"Business" is being badmouthed across the board, and managers are labeled as greedy pilferers, unscrupulous gobblers of companies and inhuman exploiters. Over the weekend, the Social Democrats even published a "wanted" list of supposed economic criminals.
They said the same about the Jews in 1933!
The positive payoff of the locusts
Frankfurter Allgemeine Zeitung Publishing Group Germany | Holger Steltzner
FRANKFURT
Frankfurter Allgemeine Zeitung
Faced with the possible defeat of the Social Democrat-Green coalition in North Rhine-Westphalia, the Social Democrats' chairman, Franz Müntefering, has been stoking fears about a virtual locust plague. "Business" is being badmouthed across the board, and managers are labeled as greedy pilferers, unscrupulous gobblers of companies and inhuman exploiters. Over the weekend, the Social Democrats even published a "wanted" list of supposed economic criminals.
The four-page paper from the Social Democrats' parliamentary group is a crude selection of quotes under the headline of "Market Radicalism Instead of the Social Market Economy - How Private Equity Exploits Companies." Above all, it illustrates the misconceptions about the economy that are prevalent within the Social Democratic Party. Siemens Nixdorf, for example, is cited as evidence for the avarice of Anglo-Saxon locusts. What is probably meant is the company Wincor Nixdorf, a manufacturer of automated teller machines. Six years ago, the company was acquired by the U.S. private equity firm Kohlberg Kravis Roberts & Co. Since then, the number of employees has nearly doubled. The company became the most successful German IPO in years. Auto-Teile-Unger is also on this list, even though the company has increased the number of outlets from 390 to 504 and hired more people since the private equity company took over. But the Social Democrats do not bother to address such politically unfitting facts.
Of course, many employees are laid off sometimes after takeovers. And some acquired companies occasionally even go bust. That, too, is part of the risky business of private equity. The supposedly amorally high margins are a result of a mixed calculation from successful takeovers and the rare total loss. Because the total return is markedly higher than the return from stocks or bonds, more and more insurance companies and pension funds are investing some money in private equity.
Without knowing it, many critics of capitalism are indirectly profiting from private equity, too. For the entire economy, private equity companies function as a driver of inevitable structural change. They take over cash-strapped real estate loans from shaky German banks, costly housing areas from the government, and severed divisions from large companies. Unlike the lobbyists from the business associations who bemoan the high taxes and costs, they recognize Germany's opportunities. Instead of complaining about the inflexible labor market, they work out individual solutions with the workers councils. They are the ones facing German angst with Anglo-Saxon optimism. Because they have learned to invest counter-cyclically, they are making a grand shopping tour in Germany and are finding bargain-basement prices.
Of course, there are also exaggerations in this field, as there always are on the stock and capital markets. Most recently the tendency, driven by record-low interest rates and the worldwide surplus of capital, has been to use loans to further boost the return on equity capital. In these cases, the capital reserves of the companies taken over are siphoned off by the new owners and debt increases. This so-called recapitalization quite often leaves behind companies groaning under the burden of interest and redemption payments. These are speculative outgrowths that are to be viewed critically. But the simple formula of good equity versus bad borrowed capital does not help in assessing them. That is because, in the end, all investors want an adequate return.
Like all developed economies, Germany is dependent on efficient capital markets. The use of modern financing instruments is indispensable for successful structural change and risk control. How well the self-healing powers of the markets work even after shocks and speculative exaggerations can be seen in the reactions to the terrorist attacks of Sept. 11, 2001, the burst of the Internet bubble or the illegal enrichment of managers. The harsh criticism of a few bad managers is justified if they have lost touch with reality and let their employees and the shareholders pay for their strategic mistakes, while they themselves remain stuck to their seats and pocket million euro salaries. But the frontal attack by the Social Democrats on the business world is excessive. Its goal is to retain power and parliamentary seats. But this only serves the government, not the people. |
