A Larger View

a commentary on how current events reflect— or not—our search for higher values

  • Volume XXIII
  • No. 4
  • July/August 2018
  • Bulletin of The Inner/Outer Partnership

The pieces are reposted from some of the entries in InnerLifeDirections.com

in this issue:

  • Private Equities and Toys 'R' Us
  • Bankruptcy and The Poor
  • Mergers, Less Jobs and Smaller Paychecks
  • Eyegkasses fir the World's Poor
  • Health Insurance Companies and Profits
  • 68.5 million Refugees
  • To Ponder On

Private Equities and Toys ‘R’ Us

How do popular stores like Toys ‘R’ Us end up filing for bankruptcy?  The behind the scene story opens a window on the role of private equity funds in our society. “Thirty-three percent of retail job losses from 2016 through 2017 resulted from private-equity backed store closures…,” according to a report by Inflection Capital Management, an equity fund consulting firm. Due to competition from ecommerce like Amazon, Toys ‘R’ Us was in debt and was bought by a private equity fund. The funds some say are like payday lenders, they charge high interest rates. Rosemary Batt of Cornell says, “Debt is the lifeblood of private equity, but it spells death for companies and joblessness for workers.” So Toys ‘R’ Us ended up paying $400 million a year in interest alone, and wasn’t able to recover.  With that much debt it is difficult for the stores to improve their business. They can restructure and pare down expenses but the profits still aren’t enough to pay down the debt.  In time it was an untenable situation, Toys ‘R’ Us owed $5 billion. To be fair, the private-equity fund which had bought the 735 stores for $6.6 billion had put up $1.3 billion of its own money, so when it was time for bankruptcy they did lose money, but had already made money on their investment, and some say that in between its debt repayment and all the fees attached to the financial transactions had made up more than it had lost. The executives of Toys ‘R’Us walked away with millions, but 30,000 workers lost their jobs without any severance pay. These are low paying, low skills jobs which continue to be disappearing for the same reason as what happened to Toys ‘R’ Us. It happened at Nine West, at Mervyn’s several years back and to others like Claire’s which are less well known.  It is difficult for these workers to find jobs, perhaps somewhat easier for the younger among them, but much harder for the many older ones. Some experts like Josh Kosman believe what he calls the buyout of America may lead to a financial crisis. Meanwhile it is important for us to understand the consequences of private equity funds, and realize what happens when Wall Street places profits ahead of the social good.

Bankruptcy and the Poor

In 2005 Congress passed a new bankruptcy law to prevent abuses, it made getting a lawyer necessary. But of course many can’t afford one. Some wait until their tax refunds, so much so there is a spike in bankruptcy filings from March to May. Some file under Chapter 13 which means their debts have to be repaid usually over 5 years.  Chapter 13 requires a lawyer too, and those fees have to be added to the list of debts. Many default and then it all falls through. There are also bankruptcy services which purport to help people, but the law can be complicated and often consumers are not well served by these services. The best way to file for bankruptcy is through Chapter 7 which erases all debts. But the lawyers’ fees and the filing fees are not within the means of many who need to file. Recently the number of consumers who file for bankruptcy each year is from 800,000 to 1.5million people. Some have the clients write a series of pre dated checks which they cash every month after the bankruptcy court proceedings, and some states have not allowed this practice. Some other states allow lawyers’ fees to be paid in two installments pre and post bankruptcy. What is needed are reforms, which are not complicated and which are not major but which in this Congress are not likely to be passed despite a powerful ally in Senator Elizabeth Warren. As it is laws meant to help those in need make things worse for them. And that is wrong.

Mergers, Less Jobs and Smaller Paychecks

We’re so used to hear about mergers, we don’t give them sufficient attention. Some are well known names, Amazon bought Whole Foods, Cigna bought Express Scripts, and some are names we may not often hear such as Marathon Petroleum buying rival Endeavor. There are also those which are proposed, AT&T merger with Time Warner or T Mobile with Sprint, for example. The number of mergers keeps growing; so far in 2018 $1.7 trillion worth of deals have occurred and more are expected. We are so inured perhaps we hardly think of the consequences. As far as the mergers being studied by the Justice Department are concerned, however, only how they will affect consumer prices will be looked at.  Mergers reduce competition and its incentive to attract customers, and while consumer groups and others opposing them say they will not be good for consumers and increase prices in the long run, if not the short one, those who study mergers think that only looking at consumer prices is a small slice of the consequences. Economists have now studied the impact of mergers and found that they do a lot more besides affect consumer prices. They first of all reduce the number of employers available and the numbers of jobs as well. And also they lead to what is called monopsony by reducing the number of job opportunities for workers and therefore placing the employers in a better position to dictate terms. So when combined with the weakening of unions, workers are losing bargaining power.  The result is wage stagnation. Corporations keep earning larger profits but wages do not keep up and can be said to be smaller.

The number of mergers keeps happening at a pace hard for the average person to follow. We may not be able to stop them for the present, but we must be aware of what they do and must insist that those we vote for be informed and prepared to tackle an issue which is key to economic health and economic inequality.

