If maximizing return is no longer to be Intel’s aim, what will replace it, and will that too become a pathway to mediocrity?

The simplicity of the idea that a company should be run for the benefit of its owners — the shareholders — and the presumption that those owners want the company to be run for their economic benefit is one of the reasons that shareholder primacy has delivered such spectacular results. It sets out who owns what, who does what, and, if only in outline, what their responsibilities are and how their performance should be measured.

Over the last couple of decades that clarity has been muddled by the rise of ESG and stakeholder capitalism, notions, driven mainly by the left or leftish, used to justify de facto theft from shareholders, and which were based on dubious premises — they were an expression of a kind of corporatism — and false promises: No, neither ESG nor stakeholder capitalism delivered superior performance however well they may have worked for rent seekers of various kinds. Still, although this toxic duo has not gone away, it is at least now coming under fire.

And so, rather circuitously, we come to the government taking a stake of 9.9 percent in Intel for $11.1 billion. Of this, $5.7 billion is CHIPS Act grant money “awarded to the company but not yet paid,” $3.2 billion comes from a grant (some of which may have already been paid — it’s unclear) under the Secure Enclave Program, a national security project, and $2.2 billion appears to come from retrospectively treating $2.2 billion disbursed in CHIPs grants as an equity investment. The investment takes the form of the government purchasing 433.3 million new Intel shares at a price of $20.47 per share, about a 20 percent discount to where the stock was trading beforehand, chunky, even for the purchase of a block of this size, although fairly close to the price level earlier this month.

The government will be what is described as a passive investor, “with no Board representation or other governance or information rights.” It will vote with the company’s board of directors on matters requiring shareholder approval with (unspecified) “limited exceptions.” I would imagine that the company’s shareholders might have preferred that the government abstained from voting. The new arrangement will inevitably reinforce the state’s weight within the company.

Explaining the rationale for the deal, the CEO of Intel, Lip-Bu Tan, a Malaysian-born, Singapore-raised U.S. citizen (attacked by Trump only a few days before for earlier ties to the Chinese military) wisely stuck to a line that must have been cleared with (or imposed by) the administration:

As the only semiconductor company that does leading-edge logic R&D and manufacturing in the U.S., Intel is deeply committed to ensuring the world’s most advanced technologies are American made.

Commerce Secretary Lutnick added:

Intel is excited to welcome the United States of America as a shareholder, helping to create the most advanced chips in the world. . . . As more companies look to invest in America, this administration remains committed to reinforcing our country’s dominance in artificial intelligence while strengthening our national security.

Emphasizing the strategic/industrial angle, the deal also comes with a lightly poisoned pill. The government will receive a five-year warrant at $20 per share for an additional 5 percent of the company, exercisable only if Intel ceases to own at least 51 percent of the foundry business. Translation: The government needs/wants Intel to stay in that line of work, something that Intel’s other shareholders might prefer the company’s management to decide purely on the business merits.

Intel’s press release went on to read as follows:

Intel’s U.S. investments come as many leading technology companies support President Trump’s agenda to achieve U.S. technology and manufacturing leadership. Intel is deeply engaged with current and potential customers and partners who share its commitment to building a strong and resilient U.S. semiconductor supply chain.

And after that there were encouraging quotes from the CEOs of Microsoft, Dell, HP, and AWS.

We live in dangerous times. The challenge posed by China, the threat to Taiwan, and the broader vulnerability of our chip supply chain all make a reasonable strategic case for a strong domestic chip manufacturing industry. To take that industry to scale may mean that some U.S. companies have to pay more chips than they otherwise would. Then again, as Adam Smith put it, “Defense . . . is of much more importance than opulence.” Moreover, those companies that currently regard Chinese chips as “cheap” are probably mispricing the risk that comes with overdependence on China. How cheap really was the “cheap” Russian gas that Germany used to buy?

But even if the strategic importance of a U.S.-based chip sector can justify more government support than would normally be appropriate, there are still reasons for concern about the way this deal has been structured, not least the taking of an ownership position, not something the state should be doing with a private-sector company. If the administration wanted a sweeter deal for taxpayers than that generated by Biden era grants, the grants could have been reclassified as loans with perhaps the interest deferred for some years.

If the only way to make the numbers work was by buying stock, then that purchase should have been accompanied by a provision giving Intel the right to buy back the government’s shares after a certain number of years. One of the more disturbing aspects of this deal is the open-ended nature of the state’s investment. There is no sunset clause. It is one thing to say that the state should have a stake in Intel in the early days of this process, quite another to say that it should become permanent.

And worries about the implications of the latter are only made worse by comments coming out of the administration (including from the president himself) that there will be more deals to come. If these are confined to strategically necessary transactions such as the stake (again, hopefully temporary) the government has taken in MP Materials, that’s fair enough — in that case, building up rare earths capacity in this country is a matter of urgency — but not if they are part of a broader approach intended to use government stakes (or, ahem, “golden shares“) in private sector companies to develop an industrial policy that will, like almost every example of industrial policy, be an invitation to cronyism and a pathway to mediocrity (or worse).

The latter may well be true even in the case of Intel. There is an obvious danger that if the government goes too far in favoring Intel, it will discourage others from entering this sector or will strangle promising newcomers. Neither result would help the U.S. win a tech race with China. And nor will the question mark over Intel’s corporate purpose left by the government’s stake. If maximizing return is no longer to be Intel’s aim, what will replace it, and will that too become a pathway to mediocrity?

There will be (much) more to say about the Intel transaction and what it could mean, but the administration should also be aware of the precedent that it may be setting. Perhaps the Trump White House can be trusted (can it?) to keep any purchases of positions in private companies to a minimum, but will a future Democratic administration feel so constrained?

That’s a question which answers itself.