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Public Beats Private: Six Reasons Why
Private systems are focused on making profits for a few well-positioned people.
Public systems, when sufficiently supported by taxes, work for everyone in a generally equitable manner. The following are six specific reasons why privatization simply doesn't work.
1. The Profit Motive Moves Most of the Money to the Top
The federal Medicare Administrator made $170,000 in 2010. The president of MD Anderson Cancer Center in Texas made over ten times as much in 2012. Stephen J. Hemsley, the CEO of United Health Group, made almost 300 times as much in one year, $48 million, most of it from company stock.
In part because of such inequities in compensation, our private health care system is the most expensive system in the developed world. The price of common surgeries is anywhere from three to ten times higher in the U.S. than in Great Britain, Canada, France, or Germany. Two of the documented examples: an $8,000 special stress test for which Medicare would have paid $554; and a $60,000 gall bladder operation, for which a private insurance company was willing to pay $2,000.
Medicare, on the other hand, which is largely without the profit motive and the competing sources of billing, is efficiently run, for all eligible Americans. According to the Council for Affordable Health Insurance and other sources, medical administrative costs are much higher for private insurance than for Medicare.
But the privatizers keep encroaching on the public sector. Our government reimburses the CEOs of private contractors at a rate approximately double what we pay the President. Overall, we pay the corporate bosses over $7 billion a year.
Many Americans don't realize that the privatization of Social Security and Medicare would transfer much of our money to yet another group of CEOs.
2. Privatization Serves People with Money, the Public Sector Serves Everyone
A good example is the U.S. Postal Service (USPS), which is legally required to serve every home in the country. Fedex and United Parcel Service (UPS) can't serve unprofitable locations. Yet the USPS is much cheaper for small packages. An online comparison revealed the following for the two-day shipment of a similarly-sized envelope to another state:
-- USPS 2-Day $5.68 (46 cents without the 2-day restriction)
-- FedEx 2-Day $19.28
-- UPS, 2 Day $24.09
USPS is so inexpensive, in fact, that Fedex actually uses the U.S. Post Office for about 30 percent of its ground shipments.
Another example is education. A recent ProPublica report found that in the past twenty years four-year state colleges have been serving a diminishing portion of the country's lowest-income students. At the K-12 level, cost-saving business strategies apply to the privatization of our children's education. Charter schools are less likely to accept students with disabilities. Charter teachers have fewer years of experience and a higher turnover rate. Non-teacher positions have insufficient retirement plans and health insurance, and much lower pay.
Finally, with regard to health care, 43 percent of sick Americans skipped doctor's visits and/or medication purchases in 2011 because of excessive costs. It's estimated that over 40,000 Americans die every year because they can't afford health insurance.
3. Privatization Turns Essential Human Needs into Products
Big business would like to privatize our water. A Citigroup economist exulted, "Water as an asset class will, in my view, become eventually the single most important physical-commodity based asset class, dwarfing oil, copper, agricultural commodities and precious metals."
They want our federal land. Attempts at privatization were made by the Reagan administration in the 1980s and the Republican-controlled Congress in the 1990s. In 2006, President Bush proposed auctioning off 300,000 acres of national forest in 41 states. Paul Ryan's Path to Prosperity was based in part on Republican Jason Chaffetz' "Disposal of Excess Federal Lands Act of 2011," which would unload millions of acres of land in America's west.
They want our cities. A privatization expert told the Detroit Free Press that the real money is in urban assets with a "revenue stream." So Detroit's most valuable resource, its Water & Sewerage Department (DWSD), is the collateral for a loan of $350 million to pay off the banks handling the litigation. Bloomberg estimates a cost of almost half a billion dollars, in a city where homeowners can barely afford the water services.
And they want our bodies. One-fifth of the human genome is privately owned through patents. Strains of influenza and hepatitis have been claimed by corporate and university labs, and because of this researchers can't use the patented life forms to perform cancer research.
Public systems, when sufficiently supported by taxes, work for everyone in a generally equitable manner. The following are six specific reasons why privatization simply doesn't work.
1. The Profit Motive Moves Most of the Money to the Top
The federal Medicare Administrator made $170,000 in 2010. The president of MD Anderson Cancer Center in Texas made over ten times as much in 2012. Stephen J. Hemsley, the CEO of United Health Group, made almost 300 times as much in one year, $48 million, most of it from company stock.
In part because of such inequities in compensation, our private health care system is the most expensive system in the developed world. The price of common surgeries is anywhere from three to ten times higher in the U.S. than in Great Britain, Canada, France, or Germany. Two of the documented examples: an $8,000 special stress test for which Medicare would have paid $554; and a $60,000 gall bladder operation, for which a private insurance company was willing to pay $2,000.
Medicare, on the other hand, which is largely without the profit motive and the competing sources of billing, is efficiently run, for all eligible Americans. According to the Council for Affordable Health Insurance and other sources, medical administrative costs are much higher for private insurance than for Medicare.
