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Last year, financier Scott Bessent went before the Manhattan Institute to excoriate the Biden administration for its revival of industrial policy. “History teaches us that prioritizing free enterprise and limiting government’s role in the economy are key to raising living standards,” he said. Nonetheless, he continued, “the Biden administration chose to put central planning at the heart of its economic agenda,” offering tax breaks to companies investing in sectors and projects that the administration considered crucial to the nation’s future, such as promoting green energy and jump-starting domestic production of critically important products made almost entirely in China. By injecting the state in what should be left to the market, Bessent concluded, “economic calamity was the predictable result.”
That, as the saying has it, was then.
Last Wednesday, Bessent, now Donald Trump’s Treasury secretary, said the government would be expanding its actual investments in companies in economic sectors that it considers critical to the nation’s future. Where Biden merely sought to boost the private semiconductor industry through grants and favorable tax policies, Trump has had the government take an ownership stake in Intel. Biden certainly backed trade policies to boost the domestic steel industry, but Trump has had the government take a “golden share” (that is, become the chief decision-maker) in U.S. Steel. Under Trump, the government has also become a major shareholder in the nation’s major rare earths mining company. On Wednesday, Bessent said the government would be adding to such acquisitions by intervening in five to seven other key industries, including pharmaceuticals, shipbuilding, and arms production.
All these interventions, Bessent said, were, of course, a response to China’s domination of these industries, and its concomitant power to withhold their products from the United States. By recently blocking the export of its rare earth minerals to the U.S., China has made clear it has the power to cripple any number of crucial industries that need those minerals for the batteries that power their products.
“When you are facing a nonmarket economy like China, then you have to exercise industrial policies,” Bessent averred, overlooking the fact that that was the raison d’être for most of Biden’s industrial policies, too.
This form of state capitalism—where the government is enmeshed, in one way or another, in leading companies in key industries—is common in Europe, but has long been outside the pale of American capitalism. Here, we have long relied on private markets, and the myth of private markets, to power the nation’s economy. Even as iconic private companies have generally received all manner of governmental assistance—e.g., our first national corporations, the railroads, which received immense land grants from the government, in return for which they had to fork over only enough to buy occasional congresses and state legislatures—the ownership of those companies always stayed in private hands. |
