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Every healthy ecosystem needs a scavenger; in America, we have private equity firms. Time after time, we have seen companies of all varied sizes come and go in the marketplace. I would argue that most of the time this is because that company no longer creates enough value for the consumer. When this happens, a firm must decide on how to go forth with their future. Commonly, large firms will use their store of resources to prolong the diminishing life of the company at the expense of shareholders. So, private equity firms look to buy up these companies, and free up the resources for an overall shareholder profit. My favorite aspect of entrepreneurship in this movie was the entrepreneur's role to create value.
As expected, the corporate raider Gordon Gekko was the big bad thief in the movie. He wanted to buy up the stock of a dying airline company and liquidate it for a massive profit. This airline was the same company that provided for his student Bud, and his family their whole lives. Bud was the one who gave Gekko the insider information to buy up this company assuming Gekko wouldn't liquidate it. Bud and his father, Gekko, and a few other employees held a meeting where Gekko promised to keep the company alive and make it profitable again with new practices. Eventually, Bud found out Gekko was just using him for insider information and was going to liquidate the company anyway. Bud responded with a series of moves that would eventually force Gekko to sell his shares and ditch the opportunity. So, the company was left to be bought up by another private equity firm who were made out to be a better person in the movie.
This was interesting and entrepreneurial because Gekko was creating value by taking over the airline company and liquidating it. The airline company had been unprofitable for quite some time and had millions in resources that could have been used to suit different purposes. Likewise, the stock prices were lower than ever, and management of the company were making little to no effort to change it. So, if that company could be liquidated at a profit to the shareholders and the resources distributed were most needed then that is productivity on a larger scale. Also, there were a few times in the movie where someone would remind Bud that if Gekko wouldn't do it then some other investor would. Essentially, Gekko was just an actor in our constantly evolving market, which we call capitalism.
Finally, the aspect of creating value affects society in an essential way. We discuss all the time in class that when entrepreneurs create value it increases consumer's optionality. Optionality is the great ability we are given to pick and choose the products and services we buy based on how we value them. Similarly, we all know that entrepreneurs make a profit by serving others and the only way to do that is by creating value. I would say that society supports the idea of
this aspect, but they can be confused on what creates value. For example, I got bored and started looking at people's opinions of private equity firms and I was surprised to see such a small percentage of people knowledgeable enough to appreciate them. It's as if they didn't understand that things become obsolete due to innovation and that structural unemployment means progress. Still, I believe as a whole society supports this aspect because everyone enjoys the lifestyle that comes with optionality. Overall, this is one of the greatest interactions we get to experience today. Everyone involved in the creation of value benefits from a higher standard of living. Consumers are given greater purchasing power as they can buy what they value the highest not just what is available. And entrepreneurs benefit because they are rewarded and can acquire wealth according to the value they provide. In short, it is a transaction that I cannot imagine life without.
