【By Observer Net Columnist Chen Feng】

On August 25, U.S. Commerce Secretary Rutenberg said that the U.S. government is considering purchasing shares in defense companies such as Lockheed, Boeing, and Palantir. "97% of Lockheed Martin's revenue comes from the U.S. government. They are essentially a department of the U.S. government. ... But how does this make sense economically? ... I'll tell you, this has been the practice all along, which is essentially giving money away."

From Trump's perspective, since the U.S. government has always been giving money, it is naturally reasonable to hold a stake in these companies that basically survive on government orders.

This is just the latest chapter. Previously, on August 22, Trump stated on social media that the U.S. government has obtained a 10% stake in Intel. Earlier in June, the U.S. government intervened to facilitate Japan Steel's acquisition of U.S. Steel and gained what Trump claimed was a "golden equity," which gives the U.S. government a say in operations. In comparison, the U.S. government's stake in Intel is only common stock without voting rights.

Europe can do it, but the U.S. cannot?

The U.S. claims to be the leader of capitalism, and the core of capitalism is private ownership. In the concept of the U.S. government and people, government ownership is a form of nationalization, and the amount of ownership is merely a difference in the degree of nationalization. The idea that "nationalization = socialism" is deeply ingrained, and therefore it has long been criticized.

Compared to this, European countries have had the precedent of government ownership of large companies. Europe is the birthplace of capitalism, and it first moved from competitiveness-based free capitalism and industrial capitalism to rent-seeking monopolistic capitalism and financial capitalism. In the process of moving from frugality to luxury and making money from money, the economy shifted from real to virtual. First there was competition from the United States, and later from post-war Germany and Japan, causing old Europe's manufacturing and real economy to gradually decline, and the company world went from a constellation of stars to a few scattered ones.

Old Europe, with its history of colonizing the world with warships and cannons, understands the importance of manufacturing, and more importantly, the importance of tax revenue and employment. It has actively protected the remaining key manufacturing industries, especially strategic industries such as automobiles, shipbuilding, aircraft, and electronics related to national defense, often through government ownership or full ownership, and by merging and streamlining to create monopolistic large companies.

Britain led the way in this, merging a number of small and large car companies into the British Motor Corporation (BMC) in the 1970s, later renamed the British Leyland Motor Corporation (BLMC). At different times, BLMC owned brands such as Austin, Morris, MG, Austin-Healey, Wolseley, Riley, Vanden Plas, Jaguar, Daimler, Rover, and Land Rover. In other words, except for Vauxhall, which was already under General Motors in the 1920s, basically all of Britain's major brands were under the umbrella of BMC/BLMC.

British government believed that only through nationalization could these brands and related jobs be preserved, but it turned out that the decline of British cars continued. In the 1980s, BLMC sold many brands and was privatized again, becoming the Rover Group, and from 1988 to 1994, it became a division of British Aerospace. Eventually, it was broken up, with its remnants scattered among BMW, SAIC, Tata, and others.

British Aerospace (BAe) was also the result of nationalization and monopolization, formed by the merger of the British Aircraft Corporation (BAC), Hawker Siddeley, and other companies. And BAC and Hawker Siddeley themselves were also the results of mergers.

This complex history of mergers only illustrates one thing: with the rapid increase in technical barriers and the decrease in military procurement, defense companies can only survive through simplification and mergers. For a small country like Britain, in the end, it can only afford one large company that has both scale and technology, and if relying solely on the domestic market, it must be nationalized.

BAe was re-privatized in 1981 during Thatcher's wave of privatization, but it also attached itself to the United States. Today, BAe is more of an American company than a British one, being one of the "Big Six" American defense companies, the other five being Lockheed, Boeing, Northrop, General Dynamics, and Raytheon.

France is similar, with Aerospatiale and Thomson-CSF as state-owned monopolies, now merged into Airbus and Thales respectively. Italy's Fiat also played the role of a state-run automobile company under state encouragement, and most of the well-known Italian brands were under Fiat at different times, such as Fiat, Lancia, Alfa Romeo, Abarth, Ferrari (now independent), Maserati, and Iveco.