But the privatizers keep encroaching on the public sector. Our government reimburses the CEOs of private contractors at a rate approximately double what we pay the President. Overall, we pay the corporate bosses over $7 billion a year.
Many Americans don't realize that the privatization of Social Security and Medicare would transfer much of our money to yet another group of CEOs.
2. Privatization Serves People with Money, the Public Sector Serves Everyone
A good example is the U.S. Postal Service (USPS), which is legally required to serve every home in the country. Fedex and United Parcel Service (UPS) can't serve unprofitable locations. Yet the USPS is much cheaper for small packages. An online comparison revealed the following for the two-day shipment of a similarly-sized envelope to another state:
-- USPS 2-Day $5.68 (46 cents without the 2-day restriction)
-- FedEx 2-Day $19.28
-- UPS, 2 Day $24.09
USPS is so inexpensive, in fact, that Fedex actually uses the U.S. Post Office for about 30 percent of its ground shipments.
Another example is education. A recent ProPublica report found that in the past twenty years four-year state colleges have been serving a diminishing portion of the country's lowest-income students. At the K-12 level, cost-saving business strategies apply to the privatization of our children's education. Charter schools are less likely to accept students with disabilities. Charter teachers have fewer years of experience and a higher turnover rate. Non-teacher positions have insufficient retirement plans and health insurance, and much lower pay.
Finally, with regard to health care, 43 percent of sick Americans skipped doctor's visits and/or medication purchases in 2011 because of excessive costs. It's estimated that over 40,000 Americans die every year because they can't afford health insurance.
3. Privatization Turns Essential Human Needs into Products
Big business would like to privatize our water. A Citigroup economist exulted, "Water as an asset class will, in my view, become eventually the single most important physical-commodity based asset class, dwarfing oil, copper, agricultural commodities and precious metals."
They want our federal land. Attempts at privatization were made by the Reagan administration in the 1980s and the Republican-controlled Congress in the 1990s. In 2006, President Bush proposed auctioning off 300,000 acres of national forest in 41 states. Paul Ryan's Path to Prosperity was based in part on Republican Jason Chaffetz' "Disposal of Excess Federal Lands Act of 2011," which would unload millions of acres of land in America's west.
They want our cities. A privatization expert told the Detroit Free Press that the real money is in urban assets with a "revenue stream." So Detroit's most valuable resource, its Water & Sewerage Department (DWSD), is the collateral for a loan of $350 million to pay off the banks handling the litigation. Bloomberg estimates a cost of almost half a billion dollars, in a city where homeowners can barely afford the water services.
And they want our bodies. One-fifth of the human genome is privately owned through patents. Strains of influenza and hepatitis have been claimed by corporate and university labs, and because of this researchers can't use the patented life forms to perform cancer research.
If only rainbow ferrris would !! Instead I have to rely on the universe to provide for me~ ( lol).
Actually, I'm not that woo-woo.
My personal opinion is we are living through the decline of the empire, a time when chaos reigns.
We can of course, agree to disagree. That's fine by me :)
Actually, I'm not that woo-woo.
My personal opinion is we are living through the decline of the empire, a time when chaos reigns.
We can of course, agree to disagree. That's fine by me :)
These type of headlines must be music to your ears OH, as the big banks continue to be punished. Probably not so great for the workers though?
Mean old banks.
"Bank of America to eliminate up to 4,200 mortgage jobs"
"Wells Fargo & Co (WFC), the largest U.S. mortgage lender, said on October 17 that it was cutting 925 mortgage jobs. That is in addition to the 5,300 Wells Fargo mortgage employees who were notified that they would be laid off in the third quarter"
"Citigroup Inc. plans to cut 1,000, nationwide, from its U.S. mortgage business."
"Chase plans to cut 15,000 jobs from its mortgage unit by the end of 2014"
Mean old banks.
"Bank of America to eliminate up to 4,200 mortgage jobs"
"Wells Fargo & Co (WFC), the largest U.S. mortgage lender, said on October 17 that it was cutting 925 mortgage jobs. That is in addition to the 5,300 Wells Fargo mortgage employees who were notified that they would be laid off in the third quarter"
"Citigroup Inc. plans to cut 1,000, nationwide, from its U.S. mortgage business."
"Chase plans to cut 15,000 jobs from its mortgage unit by the end of 2014"
"And please, don't tell me about all the good Goldman Sachs does, I just ate !"
I didn't actually expect that one to fit in to your preconceived box of thought. While I hate this line, we'll have to agree on disagreeing, I'll go on believing rainbow ferries supply the income you live on.
I didn't actually expect that one to fit in to your preconceived box of thought. While I hate this line, we'll have to agree on disagreeing, I'll go on believing rainbow ferries supply the income you live on.
And please, don't tell me about all the good Goldman Sachs does, I just ate !
----------------------------------------------
:-D
Wow, what a hornet's nest. The truth is corporate taxes are lower than they've been in years, CEOs are earning outrageous sums while more and more people are being pushed into poverty.
I still say there is something just wrong when the 400 people own more than the rest of us combined.