Eyeglasses for The World’s Poor

The headline in a NYT story was arresting, “A Simple way to Improve a Billion Lives: Eyeglasses. Poor eyesight is not the kind of problem that usually makes headlines and yet according to the WHO it costs $200 billion a year in productivity.  Poor eyesight means that truck drivers in Nigeria and drivers in India drive without seeing what they need to see and end up causing more accidents, many involving fatalities. It means that school children who can’t see to do their school work properly are labeled poor learners and held back from the very education that could help them. It means that farmers can’t see small pest infestations or may not read pesticides labels properly, it means that workers fear for their jobs because they may not be able to properly read instructions or the texts sent them. People are held back when they have poor eyesight and economic barriers compound the human ones. Several organizations are now trying to draw attention to this problem and in the case of EYElliance also trying to raise money to solve it. The number of people affected alone makes it a problem worthy of notice, at least one billion people need glasses and perhaps as high as two and a half billion. It’s more than money, there are very few vision centers in the affected countries and that means very little access. In Liberia for example until last year there were no vision clinics in the whole country. Besides money there are societal barriers. In a country like India, for example, there is the prejudice about wearing glasses. It may be considered an infirmity and a girl wearing glasses may not be as marriageable.  Poor eyesight may be a big problem but it has a simple solution, it’s easy to diagnose, it’s not a contagious disease and does not require a vaccine and the difficulty of administering it. It also involves no big cash outlay, for a pair of eye glasses in many African or Indian countries can vary from a few cents to $2.00.

I do believe I’ll never take wearing glasses for granted again.

Health Insurance Companies and Profits

Health care is a big consumer concern and health care costs an even bigger one. As is already known, the US spends more per person on health care and gets less than other developed nations. And then there’s the fact that one in 5 of every person currently being pursued by collection agencies is for medical debt. The issue of rising costs is proverbially complex, and in part why ProPublica, the investigative reporting site in conjunction with NPR conducted an examination which puts a finger on how health insurers operate.  According to their reporting, insurance companies pay the high costs of hospital bills without flinching or arguments.  Hospital bills are not easy for consumers to decipher, and yet the price may be set or known to both the hospitals and the insurers. Many who undergo surgeries have co-pays which are often percentages of a given bill, say 10% which means that only 2 out of the 3 parties involved know the costs involved. The article compares it to not knowing what an airline ticket would cost until after you’ve flown. The absolutely striking part of the article is that for health insurers profits do not lie in saving money but in the percentage left once they have paid the medical bills and covered their administrative costs. What they do is try to accurately predict how much the people they insure will cost them and set premiums accordingly. If they’re right they reap a profit. If they’re wrong, they cover their losses by raising the premiums in the following year. The amount of a bill is not a factor for them, and their profit is not predicated on their decreasing spending.

The stark facts of this investigation not only highlight the role that insurers—like drug companies—have to play in making health care affordable, but also that solutions to making health care affordable cannot be done without a change in the formula of how all these companies derive their profits. Most of all since all this may end up very difficult to accomplish, our awareness and insistence things must change ought to hopefully inch us towards a single payer system.

68.5 Million Refugees

Being an immigrant is very difficult. I know from experience what it’s like to leave everything you know and have behind and go towards an unknown. And in our case we didn’t have to pay smugglers, we didn’t have to walk across borders, we had passports, visa, purchased our own plane fares and weren’t fleeing war. So when I read that the number of refugees and displaced persons from wars and persecutions has reached 68.5 million, I shudder. These are 68.5 million lives which have been uprooted, undergoing suffering, and we can well assume at least some are traumatized.   They are 25.4 million actual refugees, 40 million internally displaced persons and 3.1 million seeking asylum.  Two third of them come from principally five countries,  and that excludes the long term Palestinian refugees, they are Syria, Afghanistan, South Sudan, Myanmar and Somalia. The 68.5 million for 2017 represents an increase of 16.5 million from the previous year and that despite the fact that some 5 million refugees were able to return home. Refugee agencies are overwhelmed, there is of course a question of funding to accommodate so many. 14 countries are banding together trying to forge a blueprint of how to deal with refugees, and  the UN is in the process of putting together a Global Compact on Refugees to be voted on by the Security Council. Still those may not be sufficient to help those in need.  The time has come for the world and each of us as citizens to take a stand to demand action be taken. It is heartening that people protesting the incarceration of children at the US border became a springboard for some action (not yet resolved at the time of this writing). Yet the protests were not triggered on behalf of refugees and their plight, but because children were held in cages. It is a good step, but not enough to address the problem. We need to stop incarcerating children, certainly, but we need to better apply our own principles, seeking asylum is legal. We also need to develop a new philosophy about our borders, and renew our commitment to immigration. And not to be forgotten, whatever we do, we need the resources to do it.  Filippo Grandi, the UN High Commissioner for Refugees sums up the issue by saying, “No one becomes a refugee by choice, but the rest of us can have a choice about how we help.”

To Ponder On

“It is our choices… that show what we truly are, far more than our abilities.”

J.K. Rowling

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