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The writer is president and chief executive of the American Investment Council
The US is a beacon for global investment and innovation. And private equity plays a vital role in building better businesses, employing millions and delivering strong returns to support the retirements of millions of working Americans. Approximately 85 per cent of private equity investments support small businesses with fewer than 500 employees.
Unfortunately, the Biden administration’s regulatory agenda is currently threatening this system, which supports workers and small businesses across the US. Federal Trade Commission chair Lina Khan used a recently filed healthcare case as an opportunity to take a swipe at it — all in pursuit of a radical new antitrust theory.
The truth is that the “buy and build” model that some private equity firms use helps a highly fragmented and cost-intensive industry such as healthcare become more competitive and expand access to care. Studies show that private equity-backed hospitals earn better marks on quality — meaning better care for patients. At the same time, private equity has filled critical gaps in the US healthcare system for decades, providing doctors, nurses and hospitals with the resources they need to treat patients and provide high-quality care.
Recently, I’ve heard from small business owners and healthcare industry professionals alike about how support from private investment drives better outcomes for their businesses, workers and communities.
To take just one example: founder and chief executive of Otter Learning Chase Begor recently told me that private investment has allowed the early childhood education company to provide its employees with better health insurance, retirement security and other benefits. In turn, Otter Learning’s teachers are able to “really focus on . . . a higher quality education experience for [their] students”, he said.
Unfortunately, administration officials like Khan don’t see this reality. Her efforts to reimagine federal antitrust law by breaking from the “consumer welfare” standard — which has long measured conduct and investment based on whether they benefit American consumers — will only slow an engine of the economy.
The FTC has lost a string of high-profile court cases in recent months. Anthony Sabino, a professor of business and law at St John’s University, says: “She’s trying to change a century’s worth of antitrust law overnight, and that’s not necessarily wise.”
The FTC has recently announced widely criticised proposals for merger guidelines and pre-merger notification filing requirements. These measures attempt to restrict the flow of business capital to the US to the detriment of the economy and with no clear goal in mind. Experts such as Lawrence Summers, former US Treasury secretary and director of the National Economic Council during the Obama administration, have noted that the proposed approach “seems almost like a war on business”. It is one that poses “a substantial risk” to consumers and healthy markets.
Other economists also agree that the proposed merger guidelines rely on outdated case law and forgo well-established economic principles. A former economic adviser to Barack Obama and a former Department of Justice antitrust official said: “The new draft guidelines depart sharply from previous iterations by elevating regulators’ interpretation of case law over widely accepted economic principles. The guidelines . . . shouldn’t become a debatable legal brief or, worse, a political football.”
Private equity directly backs the jobs of 12mn workers and has invested in more than 44,000 American businesses since 2017. More than 34mn public servants depend on private equity to support their retirements and, as part of a diversified investment portfolio, private equity consistently delivers the highest returns of any asset class for public pensions.
Our fragile economy cannot afford what is in effect a government power grab that blocks critical access to capital. What private equity’s critics do not understand is that making it harder for industries to invest will only make it harder for America’s small businesses, the lifeblood of the economy, to grow, scale, innovate and hire new workers.
Existing rules, laws and regulations already provide important safeguards for the private equity industry. Imposing unfounded antitrust theories will only hurt businesses, workers and retirees across the country. Instead of threatening the very investments that help competitive markets thrive, we should encourage more of the partnerships that benefit consumers, workers, entrepreneurs, retirees, doctors and nurses.
