Olive Garden as Illustrative Case
An article in Salon reveals what's really behind that weird presentation from hedge fund Starboard Value about how to "fix" Olive Garden.
They're trying to generate bad press to convince non-Starboard investors on Olive Garden's owner Darden Restaurant's board to buy into a scheme to split Olive Garden in two, one portion to own the property, and the other to manage the business, then sell off the property portion, resulting in lots of money for stockholders, but inevitably resulting in the business operation having to pay exorbitant rent to continue using property it used to own. Because when the only other option is to relocate every single one of your restaurants, you are effectively turned into a captive audience.
The problem with this scheme is that businesses, such as restaurants, that aren't essential for survival end up being the hardest-hit by recessions as cash-strapped consumers prioritize groceries and rent over a family night out. If they own their own buildings then they have one less large expense to worry about and can squeeze through the tight spots, but if they're paying high rent then it makes it much more likely that the scales will tip and they'll go out of business, putting that many more people out of a job and worsening the recession.
Now, those that worship the mighty Invisible Hand like to claim that it's all about supply, demand, and who can make a better widget. This is patently false, and Starboard Value's shenanigans are a perfect illustrative case. How a company is organized, how its expenses are structured, and how effective its marketing is are all at least as important as the current state of the supply/demand tug-of-war or the quality of its widgets.
Companies that generate profit by shifting money from one pile to another can easily destroy a product- or service-providing company by forcing changes in these operational areas that are not directly tied to market activity but are still fundamental to a company's health as a strategy to restructure the piles they're shifting money between.
This is perfectly in line with the notion of enlightened self-interest, yet produces a situation of profit for few (the hedge fund's investors) at the expense of many - the exact opposite way the Invisible Hand is posited to function. The operation division of the formerly unified company has to cut back, if it doesn't go under, due to having the added expense of rent forced on it. The employees of the same who get their hours cut or get laid off obviously suffer. Every other business is impacted as those employees' lost wages lead them to spend less, creating ripples and chain reactions throughout the rest of the market. The property division of the formerly unified company that loses its sole client must now scramble to sell off or lease out its empty buildings in a market where everybody is being negatively impacted by the ripples caused by the collapse of a large employer. Consumers see their product options reduced not due to the loss of an unpopular product, but due to intentional mismanagement to create wealth for a few. Not to mention the reduction in competition that will indirectly and negatively impact consumers and job-seekers alike as there is now less incentive among the remaining businesses in the particular industry to charge less or provide better products and services, while simultaneously having less motivation to pay well or offer better benefits.
You'll notice I've not once mentioned government. That's because this is a scenario that is not enabled by government intervention. Hell, you don't even need a government at all for this to occur, as it comes precisely from the toxic combination of means of production as private property, profit as sole motivator, and capital accumulation and its inevitable creation of purely financial companies that underlie Laissez-faire capitalism. An unregulated market is a dysfunctional market.
Cross-posted to talk_politics