cross-posted on MN Progressive Project
We're losing the messaging fight to the Republicans over the term "private equity". It's partly the same mistake Democrats, at least national elected officials and pundits, make over and over: using jargon as if anyone has a clue what they mean, and letting Republicans twist the meaning or even lie about the meaning. Partly, there has been sloppiness in using terms correctly, which has likewise let Republicans set up "private equity" as another word for "free enterprise". They've taken a phrase with positive associations and equated it with an unknown phrase, leaving Democrats on the defensive about how they're not attacking free enterprise by attacking private equity.
This is a follow up to a post from last February, which I'm reposting below, though here's the original if you care to see it. My point in this post is we need to use the terms correctly if we're to go after Romney's weakness: the way he made money in a destructive way. That means going after not "private equity", but "leveraged buyouts". That's not just picking the best words to convey an idea --- that's using the correct words to convey an idea, but if we don't use them correctly yourselves, we'll just stay on the defensive. When you're spending your effort in trying to argue out of the other side's frame, you've half-lost already.
Besides, I still think that Romney aside, exposing leveraged buyouts might help to get rid of this parasitic practice.
The gist is this: "private equity" is just an ownership arrangement. It's neither good nor bad. It engages in different sorts of investments, and it's sometimes useful, like venture capital, and sometimes destructive, like leveraged buyouts. If you're not really sure what those terms mean, please familiarize yourself (just keep reading).
It's much like being careful to avoid using "voter fraud" and "election fraud" interchangeably, as most of us have learned, and it's really no more complex than that (though many of us still use "voter ID" and "photo ID" interchangeably --- argh).
OK, here's the reposting:
Image may be NSFW.
Clik here to view.
There might be one positive to Mitt Romney's candidacy, besides Obama getting to run against the best choice of opponent when income inequality and unfair tax burdens are big issues. Finally an abused financial practice, the leveraged buyout, is being shown up for what it often is: a source of legalized fraud. Obviously I'll be editorializing against it, but first, I hear commentary using several terms interchangeably and potentially confusing the issue. There are terms that are different but sort of the same, or overlapping, or subsets, or some combination, and if you're getting confused, that's pretty much the point. Allow me to unwind the confusion and define some terms so at a minimum, we can all sound like we know what we're talking about when we get after Romney for enriching himself with scams like Georgetown Steel. There isn't an obvious order for defining these terms, so I'll just do my best to make them clear.
Private equity: A private equity fund is basically a company that isn't publicly traded, which means you can't buy shares on the stock market. The investors have to somehow be invited or find out, and they probably need to have affirmative answers to questions like, "can you put in several million?" So usually these are investors who are pretty rich to begin with, as Romney already was when he ran Bain Capital. However, investors can be funds with a large amount of money to invest, including the pension funds of people who actually work for a living.
There is nothing inherently nefarious in collecting a bunch of money and looking for businesses to invest in. If a private equity fund can buy a struggling business and turn it around, that's a good thing. So Bain Capital did nothing wrong just by starting up and looking for places to invest. Where there are potential problems is the short-term strategy of private equity. The idea is to turn the business around and sell it within a few years. It's tempting to buy a healthy but underpriced business, and sell off parts, or strip it of equity.
Bain Capital: Just to make sure there's no confusion, Bain Capital is a specific company, which happens to be the one Romney ran, whereas private equity and venture capital are types of companies. Perhaps I should then define "venture capital" next.