Is US Government Stake In Intel A Good Idea Or Socialism Or Both?

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Socialism is a loaded word, though not as loaded as it once was; many younger Americans view socialism favorably. State capitalism, the model in countries like France, may be more accurate.

In any event socialism, to paraphrase a line from the old movie Clue, is a red herring. The important question is not what government ownership is called but whether it's a good idea.

There are powerful arguments against it. Historically many state-owned companies have been less efficient, less productive, less likely to innovate and more prone to cronyism and corruption. Conflicts of interest can arise when government owns companies it regulates.

Politics could keep a state-owned company from making tough but necessary decisions. What if the firm is bloated and needs to lay off employees? Politicians might not like that; they might feel government ownership empowers them to stop it.

A government stake can dilute the ownership interests of other shareholders. It could even be seen as a taking of private property.

If the aim of a stake is to compensate taxpayers for the government subsidizing companies - the rationale Bernie Sanders likes - beware. That logic would justify the government taking stakes in anything it subsidizes, not just companies. They wouldn't likely come after farms but in principle they could.

The administration wants to create a sovereign welfare fund, essentially a state-owned fund that invests in stocks and bonds. If the Intel acquisition is a step in that direction, we might ask how the fund will be funded. Intel was grabbed in exchange for subsidies but to acquire unsubsidized companies the government would need cash.

Countries like Norway and Singapore fund their sovereign wealth funds from big budget surpluses. The U.S. runs multi-trillion dollar deficits. Will Uncle Sam raise taxes or deepen the deficit to buy shares?

The administration talks about using the proceeds from sales of government lands. Those sales face bipartisan Congressional opposition.

In some instances temporary government ownership seems justifiable, like rebuilding a critically important company's finances and preventing it from failing and devastating the economy. As Rattner wrote, that's what the Obama administration did for GM.

Maybe the Trump administration has something similar in mind for Intel. The chip maker certainly needs help. It lost $18.8 billion and 60% of its market value last year. If Trump is applying the GM template, though, the government would divest its stake once the company is turned around.

In 1979, when Uncle Sam rescued Chrysler with loan guarantees, it received warrants giving it the right to buy shares. It sold the warrants at a profit when the company recovered.