Sovereign Stakes: Aligning American Power with Fiscal Prudence

Suppose the United States could reduce its deficit without raising taxes, while simultaneously improving the efficiency of federal contracts and enhancing the long-term solvency of Social Security. This is not political alchemy, but a proposal rooted in the economic realities of procurement, incentives, and financial prudence. It involves neither speculative ventures nor risky investments. Rather, it involves capturing the value the government itself creates when it enters into long-term contracts with strategically vital private firms.

The proposal is simple in form: the United States government, when awarding large procurement contracts—say, for missile systems or national vaccine stockpiles—would negotiate warrants or other forms of equity participation in those firms. These financial instruments would be managed through a sovereign wealth fund, governed transparently, with the specific aim of generating returns for the American people. The economic logic is elementary: if government contracts predictably raise a company’s stock price and stabilize its earnings, why should that upside accrue only to shareholders, and not also to the sovereign entity underwriting that stability?

Let us begin with what is uncontroversial. The U.S. government is the largest buyer on earth. It awards trillions of dollars in contracts annually, often in long-term agreements that insulate firms from typical market volatility. Empirical research confirms that such contracts can dramatically enhance a firm’s valuation. A recent study in ScienceDirect found that government contracts correlate with increased stock prices and improved operational performance. This should not surprise us. A ten-year contract with the Department of Defense effectively serves as a revenue guarantee. It is no less an asset than a natural gas field or a shipping fleet. Indeed, in some sectors, it is more valuable.

Now imagine two companies: Firm A receives a $15 billion, decade-long Pentagon contract to produce hypersonic missile systems. Firm B, its peer, does not. Almost overnight, Firm A’s market capitalization rises. Wall Street sees stability, future earnings, and reduced risk. But none of that appreciation flows back to the U.S. taxpayer, despite the government having provided the catalyst. That is the inefficiency.

The proposed sovereign wealth fund corrects this asymmetry. By requiring warrants or equity as part of large procurement packages, the government can capture a portion of the upside it itself helps generate. A warrant is not an immediate expense or risky bet. It is the right, not the obligation, to purchase stock at a fixed price. If the company does well, the warrant becomes valuable. If not, it expires worthless. The upside is asymmetric, and the risk is minimal—indeed, arguably nonexistent, as no new capital is invested.

Is this unprecedented? Not quite. In the exigencies of the COVID-19 crisis, the U.S. Treasury imposed just such a requirement on defense contractors seeking aid. More broadly, the UK’s PF2 program allowed the government to take equity stakes in infrastructure projects. And the principle is widespread internationally: Singapore’s Temasek, Norway’s Government Pension Fund Global, and Saudi Arabia’s PIF all manage trillions with mandates to benefit their citizens through long-term, often strategic, equity positions.

The United States has lagged behind, clinging to a procurement regime built on the quaint idea that payment for services exhausts the value of the transaction. But in a world of sovereign finance, where geopolitical competition is as much about balance sheets as about battleships, that posture is outdated.

A sovereign wealth fund of this sort does not merely capture passive returns. It realigns incentives. When the government holds a stake in a contractor, its incentive shifts subtly but importantly: from mere oversight to shared success. This does not mean leniency—to the contrary, underperformance would damage both parties. Nor does it entail nationalization. Firms remain private, competitive, and profit-driven. But it eliminates the adversarial logic of the current model, in which government is a reluctant spender and firms are rent-seeking petitioners.

Critics might worry about conflicts of interest or favoritism. But these are addressable through institutional design. Equity stakes can be awarded uniformly for contracts above a threshold, with valuation handled by third-party firms. The holding entity would be firewalled from procurement decisions, overseen by a board with fiduciary duties to the taxpayer. Transparency and consistency, not discretion, would guide operations. Indeed, such a system would likely reduce backroom lobbying by tying awards to performance, not patronage.

Legal hurdles exist. Legislation would be needed. But with a Republican-controlled Congress and the explicit support of President Trump, who signed the executive order launching the fund, the political pathway is open. Treasury Secretary Scott Bessent and Commerce Secretary nominee Howard Lutnick have been tasked with developing the fund’s structure. Their aim: to raise over $1 trillion in returns over the coming term.

There are broader implications. Such a fund could help stabilize entitlement programs like Social Security without cutting benefits or hiking taxes. It could help pay down the national debt, currently north of $34 trillion. It could, over time, replace the need for economically distorting tax hikes. And, not incidentally, it would offer a compelling alternative to the redistributionist impulses of the progressive left: rather than taxing wealth, we create it.

Some have raised the tantalizing prospect of including assets like Bitcoin in the fund’s reserves. That discussion, though speculative, gestures at a deeper principle: strategic sovereignty. In an era of de-dollarization, central bank experimentation, and financial warfare, the U.S. must rethink its economic posture. A sovereign wealth fund is not just a financial tool. It is a sovereign instrument—a declaration that American power includes financial sophistication and strategic foresight.

This proposal does not violate free market principles. Quite the opposite. It operates within the market, using voluntary contracts and market-based valuations. But it insists that when the state plays a unique economic role—as sole buyer, price setter, or market guarantor—it should not forfeit the benefits of that power. That is not socialism. It is sovereignty.

Will this solve all fiscal woes? Of course not. But it introduces a novel, market-compatible lever into the federal toolbox. It treats the government not as a supplicant to markets, nor as a hostile regulator, but as a participant whose value ought to be captured, not squandered.

One might ask: why hasn’t this been done already? The answer lies in institutional inertia, ideological confusion, and bureaucratic risk aversion. But the world has changed. Strategic finance is now a domain of national competition. The state that fails to adapt will fall behind—not just militarily or diplomatically, but economically.

We must think clearly, act prudently, and design well. The prize is immense: a sovereign wealth fund that channels the power of American procurement into lasting public wealth. In an age where so many government schemes redistribute poverty, this one creates prosperity. That alone makes it worth pursuing.

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