This is a dark tale. In its opening scene the author is in conversation with a textile artist in her workshop under the arches in Deptford – arguably one of the last neighbourhoods that credibly sustains London’s claim to be a city that supports creativity. Hettie O’Brien listens to her talk about rising rents as the railway’s lands are sold to new, invisible owners. The arches have become assets to be traded, and as a result the artist will soon be forced to ply her own trade elsewhere. Behind this story, and many others, lies the hand of private equity. The vast profits reaped by investors, and the toll on society, are all described here in lucid and highly readable prose.
Private equity partnerships are groups of individual and institutional investors with deep pockets. O’Brien traces their rise following the era of deregulation inaugurated by Reagan and Thatcher, and details how Blackstone, the Qatar Investment Authority, Macquarie, KKR and others have bought undervalued assets using borrowed money to minimise their exposure to risk. What happens next is that costs, wages and investment in the future are frequently cut to the bone in the cause of exceptionally high returns.
This is not just a problem of where money comes from, but how it behaves. The assets targeted are deeply entangled in our everyday life: in water, energy, housing, care homes, health, trains – services we all depend on. With examples from Copenhagen, Barcelona, San Francisco, London and Yorkshire, O’Brien shows the damage private equity can inflict as the state withdraws from key public services. She gathers stories of collapsing infrastructure, including sewage dumped in rivers by privatised, debt-saddled water companies. She shows how some care homes treat elderly people as “the human equivalent of ATM machines” as fees are siphoned from their housing equity to fund the poor conditions and low wages of exhausted care workers. Her most shocking example of the collision between profit and care is a hospital in Africa where she alleges staff were pressured to admit patients, keep them in for longer and then seek to imprison a number of those who could not pay their bills.
In the UK, privatisation was accompanied by regulation. But inspection regimes, as O’Brien argues, are often underfunded and ineffective. No one wants sewage in rivers – activists campaign against it, the Environment Agency hands out fines – but nothing changes, because poor services maximise profit and shareholder returns are a higher priority than clean water.
Two pillars support private equity’s antisocial effects. One is secrecy: piles of profit and debt are moved around via offshore banks with minimal scrutiny. This allows the sector to nurture a public image – of heroic dealmaking and lean, smart efficiency – that is radically at odds with the reality; O’Brien likens it to a spy’s “legend” or false identity. The second is the complicity of successive UK governments, so keen to offload public services that they offer highly favourable tax conditions. O’Brien rightly concludes that this has “rewire[d] the state in service of a wealthy elite”.
A growing number of researchers believe that private equity is generating political instability, spurring a spiralling cycle of public debt and fiscal tightening. And while some make these arguments in more theoretical terms, O’Brien marshals stories and evidence in a compellingly human way. She adds flesh and personality to Brett Christophers’ excellent but more abstract arguments in Our Lives in Their Portfolios: Why Asset Managers Own the World.
Everyone should read The Asset Class. It is a gripping and accessible tale about how private equity degrades our lives and living standards, a portrait of capital’s most rapacious configuration so far. Might other kinds of capital that are more compassionate, less profitable, more socially aware, repair the damage private equity has inflicted? Or does the prospect of incalculable wealth corrupt everything and everyone? That remains to be seen – but O’Brien’s analysis of the politics is bang on the money: the government could fix this if it was minded to. Her evidence suggests that it isn’t.
• Caroline Knowles is Honorary Professor of Geography at Queen Mary University of London and author of Serious Money (Penguin) and Uneasy Streets (Hurst). The Asset Class: How Private Equity Turned Capitalism Against Itself by Hettie O’Brien is published by W&N (£25). To support the Guardian, order your copy at guardianbookshop.com. Delivery charges may apply.
