Why State Is The New Market : A Planning Perspective

It is Replacing 'Free Market' Orthodoxy with Strategic Economic Planning

For decades, global financial markets have operated under the tenents of market liberalism, where state intervention deemed a distortion rather than a necessity. But there has been a gradual change to this paradigm in recent years. The COVID-19 pandemic, supply chain ruptures, energy crises and deepening geopolitical rivalries have hastened the re-emergence of the state as a key economic actor.

Around the world, governments are no longer satisfied with being passive regulators of the market; they are now strategic investors, defenders of national interests, and designers of industrial policy. This return of the state impacts capital markets, investment flows and corporate strategies ushering in a new era for financial markets.

The Drivers of a Return to State Intervention

There are a number of structural and cyclical reasons for the growing role of the state in the economy :

Global Disaggregation: The U.S.-China rivalry, the war in Ukraine, and increasing protectionism have led governments to embrace economic sovereignty, technological independence, and secure supply chains.

Green Transition Imperatives: Governments around the world are mobilizing significant public investment in renewable energy, climate infrastructure, and clean technologies to meet net-zero targets. Private markets by themselves won’t be able to provide the capital needed to finance the transition at the pace and scale needed.

Pandemic Legacy : The COVID-19 crisis stretched the limitations of laissez-faire systems and compelled governments to take the inevitability of state control into their own hands by enacting expansive fiscal stimulus packages and reevaluating the role of public goods whether in healthcare, manufacturing capacity or food security.

Energy and Resource security : The 2022 energy shock saw many countries reasserting control over strategic resources, and reconsidering their reliance on global commodity flows.

Consequently, we are observing a transition from market-directed globalization to state-organised resilience schemes.

The Implications for Financial Markets

The return of state power has far-reaching consequences for global finance :

More Public Capital Deployment: Governments are emerging as dominant capital allocators via sovereign wealth funds, development banks and industrial stimulus programs. These flows will inevitably compete with or complement private capital.

Bearish on Beijing : Financial institutions operating in China will have to deal with a more interventionist policy environment, including stricter rules on capital flows, foreign investment screening and ESG disclosures.

New Investment Themes : Certain sectors that the states keep pushing meanwhile, the state’s push towards green energy, semiconductors, defense, infrastructure, and biotechnology will attract disproportionate capital inflow.

Market Repricing of Risk and Returns : We are moving to a new pricing logic for markets, with government incentives, subsidies, and policy mandates playing a key role in the pricing of assets and the risk premia across asset classes.

A Shift in Market Psychology

This new era also marks a shift in investor sentiment. No longer are portfolio managers tasked only with determining macroeconomic fundamentals and company performance. In this milieu, financial markets have become highly politicized arenas, where the ability to successfully invest is predicated as much on understanding political strategy as the cycle of economic markets.

The old divide between the public and private sectors does not mean so much anymore and policy risk has turned into investment risk.

The State-Driven Capital Cycle : Prepare to Pivot Cloud

This new form of state intervention is not a short-term reaction to a crisis, but a long-term structural development. As governments take back economic agency, financial markets will need to adjust to a more complex and politically fraught landscape. Those investors who can read the direction of policy, anticipate regulatory zig zags and align with national priorities will be in a better position to capture value in this new world.

The most successful capital allocators in the decades to come may not be those who placed the biggest bets on growth — but rather those who surfed the gift flow of the state.