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What state capitalism can do—and what it can’t

Trump’s version is a joke. But even our version would have limited benefits.

Donald Trump’s success at compelling some American corporations to accept partial government ownership is neither communism nor socialism, as various market fundamentalists have fretted. As I’ve noted, it’s just one dimension of Trump’s l’état c’est moi personal power-grab-ism, through which he seeks control of state, local, and foreign governments, withholding funds and sending in troops in the case of the first two, and leveling tariffs in the case of the foreign countries, unless they accede to his demands. The same extends to law firms, universities, media companies, museums: No previous president has ever sought (or even thought) to impose his diktats on so wide a range of institutions normally outside the ambit of presidential control.

Trump’s target is the various autonomies inherent in the separation of powers, in a federal system, and in civil society. His form of state capitalism is just a subset of his drive for the comprehensive Trumpization of as much of the world as he can lay his little hands on. (As The New Republic’s Timothy Noah has noted, the revised version of U.S. Steel’s corporate charter now that it’s owned by Nippon Steel and, through the invention of a “golden share,” by the federal government, mentions Trump by name—as, I’ll add, it does not do for U.S. Steel founders Andrew Carnegie and J.P. Morgan.)

So Trump’s form of state capitalism is really sui generis, at least in the West since the 19th century, as it’s closer to the state capitalism of the original l’etat c’est moi Bourbon kings of France. Today’s state capitalism comes in as many forms as there are nations that practice it. In China, the leadership of the Communist Party controls virtually every big company that operates in a semi-market system, in some cases successfully (e.g., very high-speed rail), in others (overbuilt housing), not. In Europe, governments customarily own national transportation companies. In the United States BT (Before Trump), government has customarily been called in only in instances of market failure. Amtrak emerged only when private rail companies had abandoned all passenger service. In the wake of the 2008 financial collapse, the government bailed out GM, Chrysler, and the major banks, taking a temporary ownership share in the auto companies but leaving bank ownership largely untouched.

The offshoring of so many key industries in the past 40 years was shown to be another form of market failure during the COVID pandemic, when needed supplies couldn’t readily reach American consumers and producers, but its damage to millions of abandoned workers had been apparent for many years previous to anyone who cared to look. The Biden administration’s response was to enact legislation that amounted to industrial policy that both generated the kind of jobs that the market had offshored and enabled a swifter transition to cleaner forms of energy.

But America has a long history of market failures, which our governments have addressed in diverse and multiple ways. During the New Deal, when no American power company believed it could make a suitable profit by bringing electric power to rural areas—it took too much work to connect up their fellow citizens who didn’t live closely packed together—FDR’s Rural Electrification Administration did the job. More recently, there’s been a replay of that problem in private companies’ unwillingness to bring broadband to rural areas, but given private capital’s opposition to public enterprise—a lot more effective now than it was in 1935—government has yet to succeed at that task.

Public enterprise has long been and should continue to be a signature initiative of the left. Years ago, Yale political scientist Jacob Hacker made the case in the Prospect for an expansion of Medicare in which employers and citizens could buy into it, serving as a yardstick against which the UnitedHealthcares and their ilk with which we are afflicted would be compelled to compete. Today, cross-class public housing could provide a partial remedy to the private market’s failure at providing housing in increasingly unaffordable cities. And the U.S. and its states badly need public banks that can fund infrastructure and private loans at more affordable rates than the Wall Street behemoths offer.

For the left and center-left, though, state capitalism presents more complexities and challenges than straight-out public enterprise. What conditions would a left government with a partial ownership share in a major corporation require for such companies? I don’t doubt that if Intel or the Nipponized U.S. Steel wants to devote its funds to a share buyback, that would be fine with Donald Trump; he might even demand it. Major shareholders love buybacks; it’s the kind of demand that shakedown artists like Carl Icahn and Bill Ackman have routinely made. Any decently progressive government, by contrast, should ban the practice if and when it comes to power inheriting a share of a buyback-prone corporation. (Of course, virtually every large American corporation is buyback-prone.) But would the share value drop if a buyback ban were put in place, or if the government favored raises for the company’s workers, or blocked the company’s opposition to its workers’ efforts to join a union? When state capitalism goes company by company, it likely erodes the level playing field on which companies compete. The only “best practices” its competitors would be concerned with in today’s U.S. economy would be shareholder rewards (likely involving the attendant suppression of wages), a metric that the left’s version of state capitalism would not even try to meet.

In a better world, I think such issues are better addressed by legislation that affects every company, rather than singling out one-offs for socially responsible conduct. State capitalism has its place; in certain instances of market failure, a mixed public-private company may well be the best short-term remedy, as it was when the government took a temporary share in GM after bailing it out, which helped facilitate the repayment of its loan. But market failures are endemic to and inherent in capitalism, and are better addressed by regulation, public enterprise, and industrial policy than they are by the hybrid halfway houses of state capitalism.

We certainly can do state capitalism better than Donald Trump can, but there are more effective ways to build a thriving, more egalitarian economy.

~ HAROLD MEYERSON

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