all the people living in that state
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The "Texas State Government" is a noun, and it is proper to capitalize it. Just as you would capitalize the name of a person.
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The US Government now owns 80% of AIG.
This level of government is REGIONAL LEVEL.
In a state capitalist system, the government owns the main means of production and decides how they are used. In other forms of capitalism, private capitalists do so. But all types of capitalism involve ownership and control by the capitalist class.