The public purse is not a dividend machine

The CNBC report tells us that a provision in the National Defense Authorization Act — pushed by Sen. Elizabeth Warren and adopted on a bipartisan basis — would restrict stock buybacks and dividend payments by companies receiving Pentagon contracts. Business groups have now declared war on that provision. I find myself, perhaps to some readers' surprise, firmly on the side of the restriction.

Let me explain why this is not a radical position. When I argued, in my Report on the Subject of Manufactures, that the federal government has a legitimate interest in encouraging and sustaining the industrial base, I did not mean that it should subsidize the enrichment of shareholders. Public money extended to private enterprise carries with it a public obligation — the obligation to build capacity, to employ labor, to produce the thing the contract requires. A dollar that flows instead into a buyback is a dollar that exits the productive circuit entirely. It does not forge a frigate; it does not fab a semiconductor; it does not train a machinist.

The objection from business is, I infer, the familiar one: that restrictions on capital allocation impair the efficiency of private firms and deter investment. I have heard this argument in different clothing before. The answer is simple: you are not being asked to be efficient with your own capital; you are being asked to be responsible with the public's. The distinction is not subtle.

There is a deeper principle here that I care about greatly — the concentration of private power that escapes public check. Defense contractors receiving tens of billions in federal dollars are not ordinary private actors operating in an ordinary market. They operate in a market created, sustained, and funded largely by the Treasury. When such firms use that funding to reduce their share count and lift their stock price, they are, in effect, transferring public wealth to private holders of equity. That is not commerce. That is extraction.

I will add one caution, however, because I have always believed that an energetic government must also be a precise one. The restriction, as described by CNBC, should be carefully scoped to the contract period and the contract dollars — not so broad as to strangle a firm's entire capital structure, but not so narrow as to be evaded by accounting sleight of hand. The goal is to ensure that public investment produces public-serving capacity. That goal is achievable with a well-drafted rule.

My recommendation: The Senate should retain the provision. It should tighten the drafting to prevent evasion and to make the nexus between contract dollars and restricted activities clear and enforceable. Business lobbies will complain; let them complain. The credit of the nation and the integrity of its defense industrial base are worth more than a quarterly buyback announcement.