In “Conspicuous Destruction,” an essay published in the October 19 issue of the Review, Kim Phillips-Fein reviews two books on the past, present, and future of private equity in the United States: Plunder: Private Equity’s Plan to Pillage America, by Brendan Ballou, and These Are the Plunderers: How Private Equity Runs—and Wrecks—America, by Gretchen Morgenson and Joshua Rosner. “In the take-no-prisoners style of the Progressive Era’s muckraking reporters,” she writes, “each book provides an impassioned rebuke of the men (they’re mostly men) and women who have profited from private equity.”
As a historian of American politics, labor, and capital, Phillips-Fein is well-equipped to assess this “scandal of looting.” Her book Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics (2017) tells the story of New York City’s near bankruptcy in 1975 and its subsequent austerity program. Fear City was a finalist for the Pulitzer Prize and established her as one of the leading historians of twentieth-century New York, the subject of her earlier essays for the Review. After teaching for many years at New York University, last year Phillips-Fein was named the Robert Gardiner–Kenneth T. Jackson Professor of History at Columbia, where she earned her Ph.D.
Sam Needleman: Why did you decide to become a historian?
Kim Phillips-Fein: I came to history through journalism and politics. While in college at the University of Chicago, I did a lot of freelance writing for publications such as The Baffler, In These Times,and the Chicago Reader, much of it about the history of the city. This was in the late 1990s, and celebrations of capitalism and the free market were everywhere, from the university’s economics department to Bill Clinton’s White House to the ever-rising stock market—a jarring contrast with conditions on the South Side of Chicago. To develop a clearer and deeper understanding of those political, economic, cultural, and intellectual problems, I began to think it was necessary to study history.
Could you briefly explain what, exactly, private equity is?
In the traditional corporate model, a company is owned by a large group of investors but managed by a small group of executives. The fear is that these executives will grow complacent and stop maximizing the firm’s profitability. That’s the problem that private equity is supposed to solve. Private equity funds take investors’ money and supplement it with debt to purchase public companies and remove their shares from the stock market, or “take them private.” The fund manages the company with the goal of selling its appreciated shares back to the public. Usually the fund promises investors and owners very high returns.
The books that I wrote about in my essay detail a wide range of problems with private equity’s model. Most crucially, it privileges the fund’s short-term profit over the long-term gain of the company that has been acquired, to say nothing of the people who work for that company or who rely on its services. At the heart of private equity is the question of what happens when the owners of wealth cease to have any broader social interest at all.
You explain in your review that companies controlled by private equity account for at least $7.5 trillion in assets and employ more than 11 million people in the United States, a number that increased by one third between 2018 and 2022. How do you explain private equity’s meteoric rise in this country?
Start with the financial and political environment: the low interest rates that prevailed before 2020 made it easy for private equity funds to borrow money in order to take over companies, but private equity deals slowed down in the second half of 2022 and the first half of 2023, perhaps because borrowing is now more expensive. Legally, private equity faces fewer restrictions in the United States than in European countries. And for major investors like public sector unions, private equity is appealing because high returns can help stave off or postpone political fights that might otherwise erupt if taxes were raised to cover underfunded pensions.
But I think that above all the growth of private equity reflects the American vision of economic life and many of its habits in the past half-century. This model of investment and ownership encapsulates a political and cultural mindset in which the individual owner is given pride of place. It celebrates short-term returns, entrepreneurship, and the thrill of direct ownership. In fact, these financiers often know little about the industries that they’re involved in, which could be anything from nursing homes to toys, and whatever profits they earn seem to come at a real cost, of jobs, security, wages, and the quality of services provided. Private equity seems emblematic of an era in which collective obligations have frayed.
You argue that the public no longer perceives private equity as “a shady realm of fast dealers or a niche of high finance,” as it did in the 1980s. What caused this shift in public judgment—indeed, an ethical shift—over the last fifty years?
In the 1980s the public remembered much more vividly the more managed economy of the postwar era. Labor unions were stronger, and the social movements of the 1960s still exercised considerable political force. In the 1990s the welfare state continued to contract, the stock market boomed, organized labor was decimated, and the cold war came to an end. These changes laid the groundwork for our current era, in which the private sector and the market are celebrated while the public and the state are denigrated. The transformation of the terrain has made possible the greater acceptance of private equity now.
Where do you place private equity, or finance more generally, on the more local terrain of New York, where inequality has soared since the fiscal crisis of the 1970s, as you show in Fear City?
Much has changed since the 1970s, and municipal spending has certainly increased at different points since. But in many ways, New York’s leaders still operate on assumptions inherited from the fiscal crisis. Chief among these is the idea that the city government must do all that it can to make New York an appealing place for business leaders and affluent professionals to live and invest in. They prioritize this over other the city’s other needs, and it conditions any expectations about the city government’s responsibility for social services. Private equity isn’t the whole story here, but its rise accentuates finance’s power to guide city politics away from any measure that might impinge on the extremely wealthy. Although New York has been a financial center since the earliest days of the republic, in the 1980s finance became central to the city’s political economy due to the decline of industry, deregulation, and an increasingly aggressive and self-confident culture among stockholders. New York is on the front lines of America’s crisis of inequality. Just last week TheNew York Times reported that New York is the most unequal city in the United States. According to the Mayor’s Management Report, social services for poor and working-class New Yorkers, from food stamps to housing lawyers, are slipping. Mayor Adams’s skepticism about raising taxes and his insistence on belt-tightening and the need to cut social programs reflect a sense of who matters in the city, and who the city is for.