And please, don't tell me about all the good Goldman Sachs does, I just ate !
I still say there is something just wrong when the 400 people own more than the rest of us combined.
And please, don't tell me about all the good Goldman Sachs does, I just ate !
One could counter with, why are all these foreign auto manufacturers opening new plants here in the US, supporting 1000's of new american jobs? Doesn't sound fair tothe peoplein their country of origin.
"Our country pays the highest corporate taxes in the world though!"
Then why are they doing business outside of the country to avoid taxes and stashing their money in offshore accounts. These are some of the loopholes I am talking about.
"I evolve with thinking all the time so don't give up hope with me. :>) "
Me too. I have been enlightened by some of my more conservative friends on the board as well and am proud to say so. :)
Then why are they doing business outside of the country to avoid taxes and stashing their money in offshore accounts. These are some of the loopholes I am talking about.
"I evolve with thinking all the time so don't give up hope with me. :>) "
Me too. I have been enlightened by some of my more conservative friends on the board as well and am proud to say so. :)
Our country pays the highest corporate taxes in the world though! Why is that and yet they receive so much criticism for attempting to use loopholes to lesson them? The loopholes are there. Until they aren't, I do feel that these companies are entitled to try to lesson their tax burden as much as possible. And when the corporation is strong, that trickles down to the individual things I was speaking of. There are corporations that do bad things I know. But using loopholes isn't one of them in my opinion.
I care very much for this country and our people as hopefully you know but maybe not due to some of my opinions.
Agreeing to disagree is always a good thing. I do see your point. I also really will read this article/info more carefully. I evolve with thinking all the time so don't give up hope with me. :>)
I care very much for this country and our people as hopefully you know but maybe not due to some of my opinions.
Agreeing to disagree is always a good thing. I do see your point. I also really will read this article/info more carefully. I evolve with thinking all the time so don't give up hope with me. :>)
*our* not are
SM, you are addressing a very complex and individual issue.
I am speaking of corporations on such a huge scale that their "loopholes" are undermining the very fabric of our nation.
You and I can better our lives with little consequence to our neighbors but what they are doing is leeching whatever they can from and taking down are economy and environment. Their philanthropy is but a bandaid.
We can agree to disagree on this matter. I am not against all big business and I am not against people or corporations amassing wealth, but it needs to be done with thoughtfulness and regard for those who suffer the consequences as a result of their actions.
I am speaking of corporations on such a huge scale that their "loopholes" are undermining the very fabric of our nation.
You and I can better our lives with little consequence to our neighbors but what they are doing is leeching whatever they can from and taking down are economy and environment. Their philanthropy is but a bandaid.
We can agree to disagree on this matter. I am not against all big business and I am not against people or corporations amassing wealth, but it needs to be done with thoughtfulness and regard for those who suffer the consequences as a result of their actions.
I don't blame anyone for taking advantage of loop holes. I take advantage of them too when I can to better my own position. That is not unethical in my opinion but being smart. These corporations are also responsible for the income of many people and aren't all bad. my husband works for a corporation and that the execs do well does not bother me as they also provide an income to my husband/ and thus our family. Should our family have less in order to be equal in earnings to others who perhaps didn't follow the same difficult path my husband did or work as hard as he does?
Anyway, I'll have to read carefully again OH's post as it had much information and detail. The above response was just to a couple of things that stuck out to me on an initial quick read. I promise to read it all carefully and internalize it and give it a good 'thinking'!!
Anyway, I'll have to read carefully again OH's post as it had much information and detail. The above response was just to a couple of things that stuck out to me on an initial quick read. I promise to read it all carefully and internalize it and give it a good 'thinking'!!
"Can you blame the corporations for taking advantage of the tax loop holes? "
Yes, in my opinion, a good business is an ethical business. I believe we all should pay our fair share because I feel an interconnectedness with the world. If my gain has caused another's loss then I want to remedy that to some extent. It is just a matter of trying to live well and being able to sleep at night. :)
Interesting idea about the one time tax break. I learn much from you, pro.
Can you blame the corporations for taking advantage of the tax loop holes?
I'm not going say, no I don't want the subsidy towards my premium.
Tax code needs to be changed. I've always thought if you really wanted to boost the economy, you'd offer some type of a one time tax break to the multinational corps to allow them to repatriate money held overseas. Just think of the money Apple has overseas, billions upon billions. Look at the tax revenue that would otherwise not be taxed unless the laws are changed.
(by the way, those charitable funds of Goldmans comes from individuals.
Goldman is know for "making" their employees do a certain amount of charitable work)
I'm not going say, no I don't want the subsidy towards my premium.
Tax code needs to be changed. I've always thought if you really wanted to boost the economy, you'd offer some type of a one time tax break to the multinational corps to allow them to repatriate money held overseas. Just think of the money Apple has overseas, billions upon billions. Look at the tax revenue that would otherwise not be taxed unless the laws are changed.
(by the way, those charitable funds of Goldmans comes from individuals.
