how to distinguish those in law and regulation? I've elsewhere here suggested regulation or heavy taxation on subsequent sales of assets or taking on of debt, which could disincentive PE (which doesn't actually have long-term profitability as its goal), but I'm asking if you see any way to do that on the front end?
Thanks for that. I think your question highlights the problem of almost every regulation of potentially noxious conduct: baby and bath water. As a simple kind of guy, I have always favored gutting the tax code as a way to remove the incentives toward undesirable tax engineering. That’s where I’d start before I started adding new disincentives, which always seems more like Whack-a-Mole.
My first encounter with PE started years ago when I ran a dairy distribution company that was a farmer-owned cooperative. I competed against another dairy in town that was acquired by a large PE entity. I soon found myself trying to win business against a competitor who delivered milk to a customer for what I paid for it at the dock.
The other dairy had different priorities that insulated it from the pedestrian P&L realities I faced. Eventually, they went bankrupt. I've had other encounters with PE since then, and none lead me to believe they are a net-positive.
OMG thank you! I am the daughter of an entrepreneur, who has enjoyed a wonderful life due to my father’s diligence and smarts. I am grateful for the security and the physical beauty that has surrounded me but it is the pleasure of sharing and retaining humility that my father taught me that has been the most profound gift he bequeathed to me. Success and wealth are hollow without the balance of empathy. I am 80 and have always been a Republican but I have been very discouraged in recent years by the robotic drive to profit at the expense of human connection. It is a great relief to me that the political right can express an understanding of the need for balance in order to live a good life.
I agreed with Oren that our system of "keeping score" fails to recognize full and true value. It measures profits and is now skewed towards recognizing "financial" wealth which in my view is akin to ponzi schemes. If the firm closes the plant and shareholders speculate they will do something even better with the saved funds they reward the equity holders with greater demand for the financial instruments and the value miraculously goes up in value and the score says "new wealth created" hooray. In fact decades of data show that such actions generate these short term fervor based up ticks and in the long run new real value is not created as those charged with doing something better with the funds simply do more of the same and bump, bump, bump the financial instruments may grow in perceived value but not real value and at some point a reckoning takes place. We need to recognize that we are a society and work must be properly valued / put into the scoring system. I applaud Oren's recognition of what Adam Smith explained over the perverse simplicity of Milton Friedman. Societies exist and give permission to its members to conduct business. As such business should not destroy society and create casino like schemes to massively redistribute wealth but to serve the society that enables it.
"Perhaps it will still turn out that the Chillicothe plant is no longer economically viable."
The gist of this piece seems to be 'I don't trust that a private equity firm will do the right thing so we need politicians to step in.'
And sure, they might not do the right thing. But is this just about PE firms? Are they uniquely bad? Because regular businesses close plants/locations all the time. Local businesses close for all sorts of reasons and people lose their jobs. Should pols always be overseeing this and stepping in? Are we just not going to let the market work; are we not going to accept that the market will make bad mistakes sometimes? Do we somehow think politicians are impartial 3rd parties who will fix the wrongs in the best possible way?
I would say the gist of the piece is exactly what Oren has as the sub-headline: "Conservatives are finally rejecting the absurd logic of Wall Street’s excesses". Well, that is of course a broad statement that clearly is not generally true. But the article cites an important example of a conservative politician questioning the decision of a PE firm. This would not have happened 10 years ago.
"Man was not made for the market; the market was made for man" -- Saint Pope JPII
It's extremely funny that the party which claimed for decades to be the home of serious Christians apparently forgot such a basic idea. Man must take precedence over markets.
"Perhaps Smith misjudged the human character." The Enlightenment was full of that: Locke, Smith, Ricardo, Mill... lots of unintended consequences. (Well, not Mill; he knew well where his Harm Principle led.)
Excellent point about the absurdity in $5 million in increased salary to employees being neutral whereas if it's kept for shareholders then it's proof of amazing profitability.
Private Equity has destroyed more jobs in the US than actual businesses who have shipped jobs to other countries. PE is a massive scam that benefits only the top 1% and has played an outsized role in the hollowing out of the middle class.
The list of viable firms that have been destroyed by PE in the past 2 decades numbers in the hundreds, at least. And the lost jobs number in the 10s of millions.
