Anang MittalWhen Rexnord moved its Indianapolis ball-bearing plant to Mexico, John Feltner lost a $25-an-hour union job, the second factory job he had lost in a decade. Around Christmas of 2017, a hospital offered him maintenance work at $18 an hour. When a former boss offered him a union job at a cornstarch plant paying 20% more, John refused. “I don’t see it crumbling underneath me like Rexnord,” he told The Indianapolis Star. John had already been burned twice, and a hospital, he figured, wasn’t going anywhere. Three decades of deindustrialization had taught him and millions like him to take the safe option. The ideal that hard work and risk are rewarded stopped feeling true for John, and for many Americans like him.
That is why so many in the heartland voted for populism, and why a growing number of young Americans have turned to socialism. Americans have stopped believing either party’s promises of economic renewal. Rent-seeking, getting rich by capturing wealth but not creating it, has done more to discredit free enterprise than Bernie Sanders ever has. Generations watched plants move overseas, communities disappear, and watched financiers strip what remained. When people hear “the free market,” they hear “the fix is in.” Private equity did not stay in manufacturing either. It soon entered healthcare, retail, and food service, jobs that seemed safe because they couldn’t be shipped overseas.
In 2010, the private-equity firm Cerberus Capital Management bought the Archdiocese of Boston’s hospital chain, converted it to for-profit and renamed it Steward Health Care. In 2016, Steward sold nine hospitals’ real estate to a landlord and leased it back, part of a $1.25 billion deal that loaded the chain with rental debt. Cerberus sold off its stake in 2020, netting roughly $800 million. Four years later, Steward was bankrupt. Beverly Lawler worked 30 years at Quincy Medical Center until Steward closed it in 2014, then spent a decade as a nurse aide at Carney Hospital until Steward closed that too. The closure took her health insurance, as her husband waited for heart surgery.
Cerberus had done this before, as journalist Brian Alexander recounts in Glass House, his 2017 history of Lancaster, Ohio. In 2004, it bought Anchor Hocking from Newell and folded it into a new company called Global Home Products. GHP borrowed heavily, including $210 million from Cerberus’s own lending affiliate. That made Cerberus its own senior creditor, first in line if the company failed. Two years later, Global Home Products was in bankruptcy court, where Cerberus planned to bid for Anchor using the $200 million the company owed to that affiliate. The federal pension insurer took over the workers’ pension plan and released Cerberus from future claims in exchange for about $900,000. When Anchor was auctioned off in 2007, Cerberus walked away clean, but the workers’ pensions became the government’s problem.
Anchor’s next owner was another private-equity firm, Monomoy Capital Partners, which bought it at the 2007 auction and repeated the same cycle. In 2011, Monomoy had Anchor borrow $45 million and took a $30.5 million dividend. After merging Anchor into a new company, it charged that company $625,000 a quarter for advice. That is the play. Buy the company. Borrow against it. Pay yourself first, and offload the liabilities on the public.
Monomoy was a small shop, but its method is common. A company with no productive use for extra dollars should return them. But when an owner borrows against a business it bought and pays itself from the loan, that’s extraction. The debt is slapped onto the original business, as happened at Anchor. The business services its debt by delaying repairs, laying off workers, or cheapening the product. Eventually the customers leave and the business stops paying, so the owner shuts the business down and sells off the remaining assets. Toys R Us was bought with borrowed money in 2005 and liquidated in 2018, costing about 33,000 American jobs. Red Lobster’s 2014 buyout was financed by selling 500 of its own buildings, and when it went bankrupt in 2024 under a different owner, it was still paying rent on property it used to own. Few Americans could have named the companies that gutted these household brands.
People and businesses go where the money is. If I were 25 and wanted to get rich, would I build a machine-tool company and spend a decade worrying about Chinese competitors, permitting, labor shortages, and energy costs? Or would it be better to study the healthcare industry and position myself somewhere in the stream of federally supported payments? Private finance made the same calculation. Reading the earnings calls of 2,500 large companies, the economists Niels Gormsen and Kilian Huber found that managers demand an average return of 16% on new investment, several points higher than their capital costs. A plant that pays for itself slowly over 20 years is almost impossible to approve. I would rather entrepreneurs build high-speed rail, nuclear reactors, battery plants, and semiconductor fabs than find another ingenious scheme for converting a Red Lobster or a dentist’s office into a higher-yielding financial asset.
Two fixes would change that math. First, we have to tax builders less. Congress’s 2025 tax law lets a company immediately write off the cost of the production floor of a new factory if construction begins before 2029. Make it permanent, and help pay for it by denying the interest deduction on money a company borrows to pay its owners a dividend. Second: let the builders build. A 2026 report for the National Association of Manufacturers found 57 manufacturing projects that needed a full environmental impact statement waited 4.1 years on average, a long time to keep money in a factory that hasn’t broken ground. Republicans will have to accept that borrowing from a business to pay owners a fat check is not entrepreneurship, and Democrats will have to accept that four years of environmental review works like a tax.
Conservatives have long argued that a system in which the connected are guaranteed their money back is not the free market. The person who takes the risk is supposed to collect the reward, and failure is supposed to have a cost. We’ve raised a generation that thinks risk is for suckers. Brian Gossett, the fourth generation in his family to work at Anchor Hocking, eventually left for a warehouse job paying $10 an hour. Brian told Alexander, “Anchor was the only job I’ve ever really been proud of.” That pride will never show up on a balance sheet.
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Anang Mittal is a Washington, D.C. based public affairs professional. He was a staffer for Speaker Mike Johnson and Majority Leader Mitch McConnell.
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