- Amid the Covid-19 panic, the cry has gone up for better health care and other services. But the question of how all these priorities are to be financed by public or private enterprise remains largely unaddressed
However fatal its effects on humans, the coronavirus will probably not result in the death of capitalism. But, hopefully, it will provoke a more realistic appraisal of the respective merits of state and market capitalism and produce a better balance between private and public enterprise.
This is a debate in which market economies of the West should be prepared to engage more openly with China, where something more resembling a market economy with Chinese characteristics than a strict command economy has evolved. There are lessons to be learned on both sides.
In times of crisis like now, governments (and central banks) come to be seen as public saviours, thus paving the way for more dirigiste approaches. Western societies should take advantage of this to reorient economic and financial priorities from consumption towards long-term investment.
The pursuit (or cult) of market capitalism has led to underinvestment in essential services such as health care, sanitation, infrastructure and the environment, as financial markets that are skewed towards short-term gain have neglected the need to develop suitable vehicles for social investment.
This latter point is particularly important because it also highlights the failure of capital markets (which have for too long been preoccupied with devising sophisticated but ultimately risky financial products) to come up with a balanced and sustainable development financing model.
For example, as the coronavirus takes its toll on public health and the economy, the cry has gone up for better health care, improved sanitation, better housing and other services. But the question of how all these and other very real priorities are to be financed remains largely unaddressed.
Amid the panic, official initiatives have come back into fashion (or at least been accepted as a necessary evil), from social lockdowns to US President Donald Trump's use of emergency powers to compel General Motors to produce respirators.
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Yet none of this " though it smacks to some of state control and interference with business and individual liberties " goes to the real heart of the issue, which is how to find a better balance between private and public enterprise in market economies.
The coronavirus could act as a catalyst for this. In health alone, there will be pressure to increase spending on everything from drugs to hospital care and the burden will fall mainly on governments and taxpayers. Governments will need to go further into debt than they already have.
This is a great irony because the appetite among portfolio (stock and bond) investors for "sustainable" investments in health care and other essential services has never been greater than at the present time. But there are relatively few ways for investors to enter such areas directly.
The need for greater investment in health services and other forms of socio-economic infrastructure calls for very large sums of money and that money exists, in theory at least, in financial markets where, according to the United Nations and other estimates, US$300 trillion in savings is available.
But money alone will not be enough to do the job and this is where capitalist beliefs are falling short. The provision of services essential for human welfare, maybe even for survival, calls for organisational resources and structures which only institutions can provide.
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Governments possess some of these resources (human, physical and organisational) as do the World Bank and other multilateral institutions that are equipped financially and otherwise to coordinate spending initiatives.
Instead of putting two and two together and recognising that public institutions are as much a part of a balanced economy as private enterprises, governments have been clinging to the idea that financial markets themselves can bring about a sustainable investment revolution.
This is just not so. The only way that the enormous gaps in social spending revealed by the coronavirus pandemic can be closed is to hand the job of coordination to public institutions, while financial markets invest in new types of securities offered by these institutions.
A very good example would be giving public institutions full responsibility for coordinating and organising the 17 Sustainable Development Goals or SDGs adopted in 2015 by the United Nations, instead of simply talking about theoretical public-private initiatives to implement them.
The SDGs aim to achieve sustainability across a spectrum of development: from action to offset climate change and the provision of clean energy, health and education services, to tackling poverty and promoting economic growth.
They are attracting a good deal of interest from investors who are often frustrated by the lack of intermediaries to give shape and structure to such concepts. Some investment initiatives cannot simply be market-led. They have to be economy-wide enterprises.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs
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