Trump's corporate stakes are a gift to the next Democratic president
Trump's corporate stakes are a gift to the next Democratic president
The Trump administration has now announced or completed deals to take ownership stakes in 40 private companies. Just this week, the Commerce Department added four more proposed stakes to the running count we maintain at the Cato Institutes Restoring Free Enterprise initiative. Those inclined to applaud the presidents dealmaking should consider what a Democratic president might do with those stakes after Trump is no longer in office.
Democrats are certainly thinking about it. Semafor reports that former Biden officials are licking their chops at the prospect of using government ownership to pressure gun and oil companies. Doug Farrar, who worked for then-Federal Trade Commission Chair Lina Khan during the Biden administration, sees a future president leveraging government ownership to turn the screws on AI companies, "especially a Democrat who wants to seriously regulate this industry." Remember when the Biden administration bullied social media platforms to remove content it didnt like during the COVID pandemic? That was done without government ownership.
I warned about this two weeks into Trumps second term after he signed an executive order seeking to create a sovereign wealth fund, noting that a government investment fund would eventually become a vehicle for Democratic administrations to pursue policies Republicans oppose. The White House ditched the idea for a formal fund and proceeded to cobble together an ad hoc presidential portfolio despite having no clear legal authority to do so.
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If a Democratic administration had done this, it would be practically impossible to imagine a Congress controlled by Republicans allowing it to continue. And yet congressional Republicans, who never miss a chance to tag Democrats as socialists and communists, have collectively done nothing to stop the Trump administration. In fact, congressional Republicans are actively trying to give the executive branch—and thus future administrations, not just the current administration—the legal authority to continue doing it.
The Trump administrations supporters cite its claims that equity stakes are better for taxpayers than blank checks, or that they are necessary to bolster supply chains for national security. Setting aside that they arent the administrations true motivation, neither justifies Washington becoming a shareholder in a portfolio of companies.
Sure, if the government is already handing a company money, getting shares in return sounds better than a straight giveaway. But the trade-offs cant be ignored.
When the government picks a racehorse, that horse is given advantages and privileges that leave the competing horses at a disadvantage. But the danger goes well beyond current competitors. Upstart firms, including those that dont yet exist, already face a steep hill to climb in bringing their products and ideas to market. Government ownership steepens that hill, threatening to stifle the entrepreneurial spirit critical to Americas economic success.
The value of the shares on the governments books isnt the same as revenue in the Treasury. Realizing the gains requires selling the shares and subtracting what taxpayers put in. And as my colleague Scott Lincicome explains, Intels stock gains partly reflect expectations of government favoritism, including pressure on other companies to use Intel products. That points to the possibility that the government is diverting private investment from businesses with better commercial prospects.