Goldman is know for "making" their employees do a certain amount of charitable work)
I know that private industry is involved in philanthropy, it is a great tax write off, after all. Assuming it is done for the purest reasons (or not) it is a positive move. What I would like to know is considering the incredible tax loopholes they benefit from how much of this is real charity.
I do not have the answers, these are just questions but I am a little skeptical.
What really concerns me is this:
"Nor do privatizers have incentive to maintain infrastructure David Cay Johnston describes the deteriorating state of America's structural foundation, with grids and pipelines neglected by monopolistic industries that cut costs rather than provide maintenance. Meanwhile, they achieve profit margins of over 50%, eight times the corporate average.
As for public safety, warning signs about unregulated privatization are becoming clearer and more deadly. The Texas fertilizer plant, where 14 people were killed in an explosion and fire, was last inspected by the Occupational Safety and Health Administration (OSHA) over 25 years ago. The U.S. Forest Service, stunned by the Prescott, Arizona fire that killed 19, was forced by the sequester to cut 500 firefighters. The rail disaster in Lac-Megantic, Quebec followed deregulation of Canadian railways. At the other extreme is the public sector, and the Federal Emergency Management Agency (FEMA), which rescued hundreds of people after Hurricane Sandy while serving millions more with meals and water. "
It is unrealistic to rely on the philanthropy of big business to fund some good programs and expect *that* will run the economy. The gov't needs to run this country and the businesses that profit so immensely from this country need to pay their fare share.
I do not have the answers, these are just questions but I am a little skeptical.
What really concerns me is this:
"Nor do privatizers have incentive to maintain infrastructure David Cay Johnston describes the deteriorating state of America's structural foundation, with grids and pipelines neglected by monopolistic industries that cut costs rather than provide maintenance. Meanwhile, they achieve profit margins of over 50%, eight times the corporate average.
As for public safety, warning signs about unregulated privatization are becoming clearer and more deadly. The Texas fertilizer plant, where 14 people were killed in an explosion and fire, was last inspected by the Occupational Safety and Health Administration (OSHA) over 25 years ago. The U.S. Forest Service, stunned by the Prescott, Arizona fire that killed 19, was forced by the sequester to cut 500 firefighters. The rail disaster in Lac-Megantic, Quebec followed deregulation of Canadian railways. At the other extreme is the public sector, and the Federal Emergency Management Agency (FEMA), which rescued hundreds of people after Hurricane Sandy while serving millions more with meals and water. "
It is unrealistic to rely on the philanthropy of big business to fund some good programs and expect *that* will run the economy. The gov't needs to run this country and the businesses that profit so immensely from this country need to pay their fare share.
Established in 2007, Goldman Sachs Gives is a donor-advised fund, from which current and retired senior employees can recommend grants to qualified non-profit organizations.
The program is an important part of the firm’s tradition of individual philanthropy, growing out of our people’s involvement in nonprofit groups. The firm has contributed $1.1 billion to Goldman Sachs Gives since 2010 demonstrating the firm’s commitment to philanthropy through diversified and impactful giving.
To ensure that donations have the maximum impact in a diverse range of communities, the program focuses on four pillars: Increasing Educational Opportunities, Building and Stabilizing Communities, Honoring Service and Veterans and Creating Jobs and Economic Growth
In 2010 and 2011, nearly 7,000 grants totaling $425 million were made to support organizations
located in 24 countries. These grants are being used to build and stabilize communities, increase
educational opportunities, honor service and veterans, and create jobs and economic growth.
http://www.goldmansachs.com/citizenship/goldman-sachs-gives/gs-gives-one-pager.pdf
The program is an important part of the firm’s tradition of individual philanthropy, growing out of our people’s involvement in nonprofit groups. The firm has contributed $1.1 billion to Goldman Sachs Gives since 2010 demonstrating the firm’s commitment to philanthropy through diversified and impactful giving.
To ensure that donations have the maximum impact in a diverse range of communities, the program focuses on four pillars: Increasing Educational Opportunities, Building and Stabilizing Communities, Honoring Service and Veterans and Creating Jobs and Economic Growth
In 2010 and 2011, nearly 7,000 grants totaling $425 million were made to support organizations
located in 24 countries. These grants are being used to build and stabilize communities, increase
educational opportunities, honor service and veterans, and create jobs and economic growth.
http://www.goldmansachs.com/citizenship/goldman-sachs-gives/gs-gives-one-pager.pdf
Okay, so you know a guy who is a nogoodnik. I know people who are deserving of the Social Security they receive yet are living in their cars because of the high cost of everything.
I've heard landlords say that rents are rising in Oakland because people can't afford to pay the high rents in S.F. No, rents are rising because the landlords are greedy and don't care about the fact that so many people can't afford a roof over their head.
When a sick woman with ESLD tells me she can't afford fresh fruit and veggies and eats frozen junk instead, I know something is desperately wrong with the priorities of our country.
