The Retired Investor: America's New Brand of Capitalism

Over the last nine months, a 10 percent position in a huge semiconductor giant, a 15 percent stake in a materials company, plus a golden share in one of America's venerable steel producers have been swallowed up. No, the buyer isn't Warren Buffett; it is the United States government.

 

I am old enough to remember the opening of China a generation ago under President Richard Nixon. The nation was rabidly anti-communist, but the prevailing wisdom was that, given enough time, the Chinese government would become more liberal, and its economy would begin to resemble our own country's capitalism.

 

This "power of example" idea has worked, but in the opposite direction. As a recent Wall Street Journal article pointed out, the U.S. economy is moving ever closer toward state capitalism. Although it may differ from the Chinese version in certain areas, there is no question that this administration is intent on exerting more political control over the U.S. economy than their predecessors.

 

I find this trend neither surprising nor something to worry about. I have long maintained that the so-called U.S. free market economy, so many conservatives touted as the bedrock of capitalism and democracy, is a myth. One need look no further back than the 1930s to understand how the U.S. government has interceded time after time to assist the economy when things went wonky and even when it didn't.

 

The failing economy of the Great Depression led to a prolonged period of government intervention, culminating in the New Deal. During World War II, the government basically controlled production as it put the economy on a wartime footing. Fast forward to modern times, when the government commandeered the financial system during the Financial Crisis or the shutdown of the country's labor force, followed by massive fiscal and monetary stimulation of the economy during the COVID Pandemic.

 

Almost every administration, regardless of party, has worked to expand the government's role in the economy. Over the last few decades, as globalism became the leading form of economic growth, governments worldwide did what they could to ensure that their corporations came out on top. The U.S. did more. American corporations, aided and abetted by succeeding administrations, grew larger, succeeding in commanding an increasing market share of trade at the expense of foreign competitors. As a result, our financial markets became the go-to destination for investment.

 

Since then, the competition has increased. The lines between a country's economic and political systems have blurred worldwide. Increasingly, especially in autocratic societies such as China, military might is believed to come down to who has the best AI chip or strategic metal supplies. Here in the U.S., secure supply chains, safeguarding strategic industries, and reinvigorating critical industries weakened by globalization have all become significant economic and political concerns.

 

If one were to apply a check list of state capitalism characteristics here in the U.S., we would find in just the last six months: government ownership of private companies (Intel, MP metals), strategic control of key industries through golden shares (U.S. Steel), direct influence over corporate leadership appointments (demands Intel CEO be fired), targeted industrial policies (AI and semiconductors), revenue-sharing arrangements between private companies and government (Nvidia/AMD 15 percent revenue share, Japanese trade deal). Add to this list the upheaval in the federal regulatory area, and we see a government exerting its powers to achieve political and economic objectives at lightning speed. 

 

Next week, we will examine the whys and wherefores of this trend, the downside of this trend toward state capitalism, and what, if anything, we can do about it.