Capitalism 2.0: Can public ownership deliver private prosperity and social good?
You might not like the man or his personality, but I wonder whether a new brand of capitalism and a new brand of government are emerging that prioritise the greater good.
As I have said before, I believe capitalism is the best solution we currently have (socialism eventually runs out of other people’s money) but it has flaws and it can be improved. In Australia, we yearn for better healthcare, childcare, education, and aged care, but the current solution to affording these things is to tax civilians more and hope that immigration will lead to economic prosperity.
We could afford a better society if we didn’t embed an economic model that privatises profits and socialises the losses. If, for example, the government or a sovereign wealth fund owned stakes in the businesses extracting Australia’s vast resource wealth, we might see a better quality of life for all Australians.
It’s still capitalism, but with the ability to afford social good. Sure, private owners of the nation’s iron ore would have to take a haircut, but they’d still make billions. Whatever you think about Trump the man, and putting aside the arguments about the government picking winners and losers, I do wonder whether his administration’s recent investments in companies make sense.
There’s no doubt developed nations face a reckoning. Mounting government debt (US$318 trillion at last count) has saved economies from recession and collapse, which, in turn, has provided the environment for companies to make trillions in profits. In Western democracies, however, those profits have been privatised, but the debt remains on the government’s balance sheet.
In an era of mounting fiscal pressures and global competition, Western governments are now exploring unconventional tools to bolster national interests while addressing social needs.
The recent actions of the U.S. government under Donald Trump – acquiring equity stakes in major corporations – signal a potential shift toward a hybrid model of capitalism. If my understanding is correct, it combines private enterprise with public ownership, enabling governments to generate revenue for essential services such as healthcare, education, childcare, and aged care, without relying solely on higher taxes or immigration-driven growth.
Drawing on examples from the semiconductor, steel, and defence sectors, this model echoes sovereign wealth funds in other nations and offers a pathway to at least partially socialise profits from key industries, ensuring broader societal benefits.
At the heart of the strategy is the government’s direct investment in private companies, often in exchange for subsidies, grants, or regulatory approvals. A prime example is the U.S. acquisition of a nearly 10 per cent stake in Intel, converting unpaid construction grants from the 2022 CHIPS and Science Act – originally intended to promote domestic semiconductor manufacturing – into non-voting shares valued at around US$9 billion.
This made the US federal government Intel’s largest single shareholder. Similarly, the administration secured a “golden share” in U.S. Steel as a condition for approving its acquisition by Japan’s Nippon Steel, granting significant control over the company’s governance and operations.
In the chip industry, deals with Nvidia and AMD require them to hand over 15 per cent of revenue from artificial intelligence (AI) and advanced chip sales to China, while other semiconductor firms face similar demands for export licenses. Apple committed an additional US$100 billion in U.S. investments to avert tariffs, and law firms have been pressured to provide pro bono services to avoid legal pursuits.
Proponents argue that such stakes are not arbitrary but a calculated response to national security threats and economic vulnerabilities. What they’re saying is that by protecting critical industries like semiconductors – vital for everything from consumer electronics to military applications – the government ensures American competitiveness against rivals like China.
Kevin Hassett, director of the National Economic Council, described the Intel deal as a “down payment” on a U.S. sovereign wealth fund, akin to those in Europe, Asia, the Middle East, and Gulf states, which invest in assets to generate long-term revenue. Commerce Secretary Howard Lutnick has extended this logic to defence contractors like Lockheed Martin, and noted that if the government provides “fundamental value” through contracts (e.g., 97 per cent of Lockheed’s revenue), it deserves a share of the returns.
Dealmaker Trump has himself touted these as savvy deals, saying, “I will make deals like that for our country all day long,” and hinting at expansions to pharmaceuticals, rare earths mining, and beyond.
My contention is that the model might address a core flaw in traditional capitalism: the privatisation of profits amid socialised losses.
In resource-rich nations like Australia, where vast mineral wealth often enriches private owners while public services lag, a sovereign fund owning stakes in extraction companies could redirect dividends toward universal benefits.
Similarly, in the U.S., capturing equity from subsidised firms prevents taxpayer money from “disappearing into the ether,” as Hassett put it. The CHIPS Act alone spurred over US$200 billion in private investments and thousands of jobs. Equity stakes ensure a “reasonable return” on these public outlays.
Perhaps understandably, Bernie Sanders, an avowed socialist, endorsed this, arguing that taxpayers deserve profits from government grants. For Western democracies facing aging populations and rising social costs, the model could fund improved quality of life – better healthcare and education – without burdensome taxes, fostering a more equitable society while preserving capitalist incentives. Private owners might face diluted shares, but as Trump noted, they’d “still make billions,” with the added stability of government backing.
