Unshackle the Middle Class
I'm not sure Scott has the causation/correlation right on this, but the trend away from taking companies public is troubling. I don't think the regulation in this area is helping: Sarbanes Oxley is pretty draconian in its regulatory burden, and I view things like "sophisticated investor" requirements with deep distrust. I think they're an overly paternalistic solution to a non-existant problem, or one that should be non-existant if Social Security was maintained as the proper safety net retirement system it was intended to be. Enron wouldn't have been such a disaster if all of those people had a solid retirement from Social Security.But I think there is something deeper and more structural than merely regulatory burden. Public companies suffer from the agency problem. When ownership is diffuse, that problem is more acute, and managers' interests more easily diverge from shareholders' interests. This is true regardless of the regulatory structure. That is to say, it's a fundamental economic problem rather than an artifact of whatever regulatory system is in place. One of the benefits of taking companies public later, if at all, is that ownership stays concentrated during a longer period and owners have much more concentrated influence on management.There is another economic phenomenon in place, which is this: the economy is awash in capital and companies don't need public capital. When there are hedge funds with billions to throw around, and private equity companies who can engage in billion dollar transactions, why do companies need to turn to the public markets? If there is some profit to be made investing in the next Microsoft, and a private fund can swing the necessary size of investment, what purpose is there to resort to the public markets? Is it ever more efficient or more effective to supply a given amount of capital via the public markets instead of via some private investment Overregulation doesn't help this problem, but it's also ultimately an economic phenomenon. Concentration of wealth (there are a lot of new foreign oil/resources billionaires these days) means more private entities that can raise the kind of money that previously one could only raise in the public markets. Moreover, fewer opportunities for investment means that private funds can meet the underlying economy's need for capital, making public funding less relevant. Changing the regulatory structure isn't going to change that dynamic.