This week, M. Todd Henderson, professor at the University of Chicago Law School and a frequent commentator on business and financial trends, debates Oren Cass, executive director of American Compass and former domestic policy adviser for the 2012 Romney presidential campaign, on whether the private equity industry creates substantial social value. This Debate follows a recent public exchange between Messrs. Henderson and Cass.
We hope you enjoy.
Josh Hammer, Newsweek opinion editor, is also a syndicated columnist and of counsel at First Liberty Institute.
After all, European workers are just as capable, just as smart and just as creative as Americans, but American companies are universally acknowledged as the world’s best. This isn’t patriotic pride talking. In a famous study, Nicholas Bloom and John van Reenan, two British-born academics, demonstrated that U.S. firms are the best-run in the world, on average. Better management matters because it generates more wealth from the same stock of inputs. The average American firm generates more social surplus—the sum of producer and consumer surplus—out of every dollar, every hour, every idea and every molecule invested. That is more wealth for all of us, which can be used not only to purchase more goods and services, but also by government (through taxes) to create public goods. Efficiency drives progress.
Wealth can be a sign that tremendous value has been created for investors, customers and society more broadly. But wealth can also be captured rather than created. And while that works well for the capturer, the game is zero-sum, or even value-destroying, in aggregate. The private equity industry offers a fascinating case study in the importance of distinguishing between these scenarios.
