Are companies more powerful than countries?

It’s worthwhile to check out the February 13, 2012 issue of Time magazine, particularly Rana Foroohar’s column titled, “Companies are the new countries.”

The main point of the column is straightforward: Companies are becoming more important than countries. While countries like Greece and the US are awash in debt that looks hopelessly permanent, she says “the top companies of the world seem to exist in a world apart: they are booming…they are operating in a space that is increasingly supranational – disconnected from local concerns and problems in their home markets.”

That sentence set off alarm bells in my head, as it should for all Americans. Remember not so long ago when there were a lot of local and regional companies? I do. I banked at the local bank that was based in my city. I shopped at a small grocery chain that was headquartered in my state. I went to the local hardware store for my home repair needs. The stuff I bought there was manufactured in Chicago, or New York, or maybe Texas. As a college student, I worked summers in a factory that made aluminum furniture parts. Sometimes I would bump into the owner of the company as he walked around the factory, which employed about 500 people.

The local business owners supported the city where I lived. They worked hard in their businesses and if they were fortunate, they made a lot of money and became wealthy. But they also thought long and hard about laying people off when business was slow. They knew the folks that worked for them: their kids went to school together, they often attended the same church, and many times they bumped into employees and their families when they went to the grocery store. As a result, they felt a deep loyalty to their employees and the city and state of which they and their families were a part.

Contrast that to modern day America. The company you work for is more likely to be a major corporation, or if it is a “local” business, it could very well be owned by a “private equity group.” The people who make the decisions are thousands of miles away, in New York, Saudi Arabia or China. All these executives care about is the price of the stock and this month’s quarterly return-on-investment. If firing five hundred people will boost their ROI a percentage point, they’ll fire them in the blink of an eye. They see it as just another day at the office and another day closer to their million dollar bonus at year end.

An executive at Apple was recently quoted as saying, “We don’t have an obligation to solve America’s problems.” Apple certainly demonstrates that attitude in how they conduct business – they are perfectly happy to sell tens of millions of their product in the US, but they employ only about fifty thousand people here (mostly low paying retail jobs) versus over one million factory workers in China. Apple also has about $60 billion in overseas bank accounts, keeping the money sequestered offshore to avoid paying taxes in the US.

You might be thinking that Apple has every right to turn their back on the US and treat it as any other market. However, Apple also expects the United States and its taxpayers to exercise its political clout to protect their intellectual property rights in foreign countries. And they rely on the US Navy to keep shipping lanes secure so they can ship their products to the US from China. They are perfectly willing to use the resources of their “home” country, but not nearly as willing to give back.

I’m picking on Apple because everyone knows them. But there are tens of thousands of small and mid-sized companies all over the US that are owned and controlled by ultra-wealthy private equity investors, many of whom are in the Middle East and other foreign countries. These days there is a very strong possibility that, even if you work for a company that looks All-American to outsiders, your ultimate boss does not speak English as a first language.

My new thriller American Epitaph, came about because I started thinking out into the future about what could happen if the trend of the past twenty years continues. What would happen if companies became even more powerful and in essence became one and the same as the government? What would life be like if the one-percent (to use the current term) really took over? It’s a scary story based on a scary idea. But unfortunately, there is an all-too-real possibility that it could happen.

American Epitaph is exclusively available on Amazon.com (a big, publicly traded company since there are hardly any local bookstores left) in paperback and Kindle formats. Here’s a link to the paperback page http://www.amazon.com/American-Epitaph-James-Laabs/dp/0976759969/ref=sr_1_5?s=books&ie=UTF8&qid=1328448631&sr=1-5

How hedge funds and private equity groups are ruining America

A number of years ago I was hired in a management position for a distribution company that was locally owned. A few months after I started the job, a letter came from the company owner. He had decided to sell the business to a much larger company based in New Jersey. Even in the low-margin world of distribution, this larger company had what is known in mergers and acquisitions as "deep pockets," in other words they had a lot of cash on hand.

As I looked into the acquiring company, I learned that they were one of 90 companies owned by a "private equity group." A private equity group is basically one or more wealthy investors who are not satisfied with buying mutual funds or stocks - they prefer to own small and mid-sized companies. I was told that this particular private equity group was bankrolled by "oil money." I pictured a big, grinning Texan with his pockets stuffed with money from his Texas drilling.

But the real "oil money" was not from the US. It was from the Middle East. And these private investors didn't care a bit about the US employment rate or doing the right thing for the city or state in which the business was located - the customers that had supported the company for fifty years.

My company had 55 employees when the acquisition was announced. I almost survived, but got nailed in the last cut, when they reduced from 22 to 17 employees.

Fortunately, I bounced back OK and have done very well. But ever since then, I've been paying attention to who owns small and mid-sized businesses. And I have to tell you, the trend isn't very good. Any successful US business with maybe $10 million or more in sales is like a tiny minnow swimming in a sea full of sharks. The hedge funds and private equity groups will throw some money at the business owner, who suddenly realizes that retirement with a bagful of cash looks pretty appealing. The private money comes in and starts cutting costs to increase the return on investment. "Cutting costs" almost always means cutting people from the payroll.

The most disturbing things about these investors is that: (a) They have no loyalty to the city, state or country the business is in. Their only goal is to maximize ROI, (b) The majority of the money behind these groups is from outside the US, and (c) These creeps usually operate under the radar. They have to follow the same regulations as small businesses, but their investments are not subject to the same regulations are publicly traded stocks.

You put these things together and it's easy to see why our economy is in the state it's in and unemployment is stuck over 9%. These private equity groups are ruining the middle class, stealing the salaries of workers who they lay off to put in their own pockets.

Hedge funds are different in name, but no better than private equity groups except they don't invest in smaller businesses quite as much. But the people who invest in hedge funds (as well as the hedge fund managers) are 1-percenters - they want one thing and that is return on investment. And the hedge fund manager is glad to oblige, no matter what the consequences to employees are. Actually what prompted me to write this blog is that Sears/K-Mart just announced today they are closing 120 stores. Although it is a publicly traded company, Sears main owner is a hedge fund manager by the name of Eddie Lampert, who has in the past few years turned Sears into a hedge fund. He's learned that the real estate the stores are located on is worth more than the store itself - so guess what his response is? Close 'em down!

What's the solution? The government needs to pass stronger anti-layoff laws. Maybe a law to limit the number of job cuts a new business owner can make within the first three years they own the new acquisition. In any event, something is needed.

By the way, I have a new book coming in a few weeks, American Epitaph. (available on Amazon in print and Kindle January 10) It takes place in 2025 and the story finds the US in complete economic and political chaos. I fear we are headed for an American Epitaph if our government doesn't do something to stop the mass transfer of wealth from the middle class to the wealthy.