Red Lobster has run into financial difficulties and filed for bankruptcy. Some locations will remain open until lawyers and accountants can sort things out, but others will be closed (some have already been closed) and assets will be sold as part of a “restructuring.” We diners are bracing ourselves for the loss of a great, affordable chain.
When the restaurant announced its bankruptcy filing, the prevailing view was, “It's because of the endless shrimp.” That was the hook, anyway. Read behind the headline and you'll see that there's more to it than that. The pandemic has devastated restaurants big and small, including Red Lobster. Inflation, exacerbated by the pandemic, only made things harder for the chain as fewer people chose to dine out after the shutdown. The chain was already struggling and in decline before COVID-19 arrived, but all anyone wants to talk about is the endless crustaceans. Of course, the story is more complicated than that.
The never-ending queue of shrimp is a convenient and easily understood explanation for Red Lobster's doomed fate. a little bit Yes, that's true, but there's a much more sinister story behind it: As Cory Doctorow points out, the real cause of the seafood chain's woes is private equity and “another hedge fund bankruptcy scam.”
Doctorow argues that “a decade of losing rent and being flipped from one hedge fund to another ruined Red Lobster,” and he makes a good case for why private equity and deep-rooted cynicism are to blame — why the plan to demolish an affordable, beloved restaurant to make money for wealthy investors is.
How the decline happened is somewhat complicated, but as Luke Goldstein argues, the biggest problem was an unjust alliance between private equity and seafood monopolies and single buyers, which concentrated power and allowed executives to dismantle the chain and sell it off for parts.
In a particular irony, Red Lobster's former private equity owner, Golden Gate Capital, sold the chain's real estate and leased it back to restaurants, which, as Goldstein points out, earned the company a profit of $1.5 million (the bulk of the $2.1 billion it originally cost to acquire it), but which also left the chain vulnerable to rising leasing costs, meaning Red Lobster wasn't killed, it was killed.
Red Lobster was a target because, as Doctorow points out, “their patrons have very little power in society.” It's a terrible deal for people who enjoy good food at an affordable price, and a great deal for corporate acquirers who don't care about anything or anyone except dividends and bonuses.
Monopolies, monopoly buying, and big private equity firms are big problems. Concentration of wealth in the market is also concentration of power. And that power accumulates. The more influence you can wield, the more capital you have access to, and the easier it is to steer the market in favor of those who already have the most power. Once you reach a certain size, it's easy to determine which companies will survive and which will die, who will win and who will lose. Of course, working class people tend to lose.
In 2019, Nicole Aschoff argued for a ban on private equity. She argued that these buyout giants are too big, too willing to buy up anything they can exploit for money, too entrenched, too cynical, and too predatory to be believed. As if that wasn't enough, they also love to carry out very executions, using workers' money via pension funds. Aschoff's argument that these monsters should be defeated is even more compelling today.
Even if we embraced the capitalist myth of self-regulating, self-directing, efficient markets controlling operators (an untenable belief under any circumstances), we would have to explain why private equity is an anomaly, rather than an inherent part of how capitalism works. The answer, of course, is that it is not an anomaly.
Capitalism encourages the pooling of power, and therefore the concentration of wealth, with compounding effects that have far-reaching consequences. This concentration weakens state capacity, suppresses worker wages, and negatively impacts working conditions, market prices, and the diversity of businesses in the marketplace. Whether it's Walmart, Amazon, or Ticketmaster, the concentration of power in capitalism is the rule, not the exception, as Karl Marx clearly explained more than 150 years ago. Private equity, with its ability to shape or dismantle markets, is just another manifestation of this fundamental dynamic.
While this issue may seem remote or academic at first glance (going back to Doctorow's “who suffers?” point), it is a very real issue for working-class people: after all, it means one less decent, affordable restaurant option, chain or not, where you can have a meal (and a good biscuit) with family and friends. This is not just theory or academics.
Capitalism functions to keep workers' wages low, but with private equity in control, even the brief respite of consumer satisfaction — a nice reward for the exploitation wage earners endure — is impossible. Sacrificing social welfare and succumbing to the ruthlessness of the unfettered market is taught to be worth it for the productive energy of capitalism and the wealth of choice it supposedly offers. But the trajectory of private equity leads to a situation reminiscent of Soviet-style bread rationing, albeit without even the pretense of universal health care, free higher education, subsidized housing, or guaranteed jobs.
As Aschoff argued five years ago, the answer is to ban the big private equity firms that work against the interests of workers and the public. These firms exist not to serve businesses or consumers, not to serve workers, but to make a quick buck for investors who are many times removed from the communities and realities their decisions affect. So they must go. In their place, we can reinstate Infinite Shrimp.
