Government Taking Stakes in Private Companies Is Not Capitalism. Stop Calling It That.

$874 Million. Seven Companies. Zero Accountability.

Last week the Commerce Department announced it will designate more than $870 million in federal incentives for semiconductor manufacturing in exchange for minority stakes in seven companies. Did you hear about it? Probably not. Not much fanfare on this one. That is usually how it works when the government quietly expands its reach into the private sector.

The National Institute of Standards and Technology and the Commerce Department’s Chips Research and Development Office signed letters of intent to hand out a combined $874 million to these seven companies. And the justification, as always, is that we are making smart investments that will make America wealthier.

Sure. Right. Tell me more about how wealthy we are getting while the national debt climbs into the stratosphere.

Crony Capitalism Is Just Socialism With Better Marketing

I am going to say something that will make people on both sides uncomfortable. It does not matter which party is doing this. Crony capitalism is socialism. Full stop. You can dress it up however you want, call it strategic investment, public-private partnership, industrial policy, whatever makes you feel better. When the government takes a stake in a private company, picks winners and losers, and hands out subsidies based on political considerations rather than market merit, that is not a free market. That is Mussolini-style fascism, which collapses into crony capitalism, which is just socialism with a different logo.

I have been consistent on this for my entire career:

• Loan guarantees are bad. Whether it is a chip company or a green energy startup or a film studio in Sarasota, Florida, government-backed loans distort risk and socialize losses.
• Subsidies are bad. They redirect capital from productive uses to politically connected ones.
• Government stakes in companies are bad. They destroy fair competition because no private company can compete against a competitor backed by federal regulators and federal money.
• Ribbon-cutting ceremonies with golden shovels are theater. Every time you see a politician at one of those things, ask yourself who is actually paying for it.

The Question They Cannot Answer

Here is the question I keep asking and nobody in Washington wants to touch. If these government investments are so profitable and making us all so much wealthier, why don’t we sell them and pay down the debt?

Why don’t we liquidate these positions, take the spectacular returns everyone keeps bragging about, and use them to offset the cost of what we are spending? The silence on that question tells you everything you need to know about the actual quality of these so-called investments.

What Actually Happens When Government Picks Winners

• The favored companies get an unfair advantage that has nothing to do with their product, service, or innovation.
• Competing companies that did not play ball with Washington get squeezed out, not because they were worse but because they were not politically connected.
• Taxpayers absorb the losses when the deal goes sideways, and these deals go sideways constantly.
• The people who brokered the arrangement collect their fees and move on.

I watched this exact movie play out in Sarasota. Local government got excited about a movie studio, handed out tax breaks, land deals, the whole package. Some guy saw an opportunity to grift on the local government’s enthusiasm for celebrity glamour. The whole thing fell apart. Exactly like I said it would.

Either a business can stand on its own two feet or it cannot. Government money does not change that equation. It just delays the collapse and makes it more expensive for the rest of us.

The law is supposed to apply equally to everyone. That is the foundation this country was built on. The moment government starts deciding which companies deserve a leg up, that principle is gone. And your ability to invest in a market based on actual fundamentals goes with it.