For decades, many U.S policymakers have talked like Thomas Jefferson while acting like Alexander Hamilton. Jefferson, the United States’ first secretary of state and third president, championed limited government; Hamilton, its first treasury secretary, argued for active state support of emerging industries. The political rhetoric in Washington, extolling free markets and minimal state intervention, has been Jefferson’s. The reality has been Hamilton’s: the government invested in projects that drove U.S. competitiveness and innovation. Examples abound. Beginning in 1958, the Department of Defense funded the research that led to the Internet, and other public agencies were the source of all the technology now found in smartphones, including GPS, touchscreens, and Apple’s Siri. Investments by the National Institutes of Health (NIH), totaling hundreds of billions of dollars over many years, created entire pharmaceutical industries.
This dynamic is what I documented in my 2013 book, The Entrepreneurial State, and later in a 2015 Foreign Affairs article, “The Innovative State.” The federal government was willing to take risks that private capital would not and was patient enough to fund decades-long research. It was far-sighted enough to build markets at the forefront of innovation. The government understood that only patient, long-term public capital could absorb the uncertainty of transformational research; private investors, beholden to quarterly returns, systematically underinvest in precisely the breakthroughs that drive sustained growth.
For much of the last four decades, mainstream economic commentary largely ignored the key stabilizing role the state played. Successive administrations and policymakers in both parties dismissed the tools of industrial policy as economically inefficient or politically suspect, even as government-led innovation never went away. The result was an economy in which the state remained central to value creation, but the gains were too easily privatized. The institutions that were meant to set direction, design public-private contracts, and monitor performance were allowed to weaken. No mutual bargain materialized that compelled firms receiving public support to reinvest share returns and deliver affordable access. The public funded the risks but secured neither equity returns nor affordable access to the innovations their taxes created. Instead, private investors captured the rewards.
Now, industrial policy has returned to center stage. President Joe Biden first broke the industrial policy taboo with a series of legislative measures designed to catalyze private investment in semiconductors, clean energy, and advanced manufacturing. But his administration expanded productive capacity without ensuring that the gains reached working people more broadly, and this failure to translate government investment into shared prosperity contributed to President Donald Trump’s victory in 2024.
The Trump administration, too, has embraced industrial policy, but is pursuing it in all the wrong ways. Instead of organizing policy around missions—explicit public goals that define the problem to be solved and the outcomes to be delivered—and then aligning the state’s tools to get there, it has treated industrial policy as a set of sector deals to be cut and announced. It has stripped away conditions on government support for private industry that could ensure the socialization of rewards. The government has taken a ten percent stake in the semiconductor manufacturer Intel for $5.7 billion in CHIPS Act funding; a 15 percent stake in the rare-earth mining and processing company MP Materials for a $400 million investment; a five percent stake in Lithium Americas, the company developing the Thacker Pass lithium project in Nevada, through loan restructuring; and a “golden share” in U.S. Steel, granting the government permanent veto power over headquarters relocation and production offshoring. But it is using these unprecedented equity stakes not to steer strategy or secure public value but to extract value retroactively.
Industrial policy will fail, economically and politically, unless it is organized around clear missions to create public value. Direction and discipline are necessary to guide investment, innovation, regulation, and procurement toward outcomes that people can see in their lives. And delivering on a mission requires capable institutions with the expertise to design contracts, coordinate across departments, and learn from results. It requires enforceable conditions on government support to ensure that the firms receiving that support reinvest rather than extract, offer better wages and training rather than race to the bottom, and produce affordable goods and services rather than engage in monopoly pricing. When the state socializes risks through public funding, the public must share in the rewards.
A SENSE OF MISSION
It took 400,000 people to get the United States to the moon in 1969, most of them working in the private sector. Government set the direction by articulating a clear mission and designing procurement contracts that catalyzed innovation. The state acted as a market shaper, an investor taking risks that private capital avoids, exercising patience through long development cycles, and strategically creating demand. The result wasn’t just the Apollo moon landing, but also GPS, touchscreens, baby formula, home insulation, and camera phones—all private-sector innovations that have benefited the public.
Although market intervention became less popular in subsequent decades, U.S. government–led innovation never went away. Since 2018, for example, the Pentagon’s Defense Advanced Research Projects Agency has invested over $2 billion through its “AI Next” campaign, which greatly advanced the architecture and techniques underlying today’s AI systems. And the DARPA model has been emulated by the Departments of Energy and Health, among others.
Such programs did not fully deliver for the American people, who never received rewards commensurate with the risky investments they subsidized. Consider the Obama administration’s Department of Energy loan program. The solar energy company Solyndra received a $535 million loan guarantee and went bankrupt. Tesla, then the electric car company Tesla Motors, received a $465 million loan and repaid it in 2013, nine years early. Between disbursement and repayment, Tesla’s share price rose from $17 to $93. Had the government taken equity when Tesla succeeded, those returns would have covered Solyndra’s loss several times over and funded subsequent investments in clean energy innovation and infrastructure. But the administration made no such demand. It ignored the portfolio logic any smart investor would recognize: some bets fail, but returns from the winners fund the next round.
