As the nation cast its gaze onto another round of public testimony in the impeachment proceedings against President Trump on Tuesday, congressional Democrats on the House Committee on Financial Services held a hearing delving into the practices of the private equity industry.
Democratic Rep. Alexandria Ocasio-Cortez of New York made a devastating case against the sector in the hearing, blaming it for massive job losses that have upended the lives of average Americans through the years and calling for tougher regulations.
"I wasn't sent here to safeguard and protect profit," she said. "I was sent here to safeguard and protect people."
—AFR (@RealBankReform) November 19, 2019
"We're talking about reining in private equity, which is responsible for wiping out tens of thousands of jobs at Toys R' Us alone," Ocasio-Cortez said, referring to the iconic retail chain that declared bankruptcy last year, shuttering its stores and laying off all its workers.
Ocasio-Cortez continued: "And then we're hearing, 'But what about the companies that made 100 jobs here, or 200 jobs there?' Toys R' Us, 30,000 jobs wiped out. ShopKo, 14,000 jobs. Brookstone, David's Bridal, Payless."
Then the New York congresswoman listed several media publications that suffered withering layoffs, including Splinter, Deadspin, Sports Illustrated, as well as local and regional newspapers that have all been gutted under private equity ownership.
She called it "undemocratic" and blamed the industry for at least 590,000 job losses over the past ten years before starting to question Giovanna De la Rosa, a progressive advocate and former Toys R'Us employee. She testified that retail employees had their work hours cut and benefits trimmed to save the company costs.
"We need to think about our economy not just in terms of the returns for stockholders. But in terms of how the lives of workers are impacted," Ocasio-Cortez said.
However, she largely struck a discordant note in the hearing. Politico reported that Republicans and several business-friendly Democrats downplayed the controversies around the private equity sector and drew attention to its economic benefits instead.
The private equity sector has grown, but its led to job losses
What private equity firms do is buy struggling companies, then revamp them to increase their short-term profitability and lure a buyer. Then they sell them again to turn an even bigger profit.
Firm executives say they rescue mismanaged companies on the verge of bankruptcy and leave them in a healthier state. But critics argue private equity firms strip businesses bare and fire workers in their drive to rack up massive profits.
Since the financial crisis a decade ago, the sector has vastly expanded its influence and reach into services critical to American life, The New York Times reported.
Certain segments of the economy have been hit hard as a result and evidence is mounting that private equity takeovers can lead to significant job losses. One study from a group of progressive organizations released in July found that private equity ownership of retail had eliminated 1.3 million jobs in the sector in the past decade.
Another study published by Josh Lerner of the Harvard Business School and Steve Davis at the University of Chicago last month found job losses average around 4.4% in the two years after a private equity firm takes over a company.
Over the summer, the New York congresswoman joined other Democrats to introduce the "Stop Wall Street Looting Act." It seeks to reform the sector by "holding private equity firms jointly liable for the debts of companies under their control and by requiring greater transparency in private equity firms' practices," the bill read.