Equally understandably, this shift has ignited fierce debate, particularly among conservatives who view it as a betrayal of free-market principles. Critics label it “socialism” or “state capitalism,” warning that government ownership of production means – echoing Rand Paul’s quip about Intel – erodes individual liberty. Senator Thom Tillis expressed discomfort, likening it to Soviet-era enterprises, while libertarian think tanks like the Cato Institute argue it injects politics into economic decisions, leading to inefficiencies and corruption. Economists such as Gregory Mankiw and Tad DeHaven caution that ad hoc interventions create uncertainty, deterring investors and suppressing the market forces essential for growth.
Of course, precedents exist. I recall the U.S. stakes in General Motors, Citigroup, and AIG during the 2008 Global Financial Crisis. Admittedly, those were emergency measures under Bush and Obama, not a blueprint for ongoing policy.
Internationally, while China and Russia routinely invest in domestic firms, and European democracies support strategic sectors like aerospace, critics fear this normalises cronyism, where deals favour political allies over merit. That’s something that would need oversight, and safeguards would need to be installed to prevent abuse.
A significant concern is the precedent for future administrations: a Democratic president might leverage stakes to enforce green policies or diversity mandates and it’s worth acknowledging that no leader, even a self-professed “genius businessman” like Trump, can expertly manage diverse industries.
Ultimately, this new brand of capitalism – government as stakeholder – challenges our Western sensibilities, but it potentially offers a pragmatic evolution. By emulating successful sovereign funds, nations can harness private innovation for the public good, affording social protections to the less fortunate without stifling growth. As global pressures mount, from debt, supply chain disruptions and inequality, I wonder whether this model may prove necessary. Of course, whether it heralds a fairer society or risks authoritarian overreach remains to be seen, but the debate needs to be had here in Australia too.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Economic Error #4: Mercantilism’s State-Run Economy is Harmonious; the Free Market Isn’t.
Gary North – October 08, 2010
Ellen Brown favors Federal government control over the economy. She opposes free trade and free pricing. She is a mercantilist.
This becomes obvious in her discussion of Alexander Hamilton. She favors his recommendation of high tariffs to protect domestic industries. Hamilton was a mercantilist. She also recommends the economic system adopted by Hamilton’s disciple, the politician Henry Clay. Clay was a mercantilist.
Government and business should be “one big happy family.” This was Clay’s American System.
This is the basis of what is called the government-business alliance. In early modern European history, this was called mercantilism. In 19th-cenrtury America before 1865, this was called the American System. In the mid-1930s, it was called the New Deal. It was called fascism in Italy. This system of economics is the legal and moral foundation of The Web of Debt.
Fascism? You must be joking! Fascism is a far-right, authoritarian, ultranationalist political ideology characterised by centralised control of society and the economy, suppression of dissent, and extreme nationalism. It emphasises the supremacy of the state or nation over individual rights, promoting a unified “national community” often tied to ethnic or cultural identity. Fascism rejects democracy, liberalism, and socialism, favoring militarism, propaganda, and the curtailment of freedoms to maintain order and loyalty.
In early modern European history, this was called mercantilism. In 19th-cenrtury America before 1865, this was called the American System. In the mid-1930s, [In America ]it was called the New Deal. It was called fascism in Italy.
Mr. Roger, Best explanation for society’s problem comes from so called Austrian school of thought plus Edmund Burke, Alexis de Tocqueville, Erik von Kuehnelt-Leddihn, Frank H. Knight, H. L. Mencken, Harold J. Berman, Helmut Schoeck, Henry Hazlitt, Milton Friedman, Robert A. Nisbet, Gary North, R. J. Rushdoony, Thomas Sowell, Walter E. Williams…
Thanks for sharing. Mercantilism is the economic theory and practice that was dominant in Europe from the 16th to 18th centuries, where governments sought to increase national wealth by maximising exports, minimising imports, and accumulating gold and silver. It emphasised state control over trade, colonial expansion to secure resources, and protectionist policies like tariffs to favour domestic industries. To advocate for partial ownership or the taxing of revenue of corporations that extract finite common-wealth resources, is not to advocate for all the other elements.
Fascism is a far-right, authoritarian, ultranationalist political ideology characterized by a dictatorial leader, centralised control of society and the economy, suppression of dissent, and extreme nationalism. It emphasises the supremacy of the state or nation over individual rights, promoting a unified “national community” often tied to ethnic or cultural identity. Fascism rejects democracy, liberalism, and socialism, favoring militarism, propaganda, and the curtailment of freedoms to maintain order and loyalty. I don’t see anywhere in my blog post that advocates for that! Thanks anyway.
Hi Roger, great piece of writing! I have been told that my luxury vehicle has about 3000 chips. Whoever dominates this market leads the rest. I don’t doubt that President Trump will hire the right people for the job to run these sovereign and new technology enterprises. It’s essentially having ‘skin in the game’ for sovereign resources and new markets. He knew the US was hemorrhaging, and even though we don’t think much of his character, he may have resuscitated real growth in the US economy.
Thanks for sharing Alex.