Free Enterprise and the Role of Government in America

Free Enterprise and the Role of Government in America

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The American belief in "free enterprise" has not precluded a major role for government, however. Americans at times have looked to government to break up or regulate companies that appeared to be developing so much power that they could defy market forces. They have relied on government to address matters the private economy overlooks, from education to protecting the environment. And despite their advocacy of market principles, they have used government at times to nurture new industries, and at times even to protect American companies from competition.

As the sometimes inconsistent approach to regulation demonstrates, Americans often disagree about the appropriate role of government in the economy. In general, government grew larger and intervened more aggressively in the economy from the 1930s until the 1970s. But economic hardships in the 1960s and 1970s left Americans skeptical about the ability of government to address many social and economic issues. Major social programs -- including Social Security and Medicare, which, respectively, provide retirement income and health insurance for the elderly -- survived this period of reconsideration. But the growth of the federal government slowed in the 1980s.

The pragmatism and flexibility of Americans has resulted in an unusually dynamic economy. Change -- whether produced by growing affluence, technological innovation, or growing trade with other nations --- has been a constant in American economic history.

As a result, the once agrarian country is far more urban -- and suburban -- today than it was 100, or even 50, years ago. Services have become increasingly important relative to traditional manufacturing. In some industries, mass production has given way to more specialized production that emphasizes product diversity and customization.

Large corporations have merged, split up, and reorganized in numerous ways. New industries and companies that did not exist at the midpoint of the 20th century now play a major role in the nation's economic life. Employers are becoming less paternalistic, and employees are expected to be more self-reliant. And increasingly, government and business leaders emphasize the importance of developing a highly skilled and flexible work force in order to ensure the country's future economic success.

This book examines how the American economy works, and explores how it evolved. It begins by providing a broad overview in chapters 1 and 2 and a description of the historical development of the modern American economy in chapter 3. Next, chapter 4 discusses different forms of business enterprise, from small businesses to the modern corporation. Chapter 5 explains the role of the stock market and other financial markets in the economy. The two subsequent sections describe the role of government in the economy -- chapter 6 by explaining the many ways government shapes and regulates free enterprise, and chapter 7 by looking at how the government seeks to manage the overall pace of economic activity in order to achieve price stability, growth, and low unemployment.

Chapter 8 examines the agricultural sector and the evolution of American farm policy. Chapter 9 looks at the changing role of labor in the American economy. Finally, chapter 10 describes the development of current American policies concerning trade and international economic affairs.

As these chapters should make clear, the American commitment to free markets endured at the dawn of the 21st century, even as its economy remained a work in progress.


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This article is adapted from the book "Outline of the U.S. Economy" by Conte and Carr and has been adapted with permission from the U.S. Department of State.​