That's not really true, it's never ever really been true. It's capitalist propaganda that 'the Government is useless', and it's mainly propped up by extremely liberal governments (Republicans and Democrats, for example) that make the Government useless on purpose then say 'hey look the Government sucks'.

Not that it should ever need to be Government writing software to compete against Microsoft. Governments have much, much better tools for dealing with monopolies than trying to outcompete them. They're the only ones that have those tools. They should use them aggressively.

I'm not entirely in favor of governments competing with business... or propping them up. They should only interfere when there is a lack of opportunity to compete, either with unfair practices, or coercion.

Also, is there something wrong with capitalism? Note: that what we have is not really or nearly a free market, and that patent/copyright protections really need to be adjust to move in that direction.

For example Continuum Analytics is partly funded by public sources to work on open data science, competing against commercial offerings from SAS, for example. The Blender Foundation has some public funding for developing new features for the Blender 3D software suite, partly through public film funding.

Why? Governments are the only ones with the tools to actually deal with monopolies properly without competing with them: breaking them up, fining them extremely fiercely, etc.