PDF: Private Equity Firms — Bane or Benefit?

By: Alton C. Thompson

Excerpt from the PDF

The activities of private equity firms are the result of decisions by those associated with such firms, but are constrained by governmental regulations which serve to prevent, or modify, some of those decisions. However, given that business lobbyists—of which there are many!—usually have a preference for a minimal amount of governmental “interference,” they are often able to shape regulations to serve the interests of their clients rather than the public’s interest.

The excuse that lobbyists may use in arguing for minimal governmental “interference” is that “the market,” in a Market Economy, has the almost magical ability to allocate scarce resources in the most efficient way—but only if not interfered with by government. That argument is, however, based on the (tacitly-held) premise that all firms in the economy are (relative to the industry they are in) so small that none is able to have an effect on prices—whether charged by a firm, or paid to other firms (e.g., suppliers) or to labor—a premise utterly lacking in realism today.

In fact, it is precisely that lack of realism that explains why the national government (perhaps especially since the administration of Franklin D. Roosevelt [1882 – 1945], famous for the New Deal) began to assume a greater role in our economy. As firms have grown in size, however, they—through their lobbyists—have been able to gain control over government so that on the one hand government does little “interfering” in the economy these days and, on the other hand, large firms use government for their own ends (the principal one being maximizing profit). For example, firms that produce for our (so-called) Defense Department make a “killing.”

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Private Equity Firms — Bane or Benefit?

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About the author: Al Thompson works (data management) for an Engineering (Avionics) firm in Milwaukee. Click here to mail him.