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 Institute’s Restoring Free Enterprise initiative. Those inclined to applaud the president’s 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 didn’t like during the COVID pandemic? That was done without government ownership.
I warned about this two weeks into Trump’s 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 administration’s 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 aren’t the administration’s 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 can’t 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 don’t 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 America’s economic success.
The value of the shares on the government’s books isn’t 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, Intel’s 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.
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Even if the administration could sell its entire Intel stake today, it would net roughly $28 billion—less than 1.5% of the $2 trillion deficit Washington ran up in the fiscal year just ended under President Trump and a Republican-controlled Congress. The stakes the administration has acquired should be divested, regardless. But if the administration wants to raise funds productively, it could revisit Cato’s recommendations to sell excess federal buildings and privatize government businesses like Amtrak.
The national security rationale also sounds reasonable until you realize the federal government already has plenty of ways to support companies on such grounds without becoming an owner. Our Restoring Free Enterprise initiative lays out both market-based and government alternatives to equity stakes that would help bolster critical supply chains. Easing permitting requirements and removing tariffs on production inputs would make it easier for private companies to invest and expand supply. And the government can address specific defense needs through purchase contracts or stockpiles of critical materials.
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Invoking “national security” also has a long-standing tradition in Washington as an excuse for politicians to justify actions they might not otherwise get away with. Back in April, the administration pursued a bailout that could have given the government 90% of Spirit Airlines on dubious national security grounds, until a group of the airline’s bondholders balked at the terms.
Last week, Politico reported that the Federal Aviation Administration is exploring an ownership stake in a company that develops software for managing air traffic control. National security or not, having the government become an investor in a company it is supposed to evaluate objectively is an objectively bad idea.
Defenders will also point to promises that the government will remain a passive shareholder and argue that concerns about federal control over the corporate boardroom are overblown. That’s a painfully naïve view of how Washington works. The Trump administration is already using contracts and regulatory authority to favor companies it owns.
While Trump’s supporters may applaud that favoritism today, will they still applaud when a President Gavin Newsom or President Alexandria Ocasio-Cortez does it?
No.
That is why Republicans should use the time they still have to end this ownership experiment instead of waiting until a Democratic president makes them wish they had.
