REPORT Economic GrowthPrivate EquityWall Street

Financial Capitalism, Breach of Trust and Collateral Damage


An increasing share of the economy is organized around financial capitalism, where, in contrast to the past, capital market actors actively assert and manage their claims on wealth creation and distribution. These new activities challenge prior assumptions of managerial capitalism found in the IR literature. In this paper, we focus on one set of pro-active financial intermediaries – private equity funds – to illustrate new forms of wealth extraction and their implications for labor research. We use four case studies of leveraged buyouts of large US and British corporations. Our cases demonstrate wealth extraction through financial engineering and operational changes, but also through the breaching of norms of trust and implicit contracts between shareholders and stakeholders – other investors, employees, suppliers, creditors, clients, and communities. Disregard for these contracts leads to ‘collateral damage’ – not only negative effects on other stakeholders but on the ability of these organizations to survive and continue doing business.

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This paper was presented at BJIR 50th Anniversary Conference titled “Across Boundaries: An Interdisciplinary Conference on the Global Challenges Facing Workers and Employment Research” at the London School of Economics on December 13, 2011.

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