Free Enterprise and the Role of Government in America

Americans often disagree about the appropriate role of government in the economy. This is demonstrated by the sometimes inconsistent approach to regulatory policy throughout American history.

As Christoper Conte and Albert Karr point out in their volume, "Outline of the U.S. Economy," the American commitment to free markets continually endured since the dawn of the 21-century, even as America's capitalist economy remained a work in progress.

History of Large Government

The American belief in "free enterprise" does not and has not precluded a major role for government. Many times, Americans have depended on the government to break up or regulate companies that appeared to be developing so much power that they could defy market forces. In general, government grew larger and intervened more aggressively in the economy from the 1930s until the 1970s. 

Citizens rely on the government to address matters the private economy overlooks in sectors ranging from education to protecting the environment. Despite their advocacy of market principles, Americans have used government at times in history to nurture new industries or even to protect American companies from competition.

Shift Towards Less Government Intervention

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 overall growth of the federal government slowed in the 1980s.

A Flexible Service Economy

The pragmatism and flexibility of Americans have resulted in an unusually dynamic economy. Change has been a constant in American economic history. As a result, the once agrarian country is far more urban 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. Increasingly, government and business leaders emphasize the importance of developing a highly skilled and flexible workforce in order to ensure the country's future economic success.

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