The time seems ripe for reflection on the relative merits of market capitalism and state capitalism, given the very different performances by the two economies that occupy pole positions within these systems – the US and China – and also given their differing future prospects. The divergence in short-term performance by the world's first- and second-largest economies during and after the first wave of Covid-19 infections is remarkable. But what is of greater significance is how the pandemic is likely to affect the longer-term outlook for the two countries. Both were hard hit by the coronavirus, but whereas the US economy is projected by the International Monetary Fund to contract by 8 per cent this year, China’s economy is forecast to expand by 1 per cent. Next year, the US should grow by 4.5 per cent , but China’s gross domestic product is expected to surge by 8.2 per cent. The Chinese economy in fact grew by a better-than-expected 3.2 per cent in the second quarter of 2020 which, as Shaun Roache, Asia chief economist at S&P Global, observes , “suggests that China's economy is well on the road to recovery and could grow by above 2 per cent for the full year”. Much of the blame for the sorry state of the US economy can be attributed to the Trump administration’s botched response to the pandemic in terms of health measures. But China also made early mistakes in this regard yet its economy is recovering much faster than those elsewhere. One reason is that China has mandated capital spending on infrastructure and other public projects to offset the Covid-19-induced slump in domestic and export demand, something that is easy to do under state capitalism, while US President Donald Trump struggles to get the US on board with such ideas. The pandemic did not discriminate between market and state economies as it swept across the globe, wreaking severe damage irrespective of their political hue. But economies’ “immune systems” reacted in different ways and their speed of recovery is doing likewise. The emphasis in the US and Europe is currently on applying trillions of dollars of fiscal and monetary support to companies and households to maintain aggregate demand by boosting consumption and preserving employment. Such stimulus is, notably, not going into new capital investment because that is felt to be more the business of the market than the state. This is equivalent to putting a patient on life support without regard to the need to ensure long-term health. How Covid-19 is speeding up economic, social and political decoupling Yet this is precisely the time when market economies should be looking to the need for productivity-boosting investment and seeking to ensure that state aid is used to this end. Unprecedented sums of money will be required not just to get economies back on their feet but also up and running. For example, the pandemic has exposed the inadequate state of medical systems in advanced and developing economies alike. While precise estimates of the cost of rectifying this situation are not yet available it will add significantly to the bill for financing infrastructure in sectors such as energy, transport and communications, water supply and sanitation. What estimates do exist put the cost of modernising decaying infrastructure in advanced economies and of supplying new facilities in developing economies at anything up to US$100 trillion in the next few decades. Spending in the areas identified by the UN in 2015 as necessary to meet its 17 sustainable development goals is estimated to be between US$50-US$70 trillion by 2030, and Covid-19 will add substantially to that. To anyone who has looked at the need for spending on infrastructure and other socio-economic investment in the coming decades – I have recently authored books on both subjects – it is clear that the sums required under these two headings alone do not tally with available resources. Where is the money for Trump’s Indo-Pacific infrastructure dream? “Available” means savings that can readily be channelled into capital projects such as infrastructure. Estimates by the UN and others put global total savings under management at up to US$300 trillion, but this is not being channelled sufficiently to capital investment in market economies. For this to change, the state must become more involved as the only entity with legal and organisational powers to intermediate funds into capital investment at the scale needed. Private contractors can play a major role but not the lead. The state is well positioned now to assume a more active role in market economies by virtue of having injected so much debt into financially distressed businesses to keep them alive. At least part of this could be converted into voting equity to give control. This would offer governments a more direct and effective way of directing their economies by promoting long-term capital investments in protecting the environment, achieving sustainability and generally saving the planet rather than relying on encouraging various forms of portfolio investment. If all this sounds rather radical – anathema to some and music to the ears of others – then comparing the recent past performance and future prospects of market and state economies such as the US and China is instructive. It is a subject which is at least worthy of serious debate. Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs