250 Years of American State Capitalism

By Shang-Jin Wei, Project Syndicate | July 2, 2026

While the prevailing economic narrative in the United States has often extolled free markets, policymaking itself has always been more pragmatic. 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.

NEW YORK—As 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 American 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 American 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.

We identified 267 congressional acts and 187 presidential orders containing significant new industrial policies. That is more than nine new industrial-policy directives per year across a half-century period, and the pattern holds regardless of which party controlled the White House or Congress. Every president from Richard Nixon to Joe Biden promulgated new industrial policies. The difference between the two parties has been a matter of degree, not of kind.

Our research also uncovers some interesting features of US industrial policies. For example, we find that American policymakers have historically built guardrails into economic interventions. Some 59% of all industrial-policy laws and orders carry an explicit expiration date, with an average duration of roughly four years. Many are framed explicitly as pilot programs—experiments that can be wound down if they fail. Some include conditional triggers: “Buy America” procurement preferences, for example, apply only if the domestic price is no greater than 125% of the international market price. If the inefficiency becomes too large, the subsidy lapses.

As America turns 250, the pendulum has swung visibly back toward explicit state capitalism. The CHIPS and Science Act, the Inflation Reduction Act, and the aggressive tariffs deployed by both President Donald Trump and Biden do not represent major qualitative departures from American tradition.

But the current debate—between those who see creeping socialism and those demanding a more equitable distribution of the gains—risks overlooking a longer continuity. The US has never been a pure laissez-faire economy. From the very beginning, it has been a state that is willing to use its power strategically, what it regards as the failure of laissez-faire, while maintaining a competitive private sector as the engine of growth and innovation.

The real secret of American economic success over the past 250 years is not a dogmatic commitment to either markets or the state. It is a pragmatic willingness to use both. As the country looks toward the future, that pragmatism may be one of its most important inheritances.

Shang-Jin Wei, a former chief economist at the Asian Development Bank, is Professor of Finance and Economics at Columbia Business School and Columbia University’s School of International and Public Affairs. 

Copyright Project Syndicate