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View all search results250 years of American state capitalism
Time to reckon with one of the great myths of American economic life: that the country’s prosperity was built on laissez-faire capitalism.
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Christian worshipers raise their hands as faith leaders pray during the Roots of Revival event at the Washington Monument, held a day ahead of “Rededicate 250: A National Jubilee of Prayer, Praise and Thanksgiving“ on May 16 in Washington, DC. (AFP/Matthew Hatcher)
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s the United States marks 250 years since the signing of the Declaration of Independence this summer, there is no better time to reckon with one of the great myths of US economic life: that the country’s prosperity was built on laissez-faire capitalism.
From its very founding, the US has had a hybrid model in which the state directs, subsidizes and occasionally bails out private enterprise in the service of national priorities. While the prevailing narrative has often extolled free markets, policymaking itself has been more pragmatic.
This story begins not with Barack Obama’s health-care program, or even with Franklin D. Roosevelt’s New Deal in the 1930s, but with the very first US administration, under George Washington. In 1791, Secretary of the Treasury Alexander Hamilton submitted to Congress what was arguably the first government document in world history to lay out a systematic, intellectual case for industrial policy. In his Report on Manufactures, he noted that infant industries in the US, particularly textiles and garments, could not compete effectively against established British manufacturers without government protection. He proposed the use of tariffs and subsidies to nurture the industries of the future.
Hamilton lost the immediate battle when a still agrarian-minded Congress tabled his report. But he ultimately won the war, because his ideas would go on to shape US economic policy for the next century. Henry Clay’s “American System,” along with the protective tariffs that helped industrialize the North and the federal land grants that built the transcontinental railroads, all bore Hamilton’s intellectual fingerprints. Industrial policy, it turns out, was not invented in Brussels, Beijing, Tokyo or Moscow.
This founding pragmatism never disappeared. During the 20th century, the Cold War forged the military-industrial complex. DARPA invented the internet, NASA developed and then spun off technologies that would shape entire industries, and federal procurement contracts sustained America’s aerospace and semiconductor sectors for decades. The Interstate Highway System, built under Dwight Eisenhower, was not only one of the largest infrastructure investments in history; it was also a decisive federal subsidy to the automobile industry. And when the 2008 financial crisis hit, the government took equity stakes in banks and automakers, once again flouting free-market orthodoxy.
Yet the myth of laissez-faire America has proved remarkably durable, functioning almost as a national religion, even as the practice diverged from the creed. Moreover, the same orthodoxy, promoted through the US-dominated World Bank and USAID, sometimes served as a barrier to practical economic development in other countries.
In a recent research paper, “The United States as an Active Industrial Policy Nation,” Jiandong Ju, Yuankun Li and I document this gap between rhetoric and reality. We systematically analyzed all 12,167 congressional acts and 6,030 presidential orders issued between 1973 and 2022, using large language models to identify policies that deliberately altered the economic structure away from laissez-faire outcomes. The results are striking.
