Is Private Equity Investing bad for the Economy? | Gather

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There seems to be varied viewpoints as to whether Private Equity Investing is a good or bad influence on the economy. There is some evidence for both sides of the debate. Some say that the economic structure is strengthened by various types of private investing but others say that the economy suffers greatly from this type of investment.

Positive Impacts on the Economy

One of the goals for obtaining private equity investments is to help save a company that is struggling. Efraim Landa specializes in finding these types of companies or different types of private investing to help keep the company afloat. While the company realizes an immediate up swing, there are also some positive influences on the local economy. For instance, if a company is in jeopardy of closing a private equity firm can help prevent its closure. For the employee, this may mean preserving his job and this has a positive impact on the local economy. Some experts state that companies which are privately run perform much better than companies which are publically owned. A private equity group or firm will invest more than money into business. Most of the time, they will have members who sit on the company?s board to help hold the company that they are providing support for accountable. This can be a great protection for the company.

Before a company is selected to receive private equity funding it is evaluated thoroughly. The firm will only invest in a company which can benefit from their particular area of expertise and experience. As an example, Effi Enterprises invests in high tech companies to which they can bring their years of successful experience in that field. This allows them to provide consultants to enrich the business in which they have invested. The goal of private equity investing is to stay with a company for the long haul until the company improves to the point that it can be taken private or sold for a large profit. This has a positive influence on the economy by providing jobs and helping to stimulate money flow.

Negative Impacts on the Economy

Private equity is viewed as greedy by other people. Some experts believe that a private investing firm is essentially bad for a company if they encourage the company to take on more debt. A company that is already struggling can be overwhelmed by additional debts. It?s a very risky move for the already weak business.

One of the goals of private equity funds is to come in and provide counsel for how the company can be run more efficiently. Some will make many cuts to the number of workers needed to try to attempt this which can have a negative impact especially on the local economy. It also raises the national unemployment rate which is a negative indicator. A lot of times the public does not hear of the negative impacts unless it is large scale, these items are covered over. Private companies are not required to make financial reports public. However, public companies have to be transparent.

Some economic experts suggest that private equity has created its own group of very wealthy people. Many complain that those who have been made wealthy through this type of private investing do not have to pay regular taxes. The money made through investing incurs a much lower tax rate than other types of income. Many managers make their money through earning a percentage from the profits made when the company is sold or goes public. This is investment generated income and therefore subject to lower tax rates. Economists state that this has a negative impact on the economy because they avoid contributing to the tax fund which means the poor and economy classes are bearing the weight.

Varied Opinions

Some feel private equity is hard on the economy. Others feel that giving a struggling business economic help can establish them and boost the economy while saving jobs. Private investing can be a positive or negative impact on the economy based on the firm?s procedures and perspectives.

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Source: http://sustainability.gather.com/viewArticle.action?articleId=281474981486644

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