I've heard landlords say that rents are rising in Oakland because people can't afford to pay the high rents in S.F. No, rents are rising because the landlords are greedy and don't care about the fact that so many people can't afford a roof over their head.
When a sick woman with ESLD tells me she can't afford fresh fruit and veggies and eats frozen junk instead, I know something is desperately wrong with the priorities of our country.
Pension Funds Love Wall Street
By David Crane Oct 23, 2013 4:03 PM ET
Public pension funds have been moving huge amounts of money into alternative investments managed by Wall Street.
According to a recent report by Cliffwater LLC, an adviser to institutional investors, from 2006 to 2012 state pension funds more than doubled their allocations to alternative investments, which include private equity, real estate, hedge funds and commodities. Totaling almost $600 billion, these nontraditional investments now constitute 24 percent of public pension fund assets. In contrast, the funds dropped their investments in stocks to 49 percent from 61 percent over the six-year period.
There’s a reason for that big move, as explained in a recent International Monetary Fund report. Over the last 10 years, the average U.S. public pension fund earned a return of 6.4 percent a year, very healthy but not enough to meet the 8 percent return guaranteed to government employees. In an effort to take pressure off the state budgets that must cover those deficiencies, the IMF reports that state pension funds have been shifting billions to alternative investments promising higher yields.
To the casual observer, public pensions and hedge funds might seem like strange bedfellows. Public pension funds like to portray themselves as battlers for the little guy; hedge funds levy sizable fees that often go into the pockets of rich people.
Cynical Ploy
Some commentators even depict pension fund participation in alternative funds as a cynical ploy by pension reformers to transfer wealth from retirees to billionaire fund managers. That was the myth promoted in an Oct. 12 op-ed article in the San Francisco Chronicle by self-proclaimed progressive writers Matt Taibbi of Rolling Stone and David Sirota. But pension funds started shoveling money into alternative investment programs well before pension reform was even in the news. As one example, the California Public Employees’ Retirement System, the largest U.S. public pension fund and a vigorous opponent of pension reform, has more than doubled its targeted investment in private equity over the past 10 years. Its 2012 report lists almost $20 billion of investments in funds managed by Blackstone Group LP (BX), Apollo Global Management LLC (APO), the Carlyle Group LP (CG), KKR & Co. (KKR) and other well-known private equity companies. Calpers and other public-pension funds moved into alternatives for one reason: They are desperate to achieve higher yields to help close pension deficiencies. If they are successful, there will be greater security for retirees and less pressure to cut public services or to raise taxes.
Of course, the foray by Calpers into alternatives isn’t a panacea. Pension costs continue to rise in California. Calpers has announced an additional 50 percent increase in costs commencing in 2015, and the most recent performance of its alternatives has lagged that of its conventional assets. But the trajectory of California’s rising pension costs would have been even steeper had Calpers not increased its allocation to alternatives.
Sirota and Taibbi are right that the fees paid for alternative investment management are higher than those charged for managing conventional assets. But state pension funds are still welcoming alternative-fund managers with open arms because ultimately what counts most to them and their members are higher net yields after -- and regardless of -- fees. Would you prefer to earn (say) 10 percent after a 2 percent fee or (say) 7 percent after a 1 percent fee? In and of itself, fee size shouldn’t drive investment selection.
Higher Returns
Fortunately for those funds, the higher fees have paid off. According to Cliffwater, alternative investments played a role in the above-average performance of 19 of the 20 top-performing state pension funds over the last 10 years. Pension funds that allocated less to alternatives did worse.
Absurdly, Sirota and Taibbi also accuse alternative investment managers of favoring an end to defined-benefit pensions. The reality is exactly the opposite. Defined-benefit plans are a gravy train for private equity and hedge fund managers; 401(k) plans deploy much less capital into such nonconventional investments. Alternative investment managers would lose a fortune if pension money were shifted to 401(k) plans.
There’s no guarantee unconventional assets will outperform conventional assets, but for now state pension funds and defined-benefit pension defenders have good reason for their aggressive support of alternative investments. So-called progressives who prefer to portray Wall Street as sucking blood from working people and conspiring to end their pensions should acknowledge that truth.
(David Crane, a former financial-services executive, is a lecturer at Stanford University and president of Govern for California, a nonpartisan government-reform group. He was an economic adviser to California Governor Arnold Schwarzenegger from 2004 to 2011.)
By David Crane Oct 23, 2013 4:03 PM ET
Public pension funds have been moving huge amounts of money into alternative investments managed by Wall Street.
According to a recent report by Cliffwater LLC, an adviser to institutional investors, from 2006 to 2012 state pension funds more than doubled their allocations to alternative investments, which include private equity, real estate, hedge funds and commodities. Totaling almost $600 billion, these nontraditional investments now constitute 24 percent of public pension fund assets. In contrast, the funds dropped their investments in stocks to 49 percent from 61 percent over the six-year period.
