Misdirected?

A new film series from a well-known documentary maker criticising private equity is out of focus, writes Amanda Janis.

Disjointed narratives, dangling plot strands and undeveloped endings do not a good movie make.

This week, labour union activists marched around Washington DC wearing video billboards that played the first installment of “The War on Greed”, a series of short films on the private equity industry by Robert Greenwald, the political activist and film maker behind recent documentaries including “Outfoxed: Rupert Murdoch’s War on Journalism”, “Iraq For Sale: The War Profiteers” and “Wal-Mart: the High Cost of Low Price”.

Amanda Janis,
associate editor

Those who’ve been following the Service Employees International Union’s painfully amateur attempts at video protest via YouTube might be forgiven for having thought that a film from Greenwald, a professional filmmaker, would have been better. Given that the stated goal of the documentary is the fight against greed, one would expect it to rationally outline criticisms based on fact rather than emotion, as well as possibly some suggestions for winning the battle.

But instead, broad generalisations about private equity business practices are made while middle class Americans are juxtaposed with photos of Henry Kravis and his homes (in some cases photos of homes said to resemble Kravis’). A night nurse, an elementary school teacher and an army contractor are among those meant to tug on heartstrings, as they react negatively to being told how much money Kravis earns and pays in taxes compared to them.

Some staggering statistics are flashed on screen, but the difference between income and capital gains taxes is not explained, nor is the fact that federal income tax for the nation’s wealthiest individuals is, on average, more than double the rate paid by middle class Americans; the narrator says simply: “On most of their money, private equity managers pay half the tax rate the firemen, teachers and policemen pay.”

Another tax policy the film takes issue with is that “the money private equity firms borrow to take over companies is deducted from the taxes they otherwise pay – the borrowed, tax-free money is not used for new jobs or new factories or new products”. But, as pointed out by the Private Equity Council in a fact sheet it dubbed “The War on Truth”, such deductions are available to virtually all businesses and individuals, including everyday homeowners who deduct mortgage interest payments from their taxes.

Greenwald’s real problem, much like the SEIU, seems to be with US public policy, not private equity. But the film’s final frame –  which has text reading “Psst…do something!” – doesn’t exactly tell viewers to protest the tax code.

At a House Financial Services Committee hearing in June that focussed on private equity and its role in the US’ growing divide between the wealthy and middle classes, Robert Frank, a professor at Cornell Universtity’s Johnson Graduate School of Management who has written extensively on the issue, told the committee the private equity industry can’t solve income disparity and should not be expected to. “The only lever we have is tax policy in this arena, if we’re not happy with the way income inequality is going,” Frank said. “I don’t think attacking the competitive forces [in the US capital markets] is the lever you want to pull.”

But private equity’s size and success has made the asset class an easy target. As if to explain why Greenwald chose to focus on Kravis, as opposed to Oprah Winfrey, Bill Gates or any other very wealthy US entrepreneur, the film’s narrator says at one point that “KKR has more revenue than Coca Cola, Microsoft and Disney combined and 560,000 people work for KKR companies, more people than live in the city of Atlanta, Georgia”.

And that is precisely why Greenwald and the union activists are not walking on Capitol Hill to challenge the lawmakers. That would just be another tax protest. Attacking the (relatively) shadowy, but influential and enormously wealthy private equity owners captures the imagination of the general public. And the headlines read by the legislative.

These films are smarter than they look.