Government Involvement in Business
Appeal of Faltering Companies for Federal Help
Six months after the Penn Central Transportation Company declared bankruptcy in June 1970, Congress responded by passing a bill to provide $750 million in government-guaranteed loans to the Penn Central and other faltering railways. There is persistent speculation that the government may yet have to engineer a similar rescue operation for the Lockheed Corporation. By late March 1971, legislators were discussing the need for a new Reconstruction Finance Corporation, similar to the one which underwrote loans to private business-and sometimes controlled them-during the Depression of the 1930s.
The concurrent ravages of inflation and recession which contributed to the failure of the largest railroad and the problems of one of the largest defense contractors have affected many other large concerns. They, too, may apply for government funds just to keep operating. Increasingly, the question is raised as to whether this dependence of large companies on the public treasury will produce a fundamental shift in the free enterprise system. Will government demand the right to make sure that tax dollars are properly spent by private concerns? If so, how would this differ from a socialistic state where the government has ultimate control of all or major sources of production?
Despite its image of being the preeminent nation of free enterprise and capitalism, America has a “mixed” economy. The various levels of government currently generate and redistribute nearly two-fifths of the national income-compared with one-twelfth before World War I. There never was a time of complete laissez faire capitalism in this country and economic historians point out that the economic role of government has been growing since the late 19th century. “Each period of emergency-each war, each depression- expands the activity of government,” Paul A. Samuelson notes in his widely acclaimed textbook, Economics. And expenditures never seem to go back to previous levels after the emergency has passed.