Now, European defense giants like Airbus, Thales, and Leonardo are theoretically no longer state-owned, but the relevant governments still hold significant shares. So, in a way, Europe can do it, and so can the U.S. But there's always a "but".

The federal government is now the largest shareholder of Intel, and Trump says this is just the beginning

Are defense companies the most suitable for "nationalization"?

Old Europe's defense industry has largely become "one company per country" in major categories. Whether it's nationalization, partial government ownership, or privatization (such as Dassault, which remains private), it doesn't change the fact that unless imported, government procurement only has one option, no alternatives. This is the root of many problems, but it also solves the issue of interest conflicts: there is no favoritism between government-owned and non-government-owned companies in government procurement.

The U.S. hasn't gone this far yet, nor does it want to, but it is on the way.

At the end of World War II, there were companies in the U.S. that developed and manufactured air force planes, including Republic, North American, Convair, Boeing, Lockheed, Northrop, Martin, and some more obscure ones like Ryan, Bell, and Cessna, Beech, Piper for small aircraft. For naval aircraft, there were Douglas, McDonnell, Grumman, and Vought. Now, only Lockheed, Boeing, and Northrop remain. If the U.S. government hadn't intervened, Lockheed and Northrop would have merged in the 1990s as well.

Currently, only Lockheed has experience in designing and manufacturing fifth-generation fighter jets, but in the sixth-generation fighter competition, Boeing's F-47 stole the spotlight, generally considered a deliberate move by the U.S. to maintain the fighter jet industry base. Boeing has repeatedly failed in fighter jet competitions, and the F-18E and F-15E inherited from McDonnell Douglas are only fourth-and-a-half generation, and they're barely holding on. If they don't win this time, they may permanently leave the field of fighter jet design and manufacturing. Northrop, combined with Grumman, hasn't designed and produced a new fighter jet in nearly 60 years. Participating in the U.S. Navy's FA-XX project is likely just a last-ditch effort, or a final desperate act.

Other than these three, the U.S. no longer has the capability to design and manufacture fighter jets. General Dynamics has exited aircraft development and manufacturing, while Raytheon focuses on niche special aircraft.

The U.S. is determined to avoid ending up with only one company capable of developing and manufacturing fighter jets, to prevent getting stuck on a wrong technological path and unable to recover, and to prevent the situation where a "big store" dominates. In the development and manufacturing of the F-35 fighter jet, the relationship between the U.S. military and Lockheed is one of mutual struggle and support.

From the perspective of defense companies, their existence is for profit, not patriotism. Technical barriers keep "outsiders" out, which is more beneficial for "charging what the market can bear." Government orders are also fluctuating, urgent when needed, and uncertain otherwise. This isn't just decided by the military, but also by international and domestic conditions, and congressional funding. Therefore, the government provides substantial direct and indirect subsidies for pilot research and peak-valley balance, and the price of military products reflects this special supply-demand relationship.

The problem is that the government lacks control over the use of subsidies and is increasingly dissatisfied with the "too big to fail" situation of defense companies. To address this, the U.S. military deliberately supports emerging defense companies to balance the influence of the "Big Five" (or the "Six" including BAe).

In the navy, the littoral combat ship itself is a failed concept, but the intention behind supporting Lockheed-Martin ("Freedom"-class) and Austal ("Independence"-class) is clear, aiming to support shipbuilding capacity outside of Huntington Ingalls and General Dynamics.

In aviation, the unmanned combat aircraft representing the new frontier of air combat technology, the U.S. Air Force selected Kratos' XQ-58 (now renamed MQ-58). In the more formal "collaborative combat aircraft" (CCA) category, excluding the already operational Boeing "Loyal Wingman," the competition between General Atomics' YFQ-42 and Anduril's YFQ-44 aims to support new aircraft companies to compete with the "Big Five."

