The public company — at least in its current form — may be on the wane, according to economist Nancy Folbre. Folbre, who specializes in the interesting-sounding discipline of the economics of care, argues in The New York Times that “public corporations . . . are now waning in significance.”
Quantitatively, Folbre notes that there were twice as many public companies in the US in 1997 as there are today, an eye-opening statistic in itself.
She also cites a number of studies and trends, including the increasing concentration of public equity in the hands of investment funds, and the rise of private equity firms. This last makes it easier for companies to raise money outside the public stock markets, and is interesting to me in part because it matches up with financing trends I noted in an earlier post here.
Is the public company dead? Probably not. But sources of corporate financing are diversifying, and it’s likely that the landscape going forward will contain a larger proportion of privately financed companies competing on the same level with public companies. There are a lot of implications in this shift, but here are two I find interesting:
- individual investors will need new ways to participate in the financing of private companies
- regulatory regimes will likely need to be updated in order to provide some of the same protections to private investors as are enjoyed by public investors today, even if those protections take slightly different form
It will be interesting to see if the courts and agencies can solve the regulatory question in a way that retains some differentiation between the public and private equity markets, while at the same time broadening access to the private markets so that more people can participate. It’s possible that a third class of company will need to arise. I’ll save any speculations on that for a later post, but I’m interested to see what happens and hear what people think.