There’s a reason for that big move, as explained in a recent International Monetary Fund report. Over the last 10 years, the average U.S. public pension fund earned a return of 6.4 percent a year, very healthy but not enough to meet the 8 percent return guaranteed to government employees. In an effort to take pressure off the state budgets that must cover those deficiencies, the IMF reports that state pension funds have been shifting billions to alternative investments promising higher yields.
To the casual observer, public pensions and hedge funds might seem like strange bedfellows. Public pension funds like to portray themselves as battlers for the little guy; hedge funds levy sizable fees that often go into the pockets of rich people.
Cynical Ploy
Some commentators even depict pension fund participation in alternative funds as a cynical ploy by pension reformers to transfer wealth from retirees to billionaire fund managers. That was the myth promoted in an Oct. 12 op-ed article in the San Francisco Chronicle by self-proclaimed progressive writers Matt Taibbi of Rolling Stone and David Sirota. But pension funds started shoveling money into alternative investment programs well before pension reform was even in the news. As one example, the California Public Employees’ Retirement System, the largest U.S. public pension fund and a vigorous opponent of pension reform, has more than doubled its targeted investment in private equity over the past 10 years. Its 2012 report lists almost $20 billion of investments in funds managed by Blackstone Group LP (BX), Apollo Global Management LLC (APO), the Carlyle Group LP (CG), KKR & Co. (KKR) and other well-known private equity companies. Calpers and other public-pension funds moved into alternatives for one reason: They are desperate to achieve higher yields to help close pension deficiencies. If they are successful, there will be greater security for retirees and less pressure to cut public services or to raise taxes.
Of course, the foray by Calpers into alternatives isn’t a panacea. Pension costs continue to rise in California. Calpers has announced an additional 50 percent increase in costs commencing in 2015, and the most recent performance of its alternatives has lagged that of its conventional assets. But the trajectory of California’s rising pension costs would have been even steeper had Calpers not increased its allocation to alternatives.
Sirota and Taibbi are right that the fees paid for alternative investment management are higher than those charged for managing conventional assets. But state pension funds are still welcoming alternative-fund managers with open arms because ultimately what counts most to them and their members are higher net yields after -- and regardless of -- fees. Would you prefer to earn (say) 10 percent after a 2 percent fee or (say) 7 percent after a 1 percent fee? In and of itself, fee size shouldn’t drive investment selection.
Higher Returns
Fortunately for those funds, the higher fees have paid off. According to Cliffwater, alternative investments played a role in the above-average performance of 19 of the 20 top-performing state pension funds over the last 10 years. Pension funds that allocated less to alternatives did worse.
Absurdly, Sirota and Taibbi also accuse alternative investment managers of favoring an end to defined-benefit pensions. The reality is exactly the opposite. Defined-benefit plans are a gravy train for private equity and hedge fund managers; 401(k) plans deploy much less capital into such nonconventional investments. Alternative investment managers would lose a fortune if pension money were shifted to 401(k) plans.
There’s no guarantee unconventional assets will outperform conventional assets, but for now state pension funds and defined-benefit pension defenders have good reason for their aggressive support of alternative investments. So-called progressives who prefer to portray Wall Street as sucking blood from working people and conspiring to end their pensions should acknowledge that truth.
(David Crane, a former financial-services executive, is a lecturer at Stanford University and president of Govern for California, a nonpartisan government-reform group. He was an economic adviser to California Governor Arnold Schwarzenegger from 2004 to 2011.)
I know a fella who got out of prison last year after serving 7 years for dealing narcotics.One year later, conned his way into SSi disability-$760/month, gets food stamps, gets free medical insurance through medicaid, gets $1000 for fuel assistance, income adjusted free property taxes through the state, heck he even gets his basic phone bill comp'd. He's quite healthy- cuts, splits and delivers firewood for cash. You seem heel bent to have everyone sucking of the government teat at the expense of those who work for a living.
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How KKR helped create jobs for impoverished villagers
By Dan Primack October 23, 2013: 12:09 PM ET
What happened when private equity giant KKR got involved with a rural nut processor in Bali.
FORTUNE -- There has been lots of discussion about how private equity firms do (or don't) create new jobs, so today it's worth highlighting an instance in which jobs not only were indisputably created, but the new hires were poor rural villagers. Moreover, the participating private equity firm invested time rather than money.
Here's the story in a nutshell (pun soon to become apparent):
Soon after Kohlberg Kravis Roberts & Co. (KKR) opened its Singapore office last October, director of Asia public affairs Steve Okun began looking for a local organization with whom the firm could partner on a corporate social responsibility (CSR) effort. So he began holding discussions with Impact Investment Exchange Asia (IIX), a group that focuses on social sector development via investment. But IIX turned Okun down, saying it previously had been burned by investment banks that began projects and then dropped them once a big new banking deal came along (IIX knew of what it spoke, since it was founded by investment bankers).
Okun persisted, and promised that KKR's involvement would be with members of different offices (Singapore and Australia), and that it would be on nights and weekends (so long as IIX would do the same).
Soon the two groups settled on a project: East Bali Cashews, Bali's first large-scale cashew processing facility. The company is known for using environmentally-friendly processes and employs around 130 people in the impoverished village of Bon.
