Has Private Equity Ruined Capitalism?

Commentary

I have many friends in business startups. It’s not the same as it once was. Get more than 50 employees and your company is hit with tremendous numbers of mandates. The most expensive of them is healthcare, but there are others, too. You are subject to new levels of policing, liability threats, and mandatory benefits for employees that vastly raise costs.

It’s strange, but many entrepreneurs no longer want to grow their businesses. The world that Amazon’s founder Jeff Bezos celebrates, and the system that made his and his company’s success possible, are no longer the norm or even viable.

In fact, growing a business from nothing to everything—building an institution that lasts—is not the point at all. They aren’t thinking about the longer term, much less future generations. Their goal is to be taken over through some merger financed by private equity. They structure their operations with that in mind.

Pushing their company out to be eyeballed for takeover is the entire point. Among many schemes they adopt to make this happen is creating an illusion of an upward trajectory that may or may not exist. They create flurries of advertisements for positions they have no intention of filling. They adopt huge levels of debt they know for certain cannot be serviced by profits but rather will be absorbed by the coming buyer.

It doesn’t always work, but that is the goal, in any case.

This amounts to a gigantic shift in the ethos of capitalism itself. Adam Smith would not recognize it. Neither would F.A. Hayek in the 20th century. It is something wholly new and it is affecting everything.

It’s the rise of private equity. It is distorting everything about capitalism, including even the once-central focus on the consumer and equity holders. Companies today care less about those factors than doing whatever is necessary to look as attractive as possible for mergers and acquisitions that result in huge payouts upon exit.

It’s no longer about building to keep and pass on to kids. It’s about building to sell.

The term “private equity” is really a misnomer. It is not about private property as such. The term private here is distinct from traditional public markets for debt, such as that offered by banks with small-business loans. The days when you pitch your idea to a local banker in hopes of serving your community are fading fast. The whole point of private equity is to leap over the old world into a new one entirely financed by debt in hopes of an eventual initial public offering with rising stock prices boosted by more debt.

In short, this is a mess. And it is not organic or market forces. It is an extension—a Dr. Frankenstein creation—of high regulations and mandates plus oceans of debt financed by loose credit and central bank money printing. This is the world born of zero interest rates in 2008, but also just monetary manipulation and financialization that traces all the way back to 1982, a decade following the end of the gold standard and the beginning of financial deregulation.

The paper standard changed the way capitalism works entirely.

The rise of private equity keeps arriving at new levels of absurdity. Global private equity deals hit records in 2025, $2.6 trillion total, with buyouts near $1.8 trillion and megadeals driving much of it. Assets under management sit in the $4 trillion to $5 trillion range, with thousands of companies held for extended periods.

Why and how did this happen? Zero interest rate policy made chumps out of savers by denying them even a return on capital, which, under normal circumstances, would otherwise equal out. That sent investable dollars on a mad scramble for return. That meant adopting more risk funded by the cheapest means available, namely debt. That form of finance poured into buying out enterprises with the aim of forcing profitability through any means, fair or foul.

Who and what is being targeted? It’s everything: healthcare clinics, veterinary services, dentistry, rental units, family-owned financial management firms, restaurant chains, bowling alleys, movie theaters, nursing homes, software and app makers—nothing is exempt.

Of course, owners can always say no to buyout offers, but it’s hard. There are millions of dollars in payouts waiting, money that can be folded into new attempts to do the same thing. Hence the popularity of the “serial entrepreneur”—a strange neologism deployed to describe an archetype.

In the end, these deals have dramatically reshaped the structure of production of capitalism from growing a business to selling a business for the final purpose of structural dominance. Private equity firms raise massive funds from pensions, endowments, and institutions, use debt (leveraged buyouts), buy companies, cut costs, hunt opportunities for subscription-based revenue streams, roll up competitors, load on more debt, extract fees/dividends, and sell or make an initial public offering.

The case is not entirely one-sided. Defenders of the new system point to the efficiencies born of new methods to inject capital, impose discipline, professionalize operations, and unlock value in mismanaged firms. Some add-ons drive real efficiency and innovation. Returns have historically beaten public markets for top funds, funding pensions and endowments.

However, early attempts to romanticize this as capitalism on hyperdrive miss the whole point. The central ethos of capitalism historically was to put the common man in charge as consumer, investor, decider, builder, and entrepreneur. It took power away from princes and the landed aristocracy on behalf of small innovators who saved money, served the people, and built institutions they could own and pass on.

Private equity built on debt finance, directed toward consolidation and standardization, shreds that entire ethos by redirecting the purpose of enterprise itself. It’s not about service to others but hammering every institution into a model target for merger and acquisition. This is an epochal shift of hundreds of years of experience.

It promotes short-termism, production and management focused on five- to seven-year funding cycles that encourage cost-cutting, headcount reduction, asset stripping, and debt-loading over patient development and culture-building.

When it comes to aesthetics, private equity means nothing but violence. When it acquires a historic hotel, apartment building, or home, the new owners impose a tested model of interior design that is supremely disrespectful of history. It’s horrifying what they do. They can turn an 18th-century Colonial home into a clinical dungeon of white and steel, all because the consultants say to do it.

It also leads to what is called financialization. Cheap debt has amplified everything, deprecating quality, look, and actual productivity for loan service and ephemeral nothingness. This extracts value from the real economy rather than creating it. Pension funds and everyday savers ultimately bear the risks.

When all of this was unfolding, critics had a sense that something was going wrong. They worried about the consequences of loose money, including inflation. When that did not materialize after then-Federal Reserve Chairman Ben Bernanke’s 2008 financial rescue package and zero interest rates, people might have thought that we were safe from the downside.

Untrue. Something even worse was happening to corrode the very foundation of the capital base itself.

This isn’t free markets. It’s an ocean of debt subsidized by monetary policy, favorable tax treatment of debt/carried interest, and regulation that burdens small operators more than big players who can navigate it.

Does it seem to you like we live in a commercial world that prizes go-go risk over real innovation, customer service, and building for the long term? Indeed. We can thank the corrosive effects of fiat money and too-big-to-fail policies from the central bank. These practices have made a mess of the whole thing.

Now, two to three generations of businessmen know no other. Meanwhile, public opposition to commercial culture and well-to-do businessmen is increasing.

Call it what you want, but it is not capitalism as traditionally understood. Capitalism was supposed to serve the common man, not compel the common man to serve the financial elite at the expense of everyone else.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.