Trump’s Intel stake and the Peronist precedent of Obama’s auto bailouts

President Trump’s decision to take a 10-percent ownership stake in chipmaker Intel has been described by many commentators as “socialism.” Others have called it “Peronism,” in reference to the nationalism and cronyism of Juan Perón’s Argentina.

Both of these descriptions are correct, as are those of my CEI colleague Ryan Young, who described Trump’s action as “going beyond industrial policy and into outright nationalization.” Wayne Crews, another CEI colleague, wrote in Forbes that this “fusion of business and government fulfills the wildest dreams of the… coercive utopians who have long sought to control business and allocate resources.”

But, as Wayne reminds us, it’s important to remember that the US government taking ownership of private companies is not unprecedented. He writes:

In World War I, before anyone had really heard of the “administrative state,” Woodrow Wilson nationalized the railroads under a Director General to coordinate wartime transport; they remained under federal control until 1920. Telegraph and telephone systems, along with wireless and radio stations, were also nationalized. During the Korean War, President Harry Truman attempted to seize steel mills (Executive Order 10340) to avert a labor strike, while the government temporarily took control of coal mines and later railroads (Executive Order 10155) during strikes. The Supreme Court’s Youngstown Sheet & Tube Co. v. Sawyer (1952) famously struck down Truman’s unilateral seizure of private steel mill property as unconstitutional. Decades later, during the 2008 financial crisis, Washington took equity stakes in banks through the Troubled Asset Relief Program and bailed out GM and Chrysler.

The post-financial crisis bailout and equity taking – implemented by the Bush and Obama administrations – set terrible precedents regarding moral hazard, government intervention in business, and the rule of law. CEI scholars, myself included, have criticized the actions of both administrations for these actions. We criticized the Obama administration in particular for taking a majority stake in General Motors and a large stake in Chrysler, which shares many parallels with the Trump administration’s 10 percent stake in Intel – Obama’s actions were even worse in some respects.

Many aspects of the Trump takeover that observers claim are unprecedented actually occurred when Obama’s “Team Auto” task force of 14 presidential appointees took the helm of these two auto companies. Below are some supposed “firsts” about Trump’s moves with Intel that actually happened during the Obama takeovers of GM and Chrysler.

Myth 1: The Trump administration is the first to take equity stakes in private companies when there was no crisis or panic

It has been said that this is the first time the US government has taken equity stakes in companies when there was no crisis. Yet the panic of the Financial Crisis of 2008 – if not the subsequent economic slowdown – had already subsided before the Obama administration announced it was taking equity stakes in GM and Chrysler in the spring of 2009. US stock market indices had risen more than 10 percent in early March of that year.

An April 10 Time magazine article headline stated, “More quickly than it began, the banking crisis is over.” One significant factor in this stabilization was a form of regulatory relief that worked where much of the bailouts and interventions had failed. After bipartisan criticism from Congress that its mark-to-market rule was causing  banks to take huge paper losses and tighten lending unnecessarily, the Financial Accounting Standards Board dropped the rules, causing the stock market, and financial stocks in particular, to soar.

Yet the Obama administration – after outgoing President Bush initially opened the spigots with a “bridge loan” from the TARP bank bailout funds – proceeded with unprecedented White House-directed bankruptcies in which the US government took majority stakes in GM and Chrysler.  In the process, Obama and his appointees micromanaged many aspects of the automaker’s business and specifically favored some creditors, shareholders, and employees over others in the politicized bankruptcy process.

Myth 2: Trump’s call for the Intel CEO’s resignation was the first time a president ever attempted to force out a private company executive

When Trump posted on Truth Social that Intel CEO Lip-Bu Tan “must resign” – a call that Trump would later rescind after the CEO agreed to hand the government a stake in Intel – the Wall Street Journal’s Greg Ip described this demand as a sign that “capitalism in America is starting to look like China.” Trump’s demand is indeed cause for concern, but it is not the first time a president had attempted to oust – or succeeded in ousting – a CEO.

In the GM takeover, however, Obama’s Team Auto did in fact force out CEO Rick Wagoner in favor of a successor who – by Team Obama’s design – had no experience in the automotive industry. “White House ousts GM CEO,” Politico stated in a headline, and the paper reported that “the White House confirmed Wagoner was leaving at the government’s behest.” In discussing the decision to oust Wagoner at a Stanford lecture, Steve Rattner – the head of Team Auto known as Obama’s “auto czar” – implied the administration preferred someone outside the auto industry as CEO. “Having fresh blood in this industry was the right decision,” Rattner said.

Perhaps another reason the Obama administration wanted someone outside the industry to run GM is that this person would be more accommodating to government nudges. Wagoner was not the best manager, and he likely would have been replaced had the market been allowed to work or if there had been a normal judicial bankruptcy or reorganization. But the Obama administration’s action of ousting a CEO meant that the next GM CEO – and, to some extent, other CEOs seeking subsidies or subject to government regulations – would be motivated to keep as close an eye on what government overlords wanted as to the desires of their customers. GM wasn’t referred to as Government Motors for nothing!

Obama’s cronyist auto industrial policy through equity stakes

And indeed, in the wake of the equity stakes, GM and Chrysler both committed themselves to building the hybrid and electric cars the Obama administration and progressives loved. Obama announced proudly in 2009 that Chrysler, “after working closely with my team, has committed to build – building new fuel-efficient cars and engines right here in the United States.” GM doubled down on making electric vehicles, committing in 2021 to go fully electric by 2025. Despite the company experiencing a 35 percent drop in profits this year, GM’s CEO recently doubled down on making electric vehicles, calling EVs their “north star.”

And then there was the government picking winners and losers in the auto industry. As I wrote in National Review, “the Obama administration designed a restructuring that disregarded two centuries of bankruptcy precedent to give disproportionate ownership stakes to the UAW [United Auto Workers].” Todd Zywicki – professor of law at George Mason University and a CEI board member– noted in congressional testimony that in the UAW received 17 percent of the restructured GM, compared to 10 percent for other unsecured creditors who were actually owed more.

Also, following the takeovers, some jobs were more important than others. At Delphi, a former GM subsidiary that manufactures automotive parts, 28,000 UAW workers were paid the full pension benefits GM had promised, but 41,000 other workers were not. As former CEI research associate Mark Beatty and I wrote in NR:

Perhaps no workers were less equal in the bailouts than the employees of GM and Chrysler dealerships. About 100,000 mostly blue-collar jobs — a number approaching the total work force of GM and Chrysler, according to the Cleveland Plain Dealer — were put on the chopping block by “Team Auto,” the Obama administration’s auto-bailout task force, which insisted on extraordinarily rapid closures of auto dealerships during the government-organized bankruptcy proceedings.

In the end, the Obama administration tried to claim that the bailouts were responsible for the increase in 113,000 jobs in the auto industry in 2011. Yet as I noted in at the time, GM and Chrysler actually employed 16,500 fewer workers at the end of that two year period. The job growth in the auto industry was due almost entirely to foreign-owned automakers in nonunion states far away from the plants of the bailed-out companies. These firms never received bailouts nor gave equity stakes to the US government.

Zywicki summed it up eloquently in the Wall Street Journal:

By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation. 

Many on the right, reiterating their long-held free-market beliefs, have correctly criticized Trump’s equity stake in Intel and his administration’s expressed desires to take stakes in more companies. Progressives now waking up to the dangers of this type of corporatism must also reckon with Obama’s troubling Peronist precedents in the takeovers of GM and Chrysler.