State Capitalism

April 7, 1971

Report Outline
Government Involvement in Business
Development of the Public Sector
Business and Government: New Directions
Special Focus

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.

ISSUE TRACKER for Related Reports
Federal/State Government Relations
Apr. 27, 2018  Federal-State Relations
Oct. 15, 2010  States and Federalism
Sep. 13, 1996  The States and Federalism
Feb. 21, 1986  State Financing
May 24, 1985  Federalism under Reagan
Apr. 03, 1981  Reagan's ‘New Federalism’
Feb. 25, 1977  Resurgence of Regionalism
Apr. 07, 1971  State Capitalism
Dec. 23, 1964  Federal-State Revenue Sharing
Jul. 30, 1940  Federal-State Relations Under Grants-in-Aid
Jul. 03, 1937  Regional Planning and Development
Apr. 24, 1936  Reform of Municipal Accounting
Jul. 10, 1933  Regional Planning by the Federal Government
Dec. 13, 1924  Federal Subsidies to the States
Economic Analyses, Forecasts, and Statistics