Paul Krugman has a piece in the New York Times where he argues in favor of a mixed economy. The piece is meant to be a limited defense of public ownership and production against those who categorically argue against government enterprises. But Krugman’s argument ends up being far too limited in my view. Due to the wonders of our financial system, public ownership could be extended to the vast majority of the economy without presenting any problems.

Here’s Krugman:

But I’ve been wondering, exactly how discredited is socialism, really? True, nobody now imagines that what the world needs is the second coming of Gosplan. But have we really established that markets are the best way to do everything? Should everything be done by the private sector? I don’t think so. In fact, there are some areas, like education, where the public sector clearly does better in most cases, and others, like health care, in which the case for private enterprise is very weak. Add such sectors up, and they’re quite big.

He goes on to argue that the education, health care, and social assistance sectors, which employ around one-third of US workers, are often better run by the government. He also briefly dabbles in the idea that certain natural monopolies like utilities are also better run publicly. But that’s the limit of Krugman’s imagination on these things. He concludes that “by and large, other areas like retail trade or manufacturing don’t seem suitable for public ownership.”

Why Not Own It All?

When Krugman says the retail and manufacturing sectors are not suitable for public ownership, I think he is suffering from a lack of imagination about how such public ownership could be structured.

Public ownership generally comes in three forms:

  1. General government (GG) services like education, health care, and social assistance.
  2. State-owned enterprises (SOEs) like utilities, transit systems, and the post office.
  3. Social wealth funds (SWFs) like the Alaska Permanent Fund that are able to own basically anything.

Krugman only considers GG and SOEs in his piece. Thus, since he thinks retail and manufacturing are not suitable as GG or SOEs, he concludes that they should not be done publicly. But retail, manufacturing, and basically anything else not suitable for GG and SOEs are suitable for SWFs.

The state can very competently own retail and manufacturing companies by simply buying up their stock and acting like an institutional investor. For instance, a social wealth fund created by the federal government could gradually buy up stock in Amazon and Walmart to get into retail and buy up stock in US Steel and General Motors to get into manufacturing. The latter is not even a hypothetical because the government did recently buy up almost all of the GM stock during the financial crisis, though it subsequently sold off its stake.

The genius of modern finance has been to create corporate ownership arrangements that allow basically anyone, including the government, to own shares of any company in any sector while being as involved (or uninvolved) as they want to be in steering the company. A federal social wealth fund, like the one we advocate, should be able to take advantage of modern shareholding institutions to expand public ownership into every aspect of the US economy.