When Markets Turn Predatory: Private Equity and the Broken Promises of Capitalism
Adam Smith believed that free markets, anchored by morality and competition, could create prosperity for all.
But he also knew that where moral sentiment and justice are weak, markets can be twisted into tools of extraction, exploitation, and entrenchment.
Today, one of the clearest examples of this corruption is found in a powerful force reshaping modern capitalism: private equity.
Private Equity: The Business of Extraction
In theory, private equity is simple: A firm buys a company, improves it, and sells it for a profit.
In practice, it often looks very different.
A common private equity playbook works like this:
Borrow heavily to buy a company (using the company’s own assets as collateral)
Load the company with debt, making it financially fragile
Cut costs aggressively — often through layoffs, slashed benefits, or service cuts
Pay themselves fees regardless of company performance
Sell the company — or leave it bankrupt — after extracting as much value as possible
The goal is not to build a better business.
The goal is to maximize short-term profits for the investors, regardless of the long-term consequences.
Jobs, communities, customers — even the survival of the company itself — are secondary.
This is not the creative, dynamic capitalism Adam Smith envisioned.
This is parasitic behavior: taking without creating.
The Collapse of Real Competition
Private equity has also fueled market concentration. By rolling up competitors and consolidating industries, firms reduce competition — often leading to:
Higher prices for consumers
Worse service
Lower wages for workers
Smith warned relentlessly about the dangers of monopolies and collusion:
“People of the same trade seldom meet together… but the conversation ends in a conspiracy against the public.”
— The Wealth of Nations, I.x.c.27
When a handful of private firms control entire sectors — from healthcare to housing to retail — real competition dies.
The invisible hand is shackled.
The public pays the price.
Rent-Seeking Disguised as Investment
True investment creates value: new products, new jobs, new wealth for society.
Rent-seeking extracts value from existing structures without creating anything new.
Private equity, in its predatory forms, has mastered the art of rent-seeking:
Charging management fees whether companies succeed or fail
Stripping real estate from businesses and selling it off for a quick cash boost
Declaring dividends to themselves funded by debt, not profits
These practices are defended in the language of capitalism — “efficiency,” “risk-taking,” “market discipline” — but they bear little resemblance to the productive competition Smith championed.
Smith valued self-interest that served society through competition — not self-interest that hollowed society out from the inside.
The Human Cost
The victims of predatory private equity aren’t abstract balance sheets. They are real people.
Workers laid off with no safety net.
Communities losing essential services.
Consumers paying more for worse goods.
Pension funds raided and drained.
Entire industries destabilized.
Smith argued that a flourishing economy depends on a stable, just society. When companies treat human beings as disposable, they are not creating wealth — they are cannibalizing it.
This Is Not Capitalism — It’s Market Plundering
If Adam Smith were alive today, he would likely view much of modern private equity with deep skepticism, if not outright condemnation.
He would see:
Freedom distorted into license
Competition strangled by consolidation
Wealth hoarded by a few at the expense of the many
Justice — the first duty of society — undermined
Markets can serve humanity.
Or markets can devour humanity.
Without the moral sentiments, without the impartial spectator, without justice, there is no invisible hand guiding us toward the public good.
There is only the visible claw of greed.
A Moment of Reckoning
Understanding how markets have gone astray is not about nostalgia. It’s about recognizing that the foundation Smith imagined is still possible — but only if we rebuild the balance between freedom and morality.
In the next post, we’ll step back and look at the bigger picture: Why restoring Adam Smith’s full vision isn’t just morally right — it’s economically necessary.
Tomorrow
Restoring the Balance: Why Morality Matters to Markets