While I don't doubt this contributed, it also presumes that government is the main driver of social interation, which itself implies a non-participatory philosophy of the person..

If you are correct, how then did this philosophy get into place to begin with?

I would argue that it is more likely the rise of corporatism in the post war era which brought massive disruption of 'organic' social networks and through the large-scale transformation of economic activity from small businesses into larger ones removed much of the need for societal participation.

mass media, the decline of religious life, and the entrance of women into the workplace also likely are major factors - we can entertain ourselves, don't hear moral/values in a community, and have fully 1/2 of the house dedicated to matters of societal rather than economic concern