Eating the Seed Corn; is Private Equity really maximizing their investment?

The American middle class is shrinking, and wealth disparity is at or near all-time highs. Neither of those are alarmist statements they’re just the data.

It’s easy to blame shortsighted politicians and industries over the last few decades, and that's not wrong. But blame is the least useful part of this conversation. The more important questions are: why does a robust middle class actually matter, and what steps can we take to avoid losing ours?

Why the Middle Class Matters

The United States has always drawn its economic strength from having a large, stable middle class. It's something that we Americans have been sentimental about and protective of for generations.

A strong middle class drives consumer demand. It means the majority of citizens have disposable income, which creates stable market conditions and lets local businesses form, compete, and hire. Industries that quietly starve the middle class in pursuit of short-term margins are, over the long run, undermining their own customer base at the expense of the immediate fiscal quarter's numbers.

In addition to the economic argument, there's a second, just as important factor in the fight for the middle class: a good democracy depends on a stable middle class as well. A broad, economically secure middle class supports stable civic institutions and forms a durable voting bloc. That makes a shrinking middle class a threat to both a stable economy, as well as a stable democracy.

This isn't a New Trend

For the better part of three decades, think tanks and economists have been publishing some version of the same finding: middle-class incomes have stagnated while incomes at the very top have risen dramatically. From the 1980's until the present day the refrain has been sung repeatedly. This isn’t a fringe take. It’s one of the most well-documented trends in modern American economics.

Even Ignoring Ethics, This Is Just Bad Math

Arguments about human cost almost never land well with industry, certainly not with 21st century Private Equity. Human factors can sometimes sway politicians, but only insofar as they believe they will affect their chances of reelection.

This may be a cynical take, but if these arguments had any sway, they would have worked already. I promise you there is nobody in a boardroom somewhere who is blissfully unaware of the human cost of layoffs and stagnating wages and just needs an Ebenezer Scrooge moment.

So, the question then becomes one of aligning incentives.

When wealth is steadily drained from the bottom 90% of earners, the “growth” left at the top is mostly the same money circulating among the same small group of people. That’s not an expanding economy; it’s a shrinking pool of actual customers. Once you squeeze the bottom for all it's worth and the majority of the population is operating at subsistence levels, you are left with a population that cannot buy your products even if they wanted to.

If the goal is to concentrate all wealth at the top and reduce everyone else to subsistence, this strategy is working extremely well. If the goal is long-term economic growth, it’s failing badly. You simply can’t grow an economy by slowly eliminating the customers who power it.

Walgreens: A Case Study in Short-Term Thinking

Take Walgreens after its private equity acquisition. The playbook was familiar: cut holiday hours, cut overtime pay, reduce benefits, and close any store that didn’t hit an aggressive profitability threshold. The result was hundreds of jobs lost and long-term growth traded away for immediate extraction.

The math here isn’t complicated. Walgreens may not have been profitable at the time of purchase, but the private equity firm could have made more money over a longer horizon with proper investment in the company: prioritizing hiring and retaining quality staff, raising wages and benefits, and building stores that run well because people want to work there and stay. That version of Walgreens likely earns billions more over the following decade.

Instead, a handful of people made a couple of billion dollars in the short term, and a lot of workers lost their jobs and a big chunk of their financial future.

This is ultimately the private equity playbook: squeeze every bit of short-term profitability out of whatever it is they purchase, at the expense of everything else.

Reframe the Problem to Change the Outcome

It’s tempting to call this behavior callous, or even evil. Maybe it is. But if the goal is to actually change how decisions like this get made, that framing won’t get you very far with the people who need to hear it.

The more useful frame: this is a bad investment.

The goal is to consistently show that better wages and better benefits are a net long-term financial positive. Not from a moralizing standpoint, the people who need their minds changed operate solely off of spreadsheets and formulas, but from a return-on-investment standpoint. That argument has a much better shot at being adopted by the people currently making the opposite bet.

The challenge is to align financial incentives with people who are very much focused on short-term gain above all else. If we can prove that nurturing the seed corn rather than eating it can result in larger financial rewards in the long run, we may have a shot at retaining the middle class.

Next: what actually rebuilds a middle class, and why reshoring mid-skill industry back to American soil is a bigger part of the answer than most people give it credit for.