There is nothing conservative about turning your back on your friends and allies in pursuit of economic gains. Canadians are clearly angry about the disparaging comments of the Trump administration and its failure to approach them as the friend and close ally that they are. Similarly, investing in the economic development of Ukraine is a wonderful idea, but taking advantage of their back being up against a wall while doing is about as mean spirited as it is possible to be.
Conservatives value friendship and community. Those values should not be discarded at the border.
So I have no issue with "private equity" getting the shaft in any governmental dispensation, but I'm concerned that this represents a sort of motte-and-bailey argument, where the bailey is the "only elites and libs are worried about financial markets and stocks" and the motte is, "What we're talking about actually is evil, job-killing, private equity."
It’s incredibly important for these arguments to be coming from the right of center - a quick way to build bipartisan consensus with those of us on the left of center who have been worried about the influence and control the financial services industry exerts for a long time. Great write up.
Important article. Republicans are beginning to pull away from Wall Street and align with Main Street. The revolution is incomplete and the pressure needs to be kept up. The Democrats are still stuck in the old paradigm and blinded bt TDS. I endorse what Conner said below and would add that it needs to be a particular sort of bipartisanship. Populists of Right and Left need to unite and smite the Establishment in the center. So far I haven't seen much inclination from the Left.
Did you miss Lina Khan? Or Warren siding with Jim Jordan to go after fire truck manufacturers? Or the Chips Act that invested directly in manufacturing? Or Klein and Thompson on Abundance? I mean I don’t think you’re looking hard enough.
Haven't seen since the election. Hope it returns
I think you might need to keep looking. Warren and Jordan were last week while Abundance was published two weeks ago.
I picked up on Abundance but waiting to see if it gets traction. Did not pick up on Warren and Jordan. What's that about. Monopoly?
News outlets ran an article on the costs of building a firetruck have risen from ~$800k in 2018 to $2mm today. Build times have gone from under a year to 4.5 years. So we are paying double the price and waiting 4x longer to receive these trucks. The Chinese and British are building these things for $400k. PE firms have scooped up a lot of American manufacturers of these trucks and predictably, prices skyrocketed and products worsened.
PE would be a good target for populist fusion.
There’s a lot of theory about how trickle down economics works, but the evidence mostly points to yachts, mansions and space shots for your fiancée’s lady friends. Not a lot of value for average Americans in that.
Another straw man argument, substituting a new argument against the original one.
Yacht builders shouldn't have jobs? Marina workers should all go home? Sounds like politics of envy.
Straw man argument. The question of the effectiveness of trickle down is whether the monies earned go back into new ventures, creating more permanent jobs. Yachts and mansions funnel funds to already established companies, and into profits for the owners of those already established firms. No new jobs created, no wealth created for the average person.
This is incoherent. You are advocating that established businesses be shut down. Why? Envy?
Doesn't that depend on who makes the yachts and builds the mansions? I want employment for my fellow citizens. In terms of jobs provided and people given purpose in their professional lives, does 1M people spending $5 at Starbucks equate to 1 person spending $5M on a custom built house. I don't think so.
I'm not defending PE here. I think that behavior is disgusting. But there are many socially beneficial things that even very high levels of wealth can (and do) provide. Who's your university library named after?
My university library, when I attended 40 years ago, and today, is named after the taxpayers of Ohio. Built in the 60’s, when tax rates where sky high, proves that that taxing egregious income works out well for the average American.
When a private equity firm (ex HIG Capital) annouces the acquisition of a company (Pixelle Specialty Solution), the annoucement should really say "Pixelle Specialty solution will be closing in less than 4 years."
I understand that sentiment. But as a retiree from a company that was “bought” and “sold” twice with PE and grew tremendously in the process, in market footprint, revenue, jobs and every indicator that could have social value, whose special dividends were shared with all employee shareholders, and that also leveraged debt to a conservative standard, I am a witness to the fact that it doesn’t always have to turn out poorly. I am no economist or PE expert, but I suspect the PE success stories—and by “success” I mean “don’t result in shutting a company down”—don’t generally get the media attention that the closure stories do. IOW, there can be a social value to PE investment and management that is in addition to the ROI to the PE firm and its investors.
