By John A. Tures, Professor of Political Science, LaGrange College

What was the scariest media event of last two years? Some might say Stephen King’s “The Long Walk” or the mew adaptation of “The Running Man,” or “Salem’s Lot.” Others go for “Black Phone 2” or perhaps “Smile 2.” But for my money, the most terrifying of them all was Gretchen Morgenson’s book These Are The Plunderers. This NBC reporter and her Wall Street coauthor Joshua Rosner document the economic and growing political power of private equity.

In my article “The Power of Private Equity in American Politics,” I told you about private equity. For supporters, these firms are rescuers of struggling companies. For critics, they adopt a “buy, strip and flip” method that leaves the companies worse off than before. And there’s increasing evidence that private equity is seeking a new takeover target, the American political system.

“These Are the Plunderers traces the thirty-year history of corporate takeovers in America and private equity’s increasing dominance,” writes Simon and Schuster, their publisher. “Morgenson and Rosner investigate some of the biggest names in private equity, exposing how they buy companies, load them with debt, and then bleed them of assets and profits. All while prosecutors and regulators stand idly by.”

Here are more scary conclusions from Morgenson and Rosner’s book. “The authors show how companies absorbed by private equity have worse outcomes for everyone but the financiers: employees are more likely to lose their jobs or their benefits; companies are more likely to go bankrupt; patients are more likely to have higher healthcare costs; residents of nursing homes are more likely to die faster; towns struggle when private equity buys their main businesses, crippling the local economy; and school teachers, firefighters, medical technicians, and other public workers are more likely to have lower returns on their pensions because of the fees private equity extracts from their investments. In other words: we are all worse off because of private equity.”

The free market group Cato Institute take issue with the book’s claims. “No citations were readily available for these transformational claims,” writes Vern McKinley. “No discussion is offered of other factors contributing to these factors, like the ever-expanding presence of government in healthcare. Another case where details were lacking is Morgenson and Rosner’s critique of the private equity industry’s defense: ‘One of its claims: Private equity is improving healthcare. Reams of unbiased academic research and a rising number of practitioners say otherwise.’”

McKinley does note that the authors cite a study, “but it’s done by from the progressive group Americans for Financial Reform, a collection of self-appointed consumer and labor groups as well as other special interest groups. But the report is a position paper and not a serious analysis balancing the causal factors for these business failures, allocated between online shopping, the private equity industry’s leveraging of the businesses pre-bankruptcy, and additional factors. Morgenson and Rosner blame private equity for the firms’ financial troubles, presenting the case studies as if the businesses were in fine shape before their buyouts.”

I found that the authors do cite key research on private equity and their impact on their purchases. In an interview with Michael J. Sacopulos with the American Association for Physician Leadership (AAPL), Morgenson claims “Well, the most stunning study, the really most arresting study was one that came out in 2021, I believe, from academics from NYU, University of Chicago, which you mentioned a bit ago, who found that a longitudinal look at nursing homes that are owned by private equity companies, they found that mortality rates were 10% higher in nursing homes owned by private equity than in nursing homes owned by other entities, which even included other for-profit entities. And so, this was a really a damning study because it looked at the most important outcome of all, the life and death outcome, and it found that mortality rates were higher. Some 20,000 lives were lost at private equity owned nursing homes; the study found.”

But what is the political impact of private equity? In my last article “The Power Of Private Equity In American Politics,” I cite research showing that companies start lobbying and taking positions resembling that of the private equity leaders who purchase them. But there’s more. Mother Jones’ publication showed us in 2022 which politicians were connected to private equity. Ten of them were Republicans, while 22 of them were Democrats, demonstrating how the private equity power is bipartisan.

So what does private equity in politics want?

According to “The Good Lobby” from Europe, “the US, companies in the financial sector face even more stringent pay-to-play regulations than other industries. This means for example that many investor relations practices are considered lobbying and face stricter limits on revolving door, political finance and hospitality practices than lobbyists in other sectors.”

So what are the impact of these “pay to play” regulations? As Zachary G. Parks and Derek Lawlor write in Inside Political Law “Perhaps no industry faces more scrutiny and regulation of its political activities than the financial industry. These rules are often not intuitive and failure to comply with them can result in big penalties, loss of business, and debilitating reputational consequences.”

Parks and Lawlor add “Most investment firms by now are aware of the complex pay-to-play regulations that restrict the ability of the firms and certain of their employees to make political contributions. But even firms well-versed in these restrictions might overlook some of the nuances and risks presented by this complicated patchwork of laws and regulations.” They add that such laws not only come from Security and Exchange Commission (SEC) regulations made in the wake of the Great Recession, in 2010, as well as state and local governments and even public investment funds have their own rules on pay-for-play political contributions made by private equity and fund workers.

Before some private equity companies can run our lives completely, they need to get rid of those ‘pesky” regulations that are protecting our political system from control by a few. But watch out. Such lobbying efforts are likely to involve “Quiet Politics” which Pepper Culpepper finds which are quiet in that they won’t make headlines or lead the morning broadcasts, goodlobby.eu adds.

John A. Tures is a professor of political science at LaGrange College in LaGrange, Georgia. His views are his own. He can be reached at jtures@lagrange.edu or on “X” at @johntures2. His first book “Branded” a thriller novel that looks at efforts by researchers to expose a killer product placement scheme, has been published by the Huntsville Independent Press (https://www.huntsvilleindependent.com/product-page/branded).