What East Bali needed was $900,000 in fresh capital, in order to build a second factory, purchase new machines and hire 100 new workers. But while it knew how to process cashews, it had very little experience raising money.
So three KKR staffers spent months working with the East Bali and IIX teams on identifying needs, writing a business plan and providing general business counsel. It did not, however, directly invest – believing that its highest value would be imparting its knowhow with East Bali Cashew executives so they could more effectively run and grow their business. In the end, the company raised its money – in no small part because it could present a "KKR-vetted" business plan to potential investors.
***A sister organization to IIX estimates that for every dollar invested in East Bali Cashew activities this year, the company created an additional 24 cents in social value.
Okun argues that this is the lesson for private equity firms interested in CSR: "Yes, you can go spend the day painting a nursing home. And that's great. But private equity has unique skills that can be used to provide a base of knowledge that can help a social enterprise, and there is far more long-term value in that."
...........................................................................................................
How KKR helped create jobs for impoverished villagers
By Dan Primack October 23, 2013: 12:09 PM ET
What happened when private equity giant KKR got involved with a rural nut processor in Bali.
FORTUNE -- There has been lots of discussion about how private equity firms do (or don't) create new jobs, so today it's worth highlighting an instance in which jobs not only were indisputably created, but the new hires were poor rural villagers. Moreover, the participating private equity firm invested time rather than money.
Here's the story in a nutshell (pun soon to become apparent):
Soon after Kohlberg Kravis Roberts & Co. (KKR) opened its Singapore office last October, director of Asia public affairs Steve Okun began looking for a local organization with whom the firm could partner on a corporate social responsibility (CSR) effort. So he began holding discussions with Impact Investment Exchange Asia (IIX), a group that focuses on social sector development via investment. But IIX turned Okun down, saying it previously had been burned by investment banks that began projects and then dropped them once a big new banking deal came along (IIX knew of what it spoke, since it was founded by investment bankers).
Okun persisted, and promised that KKR's involvement would be with members of different offices (Singapore and Australia), and that it would be on nights and weekends (so long as IIX would do the same).
Soon the two groups settled on a project: East Bali Cashews, Bali's first large-scale cashew processing facility. The company is known for using environmentally-friendly processes and employs around 130 people in the impoverished village of Bon.
What East Bali needed was $900,000 in fresh capital, in order to build a second factory, purchase new machines and hire 100 new workers. But while it knew how to process cashews, it had very little experience raising money.
So three KKR staffers spent months working with the East Bali and IIX teams on identifying needs, writing a business plan and providing general business counsel. It did not, however, directly invest – believing that its highest value would be imparting its knowhow with East Bali Cashew executives so they could more effectively run and grow their business. In the end, the company raised its money – in no small part because it could present a "KKR-vetted" business plan to potential investors.
***A sister organization to IIX estimates that for every dollar invested in East Bali Cashew activities this year, the company created an additional 24 cents in social value.
Okun argues that this is the lesson for private equity firms interested in CSR: "Yes, you can go spend the day painting a nursing home. And that's great. But private equity has unique skills that can be used to provide a base of knowledge that can help a social enterprise, and there is far more long-term value in that."
cont.
4. Public Systems Promote a Strong Middle Class
Part of free-market mythology is that public employees and union workers are greedy takers, enjoying benefits that average private sector workers are denied. But the facts show that government and union workers are not overpaid. According to the Census Bureau, state and local government employees make up 14.5% of the U.S. workforce and receive 14.3% of the total compensation. Union members make up about 12% of the workforce, but their total pay amounts to just 10% of adjusted gross income as reported to the IRS.
The average private sector worker makes about the same salary as a state or local government worker. But the median salary for U.S. workers, 83% of whom are in the private sector, was $18,000 less in 2009, at $26,261. Inequality is much more pervasive in the private sector.
5. The Private Sector Has Incentive To Fail, or No Incentive At All
The most obvious incentive to fail is in the private prison industry. One would think it a worthy goal to rehabilitate prisoners and gradually empty the jails. But business is too good. With each prisoner generating up to $40,000 a year in revenue, the number of prisoners in private facilities has increased from 1990 to 2009 by more than 1600%, from about 7,000 to over 125,000 inmates. Corrections Corporation of America recently offered to run the prison system in any state willing to guarantee that jails stay 90% full.
Nor do privatizers have incentive to maintain infrastructure David Cay Johnston describes the deteriorating state of America's structural foundation, with grids and pipelines neglected by monopolistic industries that cut costs rather than provide maintenance. Meanwhile, they achieve profit margins of over 50%, eight times the corporate average.
As for public safety, warning signs about unregulated privatization are becoming clearer and more deadly. The Texas fertilizer plant, where 14 people were killed in an explosion and fire, was last inspected by the Occupational Safety and Health Administration (OSHA) over 25 years ago. The U.S. Forest Service, stunned by the Prescott, Arizona fire that killed 19, was forced by the sequester to cut 500 firefighters. The rail disaster in Lac-Megantic, Quebec followed deregulation of Canadian railways. At the other extreme is the public sector, and the Federal Emergency Management Agency (FEMA), which rescued hundreds of people after Hurricane Sandy while serving millions more with meals and water.