The problem is that if the U.S. government purchases shares in Lockheed and Boeing, there will be a suspicion of favoritism in future competitions. Not only in bidding, but also in company R&D and investment directions, there could be issues with "insider information." This hinders capitalist operations, not only threatening Northrop, Raytheon, and General Dynamics, but even more so, threatening emerging companies like Kratos, General Atomics, and Anduril. In an already highly "relationship-oriented" arms market, adding the factor of "insider trading," how many brave newcomers will dare to enter this river?

Europe is a good example. Europe lacks emerging defense companies, not only because of high entry barriers, but also because they cannot compete with state-owned or majorly state-owned companies. The result is that European defense technology has stagnated, falling far behind the U.S. Even peripheral technological fields are affected, and more broadly, traditional sectors initially driven by the military, such as ICT, software, AI, and chip industries, are also lagging behind.

The F-35 fighter jet assembly plant of Lockheed Martin Company. Lockheed Martin Company

Learn from China or Learn from Britain?

The same lack of vitality is starting to appear in the broader U.S. context. NVIDIA is still thriving, and even absurd things like paying 15% "China-related sales fees" to the U.S. government have emerged. However, once-thriving Intel is increasingly struggling, needing to rely on the "Chip Act" to sustain itself.

From Trump's perspective, the Biden administration has already provided $2.2 billion in funding to Intel through the "Chip Act," with two more payments of $5.7 billion and $3.2 billion yet to come. Instead of providing one-time funding, it might be better to exchange it for a 10% stake. But who is actually calculating whom is unclear.

In the "Chip Act," the funding includes return clauses and profit-sharing mechanisms. That is, if Intel does not meet the KPIs specified in the agreement, it needs to return the received subsidies to the U.S. government; if the company's profits exceed the set conditions, any excess profit must also be returned to the U.S. government.

However, after the U.S. government signs a shareholding agreement, these return and profit-sharing mechanisms are canceled, effectively removing the pressure on Intel to improve, and the return of over-subsidized profits is not an issue. Whether Intel can revive in terms of technology, process, and impact after receiving funding from the "Chip Act" is widely doubted. Whether it will repeat the mistakes of European government-owned companies after being tied to the U.S. government is worth watching.

Suppressing the growth of emerging forces on a larger scale is a bigger issue. Although the U.S. defense industry is in a monopoly era of the "Big Five," the door is not completely closed, especially in the information age, where growing through Silicon Valley soil and entering the defense industry is still feasible, as exemplified by Palantir.

It is an innovative company created by Peter Thiel and others through venture capital, focusing on software and data analysis, mainly on military and police big data, AI, and image analysis. Compared to the revenue of Lockheed and Boeing, Palantir is still a "small company," but in today's increasingly information-driven world, its role is very important, hence it has become a target for Rutenberg (actually Trump).

Palantir is vigorously expanding its business areas, striving to enter the civilian sector, and has already established a foothold in civil big data, such as electronic medical records. Its ambition is to expand further into government and commercial cloud computing, where users no longer need to install software or maintain databases, but can simply pay for services online as needed, allowing professional companies to handle it.

This is a promising area, expected to trigger a new wave of revolution in office automation, with the characteristics of cost reduction, speed and efficiency improvement, easy global deployment, and performance and reliability that keep up with the times. Government ownership has benefits in accelerating government applications, but also disadvantages in suppressing the rise of private enterprises, and has impacts on security and geopolitical barriers affecting business globalization.

The important thing is that this is just the beginning, possibly indicating that in the process of re-industrialization, the U.S. government will become more actively and extensively involved.

The U.S. is currently in a strange era of rapid wealth growth and relative decline. Deindustrialization is the fundamental cause of America's relative decline.