Biden’s industrial policy delivered more tangible outcomes, including significant private investments in manufacturing. With the CHIPS and Science Act, the Inflation Reduction Act, and the Infrastructure Investment and Jobs Act, strategic government investment in semiconductor supply chains, clean energy, and advanced manufacturing generated over $200 billion in private investment and created more than 80,000 jobs. Projects and employment were spread across communities nationwide, including many districts that do not usually attract federal industrial policy spending and have long been left out of the gains from high-tech growth.
When the state socializes risks through public funding, the public must share in the rewards.
In 2022, the passage of the CHIPS and Science Act, and the expectation of substantial federal manufacturing incentives to rebuild domestic semiconductor capacity, incentivized the Taiwan Semiconductor Manufacturing Company (TSMC) to make a $40 billion investment in Arizona—the largest foreign direct investment in U.S. history. Biden also maintained Trump’s first-term tariffs and increased rates on foreign-made electric vehicles, semiconductors, and solar cells, explicitly linking protections to manufacturing investments. This was industrial policy on a scale not seen since the postwar industrial mobilization, when the federal government used large-scale procurement, planning, and public investment to expand productive capacity and build strategic industries at speed.
Crucially, Biden’s approach also raised a question that earlier iterations of industrial policy left untouched: what’s in it for the American people? What gains, beyond benefiting from the innovation, will they feel right away? In the CHIPS contracting process, for example, the Commerce Department embedded clauses aimed at curbing financial extraction, limiting the diversion of public support into share repurchases and other shareholder payouts, and securing public benefit, including commitments related to labor standards, apprenticeships, and childcare for construction workers, alongside mechanisms for upside sharing, whereby companies are required to share windfall profits with taxpayers, and clawbacks, which allow the government to reclaim grants if businesses fail to meet commitments.
The Biden administration tacitly acknowledged that public finance should not be a no-strings transfer from the American people to private companies. It can and must be a tool to shape larger outcomes, ensuring that firms receiving public support reinvest in productive capacity and capabilities, raise standards for workers, and deliver innovations that translate into affordability and resilience for households.
And yet Biden’s experiment also showed why industrial policy cannot be judged by investment announcements alone. The approach had critical limitations. The administration’s manufacturing-focused policy did not recognize how jobs were distributed among different sectors. Semiconductor plants are hugely capital-intensive, but automation means manufacturing will never again be the labor-absorbing sector it once was. TSMC’s $40 billion Arizona facilities will create only 6,000 jobs. A strategy focused on making physical things gives inadequate attention to the sectors in which most Americans work, including retail, health care, education, and care work.
More consequentially, expanding production is not the same as distributing prosperity. The CHIPS Act concerns semiconductor capacity, not whether Americans can afford electronics. The Inflation Reduction Act subsidizes clean energy production, not household electricity bills. The NIH invests some $40 billion annually in research that yields medicines and biotech advances, yet Americans cannot afford the drugs whose development they funded. Democrats lost in 2024 in part because the American people had not felt the benefits of industrial policy. Families faced inflation in groceries, housing, and health care, and the connection between wealth creation and lived prosperity remained weak.
THE EXTRACTIVE MODEL
Trump is now deploying industrial policy instruments such as equity stakes, tariffs, and conditional investments, but without the strategic coherence or the institutional capacity that makes such tools effective. Equity stakes can ensure public returns from public investment. Tariffs can protect nascent sectors. Conditional support can steer corporate behavior toward public purpose. In Trump’s hands, however, these instruments are deployed less as part of a national economic strategy and more as vehicles for leverage and power projection.
Consider Intel. The government secured a ten percent stake in the company not because it had helped create Intel—the company was founded in 1968 and benefited from decades of DARPA contracts and procurement—but by converting CHIPS Act grants Intel had already been promised into equity stakes. Worse, the $5.7 billion government investment comes with nonvoting shares: the government must vote in line with Intel’s board recommendations, eliminating any meaningful oversight or strategic direction. The investment prevents Intel from spinning off its unprofitable chip manufacturing business. This is retroactive value extraction from a company the state helped build. Instead of funding the next generation of innovation, the government is simply using ownership to extract rents while constraining the company’s corporate strategy.
More troubling is what the renegotiation stripped away. Under the Trump administration’s revised terms, Intel’s voluntary five-year commitment to forgo share buybacks was discharged, as were labor standards requiring union cooperation, $150 million in apprenticeship commitments, and childcare provisions for construction workers. The upside sharing provisions were eliminated, as were the clawback provisions. As Massachusetts Senator Elizabeth Warren put it, the supported fabrication plants “don’t even have to be constructed in America.” What remains is extraction, with little for workers, communities, or the public purse.
This pattern extends beyond Intel. Trump has called the CHIPS Act “a horrible, horrible thing” and urged Congress to “get rid of it.” His administration plans to cut 497 jobs at the National Institute of Standards and Technology, which oversees implementation of the CHIPS Act. Yet he simultaneously seeks equity stakes in the very companies the law funds—privatizing gains in the short term, while dismantling the institutional capacity that enabled American innovation in the first place. The logic is extraction without creation: taking stakes in companies built by decades of public investment while defunding the agencies that will build the next generation of innovators.
