U.S. Government Expands Equity Stakes in Multiple Companies, Raising Concerns Over Market Impact
When the Referee Buys the Team, the Match Is Already Rigged
Once a government moves from taxing a company to owning its shares, it stops merely writing the rules of the game and starts betting on a particular outcome — and everyone else must then play against the house.
The rulers in Washington have done something that cannot be undone by press release: they now hold equity stakes, worth over $2 billion in one case and spread across roughly three dozen firms. One of them boasts on public writings that “government’s stake is worth over 2 Billion Dollars,” as if this were a triumph of enterprise rather than a change of regime. Analysts warn that once government crosses into equity ownership, “the game changes.” They are right. When the referee buys part of one team, the contest ceases to be a contest, even if the rules on the wall remain beautifully painted.
When I wrote in The Prince, following the translation of W. K. Marriott, that we must look to the “real truth of a matter” rather than its imagined form, I had precisely this kind of confusion in mind. Some here will still talk of free enterprise, of markets, of competition. But the effectual truth is different: a state that owns pieces of companies, while also regulating their entire industry, has mixed two roles that are hard enough separately and explosive in combination. Sermons may say otherwise; balance sheets and bureaucrats will have the last word.
The first question is always survival. A government does not buy into strategic firms because it has fallen in love with dividends; it does so to maintain the state as it understands it. Perhaps it fears foreign rivals, or supply chains, or simply its own impotence before great private fortunes. Direct ownership gives it a lever that taxes and rules cannot. Yet every new lever creates new temptations. A ruler who is both investor and regulator wants his own firms protected, their losses hidden, their competitors hobbled. What begins as prudence for security can end as corruption of policy.
In the Discourses, in Ninian Hill Thomson’s translation, I argued that those who found states must assume “all men are bad, and will always, when they have free field, give loose to their evil inclinations.” Design institutions on that assumption, and you gain safety even when men are better. Ignore it, and the first scoundrel ruins you. To give officials the power both to police an industry and to favor companies in which their own prince has a stake is to offer that free field. The likely harvest is monopolies, stifled rivals, and innovation strangled in its cradle by those whose position depends on the old machines.
Nor can the rulers plead that fortune has forced them. I compared fortune to a raging river that floods the plains where no dykes were built. Here the river is strategic anxiety. Virtù would mean preparing while the weather was fair: diversifying suppliers, strengthening general competition, teaching the people to bear short-term pain for long-term independence. Instead, rulers often wait until the waters rise, then buy shares in the nearest boat and call this statesmanship. When the flood recedes, they remain entangled: half-owner, half-umpire, blamed for every failure and too exposed to let failure cleanse the field.
Every new mode and order must have arms of its own. In my time these were soldiers; here they are coalitions, capital, and public trust. The government’s arms are strong on paper: regulatory power, taxation, the purse that made these investments. But there is another arm it may be dulling: the willingness of private actors to risk and build. If entrepreneurs believe the state will favor its own companies, or change rules to rescue its investments, they become either courtiers seeking favor or exiles seeking safer shores. A prince can compel obedience; he cannot compel creativity. Lose that, and you hold only empty shares.
Worst of all is the middle course. Washington does not proclaim itself master of the whole economy; it merely litters the field with state-linked firms, while insisting it still referees fairly. This invites the costs of both systems and the benefits of neither: the sclerosis of state favoritism without the clarity of state responsibility, the noise of markets without their discipline of failure. Appearances will follow. Many will see overreach; others will see secret subsidies; all will suspect some hidden game. In such air, free institutions decay quietly, long before anyone dares say the word. The prince who buys the game to save it usually ends by owning its ruin.
From the works cited
- The Prince — Arms of one's own versus mercenaries and auxiliaries: power borrowed is power owed, and it will be collected at the worst moment.
- Discourses on Livy — Designing institutions assuming men are bad and will exploit opportunities; managed conflict between great and people as source of vigor.
- The Prince — Fortuna and virtù: preparation in fair weather is the difference between survival and ruin.