“Many companies in the United States are currently in a particular kind of distress. They have solid business models for normal times, yet as the pandemic lingers they are slowly dying, victims of weak demand or supply problems. These businesses are not broken or fundamentally flawed; their health is jeopardized only by exceptional circumstances. They are not doomed; they’re just sick.
Many of these companies are on the lookout for survival strategies that would avoid a ruinous liquidation of their assets. This means they may be more open than they ordinarily would be to private buyouts and mergers. But a wave of buyouts and mergers, though seemingly better than letting struggling companies die, would only intensify the economic inequality that has become this country’s curse.
That is why we need to rethink what rescuing companies looks like in this moment.
The danger is that the cure will be as bad as the disease. A rescue of struggling businesses fueled by cheap debt will lead to a restructuring of the American economy into fewer and fewer centers of corporate control. That consolidation, in turn, will increase the already excessive power of corporations and widen the already yawning gap between rich and poor.
This is a lesson taught by the previous economic crisis, 12 years ago, which also left many fundamentally sound companies weak or in a state of distress. Part of the government’s implicit and sometimes explicit solution was to encourage buyouts and mergers, by making debt cheap and keeping merger enforcement tepid. Those conditions catalyzed a major concentration of industries during the 2010s, leaving many sectors of the American economy with just three or four “majors,” or with regional monopolies. This was the story for the airlines, cable service, big agriculture, mobile phone carriers, pharmaceuticals, meat processing and many more industries.
That same approach also ushered in what the financial journalist Joe Nocera, a former columnist for The Times, has called the decade of private equity. Taking advantage of cheap debt, the industry spent trillions of dollars (nearly $6 trillion, by one estimate) buying and reorganizing thousands of companies.
The problem was that, by the mid-2010s, many economists (including many at the White House, where I worked at the National Economic Council) started to be concerned that the restructuring of the economy was contributing to inequality of both wealth and income. Ideally, a private buyout makes a company more efficient and poised for growth and hiring. But in practice buying a company in semi-distress with the goal of cutting costs can mean large-scale firings, weakening or destroying unions, and seizing pension funds.”