A new bill in Congress would enshrine into law the ability of the executive branch to buy into private companies, and create a fund to finance the purchases.
The current Senate version of the National Defense Authorization Act gives the Defense Department explicit authority to take ownership stakes in companies. A provision titled “Equity Investments and Related Matters” establishes a new “Department of Defense Equity Investment Account” within the Treasury Department, which the War Department can use to make equity investments in critical minerals, materials, chemicals, and batteries.
While administration officials say this move allows the War Department to better align its goals with the private sector and for taxpayers to earn a return if the companies do well, critics have raised concerns about establishing a legal basis for government expansion into the private sector.
Government investments in companies under this bill would be limited to a 50 percent stake, nonvoting shares, and a dollar cap of $500 million.
Michael Duffey, under secretary of war for acquisition and sustainment, stated in January that the Trump administration is “fundamentally shifting” its approach to securing its munitions supply chain.
“By investing directly in suppliers we are building the resilient industrial base needed for the Arsenal of Freedom,” Duffey said.
The Pentagon has been actively buying stakes in private companies over the past year, including a $400 million investment in MP Materials, a rare-earths mining company, in 2025, and a $1 billion investment a L3Harris Technologies, a rocket motor manufacturer, in April, as well as a 10 percent stake in chipmaker Intel.
“Equity ownership can align incentives in ways that grants and subsidies cannot,” Carliss Chatman, a law professor at Southern Methodist University, told The Epoch Times.
“If taxpayers are assuming significant financial risk to help develop strategically important industries, an equity stake allows the public to participate in the upside if those investments succeed. Equity may also provide the government with governance rights, access to information, or long-term alignment that grants generally do not.”
Potential for Conflicts of Interest
Critics, however, say this initiative marks a new expansion of the state into private industry. While the U.S. government has taken stakes in banks, insurers, and carmakers in the past, those have been short-term measures to rescue companies from bankruptcy, and typically done with congressional approval and oversight.
“The problem begins with creating the statutory architecture for a Pentagon stock portfolio in the first place,” Cato economist Tad DeHaven stated in a June 16 report. “That means Congress would not merely be tolerating a one-off emergency action but would instead provide the Pentagon with a standing legal pathway to acquire ownership stakes in private companies.”
The War Department can legitimately support strategic industries through grants, loans, and government contracts, DeHaven states, but “ownership means continuing federal financial interest in a company’s valuation, which is precisely what creates the favoritism, conflict of interest, and political pressure risks Congress should be avoiding.”
Duffey stated at a March 4 House Armed Services Committee hearing that these equity investments “create a partnership with industry, an opportunity, not only for government to provide capital to lead to the kind of growth such as in the L3 deal, but it also crowds in additional private capital.”
However, the purchases have drawn scrutiny. Critics say that the War Department’s investment in L3 Harris Technologies could create a conflict of interest, with the government’s role as L3’s largest customer and decision-maker regarding procurement, as well as a shareholder that will benefit if the company performs well.
This raises questions about whether procurement decisions will be truly impartial, analysts say, given that companies such as Northrop Grumman and Anduril Industries, in which the state has no stake, also manufacture rocket motors and compete in the same markets as L3.
“More money can help, but we also don’t want to discourage fair competition that encourages people to get into this space,” Rep. Adam Smith (D-Wash.) stated at the House Armed Services Committee hearing. “If they think the government’s going to come in and just put their thumb on the scale, it could discourage some of the investment we’ve seen.”
State ownership raises other issues, as well.
Corporate Governance
“Equity ownership introduces governance questions that grants typically avoid,” Chatman said.
“Once the government becomes a shareholder, questions arise regarding voting rights, fiduciary expectations, political influence over corporate decision-making, and eventual exit strategies. The legal design of the investment therefore matters as much as the decision to invest itself.”
Federal ownership of private companies is becoming popular on both sides of the political aisle. Sen. Bernie Sanders (I-Vt.) recently proposed the American A.I. Sovereign Wealth Fund Act, in which the government would take a 50 percent stake in America’s largest artificial intelligence companies.
“This would guarantee that the trillions created by AI are used to improve the lives of all of us—and block oligarch decisions that harm the American people,” Sanders posted on X on June 1.
Critics, however, say this is a slippery slope to more government control over Americans’ private lives. They point to attempts by the Biden administration to pressure private companies to censor Americans and to fire employees who refused COVID-19 injections, as well as the Canadian government’s use of private banks and insurance companies to crush truckers’ protests of that country’s COVID-19 policies.
“Consider the Biden administration’s pressure applied to social media firms during the COVID lockdowns,” Jeffrey Degner, a policy expert at the American Institute for Economic Research, told the Daily Signal. “Imagine the silencing of free speech if the government had already taken ownership stakes in these firms!”
