Tracking the Unseen Costs of "State Corporatism"
In my latest Bloomberg column, I explore an unseen cost of the federal government’s recent and unprecedented investments in private US companies: the distortion of capital markets that have underpinned American growth and innovation for decades. As I explain, Uncle Sam’s 10 percent equity stake in chipmaker Intel has caused its share price to spike, even though the long-troubled company is facing the same operational and strategic challenges that have dogged it for years. The government’s investment has thus likely “diverted tens of billions of dollars of private capital away from potentially more deserving firms and to Intel, with little support for the move beyond—as one semiconductor analyst put it—‘vibes and tweets.’ ”
The harms, unfortunately, go beyond Intel. As the table below shows, the Trump administration has now taken a “golden share” in US Steel and direct equity stakes in a dozen other private companies:
In each case, share prices of state-backed firms have zoomed higher after the government’s investments were announced, reflecting billions in private capital flowing to chosen firms and away from others only because Washington is involved. Unrelated investments have also become distorted, as private investors openly factor in a potential target’s “political relationship with the state” when deciding whether to invest.
As I document, research shows that policy-driven capital misallocation can lead to lower productivity, weaker growth, and a smaller economy over the long term, even if state-backed champions don’t fail outright.
Such distortions have cost China hundreds of billions of dollars in foregone economic output (GDP). The United States would be wise not to follow Beijing’s lead.
You can read the whole column here.