Parties Split Over Public Inequities of Private Equity
Thursday, May 17, 2007
As attention intensifies on the growing role of private equity in the U.S. economy, a House committee yesterday raised the question of whether the government should intervene to protect the interests of affected workers and communities.
The hearing, "Private Equity's Effects on Workers and Firms," was planned weeks ago, and the discussion of exactly what, if anything, the government should do was tentative. But the session took on heightened significance after Monday's announcement that private-equity firms were moving into the top ranks of the automobile industry, with the pending buyout of Chrysler by Cerberus Capital Management.
Both critics and supporters of private-equity firms -- which use pools of investment capital to buy and run companies with growth potential and later sell them for a large profit -- acknowledged that there are no reliable data on the industry's overall impact on wages, benefits or jobs.
Democrats focused on multimillion-dollar profits for investors and executives in contrast to the fate of workers who gained nothing or lost jobs in many of the deals. Republicans and some witnesses cited companies that became healthier and added jobs as a result of buyouts -- as well as pension funds and foundations that became wealthier as private-equity investors.
But members of both parties expressed concern about the impact of recent buyouts of major companies in their states. Rep. Michael N. Castle (R-Del.) said he worried about the fate of Chrysler workers in a local plant, and Rep. Deborah Pryce (R-Ohio) said she is closely watching a deal announced this week in which Golden Gate Capital plans to buy a controlling interest in the Express apparel chain from Limited Brands, which is based in Columbus, Ohio.
"When a small number of individuals benefit in the tens and sometimes hundreds of millions of dollars, and concurrently workers are laid off, we have a situation which seems to me wrong," said Barney Frank (D-Mass.), chairman of the House Financial Services Committee. "What are we going to do about it? It's not clear."
Frank mentioned possible changes in federal tax policy as well as policies to help workers organize unions.
"When you see a purchase like Cerberus [acquiring Chrysler], you're glad the union is at the table because you wonder what would happen if they weren't," he said.
Rep. Spencer Bachus (R-Ala.) and other Republicans said they feared regulation would hurt the economy and competitiveness. "It's not clear to me that privately managed companies act any different with respect to workers than public companies," he said. "Our policy should be to insure that American public and private companies can survive."
Andy Stern, president of the Service Employees International Union, which has called on private-equity firms to commit to improving the lot of workers and communities as well as investors, said, "If they will not self-regulate, we think it is necessary that Congress should legislate."
Douglas Lowenstein, president of the Private Equity Council, said it is not up to his industry to redress rising income disparities, which he blamed on global economic forces. "That requires national will, and we're prepared to be part of it," he said.