Pacific Free Press was launched in March 2007 by Dutch-Canadian Richard
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The mission of Pacific Free Press is simple: to dig out nuggets of truth from
the slag-heap of lies, ignorance and witless diversion that has buried
public discourse today. Pacific Free Press provides a new venue for
disseminating hard news and insightful, fact-based analysis of the
harsh realities too often ignored or distorted by the mainstream press.
The Endless Greed of Private Equity
by Ignacio Ramonet While critics of the economic horrors of globalisation argue, a new and even more brutal form of capitalism is in action. The new vultures are private equity companies: predatory investment funds with vast amounts of capital at their disposal and an enormous appetite for more.
Their names -- among them the Carlyle Group, KKR, the Blackstone Group, Colony Capital, Apollo Management, Cerberus Partners, Starwood Capital, Texas Pacific Group, Wendel, Euraze -- are still not widely known. And while still a secret they are getting their hands on the global economy.
Between 2002 and 2006, the capital raised by these funds from banks, insurance companies, pension funds, and the assets of the super-rich rose from $135bn to $515bn. Their financial power is phenomenal, more than $1,600bn, and they cannot be stopped.
[Republished at PFP with express Agence Global permission.]
The power of private equity firms on the global capitalist system
grows more dominant. One in four Americans is employed by them. Their
game is to acquire companies, 'rationalise' them, and then slough off
the remnant -- often to another private equity firm -- for
profit-making. And then repeat the process.
In the United States, the principal private equity firms invested
some $417bn in takeovers last year, and more than $317bn in the first
quarter of 2007, acquiring control of 8,000 companies. One American in
four and almost one Frenchman or woman in every 12 now works for them.
France
is now their prime target, after the United Kingdom and the United
States. Private equity firms, mainly American or British, acquired 400
companies in France last year for $14bn. They now manage more than
1,600 French companies, including such famous names as Picard Surgelés,
Dim, the Quick restaurant chain, Buffalo Grill, Pages Jaunes (the
French Yellow Pages), Allociné and Afflelou, and they are looking at
other big names on the French stock market index, the CAC 40.
Predatory
funds are not new. They first appeared about 15 years ago, but have
recently reached alarming proportions, encouraged by cheap credit
facilities and sophisticated financial instruments. The basic principle
is simple: A group of wealthy investors buys up companies and manages
them privately, without reference to the stock exchange and its
restrictive rules and without having to answer to shareholders.
The idea is to get round the fundamental principles of capitalist morality and back to the law of the jungle.
That
is not quite how the system works, though. To acquire a company worth
100 units, the fund invests an average 30 units from its own pocket and
borrows 70 from the banks, taking advantage of current very low
interest rates. The fund spends three or four years reorganising the
company with the existing management, rationalising production,
developing new activities, and taking some or all of the profits to pay
the interest on its debt. It then sells the company on for 200 units,
often to another fund, which repeats the process. After repaying the 70
units it borrowed, it will come away with 130 units for an initial
investment of 30, a 300% return in four years. Not bad.
While
the directors of these funds make private fortunes, they have no qualms
about applying the four great principles of rationalisation to the
companies they buy:
• downsize staff,
• reduce wages,
• increase work rates, and
• relocate.
With
the blessing of public authorities who dream, as they do in France now,
of modernising production, and to the detriment of the unions, for
which the process signifies the end of the social contract. Some people
thought that, with the advent of globalisation, capital was sated. It
is now clear that there is no end to its greed. -- Translated by
Barbara Wilson
Ignacio Ramonet is a Spanish journalist and writer. He is the editor-in-chief of Le Monde diplomatique.
Agence
Global is the exclusive syndication agency for The Nation, Le Monde
diplomatique, as well as expert commentary by Richard Bulliet, Mark
Hertsgaard, Rami G. Khouri, Peter Kwong,Tom Porteous, Patrick Seale and
Immanuel Wallerstein.
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Released: 06 November 2007
Word Count: 594
Rights & Permissions Contact: Agence Global, 1.336.686.9002, rights@agenceglobal.com
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