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But as Rogé Karma explains, that could be enough to cause big trouble, as a large and growing portion of our economy is disappearing behind a veil…

The publicly-traded company is disappearing. In 1996, about 8,000 firms were listed in the U.S. stock market. Since then, the national economy has grown by nearly $20 trillion. The population has increased by 70 million people. And yet, today, the number of American public companies stands at fewer than 4,000. How can that be?

One answer is that the private-equity industry is devouring them. When a private-equity fund buys a publicly traded company, it takes the company private—hence the name. (If the company has not yet gone public, the acquisition keeps that from happening.) This gives the fund total control, which in theory allows it to find ways to boost profits so that it can sell the company for a big payday a few years later. In practice, going private can have more troubling consequences. The thing about public companies is that they’re, well, public. By law, they have to disclose information about their finances, operations, business risks, and legal liabilities. Taking a company private exempts it from those requirements.

That may not have been such a big deal when private equity was a niche industry. Today, however, it’s anything but. In 2000, private-equity firms managed about 4 percent of total U.S. corporate equity. By 2021, that number was closer to 20 percent. In other words, private equity has been growing nearly five times faster than the U.S. economy as a whole.

Elisabeth de Fontenay, a law professor at Duke University who studies corporate finance, told me that if current trends continue, “we could end up with a completely opaque economy.”

This should alarm you even if you’ve never bought a stock in your life. One-fifth of the market has been made effectively invisible to investors, the media, and regulators. Information as basic as who actually owns a company, how it makes its money, or whether it is profitable is “disappearing indefinitely into private equity darkness,” as the Harvard Law professor John Coates writes in his book The Problem of Twelve. This is not a recipe for corporate responsibility or economic stability. A private economy is one in which companies can more easily get away with wrongdoing and an economic crisis can take everyone by surprise. And to a startling degree, a private economy is what we already have.

America learned the hard way what happens when corporations operate in the dark. Before the Great Depression, the whole U.S. economy functioned sort of like the crypto market in 2021. Companies could raise however much money they wanted from whomever they wanted. They could claim almost anything about their finances or business model. Investors often had no good way of knowing whether they were being defrauded, let alone whether to expect a good return.

Then came the worst economic crisis in U.S. history…

Read on for a bracing account of: “The Secretive Industry Devouring the U.S. Economy,” (gift article) in @TheAtlantic.

* Paul Krugman

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As we clean our glasses, we might spare a thought for Ivy Lee; he died on this date in 1934. A  publicity expert and a founder of modern public relations, he was among the first to persuade business clients– foremost among them, the Rockefeller family– to woo public opinion. Ultimately he advised rail,  steel, automobile, tobacco, meat packing, and rubber interests, as well as public utilities, banks, and even foreign governments.

Lee pioneered the use of internal magazines to maintain employee morale, as well as management newsletters, stockholder reports, and news releases to the media. And he did a great deal of pro bono work, which he knew was important to his own public image; during World War I, he became the publicity director for the American Red Cross.

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