Equity stakes also create opportunities for market manipulation, since government announcements can move prices dramatically. When news broke that the government planned to take a stake in Lithium Americas, shares surged 95 percent in a single day. Meanwhile, the workers whose labor and taxes underwrote the original public investments received nothing.
Tariffs follow the same logic. Rather than being tied to a coherent plan for building domestic capacity, they function as bargaining chips in bilateral negotiations. They often target goods the United States cannot readily produce at home, raising costs without creating capability. The Consumer Technology Association has estimated that smartphones would cost an additional $213 per device under Trump’s proposed tariffs on China. Coffee prices reached a record $8.41 per pound in July, a 33 percent increase from the previous year, before exemptions were made for goods that, as Trump acknowledged, “cannot be produced domestically.” Tariffs on pharmaceuticals would land on supply chains already under strain, raising prices or reducing availability. Factory employment in the United States has dropped by over 40,000 jobs since April—the opposite of what tariffs are ostensibly meant to achieve.
Most destructively, the administration has gutted the very agencies responsible for the United States’ technological leadership. Trump is going after research labs, universities, and the institutional infrastructure of American innovation. At the National Renewable Energy Laboratory—the Department of Energy’s flagship lab for renewable energy and energy efficiency research, development, and deployment—workforce reductions have been driven by proposed funding rollbacks, putting roughly one-third of its staff at risk of termination. Separately, the administration has moved to terminate 321 awards supporting 223 energy projects, canceling over $7 billion in funding across multiple Department of Energy offices.
This dismantling of American innovation is not limited to the civilian sphere. Even as Trump calls for record increases in overall defense spending, the Defense Department’s science and technology funding—the research-oriented accounts that fund basic and applied research—faces a proposed ten percent cut, from $21.3 billion to $19.2 billion.
Trump’s actions illustrate a distinct model: industrial policy instruments used without a clear public purpose, outside any framework that aligns investment with measurable outcomes. They are deployed without binding terms that require firms receiving public support to reinvest, improve standards for workers, expand affordable access, and share returns when projects succeed. This is not an entrepreneurial state shaping markets toward shared prosperity. It is a state that claims upside benefits from and leverage over publicly supported companies for the benefit of private investors and politically connected interests, after taxpayers have borne the risks.
DELIVERING PROSPERITY
The measures Trump has enacted will not create the strong, well-resourced public systems required to drive innovation that produces broad prosperity. Industrial policy instruments can be powerful, but only when they are embedded in capable institutions and used to solve problems rather than merely reward those with privileged access.
If industrial policy is to deliver for the American people, the Trump administration must demand discipline from CHIPS Act recipients. If the president aims to secure a good deal for taxpayers, then the current approach—in which the state is taking passive equity stakes with no voting rights, no conditions, and no reinvestment requirements—will not suffice.
Trump speaks to the grievances of the working class. Industrial policy can deliver for those voters, but only if contracts require that public investment translates into better wages and more affordable essentials, not just higher stock prices. Placing conditions on government support is not adding bureaucratic red tape. It is the mechanism by which public value is created.
The task now is not to abandon industrial strategy, but to make it work for the American public.
An effective industrial strategy must create wealth through public investment guided by modern-day moonshots, missions that set clear public goals defined by the problem to be solved and the outcomes to be delivered. That could mean building a resilient clean energy system that lowers bills, securing affordable medicines from publicly funded biomedical innovation, or renewing essential infrastructure so that basic services are reliable and accessible. It is not about making profits higher in a particular sector, but about using the state’s levers, finance, procurement, regulation, and standards, to catalyze innovation and steer it toward outcomes that people can see and feel.
The task now is not to abandon industrial strategy, but to make it work for the American public. Some conditions, such as pricing caps on drugs developed with NIH funding, would help families afford publicly funded innovations. Profit-sharing arrangements, such as equity stakes, royalties, and licensing fees, can capture returns that the government can reinvest. Restrictions on share buybacks can keep public support from being diverted into shareholder payouts, encouraging firms to reinvest in productive capacity and capabilities. And wage requirements can ensure that public money delivers for workers.
The real divide in Washington is no longer between Jeffersonian rhetoric and Hamiltonian practice. It is between an entrepreneurial state that builds capabilities and creates public value and a state that dispenses subsidies, rewards private investors and politically connected interests at the expense of taxpayers, and weakens the very institutions on which long-term prosperity depends. The mark of a “good deal” is not a headline-grabbing equity stake or a new tariff. It is whether public tools are being used to build productive capacity and economic resilience, and whether public support is tied to outcomes that matter for working households.
Announcing an investment is not the same as delivering prosperity. For industrial strategy to work, U.S. policymakers must align finance, procurement, regulation, and innovation with concrete public goals. And then they must craft policies with enforceable terms that lead to better wages, affordability, and returns that can be reinvested in future innovations—ensuring that when the government invests, the public shares in the upside.
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