The lack of private incentive for human betterment is evident throughout the world. The World Hunger Education Service states that "Harmful economic systems are the principal cause of poverty and hunger." And according to Nicholas Stern, the chief economist for the World Bank, climate change is "the greatest market failure the world has seen."
6. With Public Systems, We Don't Have to Listen To "Individual Initiative" Rantings
Back in the Reagan years, a stunning claim was made by Margaret Thatcher: "There is no such thing as society. There are individual men and women, and there are families." More recently, Paul Ryan complained that government support "drains individual initiative and personal responsibility."
That's easy to say for people with good jobs.
Individual initiative? Our publicly supported communications infrastructure allows the richest 10% of Americans to manipulate their 80% share of the stock market. CEOs rely on roads and seaports and airports to ship their products, the FAA and TSA and Coast Guard and Department of Transportation to safeguard them, a nationwide energy grid to power their factories, and communications towers and satellites to conduct online business. Perhaps most important to business, even as it focuses on short-term profits, is the long-term basic research that is largely conducted with government money. As of 2009 universities were still receiving ten times more science & engineering funding from government than from industry.
Public beats private in almost every way. Only the hype of the free-market media keeps much of America believing that "winner-take-all" is preferable to working together as a community.
http://www.nationofchange.org/public-beats-private-six-reasons-why-1382448019
4. Public Systems Promote a Strong Middle Class
Part of free-market mythology is that public employees and union workers are greedy takers, enjoying benefits that average private sector workers are denied. But the facts show that government and union workers are not overpaid. According to the Census Bureau, state and local government employees make up 14.5% of the U.S. workforce and receive 14.3% of the total compensation. Union members make up about 12% of the workforce, but their total pay amounts to just 10% of adjusted gross income as reported to the IRS.
The average private sector worker makes about the same salary as a state or local government worker. But the median salary for U.S. workers, 83% of whom are in the private sector, was $18,000 less in 2009, at $26,261. Inequality is much more pervasive in the private sector.
5. The Private Sector Has Incentive To Fail, or No Incentive At All
The most obvious incentive to fail is in the private prison industry. One would think it a worthy goal to rehabilitate prisoners and gradually empty the jails. But business is too good. With each prisoner generating up to $40,000 a year in revenue, the number of prisoners in private facilities has increased from 1990 to 2009 by more than 1600%, from about 7,000 to over 125,000 inmates. Corrections Corporation of America recently offered to run the prison system in any state willing to guarantee that jails stay 90% full.
Nor do privatizers have incentive to maintain infrastructure David Cay Johnston describes the deteriorating state of America's structural foundation, with grids and pipelines neglected by monopolistic industries that cut costs rather than provide maintenance. Meanwhile, they achieve profit margins of over 50%, eight times the corporate average.
As for public safety, warning signs about unregulated privatization are becoming clearer and more deadly. The Texas fertilizer plant, where 14 people were killed in an explosion and fire, was last inspected by the Occupational Safety and Health Administration (OSHA) over 25 years ago. The U.S. Forest Service, stunned by the Prescott, Arizona fire that killed 19, was forced by the sequester to cut 500 firefighters. The rail disaster in Lac-Megantic, Quebec followed deregulation of Canadian railways. At the other extreme is the public sector, and the Federal Emergency Management Agency (FEMA), which rescued hundreds of people after Hurricane Sandy while serving millions more with meals and water.
The lack of private incentive for human betterment is evident throughout the world. The World Hunger Education Service states that "Harmful economic systems are the principal cause of poverty and hunger." And according to Nicholas Stern, the chief economist for the World Bank, climate change is "the greatest market failure the world has seen."
6. With Public Systems, We Don't Have to Listen To "Individual Initiative" Rantings
Back in the Reagan years, a stunning claim was made by Margaret Thatcher: "There is no such thing as society. There are individual men and women, and there are families." More recently, Paul Ryan complained that government support "drains individual initiative and personal responsibility."
That's easy to say for people with good jobs.
Individual initiative? Our publicly supported communications infrastructure allows the richest 10% of Americans to manipulate their 80% share of the stock market. CEOs rely on roads and seaports and airports to ship their products, the FAA and TSA and Coast Guard and Department of Transportation to safeguard them, a nationwide energy grid to power their factories, and communications towers and satellites to conduct online business. Perhaps most important to business, even as it focuses on short-term profits, is the long-term basic research that is largely conducted with government money. As of 2009 universities were still receiving ten times more science & engineering funding from government than from industry.
Public beats private in almost every way. Only the hype of the free-market media keeps much of America believing that "winner-take-all" is preferable to working together as a community.
http://www.nationofchange.org/public-beats-private-six-reasons-why-1382448019
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