Comment by mfairbank | Hacker News Reader

Comment by mfairbank | Hacker News Reader

As a counter-point to the idea that private equity buyouts harm consumers, here is a recent paper documenting the impact of PE transactions in the restaurant industry. [0]

Key bits from the abstract:

"Analysis of health inspections conducted for over 50,000 stores in Florida shows that food safety and sanitation improve after private equity takeover, especially in areas related to food handling, kitchen maintenance and consumer advising."

"Restaurants also reduce employee headcount and lower menu prices. This evidence suggests private equity firms are not simply financial engineers but rather active operators that improve management practices in the firm. Moreover, efficiency gains do not come at the expense of product quality."

Unfortunately this does not address the main thrust of the New York Times piece, which focused more on natural monopoly sectors such as water, public transit, and emergency response. It does make intuitive sense that private firms would have less of an incentive to improve operations when buying a monopolistic entity that comes with significant pricing power already baked in. Hopefully good research on these is out there or in the pipeline, as it seems like an in-demand and under-served area of academic inquiry.

Disclosure: I worked briefly as an undergrad for one of the paper's authors, on a distinct but similar project.

0: http://people.hbs.edu/asheen/BernsteinSheen_Restaurants_June...

Is there any reason an experience from "restaurants" is meaningful in the context of what the article is about? At the very least I see not even an effort from you, as if it's all the same. It seems to me that those are entirely different categories. For example, the restaurant business is highly competitive, people can easily go elsewhere.

Regarding the article though, I wonder what the purpose of spending 99% of the budget for the article on visuals rather than the actual article was. That's a really lame piece of pseudo-"journalism". It provides a very weak argument (if any), which is unfortunate given the importance of the topic.

I thought the restaurants example demonstrating that PE firms could have a positive impact on a business was actually a good counterpoint to specific points where the article was stating or implying that PE was bad (e.g. that 911 results could be slow and you'd be stuck with a bill, paramedic response times got worse under PE)

Your point about restaurant businesses being a different category seems to be engaging only on the point of PE owned businesses are ubiquitous not on sub-text that PE turnarouds could be bad.

I don't understand your reply. If the businesses are in a completely different realm, how is it of any use to know that it works fine for restaurants? How can that possibly serve as an argument for completely different businesses (when it's not even clear they should be businesses, but no need to argue about that). Where is the argument "something like this works in a completely different context" a valid argument?

The article describes how PE works badly in a limited set on industries (monopolies), but uses expansive language and doesn't properly caveat it's argument that PE is bad in general. Parent uses restaurants as an example of a more ordinary competitive business, where academic research exists that shows the benefits of PE.

Your reply doesn't address any of the points of my reply. Once more: Why would it be relevant at all that something works for restaurants, a completely different environment? Mentioning restaurants does not work to refute the article's points.

Yes the article is horrible. It's not even an article. But that does not mean you can now go ahead and use anything to refute it. That's illogical. You have to use good logic even when trying to refute something bad.

The examples in the article are atypical because they are monopolies. Restaurants are typical because they are not monopolies. Academic research about a typical case is high-quality evidence.

The piece clearly went out of its way to avoid any mention of PE successes. The closest they come is mentioning that Fortress claims they "will create jobs and take cars off the road."

I tried to address it in my paragraph after the snippets from the abstract, but I admit it was a rather superficial treatment. I actually am most interested in the core of the problem presented by service needs that fall naturally into monopoly (water, power, public transit). We have a long track-record of poor government administration when it comes to these services, and as the New York Times article suggests, private ownership may be no better. So what do we do? The only semi-acceptable answer I can think of is moving the voting date for city and state level elections to weekends/holidays, in the hopes of driving turnout and subsequently accountability among politicians responsible for overseeing these services.

Quick Service Restaurant industry one of the most competitive. The reason why they were able to increase productivity and product quality might be because when you focus on a few core metrics like serving time and food prices it doesn't come at the expense of productivity but because of it.

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