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 Op-Ed:
Warren’s investment regulations are a recipe for economic disaster
[The Center Square] David Williams |
Taxpayers Protection Alliance
At a time of mounting
economic frustrations, it’s easy to place the blame on unpopular
businesses and industries. During her time as a lawmaker, U.S. Sen.
Elizabeth Warren, D-Mass., has unfairly labeled private equity (PE)
firms as “vampires” that bleed companies dry, despite the pivotal role
that these companies play in furthering innovation and fostering growth. |
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 Although there’s plenty of evidence that PE is a boon to
workers and entrepreneurs, Sen. Warren is determined to use the heavy hand of
government to punish PE. Her legislation to “stop Wall Street looting” would
impose onerous regulations on investment and growth at the worst possible time.
Instead of doubling down on dubious regulations, lawmakers should be searching
for ways to reinvigorate and expand the economy.
While every company aspires to become the next Amazon or
Walmart, supply bottlenecks, regulatory uncertainty, and pandemic-related
problems can get in the way. A timely acquisition can help get an ailing
business back on track and supply the critical expertise needed to tackle these
issues. Sen. Warren would require strict limits on the ways that investors could
profit from these acquisitions, making bankruptcy the only real option for
struggling companies. According to a Chamber of Commerce report, introducing
regulatory hurdles into the acquisition process would result in a raft of
unintended consequences.
The analysis finds that, “these restrictions and taxes would be so impactful
that, if enacted, even in a modest-case scenario, the country’s workforce would
be reduced by approximately 6 million jobs, and combined federal, state, and
local tax revenues would drop by approximately $109 billion per year in the long
run.” And the fallout would hardly be limited to the U.S.
An economic analysis produced by The Brookings Institution notes, “[t]oday,
hundreds of private equity funds have a substantial track record of investing in
small, medium-sized and scalable businesses around the world, with about 400
funds in China alone, as well as multiple funds operating in Africa, Latin
America, Asia and elsewhere. These funds have demonstrated their development
impact.”
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Washington, D.C. regulations can cause significant
problems in international markets, which can in turn hurt Americans
by weakening demand for U.S. exports and causing production snafus
for U.S.-bound products.
Lawmakers such as Warren will nonetheless continue
to push for stricter rules based on a fundamental misunderstanding
of how investment markets operate. Contrary to the scary stories
being offered of firms being destroyed by PE investors, companies
such as Dollar General, Petco, and Michael’s became more productive
following acquisitions and are in a better position to cater to
consumers. And there’s little evidence that these successful
turnarounds come at the cost of jobs. One 2013 study by scholars at
the Universities of Chicago, Maryland, and Michigan found that the
net employment decline two years post-buyout is just 1%.
Other analyses have resulted in job loss or gain estimates all over
the map, but the picture is not uniformly negative as suggested by
Sen. Warren and her Congressional allies. The simple truth is that
no two buyouts are the same and can result in hiring or downsizing
campaigns depending on the specifics of the situation. But as the
Chamber report makes clear, these investment activities certainly
create jobs. When companies become more productive and are better
able to attend to consumer needs, the entire country benefits
through lower prices and more tailored, durable goods. That in turn
allows other businesses to make much-needed purchases, expand, and
hire more workers in the process. This cycle also puts more money in
consumers’ pockets at a time when few things are for certain.
The truth is that lawmakers and the Biden administration can work
closely with each other to make sure the economy is working for
everyone. Putting up more regulatory hurdles will only result in
more mass misery. |
