Is That Socialism? The U.S. Government’s Share of Intel

These deals are not taxes or tariffs. They are forced payments or partnerships tied to political leverage. With them, the line between capitalism and socialism is no longer clear.

Capitalism is based on private ownership and open competition, with profits determined by markets. Socialism involves government control of production or distribution. These new deals are not quite either. Instead of leaving companies to operate as part of the marketplace, the government is inserting itself as a partner and taking a direct cut of their sales.

Critics of the Nvidia and AMD deals have expressed concern about their legality and called them a threat to national security, a risk that was behind the government’s refusal to grant the export licenses in the first place.

Economists call such systems coerced state capitalism: the government does not seize businesses, but it uses licensing and other powers to force them into profit-sharing. Versions of this practice exist elsewhere. In China, President Xi Jinping requires foreign companies to hand over profits and technology in exchange for market access. In Russia, President Vladimir Putin pressures major firms to share profits with the Kremlin. A Planet Money article from March 2022 described wealthy oligarchs as “ATM machines for the president.”

The U.S. has long criticized other countries for coerced state capitalism where firms stay in business only by giving up profits to political leaders. When Washington employs such revenue-skimming practices, it places the U.S. in uncomfortable company.

For years, Republican leaders have attacked programs like student loan relief as “socialism,” arguing that government should not interfere with private economic decisions. Yet these deals force companies to give up billions in revenue or partial control, not under tax law passed by Congress, but through direct executive branch negotiation.

This is not socialism; the government has not taken over the companies. It is not capitalism either. Capitalism depends on predictable laws and fair competition, not one-off profit-sharing deals.

This disturbing trend threatens consumers in two ways. One is higher costs. Forcing companies to hand over a share of their sales or ownership works like an added tax. In response, businesses are likely to raise prices and/or cut expenses. Either choice can lead to lower quality, fewer consumer choices, fewer jobs, or slower innovation. The IMF, in its 2020 Fiscal Monitor, found that state-owned companies worldwide usually operate less efficiently than private ones, creating hidden costs that taxpayers and consumers end up paying.

The second problem with coerced state capitalism is the politicization of business decisions. With the government owning equity or taking a share of profits, companies are managed with an eye toward satisfying political goals as much as customer needs. This leads to a skewed form of capitalism where political power rather than market competition shapes the operation and profits of private companies.

A government that once warned of socialism is now practicing its own form of coercive state capitalism. While the approach may deliver short-term revenue, it comes at the cost of eroding the trust in and integrity of both the government and the markets.

Rick Kahler, MS, CFP®, CFT-I™, CeFT®, CCIM, is the founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.

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