New Book: Private Equity at Work, When Wall Street Manages Main Street

By Eileen Appelbaum and Rosemary Batt

Prior research on private equity has focused almost exclusively on the financial performance of private equity funds and the returns to their investors. Private Equity at Work provides a new roadmap to the largely hidden internal operations of these firms, showing how their business strategies disproportionately benefit the partners in private equity firms at the expense of other stakeholders and taxpayers. In the 1980s, leveraged buyouts by private equity firms saw high returns and were widely considered the solution to corporate wastefulness and mismanagement. And since 2000, nearly 11,500 companies—representing almost 8 million employees—have been purchased by private equity firms. As their role in the economy has increased, they have come under fire from labor unions and community advocates who argue that the proliferation of leveraged buyouts destroys jobs, causes wages to stagnate, saddles otherwise healthy companies with debt, and leads to subsidies from taxpayers. Appelbaum and Batt show that private equity firms’ financial strategies are designed to extract maximum value from the companies they buy and sell, often to the detriment of those companies and their employees and suppliers. Their risky decisions include buying companies and extracting dividends by loading them with high levels of debt and selling assets. These actions often lead to financial distress and a disproportionate focus on cost-cutting, outsourcing, and wage and benefit losses for workers, especially if they are unionized.

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The Privatization of Public Education in America

By Ann Robertson and Bill Leumer

Obama’s contribution to the privatization campaign has centered for the most part on education. But before we can evaluate its impact, it is necessary to consider the different forms privatization can take in relation to schools, since it can occupy different positions on a wide spectrum of possibilities. At one end of the spectrum lie completely privatized schools that provide their own financing and govern themselves. But many schools are more like hybrids, a mixture of private and public. Charter schools, whose numbers are growing rapidly, are funded with public money (that previously would have gone to public schools) but are privately operated. Often they are run by for-profit or non-profit national companies, as opposed to simply a group of teachers who want to break away from traditional schools and experiment with an alternative curriculum. Similarly, essentially public universities or K-12 schools might make use of online courses produced by private, for-profit companies, and, of course, private companies produce textbooks. Another hybrid example is where public universities have aggressively raised tuition fees at public universities so that funding shifts from the public coffers to the students themselves as private citizens. At the University of California at Berkeley students now contribute more for their education than the state does. In the 1960s the state paid for the vast majority of their expenses. Still another example is where a publicly funded and operated school imports the corporate culture from the private sector. For example, many public universities are abandoning their former practice of promoting faculty into administrative positions, paying them only slightly more than before and, instead, are drawing on administrators from the private sector and paying them exorbitant salaries while paying part-time faculty less than a living wage. Some presidents of public universities now make over $1 million a year. Under such circumstances democratic institutions of shared governance are dismantled while power tends to be concentrated at the top, thereby destroying any spirit of collegiality.

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