An Urban's Rural View

Call it socialism if you like. Others do.

"It," of course, is the government taking ownership positions in companies. The latest example is the 10% stake in Intel that President Donald Trump demanded in exchange for Intel's CHIPS Act subsidies.

Senator Bernie Sanders of Vermont, who calls himself a Democratic Socialist, applauded. Conservative talk radio host Erick Ericson, who endorsed Trump in 2020 and 2024, called it "socialism with an R next to its name" -- R for Republican. The New York Times ran an opinion column headlined, "What Next, Comrade Trump?" (https://www.nytimes.com/…)

That column, ironically, was written by Steven Rattner, who led the Obama administration's takeover of General Motors. Rattner argued that was different than what's happening now.

Then, he wrote, the economy was in freefall following the financial crisis and GM was on the verge of collapse. The government took a majority stake, restructured the company's finances and -- importantly -- divested its stake quickly.

Intel isn't the only recent acquisition. The president had already insisted on a "golden share" of U.S. Steel as a condition of its acquisition by Nippon Steel. Commenting on the Intel stake, he envisaged government investments in other chip companies. His commerce secretary is eyeing defense contractors like Lockheed Martin.

Socialism is a loaded word, though not as loaded as it once was; many younger Americans view socialism favorably. State capitalism, the model in countries like France, may be more accurate.

In any event socialism, to paraphrase a line from the old movie Clue, is a red herring. The important question is not what government ownership is called but whether it's a good idea.

There are powerful arguments against it. Historically many state-owned companies have been less efficient, less productive, less likely to innovate and more prone to cronyism and corruption. Conflicts of interest can arise when government owns companies it regulates.

Politics could keep a state-owned company from making tough but necessary decisions. What if the firm is bloated and needs to lay off employees? Politicians might not like that; they might feel government ownership empowers them to stop it.

A government stake can dilute the ownership interests of other shareholders. It could even be seen as a taking of private property.

If the aim of a stake is to compensate taxpayers for the government subsidizing companies -- the rationale Bernie Sanders likes -- beware. That logic would justify the government taking stakes in anything it subsidizes, not just companies. They wouldn't likely come after farms but in principle they could.

The administration wants to create a sovereign welfare fund, essentially a state-owned fund that invests in stocks and bonds. If the Intel acquisition is a step in that direction, we might ask how the fund will be funded. Intel was grabbed in exchange for subsidies but to acquire unsubsidized companies the government would need cash.

Countries like Norway and Singapore fund their sovereign wealth funds from big budget surpluses. The U.S. runs multi-trillion dollar deficits. Will Uncle Sam raise taxes or deepen the deficit to buy shares?

The administration talks about using the proceeds from sales of government lands. Those sales face bipartisan Congressional opposition.

In some instances temporary government ownership seems justifiable, like rebuilding a critically important company's finances and preventing it from failing and devastating the economy. As Rattner wrote, that's what the Obama administration did for GM.

Maybe the Trump administration has something similar in mind for Intel. The chip maker certainly needs help. It lost $18.8 billion and 60% of its market value last year. If Trump is applying the GM template, though, the government would divest its stake once the company is turned around.

In 1979, when Uncle Sam rescued Chrysler with loan guarantees, it received warrants giving it the right to buy shares. It sold the warrants at a profit when the company recovered.

The case for long-term government ownership is stronger when markets are reluctant to finance something the government considers strategically vital. That's arguably Intel's situation.

Private investors don't think it makes financial or economic sense for high-end semiconductors to be manufactured in the U.S. They've been more enthusiastic about backing American companies that design such chips.

But in Washington, Democrats and Republicans alike believe it's strategically important for high-end chips to be manufactured domestically. Without chips, national security is at risk.

Government ownership might give Intel the staying power to continue making chips. But will they be chips that can compete in the marketplace? That's less clear. Still, if Intel rises again as a result, many Americans won't care if it's called socialism.

Urban Lehner can be reached at urbanize@gmail.com

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