China is the only superpower in global manufacturing, with a 35% share of the world's manufacturing in 2024 and contributing 500 billion USD in manufacturing output in 2023. However, the U.S. is still a major manufacturing country. According to the World Bank, manufacturing contributed 9.98% to the U.S. GDP in 2024, and the Bureau of Economic Analysis (BEA) reported that manufacturing contributed 230 billion USD in 2023. According to the National Institute of Standards and Technology (NIST) 2022 report, the U.S. manufacturing accounted for 15.1% of the world's share, but according to current trends, it may fall to 11% by 2030, while China rises to 40%.

The U.S. problem is that there are fewer and fewer competitive manufacturing industries. Many existing manufacturing industries are surviving due to geographical convenience and lifestyle, such as natural gas chemical products, wood construction materials, food, daily light chemical products (toothpaste, soap, shampoo, dishwashing liquid, etc.), which are often beaten by foreign (especially Chinese) products in the world market. The automotive industry needs to close its doors to China to protect itself.

Military and information industries are the only remaining competitive industries, but they are also increasingly struggling. More worrying is that military and information industries are entering a death spiral of cost, competitiveness, and innovation, where innovation is getting slower, costs are rising, and productivity (or combat power) is delayed more and more.

The U.S. used to be at the top of the world food chain, easily crushing any challenger. But China's rise is different, it cannot be controlled or suffocated, and it has grown its own science and technology and economic ecosystem despite various embargoes, not only thriving domestically but also spreading internationally, challenging the U.S.-led tech and economic ecosystem from the bottom up.

China's achievements were made in a "state-guided market competition," which has become the model that Western countries try to imitate. "The government needs to actively lead economic and technological development" is the creed of post-liberalism, contrasting with the liberal creed of "the government should remain neutral in competition." Trump follows his instincts, but Vance is exactly the younger generation leading figure of post-liberalism.

The mistake of imitating is not about beauty, but about imitating the wrong place. China's state guidance and support mainly focus on creating and expanding emerging industries from scratch, encouraging orderly competition and self-renewal in existing industries, and orderly exit of backward production capacity. The U.S., however, wants to replace the "invisible hand" with the "government hand," hoping to restore the health of the declining existing industries. These are entirely different issues.

Whether it's Boeing or Intel, from their past glory to their current decline, without understanding the fundamental reasons for their decline, they will continue to follow the wrong path. Various analyses from the macro environment, micro environment, business strategy, and technology route are abundant, but the medicine is bitter. Before the dot-com bubble burst in 2000 and the financial bubble in 2008, there were already many analyses and warnings, but still, many people could not resist the temptation of the "last bucket of gold." Boeing and Intel are not yet at the point of bursting bubbles, but how can they find the motivation to cut their losses?

Some people will certainly remind the U.S. that Britain has gone through the process of nationalization and then privatization. The problem is that the reasons why the U.S. is inevitably heading down (at least partially) the path of nationalization are somewhat similar to those in 1960s Britain, but the environment for Britain's privatization in the 1980s no longer exists. At that time, Britain completely gave up its dream of being a great power and relied on the U.S., so it dared to cut its losses, because it knew it no longer needed to fight with its own hands and wrists, rather than expecting to grow them again in twenty years. Who in the U.S. can rely on?

The U.S. still has red flower enterprises, but green leaf enterprises are becoming increasingly scarce, and eventually, even the red flowers begin to wither. The U.S. needs to have more green leaves to revitalize the red flowers. This is a deep and broad issue of re-industrialization, as well as a speed issue. But ultimately, re-industrialization is a competitiveness issue, or a cost-efficiency issue. Only when the U.S. per capita GDP, which is relatively high compared to major competitors, returns to a reasonable range can competitiveness be rebuilt. But by that time, the U.S. would no longer be a lighthouse, but just a streetlight.

Trump is someone who doesn't believe in anything, and he won't know until he tries. He will continue his "American-style capitalism" (a term used by Western media in a mocking way, derived from "Chinese-style socialism"). Now it's just 10% of Intel being state-owned, and there will be more. Rutenberg is not speaking recklessly; he is just a "minister-level spokesperson" for Trump.

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Original: https://www.toutiao.com/article/7544188465873732106/

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