Abstract
Abstract While some argue that market forces are imperative to stimulate the increased supply of critical products and services to address the COVID-19 crisis, others contend that dealing with the pandemic requires coordination and rapid adjustments in supply that may be constrained by a host of factors. Although discussions have centered on policies to promote financial liquidity, we examine whether the state apparatus-not only state-owned enterprises but also development agencies and investment funds-can innovate and adjust production processes to improve infrastructure and capabilities to prevent and treat the disease. Potential actions include public-private effort addressing both discovery and coordination problems-such as a collaborative effort to develop prevention and treatment technologies, as well as state capital to stimulate retooling and expansion of strategic infrastructure. The state apparatus can also help access remote and critical areas with relatively lower private returns. In contrast, support to industries must be implemented with caution, especially for sectors whose demand may suffer permanently due to lifestyle changes. Exit strategies must be carefully crafted to avoid the risk of perpetuating unjustified and ineffective state support, establishing milestones and termination clauses based on clear performance indicators. We argue that, although using the state apparatus as a countermeasure entails a set of risks, not using it may increase the risk of extending the crisis and end with an overloaded state sector (e.g., due to massive bailouts), challenging the implementation of subsequent adjustments.
Highlights
The unprecedented COVID-19 pandemic has sparked a new debate of the merits of markets versus states in addressing acute societal crises
We review the pros and cons of state involvement and describe a host of policy tools involving the state-owned apparatus, which can be effective depending on the extent and severity of the crisis
In what follows, building on this discussion, we describe potential policies to address the COVID-19 crises and potential policy instruments using the state-owned apparatus
Summary
The unprecedented COVID-19 pandemic has sparked a new debate of the merits of markets versus states in addressing acute societal crises. Even in the case of unconstrained firms, they may be reluctant to revamp production due to sheer uncertainty about the extent and duration of the crisis These responses may require coordinated effort—for instance, the value of investing in hospital infrastructure depends on actions that affect prevention. By “state-owned apparatus,” we mean state-owned organizations (such as companies with majority or minority state control, as well as corporatized public service units), and development banks and agencies, as well as public or quasi-public investment vehicles such as public and pension funds Can these diverse instruments help address resource constraints and promote coordinate responses to the crisis?. We propose a set of “exit strategies” to guarantee that these policies do not lead to unproductive and unjustified state support even after the crisis—a problem that is often neglected by those proposing higher state engagement in moment requiring additional investment and coordinated effort
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
