Rosemary Batt, co-author of the well-regarded book Private Equity at Work, was disturbed to see the prominent role that private equity was playing in what a Wall Street Journal story called The Growth of Refugee Inc. So you are getting a bigger dose of private equity than usual today.

Private equity’s role in refugee-related exploitation opportunism entrepreneurship serves to illustrate how private equity firms are so flush with cash that they are pursuing opportunities that lie well outside their traditional formula. The refugee crisis is unlikely to be long-lived, at least at its current level of inflow (and the high odds of governments changing tack in response to rising voter resistance is another significant business risk) so it’s hard to see how many durable businesses can be build on its back. And of course, given the obvious conflict between social expectations of altruism, or at least minimal profit margins in light of the refugees’ desperate straits, versus private equity’s aggressive return objectives would seem to guarantee criticism and less than rosy media coverage over time.

This podcast from MarketPlace provides an overview of the bull case, via an interview with the author of the Wall Street Journal story on the growth of refugee-related service businesses.

The transcript:

We’re in the middle of the biggest mass migration in Europe since the end of the World War II, and as distasteful as this may sound, that’s a huge business opportunity. It ranges from housing refugees to selling commodities. The approach of business owners ranges from being aware they’re working with a vulnerable population to taking advantage of them. Anton Troianovski wrote about the migration industry for Wall Street Journal. On the private enterprise business of migration: We took a look at all the different ways private companies are helping shape the migration experience in Europe. It starts on the small Greek islands where refugees and migrants arrive, where shop owners meet them selling camping supplies and canned meat, and it goes all the way to a big London private equity firm that owns one of the major refugee camp operators in Europe. On being a volume-based business: The way one of those private equity folks described it to us is “managing refugee camps is essentially a hostelry and care business where you happen to be catering to refugees.” Refugees, of course, generally don’t have that much money to spend, and as a result, it’s a volume business, as one of those folks told us. On how much money can be made: It’s clearly a growth business. This refugee camp operator had revenues of $100 million approximately, last year, which is triple of where they were in 2007. Another example is a Western Union branch manager in Athens … he told us he’s been dispersing 20,000 euros a day to many of the migrants going to Athens on their way up north. He told us that that was money he wouldn’t be making anywhere else in Europe. On migrants making up for a lack of tourism: You know, I mentioned they don’t have that much money to spend, but as a matter of fact, many of these migrants are formerly middle class citizens in Syria and elsewhere, and are paying full freight for hotels, even buying breakfast. We’re even seeing competition for their business, for example, among the different cell phone providers down in Greece. You know, one of the ways that we found entrepreneurs and business people in Europe are looking at this is that this is a big group of consumers that are coming into this rather stagnant economy. On everyone counting on this revenue stream: If you’re that private equity firm, their investors include major American pension funds like the California state teacher’s retirement system and the Maryland state retirement system. They are expecting growth, and they’re expecting profits. And it should also be said that it doesn’t look like that growth is going to stop anytime soon.

As the underlying Wall Street Journal account noted:

In many ways, private companies are increasingly defining the European migration experience. In some cases, the companies see potential to win favor with a future group of European consumers, a welcome jolt amid the Continent’s economic doldrums. In other cases, they are stepping in to help provide services that governments can’t or won’t. At times they have provoked protests from advocacy groups who accuse them of cutting corners in order to profit from human misery… Migrant aid groups such as Diakonie said ORS is able to offer a lower price by cutting corners on personnel that they never would. They said their priority is meeting the needs of migrants rather than of governments and investors. “Charities have no chance” in competing with ORS [ORS Services, a company that competes with charities “by promising to work more efficiently and avoiding taking political stands” which is owned by UK private equity firm Equistone], said Hugo Köppel, who heads refugee services at the Swiss Red Cross. “We know refugees from A to Z. Our primary customers are the people we care for, not the contracting authority.”… The notion that private companies can do a better job caring for migrants than nonprofits is being put to the test. ORS has come under fire in particular for the conditions of a camp on the grounds of an old military school in the Vienna suburb of Traiskirchen. The century-old school’s buildings are packed with beds to house 1,800 people. But over the course of this year, the camp grew to become one of the biggest in Europe, with more than 4,500 residents at some points in recent months. Thousands of people were forced to sleep outside, often under bushes or trees.

The United Nations’ refugee agency described the conditions at the camp as being “beneath human dignity.” Advocacy group Amnesty International identified lacking medical and psychological care and described “blatant ignorance and thoughtlessness” in how the camp was run. “The result is not just bad, it is completely unacceptable,” Heinz Patzelt, chief of Amnesty International in Austria, said last month, describing the camp as far understaffed and existing personnel as not up to the task. “It’s not a question of resources—it’s a question of organization.”

Unless there’s cause to suspect particular charities of incompetence or featherbedding, the idea that a newbie required to give its backers hefty profits could deliver services to refugees at a lower price than seasoned charities with no such return requirement is absurd on its face. The role of firms like ORS is to allow governments to dump their refugee problem on someone else at a bargain price. Since refugees aren’t voters, the state that hires refugee profiteers doesn’t much care how things turn out, since if they turn out badly, it is presumably ORS, and not the government that hired them, that will get the blame. In other words, the real role of ORS and its ilk is not to provide services at an adequate level, but to allow governments to shed responsibility for their unwillingness to pay for decent care for refugees.