Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 627

Should Australia follow Trump's new brand of capitalism?

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.

How it works

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.

Advocates and critics

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.

It needs to be discussed in Australia

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 Chairman of Montgomery Investment Management and an author at www.RogerMontgomery.com. This article is for general information only and does not consider the circumstances of any individual.

 


 

Leave a Comment:

RELATED ARTICLES

Concerns about China's rise to power seem overblown

Australia is lucky the British were the first 'intruders'

In praise of our unique democracy and its sausage

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Latest Updates

Superannuation

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Economy

Should Australia follow Trump's new brand of capitalism?

A new brand of capitalism may be emerging - one where governments take equity in private companies. Is it state overreach, or a smarter way to fund public goods without raising taxes?

Gold

Why gold may keep rising - and what could stop it

Central banks are buying, Asia’s investing, and gold’s going digital. The World Gold Council CEO reveals the structural shifts transforming the gold market - and the one economic wildcard that could change everything. 

Investment strategies

Fact, fiction and fission: The future of nuclear energy

Nuclear power is back in the spotlight, including in Australia. For investors exploring the sector, here are four key factors to consider in this evolving energy landscape. 

Taxation

The myth of Australia’s high corporate tax rate

Australia’s corporate tax rate is widely seen as a growth-killing burden. But for most local investors, it’s a mirage - erased by dividend imputation. So why is it still shaping national policy? 

Taxation

Should we change the company tax rate?

The headline 30% corporate tax rate masks a complex system of dividend imputation and franking credits that ensures Australian shareholders are taxed only once, challenging traditional measures of tax competitiveness. 

Investing

Noise cancelling for investors

A lot of the information at an investor's fingertips today has little long-term value. The modern investing greats are not united by access to faster information, but by their ability to filter out what doesn’t matter.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.