The only lesson I take from that is that there are in fact smart, well-motivated PE managers who should have the freedom to keep up that kind of work within guardrails that protect against rapacious investing and management.
Then there’s the other side of this coin: sometimes a company is either going to go bankrupt, or get bought by PE and chopped up for parts. This too is a genuine service to society, but no one is going to love them for it.
Still, when reckoning the accounts of their social value, we should be careful not to put those cases on the debit side of the books. When a company’s assets exceed their debts but they cannot operate profitably, a managed sell off is the best of the bad outcomes.
There's always a reason that companies are up for sale before PE buys them, and when the acquisition goes poorly it's usually for reasons that were baked in from the beginning.
Blaming PE firms for, essentially, failing to rescue failing businesses is one of the most noxious aspects of the discourse around that particular slice of the financial industry.
That’s a good point, and it’s consistent with Oren’s comments about the narrow definition of social value.
Who owned Pixelle prior and why was it sold? The article gives no context to the decision then or now.
You should read a book called "The Unaccountability machine" by Dan Davies that explains how amorphous corporate entities make decisions where no one really owns the decision.
You are correct in that the article is incomplete. Here is the history of the Chillicothe plant. https://www.chillicothegazette.com/story/news/local/2025/04/16/a-timeline-look-back-at-the-paper-mill-in-chillicothe/83099818007/. It 2018 the plant was sold by PH Glatfelter to HIG capital. Then PH Glatfelter changed their name. https://www.globenewswire.com/news-release/2020/10/01/2102417/0/en/P-H-Glatfelter-Company-Announces-Corporate-Name-Change.html. Note that in 2020, PH Glatfelter finished a new corporate headquarters 🙁Then in 2024 Glatfelter merged with a part of Berry and became Magner https://ir.magnera.com/news-releases/news-release-details/berry-and-glatfelter-announce-new-brand-name-and-identity. With all of this deal making and the costs it entails, in the end they killed (or at least tried to kill) the Chillicothe plant. A lot of financial people made good $$, but they killed the business.
Thanks for this history. I don't have an opinion on the profitability of the plant nor the marketability of the product. There are a host of reasons to buy and close a business, most of which are legitimate. Financial corruption or fraud is a different matter and should not be defended or protected. I trust government less than business in such matters.
That's not entirely fair. How do you distinguish (in policy or law) between Elon Musk's acquisition of Twitter and the example given here? Are not both forms of private equity taking over a company?
Um, what is "not entirely fair"? The original essay about Pixelle or my personal example? As to distinguishing between good and bad examples—is Twitter/X a good or bad example? As an anti-censorship type, I am reasonably pleased Elon bought Twitter, but I don't think it's a classic PE case at all—that is why I suggested "well-motivated PE managers should have the freedom to keep up that kind of work within guardrails that protect against rapacious investing and management." I don't have any easy answer for how to construct those guardrails in policy or law
I'm asking how can you distinguish in law between Pixelle and Twitter? At the transaction point (the purchase) both look the same and the words of the purchaser are the same: "we're buying this to improve the business!"
So how to distinguish those in law and regulation? I've elsewhere here suggested regulation or heavy taxation on subsequent sales of assets or taking on of debt, which could disincentive PE (which doesn't actually have long-term profitability as its goal), but I'm asking if you see any way to do that on the front end?
Thanks for that. I think your question highlights the problem of almost every regulation of potentially noxious conduct: baby and bath water. As a simple kind of guy, I have always favored gutting the tax code as a way to remove the incentives toward undesirable tax engineering. That’s where I’d start before I started adding new disincentives, which always seems more like Whack-a-Mole.
My first encounter with PE started years ago when I ran a dairy distribution company that was a farmer-owned cooperative. I competed against another dairy in town that was acquired by a large PE entity. I soon found myself trying to win business against a competitor who delivered milk to a customer for what I paid for it at the dock.
The other dairy had different priorities that insulated it from the pedestrian P&L realities I faced. Eventually, they went bankrupt. I've had other encounters with PE since then, and none lead me to believe they are a net-positive.
