Some of that government data existed in the form of physical maps, and the data was difficult to access because it had never been digitized, even government-internally. No one was prevented from digitizing it themselves, and in fact a lot of early OSM data came from enthusiasts digitizing old US Army maps because, indeed, they were public domain.

Then you have cases like the Ordnance Survey in the UK where apparently a lot of the data is neither freely available to the general public, nor paid for by the general public.