After advocating a national data center moratorium, Sen. Bernie Sanders (I-VT) is now promoting an even more sweeping proposal, giving the United States a 50% stake in the largest AI companies. With stock ownership, Sanders’s plan would establish a sovereign wealth fund to provide citizens with shares in the growth of these companies. His idea may sound appealing, but it falls apart under the least bit of scrutiny.
The first problem is that Sanders wants the government’s stake to be held directly through equity ownership rather than profits generated by a sovereign wealth fund. In this way, the plan already diverges from most of the common, stable sovereign wealth funds internationally. Plans like those in Norway, China, Saudi Arabia, and others get funding from real surpluses generated by profit, which then get invested into other funds. Sanders is tying the value directly to the stocks of the companies themselves, putting the U.S. in a position where it will most certainly have incentive to artificially weigh the scales in favor of those companies at the taxpayer’s expense.
One of the reasonable critiques of the AI revolution currently is that the major companies are not profitable. Much of their valuation reflects expectations of future profitability rather than current earnings. This might be a risk investors are willing to make, but once the U.S. claims stakes in those companies, it is in the national interest to make sure that happens, creating companies that are “too big to fail,” which could lead to bailouts at the expense of the taxpayer. Remember the 2008 housing crisis?
Tying the government to specific AI companies also increases the propensity for corruption. Even smaller sovereign wealth funds, such as Alaska’s, face scrutiny with managers investing funds for their own benefit and political favoritism. At a national scale, we create the potential for higher-stakes problems, such as Turkey shifting state-owned enterprises away from parliament and into the president’s direct control, or Malaysia’s $4.5 billion embezzlement. While these examples involve different industries and structures, they illustrate the governance risks that arise when governments become major market participants.
With both the Trump administration under scrutiny for many deals directly benefiting family members (including Ivanka Trump’s recent foray into the Sazan Island) and the Biden administration criticized for the same, the idea that politicians wouldn’t look to take advantage seems unlikely.
Additionally, the assumption that government stakes in the companies won’t have an adverse impact is also misguided. Amtrak has faced pitfall after pitfall, unable to make timely business decisions because many major actions require political approval. Federally subsidized steamships in the Collins Line meant to compete with Cornelius Vanderbilt in the 1850s were mismanaged due to government funding. The lack of incentive to innovate gave Vanderbilt and others the edge with new hull designs, paddle wheels, and other advancements.
DATA CENTER BANS DON’T PROTECT COMMUNITIES. THEY PARALYZE THEM
Giving the government major control over AI companies and incentives to make sure they never fail creates a potent recipe for disaster. Companies no longer have direct market forces requiring lean thinking and long-term advancement, leading to bloat and decline. When such a decline occurs, the government will face pressure to bail out these companies to upkeep the sovereign wealth fund and protect the investment made into these companies. Essentially, the government creates barriers to market signals to help the companies succeed while also de facto making the companies too big to fail.
Though the AI angle may be new, Sanders’s stake claim is an old idea that has a broken track record. Supporters argue that artificial intelligence may generate extraordinary wealth concentrated among a handful of firms and that citizens deserve to share those gains. That concern is understandable. But establishing a national stake and sovereign wealth fund is likely to create perverse incentives, political favoritism, and opportunities for corruption. Rather than protecting taxpayers, this exposes them to all kinds of new risk.
Donald Kimball is the communications manager and tech exchange editor for Washington Policy Center and a contributor with Young Voices.