OMG thank you! I am the daughter of an entrepreneur, who has enjoyed a wonderful life due to my father’s diligence and smarts. I am grateful for the security and the physical beauty that has surrounded me but it is the pleasure of sharing and retaining humility that my father taught me that has been the most profound gift he bequeathed to me. Success and wealth are hollow without the balance of empathy. I am 80 and have always been a Republican but I have been very discouraged in recent years by the robotic drive to profit at the expense of human connection. It is a great relief to me that the political right can express an understanding of the need for balance in order to live a good life.
I agreed with Oren that our system of "keeping score" fails to recognize full and true value. It measures profits and is now skewed towards recognizing "financial" wealth which in my view is akin to ponzi schemes. If the firm closes the plant and shareholders speculate they will do something even better with the saved funds they reward the equity holders with greater demand for the financial instruments and the value miraculously goes up in value and the score says "new wealth created" hooray. In fact decades of data show that such actions generate these short term fervor based up ticks and in the long run new real value is not created as those charged with doing something better with the funds simply do more of the same and bump, bump, bump the financial instruments may grow in perceived value but not real value and at some point a reckoning takes place. We need to recognize that we are a society and work must be properly valued / put into the scoring system. I applaud Oren's recognition of what Adam Smith explained over the perverse simplicity of Milton Friedman. Societies exist and give permission to its members to conduct business. As such business should not destroy society and create casino like schemes to massively redistribute wealth but to serve the society that enables it.
I like the article, but you do realize how Marxian the discussion of social value and its distribution is, I presue.
"Perhaps it will still turn out that the Chillicothe plant is no longer economically viable."
The gist of this piece seems to be 'I don't trust that a private equity firm will do the right thing so we need politicians to step in.'
And sure, they might not do the right thing. But is this just about PE firms? Are they uniquely bad? Because regular businesses close plants/locations all the time. Local businesses close for all sorts of reasons and people lose their jobs. Should pols always be overseeing this and stepping in? Are we just not going to let the market work; are we not going to accept that the market will make bad mistakes sometimes? Do we somehow think politicians are impartial 3rd parties who will fix the wrongs in the best possible way?
I would say the gist of the piece is exactly what Oren has as the sub-headline: "Conservatives are finally rejecting the absurd logic of Wall Street’s excesses". Well, that is of course a broad statement that clearly is not generally true. But the article cites an important example of a conservative politician questioning the decision of a PE firm. This would not have happened 10 years ago.
"Man was not made for the market; the market was made for man" -- Saint Pope JPII
It's extremely funny that the party which claimed for decades to be the home of serious Christians apparently forgot such a basic idea. Man must take precedence over markets.
"Perhaps Smith misjudged the human character." The Enlightenment was full of that: Locke, Smith, Ricardo, Mill... lots of unintended consequences. (Well, not Mill; he knew well where his Harm Principle led.)
Excellent point about the absurdity in $5 million in increased salary to employees being neutral whereas if it's kept for shareholders then it's proof of amazing profitability.
Private equity does not have the long-term interests of the country in mind, just their short-term profits, the rest of us be damned.
Private Equity has destroyed more jobs in the US than actual businesses who have shipped jobs to other countries. PE is a massive scam that benefits only the top 1% and has played an outsized role in the hollowing out of the middle class.
The list of viable firms that have been destroyed by PE in the past 2 decades numbers in the hundreds, at least. And the lost jobs number in the 10s of millions.
There is nothing conservative about turning your back on your friends and allies in pursuit of economic gains. Canadians are clearly angry about the disparaging comments of the Trump administration and its failure to approach them as the friend and close ally that they are. Similarly, investing in the economic development of Ukraine is a wonderful idea, but taking advantage of their back being up against a wall while doing is about as mean spirited as it is possible to be.
Conservatives value friendship and community. Those values should not be discarded at the border.
Liberals have been screaming about private equity, and its lack of regulation for decades.
Now 800 are losing their jobs and it’s an “issue”.
When you allow Oligopolies and Monopolies to thrive, ignore regulation, and shutter consumer protection, this is the end result. Everyone was warned.
So I have no issue with "private equity" getting the shaft in any governmental dispensation, but I'm concerned that this represents a sort of motte-and-bailey argument, where the bailey is the "only elites and libs are worried about financial markets and stocks" and the motte is, "What we're talking about actually is evil, job-killing, private equity."