Washington has shifted from subsidizing firms to owning shares in them. The clearest signal came with the federal government’s roughly 10% stake in Intel. That position grew out of CHIPS Act funding tied to equity, options, and restrictions on how Intel can spend its money.
A second sign is the “golden share” in the U.S. Steel–Nippon Steel deal. That single share gives Washington veto power over key corporate decisions. It’s not nationalization, but it is direct control inside a public company. Both moves break new ground in America and both carry risks.
What the Founders Intended
The Founders didn’t use today’s term “industrial policy,” but they were clear about federal power being limited, defined, and checked. Madison wrote federal powers are “few and defined.” He warned that factions—organized interests—would bend policy to their own benefit unless power is restrained and balanced. That warning matters when the state becomes a shareholder.
Jefferson, for his part, tied liberty to informed citizens, not state-managed commerce. Hamilton favored some national support for industry, but the overall design of the Constitution leaned on economic freedom and dispersed power as the safeguard of liberty. That free-market tilt should frame how we judge equity stakes today.
Why Government Tries It: The Case for Dabbling
Advocates offer two main arguments:
- National security. Chips, energy, and defense suppliers are vital to national defense. Government stakes, they argue, can align corporate incentives with strategic aims when markets underinvest, at least at home.
- Crisis backstops. In 2008–09, Treasury used TARP (Troubled Asset Relief Program) to inject capital into banks and automakers, even forcing financially sound companies to participate. The government exited those stakes relatively quickly, and the final cost was far below initial authorizations. The case shows temporary ownership can stabilize key systems if rules and exits are clear.
Why It’s Dangerous
The risks are bigger and longer lasting:
- Regulatory capture. Interest groups already bend rules to their advantage and when the referee also owns a team, rules tilt further. This likely will cause trust and market signals to erode and/or fail.
- Conflicts of interest. The Organisation for Economic Co-operation and Development (OECD) warns state owners must separate their roles, stay neutral, and avoid favoritism. In practice, those firewalls rarely hold. Governments inevitably pick winners.
- Mission creep. “Temporary” ownership often lingers and government holds onto ownership longer than expected or promised. Politicians like ribbon cuttings and visible jobs. Exits are viewed to be risky and unpopular by many politicians once enacted. Golden-share powers are especially ripe for expansion, as the U.S. Steel deal shows.
Intel and U.S. Steel
Intel’s deal ties government money to equity, options, and operating restrictions. The goal is understandable: catching up in advanced chipmaking at home to improve economic competitiveness and bolster national security. But once the government sits at the table, every downstream decision becomes political. Supplier picks, pricing, locations, and buybacks can all be nudged. That’s not a free market; it’s a guided one at best.
The U.S. Steel golden share goes further, giving Washington veto-like power over corporate moves. It may reduce takeover risk and offshoring, but it raises a bigger question: are managers answering to markets, or to Washington? The cost of capital will rise under that uncertainty, while invention and innovation will suffer.
Rules for Rare Exceptions
If the U.S. insists on dabbling, it should follow strict limits:
- High bar, narrow scope. An equity stake in a company should only be sought in genuine national security cases where markets have failed. Asset sales, subsidies, or broad tax credits should be considered first before government ownership.
- Small stakes, fast exits. Here the government should take the minimum stake needed in a company to acquire, avoid control rights, and set hard exit dates to sell it shares in the company. TARP’s rapid wind-down with as little intervention as possible seems to be the model, certainly not permanent ownership.
- No favoritism. Government should ban mandates that steer customers to state-backed funds and firms. No political strings on siting, labor talks, or pricing related to the firm being acquired. Let markets pick winners, not politicians.
- Full transparency. There must be a full disclosure of legal and financial terms, from valuations to exit paths up front. Sunlight is the cheapest and most powerful check on abuse.
Markets Heal Themselves
Government ownership of private firms should be an extreme rarity and short-lived. When government inserts itself as an owner, it distorts the signals markets rely on. Prices and suppliers should be driven by profit-seeking, not politics.
Markets, disciplined by incentives, correct mistakes and punish failure. Governments as owners smother that discipline. Intervention interrupts those natural mechanisms. The better path is to let the invisible hand work and intervene only when markets clearly break down, which is rarely.
Bottom Line
The Founders’ instinct was to limit federal power and divide it. That design built a dynamic American economy rooted in risk-taking, entrepreneurship and competition. Equity stakes and golden shares flip that model. They invite political meddling which shifts firms away from invention and innovation toward Washington’s and/or state capitol’s priorities and a less efficient, successful economy.
In war or crisis, temporary ownership may be the least bad tool and only choice. But in normal times, it’s a slippery tool with a noisy handle. If we care about liberty, long-term growth and success, the default must remain simple: keep the state out of shareholder meetings, and let free people and free markets do their work.
