American Mixed Enterprise and Government Responsibility

• Date: 01 December 1971
• Published date: 01 December 1971
• Author: Lloyd D. Musolf
• DOI: 10.1177/106591297102400413
• Subject Matter: Articles

AMERICAN MIXED ENTERPRISE AND
GOVERNMENT RESPONSIBILITY
LLOYD D. MUSOLF
University of California, Davis
HE
PANORAMA
of public and private economic institutions in the United
States is vast, and there is wide disagreement on the significance -
but not
-~- the fact -
of the growing interdependence of the public and private sectors.
The bankruptcy of Penn Central and the troubles of Lockheed perplex policy-
makers. Economists differ on the ultimate significance of close connections be-
tween the government and its contractors. For example, Andrew Shonfield, Walter
Adams, Murray Weidenbaum, and John K. Galbraith have regarded these rela-
tionships, respectively, as an important step toward rational economic planning, a
bestowing of &dquo;royal&dquo; franchises upon privileged recipients, a fruitful partnership
for important and otherwise unattainable purposes, or a stage in the merger of
large corporations into the governmental administrative complex.’-
Rather than attempting another overview, the present discussion seeks to high-
light this broad issue by focusing upon mixed enterprise, an institution at the cross-
roads of the public and private sectors. Mixed enterprise is technically defined as a
commercial or quasi-commercial venture which has the participation -
in the
form of equity capital or appointments to its board of directors -
of a nation’s
government and representatives of its private economic sector.2
2
Though relatively little known in the United States, mixed enterprise not
only is widely employed abroad -
in countries of every political shading and stage
of development 3 - but has a long and rather distinguished history in this country.
Economic historians have thoroughly documented the vital role of local and state
governments in the ante-bellum American economy as owners and part-owners of
basic enterprises, such as canals, railroads, and banks.4 Little ideological signifi-
cance was attached to these actions for it was widely felt that if the private sphere
could not furnish capital it was proper that the public sphere do so, just so long
as economic progress was made. Though the reasoning is somewhat different for
mixed enterprises associated with the national government in the twentieth century,
an era of plentiful private capital, they appear to share with the earlier state and
local mixed enterprises a relatively noncontroversial quality.
The angle of vision attempted here is that of the role of the national govern-
ment as a partner in mixed enterprises, specifically the extent to which government
1
For a summary of views and citations to original sources, see Murray Weidenbaum, The
Modern Public Sector: New Ways of Doing the Government’s Business (New York:
Basic Books, 1969), pp. 32-35.
2
Daniel L. Spencer, India, Mixed Enterprise and Western Business (The Hague: M. Nijhoff,
1959), Ch. IV, and sources there cited.
3
See, e.g., Spencer, op. cit.; and Lloyd D. Musolf, "Mixed Enterprise in a Developmental
Perspective: France, Italy, and Japan," Journal of Comparative Administration, Vol. 3,
August 1971.
4
For a quick, penetrating review, see Robert A. Lively, "The American System," Business
History Review, Vol. 29, March 1955.
789

