Sorry, Spirit Airlines—Government Has No Business Owning Businesses

Key Concepts

• State Capitalism: An economic system where the state undertakes commercial (i.e., for-profit) economic activity and where the means of production are organized and managed as state-owned business enterprises.
• Market Distortion: Economic phenomena where the market price or quantity of a good or service is higher or lower than the price or quantity that would be obtained in a free market.
• Misaligned Incentives: A situation where the goals of the government (political gain) conflict with the goals of a business (profit and value creation).
• Cronyism: The appointment of friends and associates to positions of authority or the favoring of specific businesses by government officials, often without regard to qualifications or economic merit.
• Equity Stakes: Ownership interest in a corporation in the form of common or preferred stock.

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The Expansion of Government Intervention in Private Enterprise

Steve Forbes argues that the federal government’s increasing acquisition of equity stakes in private companies represents a dangerous shift toward socialism and state capitalism. He contends that the government has no legitimate role in owning or managing private businesses, as this crosses the fundamental boundary of free enterprise.

Specific Instances of Government Overreach

• Aviation Industry: The administration attempted a $500 million bailout of Spirit Airlines that would have resulted in the government owning 90% of the company. Additionally, there was a proposal to merge United Airlines and American Airlines to create a "national champion carrier," which failed due to resistance from American Airlines and creditors.
• Technology and Defense: The government has taken a 10% equity position in Intel. Furthermore, Commerce Secretary Howard Lutnick has expressed interest in the government acquiring stakes in various defense contractors.
• Regulatory Intrusion: Beyond equity ownership, the administration has imposed interest rate caps on credit cards, implemented price controls on pharmaceuticals, and successfully lobbied for a ban on corporations building houses specifically for rental purposes.

The Economic Consequences of Government Ownership

Forbes highlights several negative outcomes resulting from government involvement in the private sector:

1. Market Distortion: Government-backed firms receive preferential regulatory treatment, insulation from bankruptcy, and privileged access to capital. This creates an uneven playing field that harms private competitors and ultimately hurts consumers.
2. Misaligned Incentives: Unlike private investors who seek value creation, government entities are driven by political pressures. This leads to the propping up of failing firms in politically strategic districts, the delay of necessary corporate restructuring, and the steering of business decisions to benefit political allies.
3. Historical Precedent: Forbes cites entities like Amtrak, Fannie Mae, and Freddie Mac as cautionary tales where government involvement led to chronic inefficiency and significant taxpayer liability.

Constitutional and Moral Arguments

• Limited Government: Forbes asserts that the U.S. Founders envisioned a limited federal government, not one that occupies seats on corporate boards.
• Coercive Power: A government that acts as both a regulator and an owner possesses a level of coercive power that no private entity can match, which inherently invites corruption and cronyism.
• The European Example: Forbes points to the economic stagnation in much of Europe as evidence that heavy-handed government intervention in the private sector leads to poor economic performance, contrasting this with the more successful, market-oriented economies of Poland and the Baltic states.

Synthesis and Conclusion

The central argument presented is that government ownership of private business is both morally and economically wrong. While the administration has simultaneously pursued pro-growth policies like tax cuts and deregulation, these are undermined by the "socialist" tendency to seize equity and impose intrusive price controls. Forbes concludes that if these trends continue—particularly if extreme factions gain more power—the result will be the suffocation of free enterprise and long-term economic stagnation for the United States.

Notable Quote: "When the federal government takes equity stakes in private companies, it crosses a line that has long defined the boundary between free enterprise and socialism, or to be more polite, state capitalism." — Steve Forbes