4 Government-to-Company Interventions: Did They Work?

During the BP (BP) Deepwater Horizon oil spill on April 20, 2010, the American government deployed 17,500 National Guard troops to respond to the massive scale of the environmental devastation. When the government steps in, things get done, but some are left wondering just how much government intervention should play a part in private sector issues—and if it even works.

Key Takeaways

• Some disasters—natural, economic, and other—are so large in scale that the federal government is sometimes the only entity with the ability to intervene.
• A recent major intervention was the massive deployment of manpower and resources after BP’s Deepwater Horizon disaster in 2010.
• Important historical government interventions include President Franklin D. Roosevelt’s New Deal, which effectively reinvented the American economy; President Truman’s 1952 takeover of the embattled steel industry; and President Nixon’s New Economic Policy, which aimed to mitigate inflation.

Examples of Government Intervention in the Economy

Cleveland’s Railroad Dilemma

Workers at Chicago’s Pullman Palace Car Company walked out one spring day in 1894 in protest of low wages. The American Railway Union supported the workers and announced that after negotiations failed, no trains that had Pullman cars would be operated. President Grover Cleveland became involved in the dispute when routes beyond Chicago were disrupted.

President Cleveland deployed military soldiers to force the protesters to return to work. More than 30 people died in the violence between those on strike and the military, garnering sympathy from the public for the labor activists.

Roosevelt’s New Deal

When former president Franklin D. Roosevelt replaced his predecessor Herbert Hoover in 1933, the Great Depression had taken a firm, relentless grip on the nation. In his inaugural address, Roosevelt famously said, “So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror, which paralyzes needed efforts to convert retreat into advance.”

The president unveiled his New Deal plan, which involved creating government programs that put people to work in a variety of fields, such as building large-scale infrastructure. The New Deal was credited with reinvigorating the economy and was widely popular, and Roosevelt was re-elected for another term.

Truman and the Steel Industry

After contract negotiations between United Steel Workers and steel producers deteriorated in 1952, former President Harry Truman seized control of the steel industry in an effort to avoid a strike while the Korean War continued. The move was highly controversial. According to the Miller Center of Public Affairs, 43% of those polled said they did not support the high level of government intervention in the matter.

The U.S. Supreme Court found Truman’s initiative to be unconstitutional; the steel industry was again a private one, and steelworkers promptly went on strike for 53 days.

Nixon’s Oil Crisis

Between 1971-1973, former president Richard Nixon imposed the New Economic Policy, which, for a 90-day period, would freeze wages and prices in an effort to combat inflation. Although it looked like the move had a stabilizing effect, inflation again became a threat once the controls were relaxed.

In The Commanding Heights, Daniel Yergin and Joseph Stanislaw write, “Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.” Although Nixon resigned just four months later, price controls on oil continued, and the U.S. began to try to free itself of dependence on foreign oil resources by increasing domestic exploration. Still, the stock market in the 1970s was a mess, losing up to 43% in an 18-month period, from July 1973 to December 1974.

The Bottom Line

It’s tough to say whether government intervention is always a good thing. History has shown both the positive and negative results of the intervention. Nonetheless, there is an expectation for the president, whoever they may be, to intervene when the country is in dire straits. What the impact of that intervention will be in the long run is unpredictable and generally cannot be fully evaluated until time has passed.

Read the original article on Investopedia.