Trump, in reference to strong suggestions that he invoke the Defense Production Act in order to requisition the production of medical masks, respirators, and other medical equipment for the COVID-19, stated that he didn’t want to go down that path because that would be nationalizing industry: an un-American act. Well, directing production is not the same as nationalising, or taking ownership of firms, but I suppose if you spin it that way it sounds like socialism, and if it sounds like socialism many Americans will reject the idea. Trump prefers to rely on the free market– the same free market which brought the Great Financial Crisis and which left us unprepared for the current event.
In truth, however, there seems to be little to no talk about the nationalization of private firms and the National Production Act does not authorize such action. The Act authorizes the direction of production and distribution for the purposes of national defense and it has been utilized for crises other than war. Some might argue there is not much difference between taking control of production and distribution and taking ownership of a firm but there is a big difference. Under the direction of production and distribution firms will earn profits and owners will maintain ownership. That is a lot different from giving up ownership to the federal government.
But really, why not nationalize, or take a partial step in that direction in large firms which require federal assistance? There need not be a one hundred percent takeover of these firms; nor would it necessarily be in the public interest to do so. Americans, psychologically and spiritually, are not ready for a substantially socialized economy. But it seems Americans are ready for a significant shift in the balance between government and the private sector.
Major industries are calling for huge bailouts from the U.S. Treasury with figures climbing into the hundreds of billions; the figures will only grow larger from there. So far, the emphasis appears to be on loans to struggling companies, not cash infusions through equity positions. This, very arguably, is the wrong path to take. Federal Government investment in large firms should take the form of ownership interests. These equity positions would allow the Federal Government fairer compensation for the bailout risk undertaken during the current and future financial crises, pandemics, war scenarios, and anything else which might render these “too big to fail” firms, the possibility of failing. An equity position or a debt position should be determined on an expedited case by case basis dependent on the perceived risk of the firm’s survival. If the firm’s survival is in question, a debt position might better protect the Government’s interests through priority claims on the firm’s future liquidated assets.
During the Great Financial Crisis the Federal Government took equity stakes in auto firms and financial institutions with an explicit understanding these ownership positions would be sold when the time was deemed appropriate. The Government took largely preferred equity positions with limited voting rights and it seemed more concerned about shedding the perception that it had engaged in socialist practices rather than maximizing the return on its investment.
This time around, assuming that we can move the government towards ownership stakes in these firms, we should insist on continued Federal ownership. Why? The public would likely gather a greater return from the firm’s future profits through stock ownership than it would from interest earnings on the firm’s debt. Furthermore, continued Federal ownership positions will enable greater democratic control over the course of the nation’s future economic activity. If the firms are truly desperate they will accept the cash infusion that a Federal equity purchase will bring. The Federal Government, for ideological, political, or other purposes, is giving away too much during these negotiations. They have assumed a weak bargaining position when they are in a very strong position. This reflects one reason why private sector capital interests do so well, they simply negotiate a better deal.
The private sector will get away with this if the public ignores the issue. Now is the moment to transition to a more democratic system through ownership interests in large firms which seek assistance from the Federal Government. This would bring us closer to the economic models found in the Nordic nations where governments share in the ownership of large and powerful firms; where consequently wealth and income are more evenly distributed, and where in survey after survey the conclusion is that people in this region of the world, despite the cold weather, are happier than their European and American counterparts.
The neoliberal agenda of massive privatization over the past 40 years or so has proven itself destructive of the popular good. Now is the time to seize the moment: a Federal ownership position in these firms will enable the public to leverage a return for the risk it undertakes when it rescues these firms; it would also enable a return on the public assets which private firms have successfully leveraged for private sector profits. These assets include state provided public education, roadways, a stable society enforced through publicly-paid police and judicial apparatuses, the U.S. military which secures their agenda abroad, and so forth.
A step towards nationalization may be deemed un-American, depending on one’s perception of what it means to be an American. If being an American, however, means the exercise of democratic control, then federal ownership positions in large corporations represents greater democracy, not less democracy, and is therefore more American than the concentration of power amassed through the current economic model which emphasizes excessive private sector control.