Next year marks the 250th anniversary of the foundational text in modern economics, ‘The Wealth of Nations’. In his thousand-page tome, Adam Smith took on the ills of mercantilism, arguing that the wealth of a nation should not be derived from trade protectionism and the hoarding of gold and silver, but by unleashing the power of free markets and voluntary exchange.
For much of its history, the United States has heeded Smith’s advice, securing wealth and prosperity beyond anything a humble moral philosopher of the 18th century could have imagined. But today, Smith’s lessons seem increasingly forgotten. Mercantilist ideas are ascendant.
Donald Trump’s administration may have shelved plans for an American sovereign wealth fund, but it has taken an even more troubling path. Through a restructured CHIPS Act deal, the United States government is set to own nearly 10% of Intel’s equity. Taxpayers will now be able to hold their heads high knowing they are the proud shareholders of a struggling chipmaker without the benefit of proper investment governance.
This development is more problematic than a sovereign wealth fund would have been. At least a properly designed sovereign wealth fund would have created a vehicle underpinned by market-based decision-making with robust and independent governance structures. Such a fund, assuming it operated on commercial principles, probably wouldn’t have invested in Intel at all.
Instead, we have ad hoc equity stakes driven by industrial policy rather than investment merit. The government’s 9.9% stake in Intel comes with no board representation and limited governance rights, yet taxpayers bear the financial risk of backing a company that has struggled to compete in critical markets like AI chips and has reported net losses for consecutive quarters.
The precedent is deeply concerning. Commerce Secretary Howard Lutnick has suggested this could be the first of many such deals, potentially creating a patchwork of government equity stakes across various industries without coherent investment strategy or oversight. Each stake becomes a political decision disguised as an economic one.
Some argue that governments should benefit through equity from the investments they make, whether through subsidies or funding basic science. But this misses a fundamental point. Giving the government an ownership stake is unnecessary and counterproductive. The government can and should access the benefits of corporate growth and a vibrant economy through the tax system. There’s nothing wrong with that approach. It’s how successful economies have operated for centuries.
Taxation captures the upside of economic growth without the potential downsides of government ownership. When companies succeed, tax revenues rise. When they innovate, the broader economy benefits, generating more taxable activity. When they create jobs, income tax receipts increase. This natural alignment means the government shares in success without having to pick winners or manage portfolios.
Government equity stakes, by contrast, create perverse incentives. They politicise investment decisions, making it harder for companies to make tough commercial choices. They blur the line between regulator and owner, potentially compromising both roles. And they expose taxpayers to concentrated risks that professional investors would diversify away.
The Intel deal illustrates these problems perfectly. Rather than letting market forces determine which companies deserve capital, the government is essentially rescuing a struggling firm through equity conversion. This sends a dangerous signal that political importance can substitute for commercial viability.
What’s worse is the governance vacuum. Unlike a sovereign wealth fund with clear mandates and professional management, these equity stakes exist in an institutional grey area. Who makes decisions about when to sell? How are conflicts of interest managed when the government both regulates and owns parts of an industry? What happens when political priorities clash with shareholder value?
The US faces no economic condition that would warrant direct government ownership of private enterprises, let alone a dedicated sovereign wealth fund. Its dynamic capital markets already allocate capital to promising ideas more efficiently than any government agency could. Likewise, millions of Americans are owners of industry through their pension funds and retirement savings. If particular sectors need support there are more targeted and less distorting tools available, such as R&D tax credits.
As we approach the 250th anniversary of the other great text of 1776, the Declaration of Independence, we would do well to remember the wisdom of Smith and the American founders alike. Prosperity and liberty flourish where markets are free, and where government’s role is to enforce rules, not own the players.
The Intel equity stake represents a step away from these principles that risks becoming a template for further government intervention in private markets. Before this precedent hardens into policy, we should recall what has made America great. Direct government ownership of private enterprise is not the answer. It’s a departure from the market-based principles that built American prosperity.
Many observers on this side of the Atlantic may look with disdain at Trump’s economic nationalism, but this Intel deal is no different from the dirigiste policies many European governments have long pursued. From France’s state stakes in corporate champions to the UK’s recent foray into steel production, the impulse to have government pick winners through direct ownership is hardly uniquely American. The difference is that America once knew better.
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