To strengthen America’s technological edge, President Donald Trump directed the government to buy $8.9 billion of Intel stock this summer, a controversial move that may be followed by a similar deal with quantum-computing companies getting millions of dollars in federal funding.
The splashy moves could endanger the prosperous American economy, according to an influential economist speaking to Politico — especially in tandem with the White House’s gutting of agencies that have historically collaborated with the private sector.
“I think the kind of capitalism Trump has is crony capitalism,” Italian economist Mariana Mazzucato told Politico. “I would describe crony capitalism as Mafia-like. You’re showing your upper hand. You’re handing out favors to some. But then divide and conquer. Picking and choosing without a particular strategy.”
“[H]e’s actually weakening the economy,” she summed up.
Mazzucato, a University College London economics professor and adviser to governments, argues that the Intel deal is poorly designed because it doesn’t have any conditions to incentivize the company to be build new products, while the government simply acts as a passive investor.
That kind of posture isn’t going to foster next-generation technology, Mazzucato said. A smarter approach, she says, would see a government put together a portfolio of companies in a sector, encourage them with subsidies and other incentives, and wait for a company or product to rise to the top via competition in the marketplace.
Mazzucato has written extensively about how governments should take equity stakes in companies, but not in the way the Trump administration is doing, which some have called a form of corporate welfare.
Corporate welfare causes monopolies to develop; monopolies are bad because consumers don’t get cheaper and better products, while companies don’t have outside pressure to innovate. If companies don’t innovate, other countries with better industrial policy and ambitious companies will eat America’s lunch.
“And I don’t think there is, under Trump’s administration, any policy that is kind of future and opportunity-oriented around innovation,” she said. “It’s just about getting companies either to come back or preventing foreign companies from selling their goods in the U.S. It’s kind of preventing stuff from happening, versus that more positive, proactive making things happen that otherwise would not have happened.”
She called Trump’s economic policy an “idiosyncratic hodgepodge” because there doesn’t seem to be a clear strategy or a holistic roadmap to bolster the industrial backbone of America, where manufacturing has faltered to China and other countries.
... continue reading