Socialism, But Make It Trump
Here in this country, Republican opposition to public ownership remains implacable, at least in theory. Conservatives have long argued that public corporations, like Amtrak and the U.S. Postal Service, are inherently inefficient, and attack even modest public initiatives as dangerous flirtations with socialism. Ironically, however, it is a Republican president, Donald Trump, who is working to expand the boundaries of state by having government agencies take significant stakes in private companies.
In August, chipmaker Intel announced that the Trump administration would acquire 433.3 million of its shares for $8.9 billion, which would translate to a stake of just under ten percent. It is one of several deals that allowed the federal government to acquire either direct stakes, or options to buy stakes in the future, in five rare earth companies, and obtain what is known as a golden share in US Steel, which it received when the Trump White House approved its sale to the Japanese company Nippon Steel. Although this unusual arrangement does not give the government any ownership rights over future profits generated by U.S. Steel, it does give the president veto power over certain company decisions, including decisions to close factories or move its operations overseas.
To be sure, this is not the first time the U.S. government has acquired stakes in large companies, and the basic principle of rewarding the taxpayer for funding private companies is a good one. (Bernie Sanders, not a fan of Trump, expressed mixed support for the Intel deal.) During the Great Financial Crisis of 2008-09, the federal government provided emergency financing to the automaker General Motors and the insurance company AIG, taking approximately sixty percent and eighty percent stakes, respectively, which it then sold. She also took control of mortgage giants Fannie Mae and Freddie Mac, taking an eighty percent stake that she still holds today.
These government bailouts were all crisis measures. Trump’s equity construction, which some observers call “state capitalism,” is more arbitrary and opaque, and subject to his whims. Obviously he’s not a socialist, but if a Democratic president intervened in business the way he did, many Republicans would cry creeping socialism.
The Intel transaction arose from unfinished business of the Biden administration which, through the CHIPS and Science Act of 2022, agreed to give the struggling chipmaker about eight billion dollars in federal grants and eleven billion dollars in loans to build new factories in the United States that would help the company catch up with foreign competitors. When Trump returned to the White House, only about a quarter of the promised money had gone to Intel, and it was unclear what would happen to the rest. Obviously, the Trump administration demanded an equity stake in exchange for transferring some of the money, and Intel could hardly say no. The federal government is now its largest shareholder.
The administration has already used the powers given to it by its privileged share in US Steel. In September, according to The Wall Street JournalCommerce Secretary Howard Lutnick learned that the company was considering closing a plant in Illinois and told his chief executive that Trump would exercise his right to block the move. US Steel has reversed course. This type of interventionism is anathema to free-market conservatives, and it is far from clear where it will end up. Lutnick said the administration is even considering taking stakes in major defense contractors, such as Boeing and Lockheed Martin, likely to pay for the renewal of their lucrative federal contracts.
There has also been speculation that the Trump administration could end up striking some sort of financing-for-equity deal with a large artificial intelligence company, such as OpenAI, which is investing heavily in the data centers it needs to train and operate its models. According to Sam Altman, the company’s CEO, the company has committed to spending $1.4 trillion over the next eight years. Its revenues are growing rapidly: Altman said that by the end of this year they will reach an annualized rate of twenty billion dollars. But the company still spends much more than it earns, and it needs to mobilize a lot of external financing. Last week, Sarah Friar, OpenAI’s chief financial officer, said she was looking for “an ecosystem of banks, private equity, maybe even government,” and she raised the possibility of securing a federal financing guarantee, which would reduce the company’s borrowing costs and shift at least some of the risk to the government if OpenAI was unable to repay its loans. Essentially, if the company underperformed, the taxpayer might have to foot part of its bill.
