A once-in-a-century pandemic has sparked an unprecedented crisis. With over 167 million cases and 3.5 million deaths recorded worldwide and entire economies in turmoil, the fallout has been felt by all—but unevenly so. Public attention has rightfully focused on curbing COVID-19’s spread and alleviating economic hardship.
But lurking behind the headlines of vaccines and new variants are predatory financial investors whose work has placed many workers at risk and exploited those very vulnerabilities to profit from the pandemic.
In a recent article in American Behavioral Scientist, we examine how the rise of U.S. “shadow banks”—less regulated, private credit intermediaries such as private equity, venture capital, and hedge fund firms—has impacted the course of hardship and inequality during the crisis. These shadow banks play an instrumental role in how executives manage companies, which has important ramifications for societal responses to crises, the wellbeing and livelihoods of workers, and inequality throughout the labor market.
Private equity (PE), for one, often proactively intervenes in the private companies they invest in. To improve profitability, PE investors change the management and business practices in ways that can put workers at risk. Techniques include closing plants and facilities, laying off workers, automating jobs, offshoring and outsourcing labor, terminating collective bargaining agreements, shifting labor to non-union facilities, and reducing employees’ wages and benefits, especially for unionized workers.
Following a PE acquisition, workers who perform routine or offshorable work are twice as likely to be unemployed. And, PE owners are even more likely to shut down plants and take extreme cost-cutting measures during financial crises.
Frontline workers during the coronavirus crisis—healthcare, grocery, and distribution workers—have been among those hardest hit by PE in the years leading up to the crisis. PE has targeted the healthcare industry, with drastic impacts on hospitals, urgent care, and ambulances.
Many PE firms aim for quick turnover in their acquisitions, making them less likely to invest in new technology, workers’ skills, quality improvements, and emergency equipment stockpiles. This left hospital workers at risk when the coronavirus hit because hospitals had insufficient personal protective equipment reserves.
Meanwhile, PE has driven mergers and acquisitions that have increased hospital monopolies. This consolidation has led to increased healthcare costs and overburdened yet underpaid and insecure healthcare staff, making it harder to fill shifts when healthcare workers catch the highly contagious virus. Less profitable hospitals and other healthcare facilities have closed, cutting off low-income and rural areas from access to healthcare. As the coronavirus crisis swept rural areas, hospitals became overwhelmed and at risk for bankruptcy without the steady income of elective surgeries.
PE’s cost-cutting strategies have had adverse outcomes for first responders, too. Since 2008, PE has taken over ambulatory and fire-fighting services resulting in longer wait times, less reliable medical equipment, and poorer care overall. These adverse outcomes have led some public officials to deem PE a threat to public wellbeing and safety.
Thanks to the PE takeover of healthcare, patients face higher bills and medical debt. Patients have less control over which physicians treat them at the ER, increasing the likelihood that they will be charged high out-of-network and surprise bills.
Eileen Applebaum and Rosemary Batt found that bills from healthcare groups Envision Healthcare and TeamHealth, owned by the PE behemoths Blackstone and K.K.R., accounted for considerable increases in surprise medical bills. PE buyouts also have had negative impacts on patient health and care standards compliance at nursing homes.
PE has disadvantaged other frontline workers, too. Low-wage service sector workers are now more likely to be employed part-time (and forced to work multiple jobs), have fewer benefits, and face unpredictable on-demand scheduling. The 2.8 million grocery chain workers are the most likely to be unionized among retail workers. Yet, their livelihoods and stability have been compromised when PE took over 50 major chains and pushed executives to cut costs and close stores. Seven chains, employing over 125,000 workers, have since filed for bankruptcy over the past five years.
Workers, vendors, suppliers, and landlords have been the hardest hit by these bankruptcies in loss of jobs, income, and benefits. Thus, the pandemic hit right when grocery jobs became less secure, making it difficult for workers to demand better protection during the pandemic.
The workers adversely impacted by PE during the pandemic are more likely to be women, especially women of color. One-third of jobs held by women are deemed “essential.” Women compose 52% of frontline workers, including 9 out of 10 in nursing and two-thirds of clerks at grocery stores and pharmacies. Under-equipped healthcare facilities have put these women at a higher risk of catching COVID-19.
Over 3,500 healthcare workers have died from COVID-19: 60% of which were people of color and over a third were immigrants. And one in three were nurses—a job disproportionately held by women. As for economic hardship, women are more likely to be unemployed than men, and Latinx women have the highest rates of unemployment followed by Black women. Thus, women have been deemed simultaneously “essential and expendable” during the pandemic.
Shadow banks, especially those in PE, have helped to create the conditions that made frontline workers vulnerable in the first place: Their long history of predatory financial behavior has contributed to precarious working conditions and growing economic inequality. And, the dire consequences of the PE takeover during the pandemic have been uneven according to race, immigration, gender, and social class, because of inequality in the labor market and the commoditization of healthcare—of which PE played an important role.
The patterns of inequality, and finance’s role in driving them, are not novel to the coronavirus crisis. Yet, the fault lines of the pandemic have revealed how financial capitalism exploits labor and capital during times of crisis.
Despite the calls to “build it back better,” the prospects for a more equal and equitable future are bleak. As long as shadow banks can operate with limited oversight, the exploitive and speculative nature of predatory finance will continue to capitalize on future crises.
Megan Tobias Neely and Donna Carmichael. “Profiting on Crisis: How Predatory Financial Investors Have Worsened Inequality in the Coronavirus Crisis.” in American Behavioral Scientist 2021.
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