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790
responsibility is fixed. The discussion will be organized around three apparent
hurdles in the fixing of responsibility: (1) the murky identification of American
mixed enterprise; (2) problems associated with government participation in the
governance of mixed enterprise; and (3) complications centering on financial
arrangements for mixed enterprise.
IDENTIFICATION OF MIXED ENTERPRISE
Three items may be singled out as contributing to the difficulty of clearly
identifying mixed enterprise and, hence, to the question of clarifying government
responsibility: the complexity of the economy, a recent tendency toward novel
forms of sectoral mixing, and the whimsicality of the government’s own classifica-
tion system for units with some mixed-enterprise characteristics.
Complexity of the Economy
The existence of a mixed economy is now generally recognized, even in the
midst of routine obeisance to free enterprise. Well publicized are the pervasiveness
of government subsidies for economic interests, the Keynesianism characteristic
even of the Nixon administration (deficit spending in the guise of a &dquo;full-employ-
ment budget&dquo; ) , and the countless links between big government, big business, big
labor, and big agriculture.
The intertwining of public and private efforts spreads across the spectrum
of government activities: promoting (e.g., farmer-elected county committees locally
administer certain farm programs) ; regulating (e.g., trade practice conferences
evolve rules which the Federal Trade Commission may accept) ; buying (e.g., non-
profit corporations chartered by the government conduct research and develop-
ment for the government) ; and managing (e.g., the Atomic Energy Commission
administers some of its programs through private contractors). Mixed enterprise is
thus part of a larger phenomenon.
To mention only the public and private sectors, however, is a grave oversim-
plification of the intricate American economy. As Ginzberg and his associates have
pointed out, &dquo;In the decade 1950-1960, nine out of every ten net new jobs added to
the economy reflected, directly and indirectly, the activities of the not-for-profit
sector.&dquo; 5 The authors include in this sector mutual insurance companies, savings
and loan associations, trade associations, chambers of commerce, professional so-
cieties, farmers’ cooperatives, consumers’ cooperatives, trade unions, private col-
leges or universities, foundations, voluntary hospitals, research organizations,
churches, social clubs, Blue Cross and Blue Shield insurance programs, and mu-
seums and libraries.
A further complexity is that the country may be undergoing shifts in notions
as to the proper role of the public and private sectors. &dquo;The federal government,&dquo;
says an observer who sees the shift as a possible source of strength, &dquo;is taking on
functions that have often been performed elsewhere, at least in the past, and
5
Eli Ginsberg, Dale L. Hiestand, and Beatrice G. Reubens, The Pluralistic Economy (New
York: McGraw-Hill, 1965), p. 15.

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791
private organizations increasingly are being oriented to serving governmental,
rather than private, customers or clients.&dquo; 6
Novel Forms of Sectoral Mixing
Given the variety in the economy, the possibility of novel combinations is
probably enhanced. To illustrate, a relatively recent annual report by the head of
the Carnegie Foundation referred to &dquo;quasi nongovernmental organizations&dquo; as a
new social form that is legally incorporated in the private sector, has private
employees, and a tax-exempt status.7 Yet these organizations have been created
through federal initiative to meet urgent public needs, and they are financed by the
national government. The main categories suggested by the report include: the
&dquo;not-for-profit corporation&dquo; which provides advice to the military services; agencies
which provide educational, informational, cultural, and technical assistance over-
seas on behalf of the Department of State and the Agency for International Devel-
opment ; regional educational laboratories set up by the Office of Education; and
most of the community-action centers supported by the Office of Economic Oppor-
tunity. The first and the last of these have been the center of some controversy.
The status of the Rand Corporation and its imitators as tax-exempt institutions
earning handsome fees has led to criticisms from business as to the unfairness of
such competition and from Congress as to the seeming delegation of policy func-
tions to nongovernment bodies.8 Community-action centers have been the object
of a notable tug-of-war between minority groups and local politicians.9
Judging by recent events, novel forms of linkage between the public and pri-
vate sectors are proliferating. Among the events of 1970, for example, were various
governmental actions to meet the problems of the railroad industry:
1. The Emergency Rail Services Act of 1970 authorized up to $125 million
in federal loan guarantees for the bankrupt Penn Central Railroad.
2. This action followed congressional passage of a statute mandating a rail-
wage increase to avoid a national railroad strike.
3. The National Railroad Passenger Corporation was created to take over and
run intercity passenger trains.
The same year also witnessed the following actions:
1. The venerable U.S. Post Office was transformed by statute into the Postal
Service, a government-owned corporation.
2. A Securities Investor Protection Corporation was established by statute as
a private nonprofit corporation to provide financial protection for investors against
loss due to brokerage insolvencies.
3. The National Railroad Passenger Corporation was created to take over and
Corporation over payments in connection with cost overruns on 81 C-5A jumbo
jet transports that threatened the solvency of the corporation.
6
Weidenbaum, op. cit., p. vii.
7
This summary is from P. S. (Spring 1968).
8
Bruce L. R. Smith, "The Future of the Not-for-Profit Corporations," The Public Interest,
Summer 1967.
9
See, e.g., Barbara Carter, "Sargeant Shriver and the Role of the Poor," The Reporter, Vol.
34, May 5, 1966.

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792
Slightly earlier, a single statute, the Housing and Urban Development Act of
1968, had spawned the following unusual...