Later On

A blog written for those whose interests more or less match mine.

Privatizing government functions: Very good for corporate profits, very bad for the public

with 2 comments

The main problem is that corporations are driven to ensure that profits always increase, year to year if not quarter to quarter. In the absence of new business, the easiest way to grow profits is to cut costs, but cutting costs quite often cuts quality.

Danielle Ivory, Ben Protess, and Kitty Bennett report in the NY Times:

A Tennessee woman slipped into a coma and died after an ambulance company took so long to assemble a crew that one worker had time for a cigarette break.

Paramedics in New York had to covertly swipe medical supplies from a hospital to restock their depleted ambulances after emergency runs.

A man in the suburban South watched a chimney fire burn his house to the ground as he waited for the fire department, which billed him anyway and then sued him for $15,000 when he did not pay.

In each of these cases, someone dialed 911 and Wall Street answered.

The business of driving ambulances and operating fire brigades represents just one facet of a profound shift on Wall Street and Main Street alike, a New York Times investigation has found. Since the 2008 financial crisis, private equity firms, the “corporate raiders” of an earlier era, have increasingly taken over a wide array of civic and financial services that are central to American life.

Today, people interact with private equity when they dial 911, pay their mortgage, play a round of golf or turn on the kitchen tap for a glass of water.

Private equity put a unique stamp on these businesses. Unlike other for-profit companies, which often have years of experience making a product or offering a service, private equity’s primary expertise is in making money. And in many of these businesses, The Times found, private equity firms applied a sophisticated moneymaking playbook: a mix of cost cuts, price increases, lobbying and litigation.

In emergency care and firefighting, this approach creates a fundamental tension: the push to turn a profit while caring for people in their most vulnerable moments.

For governments and their citizens, the effects have often been dire. Under private equity ownership, some ambulance response times worsened, heart monitors failed and companies slid into bankruptcy, according to a Times examination of thousands of pages of internal documents and government records, as well as interviews with dozens of former employees. In at least two cases, lawsuits contend, poor service led to patient deaths.

Private equity gained new power and responsibility as a direct result of the 2008 crisis. As cities and towns nationwide struggled to pay for basics like public infrastructure and ambulance services, private equity stepped in. At the same time, as banks scaled back their mortgage operations after the crisis, private equity firms — which face lighter regulation than banks, and none of their rainy-day capital requirements — moved in there as well.

The power shift has happened with relatively little scrutiny, even as federal authorities have tightened rules for banks. Unlike banks, which take deposits and borrow from the government, private equity firms invest money from wealthy individuals and pension funds desperate for returns at a time of historically low interest rates.

Since the 2008 financial crisis, private equity firms have gone from managing $1 trillion to managing $4.3 trillion — more than the value of Germany’s gross domestic product — according to the advisory firm Triago. Retirement nest eggs are fueling the growth and sharing in private equity’s risks and returns: Nearly half of private equity’s invested assets come from pensions.

“There is private equity — a lot of it — and it’s happening everywhere,” said Vikram Pandit, a former Citigroup chief executive who is now head of The Orogen Group, which invests in financial businesses. Across the financial landscape, he said, “New champions will emerge.”

Warburg Pincus, Kohlberg Kravis Roberts and other major private equity firms have invested in emergency services, a business that routinely holds the lives of customers in its hands. While this represents one small corner of private equity, which traditionally used debt to seize underperforming companies, it captures the industry’s newfound pervasiveness. . .

Continue reading.

Written by LeisureGuy

25 June 2016 at 10:09 am

2 Responses

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  1. Governments are corporations

    Karafil

    26 June 2016 at 1:57 pm

  2. I don’t think so, since governments antedate corporations, and moreover it is through the government (and its laws) that corporations exist, so governments have a logical as well as historical primacy.

    But you’re right in that there are benign corporations. The thing that makes a difference, I think, is when corporate activation—the spark that animates and drives the beast—is through the profit motive. It is through subordinating all other considerations, moral, ethical, and legal, to the primary and overriding goal of increasing profits. And certainly those who control the corporation will suffer the business-death penalty if profits do not continue growing, so there’s that motivation as well.

    LeisureGuy

    26 June 2016 at 3:32 pm


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